CHAPTER
INTEGRATING
SUPPLY CHAIN AND
LOGISTICS
MANAGEMENT
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
AFTER READING THIS CHAPTER
YOU SHOULD BE ABLE TO:
• Explain what supply chain and logistics
management are and how they relate to
marketing strategy.
• Understand the distinction between
supply chain responsiveness and
efficiency.
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
AFTER READING THIS CHAPTER
YOU SHOULD BE ABLE TO:
• Explain how managers trade off different
“logistics costs” relative to customer
service in order to make a supply chain
decision.
• Recognize how customer service in
logistics decisions contributes to customer
value and successful marketing
programs.
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
AFTER READING THIS CHAPTER
YOU SHOULD BE ABLE TO:
• Describe the key logistics functions of
transportation, warehousing and
materials handling, order processing, and
inventory management and the role of
third-party logistics providers.
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
INTEGRATING SUPPLY CHAIN
AND LOGISTICS MANAGEMENT
SNAP! CRACK! POP! EVEN
WORLD-CLASS COMPANIES CAN
FEEL THE BULLWHIP’S STING
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
SIGNIFICANCE OF SUPPLY CHAIN
AND LOGISTICS MANAGEMENT
• Relating marketing Channels, Logistics,
and Supply Chain Management
 Logistics
 Logistics management
 Supply chain
 Supply chain management
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
FIGURE 16-1 Relating marketing channels, logistics
management, and supply chain management
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
SIGNIFICANCE OF SUPPLY CHAIN
AND LOGISTICS MANAGEMENT
• Sourcing, Assembling, and Delivering a
New Car: The Automotive Supply Chain
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
FIGURE 16-2 The automotive supply chain
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Build Your Own Saturn
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
SIGNIFICANCE OF SUPPLY CHAIN
AND LOGISTICS MANAGEMENT
• Supply Chain Management and
Marketing Strategy
• Aligning a Supply Chain with Marketing
Strategy
 Understand the customer
 Understand the supply chain
 Harmonize the supply chain with
the marketing strategy
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
SIGNIFICANCE OF SUPPLY CHAIN
AND LOGISTICS MANAGEMENT
• Supply Chain Management and
Marketing Strategy (cont)
• Dell Computer Corporation: A Responsive
Supply Chain
• Wal-Mart, Inc.: An Efficient Supply Chain
 Cross docking
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Dell Computer Corporation
Emphasizes responsiveness in its supply chain
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Wal-Mart, Inc.
Emphasizes efficiency in its supply chain
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Concept Check
1. What is the principal difference
between a marketing channel and a
supply chain?
A: The supply chain differs in
membership because it includes
suppliers of raw materials as well as
those suppliers which deliver finished
products to a company.
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Concept Check
2. The choice of a supply chain involves
what three steps?
A: 1. Understand the customer
2. Understand the supply chain
3. Harmonize the supply chain with
the marketing strategy
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
INFORMATION AND LOGISTICS
MANAGEMENT OBJECTIVE
IN A SUPPLY CHAIN
• Information’s Role in Supply Chain
Responsiveness and Efficiency
• Electronic data interchanges
• Total Logistics Cost Concept
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
FIGURE 16-3 How total logistics cost varies with
number of warehouses used
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
INFORMATION AND LOGISTICS
MANAGEMENT OBJECTIVE
IN A SUPPLY CHAIN
• Customer Service Concept
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
FIGURE 16-4 Supply chain managers balance total
logistics cost factors against customer service factors
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
INFORMATION AND LOGISTICS
MANAGEMENT OBJECTIVE
IN A SUPPLY CHAIN
• Customer Service Concept (cont)
• Lead Time
 Quick response
 Efficient consumer response
• Dependability
• Communication
• Convenience
• Customer Service Standards
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Concept Check
1. The objective of information and
logistics management in a supply
chain is to ___________________
minimize logistics
____________________________
cost while delivering maximum
customer service.
_______________
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Concept Check
2. How does consumer demand
information increase supply chain
responsiveness and efficiency?
A: Because firms are better able to
forecast customer needs and produce,
transport, and store the required
amount of inventory.
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Concept Check
3. What is the relationship between the
number of warehouses a company
operates, its inventory costs, and its
transportation costs?
A: As the number of warehouse
increases, its inventory costs increase
and its transportation costs decrease.
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
KEY LOGISTICS FUNCTIONS
IN A SUPPLY CHAIN
• Third-party logistics providers
• Transportation
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
FIGURE 16-5 Advantages and disadvantages of five
modes of transportation
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
FedEx Ad
Full service
logistics provider
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
UPS TV Ad
Focus on supply chain and logistics management
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
UPS TV Ad
Focus on supply chain management
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
UPS Print Ad
NASCAR
sponsorship
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
KEY LOGISTICS FUNCTIONS
IN A SUPPLY CHAIN
• Transportation (cont)
• Railroads
 Intermodal transportation
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
KEY LOGISTICS FUNCTIONS
IN A SUPPLY CHAIN
• Transportation (cont)
• Motor Carriers
• Air Carriers and Express Companies
• Freight Forwarders
• Warehousing and Materials Handling
• Order Processing
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
KEY LOGISTICS FUNCTIONS
IN A SUPPLY CHAIN
• Inventory Management
• Reasons for Inventory
• Inventory Costs
• Supply Chain Inventory Strategies
 Just-in-time (JIT) concept
 Vendor-managed inventory
• CLOSING THE LOOP:
REVERSE LOGISTICS
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Key to Saturn’s JIT System
A key-shaped floppy disk from Ryder
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Ryder System, Inc.
Online delivery instructions
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
CLOSING THE LOOP:
REVERSE LOGISTICS
Estee Lauder Companies: Reverse
logistics and green marketing go together
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Concept Check
1. What are the basic trade-offs between
the modes of transportation?
A: A comprehensive comparison is
shown in Figure 16-5. A general
trade-off is cost versus time and
dependability.
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Concept Check
2. What types of inventory should use storage
warehouses and which type should use distribution
centers?
A: Goods which will not be needed for substantial
periods of time, such as excess or seasonal
inventory, are best suited for storage warehouses
which hold goods for substantial periods of time.
Distribution centers are used when products need
to keep moving toward the consumer.
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Concept Check
3. What are the strengths and weaknesses of a
just-in-time system?
A: Strengths: Save money on inventory;
forces better planning of vendor selection,
transportation selection, forecasting,
scheduling, etc.
Weaknesses: Can cause stockouts,
production disruptions, and higher costs if
weak links appear.
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Internet Exercise
1 Visit www.quickmba.com. Learn more about
the bullwhip effect. What are the principal
contributors to the bullwhip effect?
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Internet Exercise
2 How have companies reduced the sting of the
bullwhip?
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
VIDEO CASE 16-1
Amazon: Delivering the Goods
Millions of Times Each Day
How do Amazon.com’s logistics and supply chain
management activities help the company create value
for its customers?
1
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
VIDEO CASE 16-1
Amazon: Delivering the Goods
Millions of Times Each Day
2
What systems did Amazon develop to improve the
flow of products from suppliers to Amazon
distribution centers? What systems improved the flow
of orders from the distribution centers to customers?
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
VIDEO CASE 16-1
Amazon: Delivering the Goods
Millions of Times Each Day
3
Why will logistics and supply chain management
play an important role in the future success of
Amazon.com?
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin