MARK final CH13

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Many modern companies are turning to supply chain management for competitive advantage

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the connected chain of all of the business entities, both internal and external to the company, that perform or support the logistics function

extending from initial suppliers (the point of origin) to the ultimate customer (the point of consumption)

supply chain

a management system that coordinates and integrates all of the activities performed by supply chain members into a seamless process, from the source to the point of consumption, resulting in enhanced customer and economic value

SCM

coordinate and integrate all of the activities performed by supply chain members into a seamless process, from the source to the point of consumption, ultimately giving supply chain managers “total visibility and control” of the materials, processes, money, and finished products both inside and outside the company they work for. The underlying philosophy is that by visualizing and exerting control over the entire supply chain, companies can balance demand for their products and services as perfectly as possible with available supply. This approach maximizes customer outcomes while also creating efficiency at each level of the chain. Understanding and integrating supply-and-demand–related information at every level enables supply chain managers to optimize their decisions, reduce waste, and respond quickly to sudden changes in supply or demand or other factors in the supply chain

goal of SCM

read: When performed well, SCM reflects a completely customer-driven management philosophy. In the mass production era, manufacturers produced standardized products that were “pushed” down through marketing channels to consumers, who were then convinced by salespeople to buy whatever was produced. In today’s marketplace, this logic is completely inverted—customers expect to receive product configurations and services matched to their unique needs and are therefore seen as catalysts that are increasingly driving demand. The focus of businesses has shifted to determining how products and services are being “pulled” into the marketplace by customers and on partnering with members of the supply chain to enhance customer value

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an operational strategy focused on creating inventory velocity and operational flexibility simultaneously in the supply chain

supply chain agility

The reversal of the flow of demand from “push” to “pull” has resulted in a radical reformulation of traditional marketing, production, and distribution functions toward a philosophy of _

supply chain agility

read: Agile companies synchronize their activities through the sharing of supply-and-demand market information, spend more time than their competitors focusing on activities that create direct customer benefits, partner closely with suppliers and service providers to reduce customer wait times for products, and constantly seek to reduce supply chain complexity through the evaluation and reduction (or elimination) of stock-keeping units (SKUs) that customers aren’t buying, among other strategies

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most companies do not manage their supply chains alone or in isolation. Effective SCM requires a team effort between the firm and its partners

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a manufacturer’s or supplier’s use of an independent third party to manage an entire function of the logistics system, such as transportation, warehousing, or order processing

outsourcing

a manufacturer’s or supplier’s use of an independent third party to manage an entire function of the logistics system, such as transportation, warehousing, or order processing

contract logistics

a firm that provides functional logistics services to others

third-party logistics company (3PL)

read: Outsourcing enables companies to cut inventories, and locate stock at fewer plants and distribution centers, while still providing the same level of service (or sometimes, performing even better). While in the past, firms often looked around the world for partners to help with customer service needs or manufacturing in order to secure lower costs, many companies are now seeking solutions within (reshoring) or close to (nearshoring) their primary base of operations, in order to reduce supply chain risk and maintain tighter control over operations

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the reinstitutionalization of a business process from an outsource location/country back to the original location for the purpose of gaining economic advantage

reshoring

the transfer of an outsourced activity from a distant to a nearby country

nearshoring

read: Strategically, there are many reasons why a company might wish to globalize its supply chain. The allure of foreign markets is strong, due to increasing demand for imported products worldwide. Furthermore, cheap labor advantages and trade barriers/tariffs have encouraged firms to expand their global manufacturing operations. Unfortunately, globalization has brought about great uncertainty as well. Moving operations offshore exposes companies to risks associated with geopolitical conflict, foreign nationalization of assets, unintended knowledge leakage to foreign competitors, and highly variable quality standards

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read: worldwide, the resources needed to manufacture and sell goods that are increasingly in demand are becoming scarcer, and market boundaries are melting together. Free trade is expanding globally, and consumers in nations where demand has tradi-tionally been low are viewing goods and placing orders via the Internet. The effort to achieve world-class global supply chain management means that the balancing of supply and demand—and the satisfaction of more and more customers worldwide—are becoming a reality for many companies. Though the United States and Great Britain have recently signaled that they may revert to a less global and more protectionist stance, possibly with fewer imports being allowed, it is uncertain whether these changes will be sustainable in the long term. In the meantime, nations such as China and India are signaling that, now more than ever, they are “open for business,” as they extend the global reach of their supply chains into Africa and other less-developed parts of the planet

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read:SCM is a key means of differentiation for a company, and therefore represents a critical component in marketing and corporate strategy. Organizations that focus on supply chain management commonly report lower inventory, transportation, warehousing, and packaging costs; greater logistical flexibility; improved customer service; and higher revenues. Research has shown a clear relationship between supply chain performance and both profitability and company value

Additionally, because well-managed supply chains are able to provide better value to customers with only marginal incremental expenditure on company assets, best-in-class supply chain companies such as Walmart can use SCM as a means of demonstrating a competitive differential. The retail giant uses strategic partnerships with suppliers, advanced inventory technologies, and state-of-the-art network design processes to stay competitive—all while providing consumers with thousands of their basic needs at very low prices. Walmart openly shares point-of-sale demand data and forecasts, as well as inventory replenishment data, with its supplier and manufacturing partners using a central database that enables all parties to coordinate efforts

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radio-frequency identification; a device that uses radio waves as a means of locating a piece of inventory within a confined geographic space

RFID

read: Redesigning a supply chain can do more than just improve the bottom line. Hewlett-Packard helped its suppliers avoid 800,000 metric tons of CO₂ emissions, in the process saving them over $65 million, by working with them to simplify the supply chain and reduce the number of overall shipments needed to ensure the supply of materials

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A key principle of supply chain management is that multiple entities (firms and/or their functional areas) should work together to perform tasks as a single, unified system, rather than as multiple individual units acting in isolation

The goal is that the overall performance of the supply chain will be greater than the sum of its parts

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a system of management practices that are consistent with a “systems thinking” approach

supply chain orientation

As companies become increasingly focused on supply chain management, they develop a _

supply chain orientation

five characteristics of SCM oriented firms

credible, benevolent, cooperative, support of top managers, and effective at conducting and directing

when multiple firms or business functions in a supply chain coordinate, their activities and processes so that they are seamlessly linked to one another in an effort to satisfy the customer

supply chain integration

In modern supply chain systems, integration can be either internal or external to a specific company or, ideally, both

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From an internal perspective, the very best companies develop a managerial orientation toward _

demand supply integration (DSI)

the functional areas in a company charged with creating customer demand (such as marketing, sales, or research and development) communicate frequently and are synchronized with the parts of the business charged with fulfilling the created demand (purchasing, manufacturing, and logistics). Some companies, like Airbus, are beginning to co-locate their engineering, logistics, and procurement divisions in order to build synergies between them

a supply chain operational philosophy focused on integrating the supply-management and demand-generating functions of an organization

DSI philosophy

In addition to being internally integrated, the group of connected organizations in a world-class supply chain behave as though they have a common mission and leadership. To accomplish this task across companies that have different ownership and interests, five types of external integration are sought by firms interested in providing top-level service to customers:

relationship, measurement, technology & planning, material & service supplier, and customer integration

read:

Success in achieving both the internal and external types of integration is very important. Highly integrated supply chains (those that are successful in achieving many or all of these types of integration) have been shown to be better at satisfying customers, managing costs, delivering high-quality products, enhancing productivity, and utilizing company or business unit assets, all of which translate into greater profitability for the firms and their partners working together in the supply chain.

Integration involves a balance between barriers and enablers. Companies that work closely with their suppliers encounter problems such as corporate culture, information hoarding, and trust issues. For example, Häagen-Dazs and General Mills share information with their vanilla suppliers to increase yields and improve sustainability practices, but at the same time, there is a danger. Giving supply chain partners this information enables those partners to share it with competitors. On the other hand, integration can be improved through long-term agreements, cross-organizational integrated product teams, and improved communication between partners. These factors all aid in integrating supply chain operations.

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When firms practice good supply chain management, their functional departments or areas, such as marketing, research and development, and/or production, are integrated both within and across the linked firms

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bundles of interconnected activities that stretch across firms in the supply chain

business processes

eight critical business processes on which supply chain managers must focus:


1. Customer relationship management
2. Customer service management
3. Demand management
4. Order fulfillment
5. Manufacturing flow management
6. Supplier relationship management
7. Product development and commercialization
8. Returns management

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allows companies to prioritize their marketing focus on different customer groups according to each group’s long-term value to the company or supply chain

Once higher-value customers are identified, firms should focus more on providing customized products and better service to this group than to others. The CRM process includes customer segmentation by value and subsequent generation of customer loyalty for the most attractive segments. This process provides a set of comprehensive principles for the initiation and maintenance of customer relationships and is often carried out with the assistance of specialized CRM computer software

CRM (customer relationship management)

presents a multicompany, unified response system to the customer whenever complaints, concerns, questions, or comments are voiced

customer service management process

read:Customers expect service from the moment a product is purchased until it is disposed of, and the customer service management process facilitates touch points between the buyer and seller throughout this life cycle. The use of customer care software enables companies to enhance their customer service management process

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seeks to align supply and demand throughout the supply chain by anticipating customer requirements at each level and creating demand-related plans of action prior to actual customer purchases

At the same time, demand management seeks to minimize the costs of serving multiple types of customers who have variable wants and needs. In other words, the demand management process allows companies in the supply chain to satisfy customers in the most efficient and effective ways possible. Activities such as collecting customer data, forecasting future demand, and developing activities that smooth out demand help bring available inventory into alignment with customer desires

demand management process

Though it is very difficult to predict exactly what items and quantities customers will buy prior to purchase, demand management can ease pressure on the production process and allow companies to satisfy most of their customers through greater flexibility in manufacturing, marketing, and sales programs. One key way this occurs is through the sharing of customer demand forecasts and data during _

sales and operations planning (S&OP) meetings

During these meetings, the demand-generating functions of the business (marketing and sales) work together with the production side of the business (procurement, production, and logistics) in a collaborative arrangement designed to both satisfy customers and minimize waste

S&OP

One of the most fundamental processes in supply chain management is the _, which involves generating, filling, delivering, and providing on-the-spot service for customer orders

order fulfillment process

a highly integrated process, often requiring persons from multiple companies and multiple functions to come together and coordinate to create customer satisfaction at a given place and time

The best of this thing reduces order cycle time

order fulfillment process

the time delay between the placement of a customer’s order and the customer’s receipt of that order

order cycle time

shorter lead times are beneficial in that they allow firms to carry reduced inventory levels and free up cash that can be used on other projects

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read: Overall, the order fulfillment process involves understanding and integrating the company’s internal capabilities with customer needs, and matching these together so that the supply chain maximizes profits while minimizing costs and waste

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concerned with ensuring that firms in the supply chain have the needed resources to manufacture with flexibility and to move products through a multi-stage production process

creating flexible agreements with suppliers and shippers so that unexpected demand bursts can be accommodated without disruptions to customer service or satisfaction

manufacturing flow management process

Depending on the product, supply chain managers may choose between a lean or agile supply chain strategy

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products are built before demand occurs, but managers attempt to reduce as much waste as possible

lean supply chain

prioritize customer responsiveness more so than waste reduction. Instead of trying to forecast demand and reduce waste, agile supply chains wait for demand to occur and use communication and flexibility to fill that demand quickly

agile strategies

a standardized form of component parts manufacturing designed so the parts are easily replaced or interchanged

modular

supports manufacturing flow by identifying and maintaining relationships with highly valued suppliers

supplier relationship management process

The manufacturing flow management process is highly dependent on _

supplier relationships for flexibility

Just as firms benefit from developing close-knit, integrated relationships with customers, close-knit, integrated relationships with suppliers provide a means through which performance advantages can be gained

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includes the group of activities that facilitates the joint development and marketing of new offerings among a group of supply chain partner firms

product development and commercialization process

read: In many cases, more than one supply chain entity is responsible for ensuring the success of a new product. Commonly, a multicompany collaboration is used to execute new-product development, testing, and launch, among other activities. The capability for developing and introducing new offerings quickly is key for competitive success versus rival firms, so it is often advantageous to involve many supply chain partners in the effort. The process requires the close cooperation of suppliers and customers, who provide input throughout the process and serve as advisers and co-producers for the new offering(s). Designing a new product with the help of suppliers and customers can enable a company to introduce features and cost-cutting measures into final products. Customers provide information about what they want from the product, while suppliers can help design for quality and manufacturability. Research has shown that when each supply chain partner shares responsibility for the design and manufacture of a new product, more obstacles can be identified early and opportunities for cost reduction are made possible

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enables firms to manage volumes of returned product efficiently while minimizing returns-related costs and maximizing the value of the returned assets to the firms in the supply chain

In addition to the value of managing returns from a pure asset-recovery perspective, many firms are discovering that returns management also creates additional marketing and customer service touch points that can be leveraged for added customer value above and beyond normal sales and promotion-driven encounters. Handling returns quickly creates a positive image and gives the company an additional opportunity to please the customer, and customers who have positive experiences with the returns management process can become very confident buyers who are willing to reorder

returns management process

a supply chain management philosophy that embraces the need for optimizing social and environmental costs in addition to financial costs

sustainable supply chain management

the financial, social, and environmental effects of a firm’s policies and actions that determine its viability as a sustainable organization

The general logic is companies that fail to balance these performance objectives appropriately are susceptible to risks that, in the long-term, can endanger the continuity of the business

triple bottom line

when a firm publicly feigns support for environmental or social sustainability but fails to live up to these standards in practice

greenwashing

positive long-term financial returns accrue as a result of environmentally and socially sustainable practices if firms are willing to commit sufficient resources to the sustainability effort

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the use of digital technologies to change a business model and provide new revenue or value

technologies are working together to improve the speed and accuracy with which supply chains can serve end users with desired products and services, but their best-case uses are only beginning to be fully understood

digitalization

a system of interrelated computing devices, mechanical and digital machines, objects, animals, or people that are connected and able to transfer data over a network without overt human effort

internet of things (IoT)

the rapidly collected and difficult-to-process large-scale data sets that have recently emerged and push the limits of current analytical capability

big data

data analyses that support the improved design and management of the supply chain

supply chain analytics

the computer science area focused on making machines that can simulate human intelligence processes

AI

an application of artificial intelligence that provides systems the ability to automatically learn and improve from experience without being explicitly programmed

machine learning

the practice of using remote network servers to store, manage, and process data

cloud computing

devices that act largely or partially autonomously, that interact physically with people or their environment, and that are capable of modifying their behavior based on sensor data

advanced robotics

the most recent development in the logistics area. includes any kind of product or service that can be distributed electronically, whether over traditional forms such as fiber-optic cable or through satellite transmission of electronic signals

digital distribution

3DP/additive manufacturing

3D printing

the degree to which a business is able to track a product’s development through stages beginning with a raw material state and ending with delivery to the final consumer. has become a primary challenge for businesses

supply chain traceability

a digital ledger in which transactions are made and recorded chronologically and publicly. helped trace supply chain traceability

a digital ledger of transactions that can be accessed by all parties in real time; it allows products or components to be traced from origin to final destination including all stops in between. Because it is constantly visible and can be audited by any supply chain partner at any time, the blockchain eliminates fraud, lowers the cost of administration for shipments, increases accuracy, and reduces delays and disputes pertaining to the content of shipments

Though blockchain is relatively new to supply chain management applications, it is already proving to be a very effective tool for ensuring the integrity of global commercial trade, and supply chain professionals are optimistic about the many new types of value it will create in the near future when combined with IoT

blockchain

a set of interdependent organizations that eases the transfer of ownership as products move from producer to business user or consumer

reaches from the point of production to the consumer and facilitates the downstream physical movement of goods through the supply chain. Channels represent the “place” or “distribution” element of the marketing mix (product, price, promotion, and place) in that they provide a route for company products and services to flow to the customer

marketing channel/channel of distribution

In essence, the marketing channel is the “downstream” portion of the supply chain that connects a producer with the customer. While “upstream” supply chain members are charged with moving component parts or raw materials to the producer, members of the marketing channel propel finished goods toward the customer, and/or provide services that facilitate additional customer value.

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all parties in the marketing channel who negotiate with one another, buy and sell products, and facilitate the change of ownership between buyer and seller in the course of moving the product from the manufacturer into the hands of the final consumer

As products move toward the final consumer, channel members facilitate the distribution process by providing specialization and division of labor, overcoming discrepancies, and providing contact efficiency

channel members (also called intermediaries, resellers, and middlemen)

breaking down a complex task into smaller, simpler ones and assigning these tasks to specialists create greater efficiency and lower average production costs

economies of scale

Marketing channels attain economies of scale through specialization and division of labor by aiding upstream producers (who often lack the motivation, financing, or expertise) in marketing to end users or consumers

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the elements of the composition and appearance of a product that make it desirable; producers who are at the top of the supply chain

form utility

the increase in customer satisfaction gained by making a good or service available at the appropriate time

time utility

the usefulness of a good or service as a function of the location at which it is made available

place utility

read: Time utility and place utility are created by channel members, when, for example, a transport company hired by the producer physically moves boxes of cereal to a store near our homes in time for our next scheduled shopping trip. And the retailer, who is often the closest channel member to the customer, provides a desired product for some reasonable amount of money that we are willing to give, creates exchange utility in doing so

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the increased value of a product that is created as its ownership is transferred

exchange utility

_ means they actually own the merchandise and control the terms of the sale—for example, price and delivery date. Retailers and merchant wholesalers are examples of intermediaries that take title to products in the marketing channel and resell them

taking title

an institution that buys goods from manufacturers and resells them to businesses, government agencies, and other wholesalers or retailers and that receives and takes title to goods, stores them in its own warehouses, and later ships them

All merchant wholesalers take title to the goods they sell, and most of them operate one or more warehouses where they receive finished goods, store them, and later reship them to retailers, manufacturers, and institutional clients. Since wholesalers do not dramatically alter the form of a good or sell it directly to the consumer, their value hinges on their providing time and place utility and contact efficiency to retailers

merchant wholesalers

wholesaling intermediaries who do not take title to a product, but facilitate its sale from producer to end user by representing retailers, wholesalers, or manufacturers

Unlike merchant wholesalers, agents or brokers only facilitate sales and generally have little input into the terms of the sale. They do, however, get a fee or commission based on sales volume. For example, grocery chains often employ the services of food brokers, who provide expertise for a range of products within a category. The broker facilitates the sale of many different manufacturers’ products to the grocery chain by marketing the producers’ stocks, but the broker never actually takes ownership of any of the products

agents and brokers

retailers

does the direct transactions with the customers and reduces the amount of transactions needed for producer. is an intermediary between producer and buyer

3 essential functions from intermediaries

transactional, logistical, and facilitating

contacting and communicating with prospective buyers to make them aware of existing products and to explain their features, advantages, and benefits (one of 3 essential functions from intermediaries)

transactional

include transportation and storage of assets, as well as their sorting, accumulation, consolidation, and/or allocation for the purpose of conforming to customer requirements (one of 3 essential functions from intermediaries)

logistical

includes research and financing. Research provides information about channel members and consumers by getting answers to the key questions: Who are the buyers? Where are they located? Why do they buy? Financing ensures that channel members have the money to keep products moving through the channel to the ultimate consumer. Although individual members can be added to or deleted from a channel, someone in the channel must perform these essential functions. Producers, wholesalers, retailers, or consumers can perform them, and sometimes nonmember channel participants such as service providers elect to perform them for a fee (one of 3 essential functions from intermediaries)

facilitating

Research provides information about channel members and consumers by getting answers to the key questions: Who are the buyers? Where are they located? Why do they buy?

Who are the buyers? Where are they located? Why do they buy? (the 3 Ws)

Financing ensures that:

channel members have the money to keep products moving through the channel to the ultimate consumer. Although individual members can be added to or deleted from a channel, someone in the channel must perform these essential functions. Producers, wholesalers, retailers, or consumers can perform them, and sometimes nonmember channel participants such as service providers elect to perform them for a fee

channel structures: A product can take any of several possible routes to reach the final consumer. Marketers and consumers each search for the most efficient channel among many available alternatives. Constructing channels for a consumer convenience good such as candy differs from doing so for a specialty good like a Prada handbag

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a distribution channel in which producers sell directly to consumers

direct channel

Direct marketing activities—including telemarketing, mail order and catalog shopping, and forms of electronic retailing such as online shopping and shop-at-home television networks—are good examples of this type of channel structure

direct channel

when one or more channel members are small companies that lack marketing power, an agent–broker channel may be the best solution. Agents or brokers bring manufacturers and wholesalers together for negotiations, but they do not take title to the merchandise. Ownership passes directly from the producer to one or more wholesalers and/or retailers, who sell to the ultimate consumer

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_ is most common when the retailer is large and can buy in large quantities directly from the manufacturer. Walmart, Target, and car dealers are examples of retailers that often bypass a wholesaler

retailer channel

_ is commonly used for low-cost items that are frequently purchased, such as candy, cigarettes, and magazines

wholesaler channel

read: regardless of the number of channels used, managers must decide whether it is better to organize channels around *customers* or *tasks*. Organizing channels around customers—for example, by creating a special distribution system for larger and more important customers— increases customer satisfaction at the expense of internal coordination and operating costs for the seller. On the other hand, organizing channels around tasks—for example, by using the company website to generate sales leads and the call center to handle after-sales service—enables the company to perform those tasks more efficiently across the customer base as a whole and to cut costs. Customer perceptions of the company’s service quality may decrease, however, since there is not a single, one-stop point of contact

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5 common channel structures:

direct to industrial users, direct to government, industrial to industrial, agent/broker to industrial, and agent/broker industrial distributor to industrial users

*read: direct channels* are typical in business and industrial markets. For example, manufacturers buy large quantities of raw materials, major equipment, processed materials, and supplies directly from other producers. Manufacturers that require suppliers to meet detailed technical specifications often prefer direct channels. For instance, Apple uses a direct channel to purchase high-resolution retina displays for its innovative iPad tablet line. To ensure sufficient supply for iPad manufacturing, Apple takes direct shipments of screens from Sharp, LG, and Samsung

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