Principles of Supply Chain Management · Merging Supply and Demand into a Demand Management Process 153 Develop Sales and Operations Planning to Match Short-Term Supply and Demand

Principles ofSupply ChainManagement

Richard E. CrandallWilliam R. Crandall

Charlie C. Chen

Ltfi) CRC Pressv ' J Taylor & Francis Group

^*~'^ Boca Raton London New York

CRC Press is an imprint of theTaylor & Francis Group, an informa business

Contents

List of Figures xxxi

List of Tables xxxv

Preface xxxvii

Acknowledgments xxxix

Authors xliii

Introduction xlv

PART I: OVERVIEW OF SUPPLY CHAIN MANAGEMENT

1 Evolution of Supply Chains 3Learning Outcomes 3What Is a Supply Chain? 3Importance of SCM 5Evolution of Supply Chains 6

Early Supply Chains 1 6Local Supply Chains .>, 7Global Supply Chains 8

Changing Government Orientation 11State-Controlled Governments 11Market-Driven Governments 11

Current Trends That Link Supply Chain Participants More Closely 12Relationship Building 12

Customer Relationship Management 12Supplier Relationship Management 13Product Lifecycle Management 14

Electronic Business 14Developing Economies 15Outsourcing 16Need for Quality Improvement 16

VII

viii • Contents

Changing Customer Demands 17Decreasing Response Time 17Lean Supply Chains to Reduce Waste '. 18

Current Developments in SCM 18Power Has Shifted from Manufacturers to Retailers 18Consolidation of Small, Local, or Regional Retailers into

National Chains 19Emergence of "Killer Category" Retailers 20From a Make-and-Sell Mentality to a Sense-and-Respond

Orientation 20Obstacles to Supply Chain Integration 21

Need for Globalization 22Complexity of Arranging Entities with Common Interests 22Lack of Effective Interorganizational Systems .' 23Need for Multiple Supply Chains within Companies 23Lack of Trust between Participants 24

Examples of Companies with Successful Supply Chains 25Focus on Strong Brands 27Pay Attention to Balance 27Use Downstream Data and Direct Store Delivery 28Focus on Building Effective Network Relationships 28

Progress toward an Integrated Supply Chain 28Supply Chain Models 28Summary 31Discussion Questions 32References 33

Supply Chains as a System 37Learning Outcomes 37Introduction 37Supply Chain Systems 39

Inputs 40Transformation 40Outputs 41Manufacturing vs. Services 42

Types of Supply Chains 42Physical Flow 44Information Flow 45Funds Flow 46Relational Flow 47

Examples of Supply Chains in Different Industries 48Internal and External Customers 49

Contents • ix

Open Systems vs. Closed Systems 51Effect of External Influences on Supply Chains 52Obstacles and Enablers of Supply Chain Integration 53

Obstacles 54Enablers 55

Performance Measurement 56Allocation of Costs, Resources, and Benefits along the

Supply Chain 59Value Creation as the Ultimate Objective 60Summary 63Discussion Questions 64References 64

PART II: THE CUSTOMER PERSPECTIVE

3 Determining Customer Needs 69Learning Outcomes 69Introduction 69Group Customers into Homogeneous Segments 71Determine the Needs of the Ultimate Consumer 72

Product Needs 72Service Needs 73Marketing Mix 73Manufacturing and Service Supply Chains 74

How Do You Accurately Determine Needs? 74Past History 1 75

Market Research A 76Open System Scanning 77

Competition 77Technology 78Economy 79Government 80Social Trends 81Business Environment 81

How Do You Forecast Demand? 83Quantitative Forecasting Methods ...83

Time-Series Methods 84Causal Method 87

Qualitative Forecasting Methods 89Survey Method 89Delphi Method 89

Contents

Attributes of a Well-Designed Product 90Functionality (Product Works to Satisfy Customers' Needs) 90Validity (Product Has Value and Functions at a

Reasonable Cost) 91Manufacturability (Product Can Be Efficiently Produced) 91Quality (Product Has a Variety of Quality Attributes) 91Serviceability (Product Can Be Serviced during Its

Effective Life) 92Recyclability (Product Can Be Recycled along the Reverse

Logistics Supply Chain) 92Product Design Approaches 93

Quality Function Deployment 93Concurrent Engineering 94Design for Manufacturability 95Design for Sustainability 95

Determine the Number of Supply Chains Needed within a Company 96Align with Customer Segment 97Align with Product/Service Bundle 98Align with Supplier Category 98

Performance Measurement 99Determine the Needs of Internal Customers 99Conclusion 100Discussion Questions 101References ; 101

A System to Meet Customer Needs 105Learning Outcomes 105What Is Customer Relationship Management? 106Global Supply Chain Forum Model 107How CRM Can Be Used to Design a Supply Chain? 108

Origins of CRM 108What Can CRM Do? 110Benefits 110CRM Processes I l lProblems 112CRM's Future 115

Product Lifecycle Management 115What Is PLM? 116

,?How Did PLM Evolve? 116What Does PLM Include? 116What Does PLM Not Include? 117What Are the Benefits of PLM? 118What Is the Present Status of PLM? 119

Contents • xi

What Are the Obstacles? 119What Does the Future Hold? 120

Supply Chain Mapping 121The Basic (Generic) Supply Chain 121Variations for Different Industries 122Supply Chain Mapping 123

Determining Resource Requirements 123Facilities 125Equipment 125Employees 127Inventory 127Information Systems 128

Designing Processes to Match with Products 128Make-to-Stock 128Assemble-to-Order 129Make-to-Order 129Engineer-to-Order 130

Determining the Mix of "Make" and "Buy" 130Core Competency Concept ....130Total Cost of Ownership 131Cost Reduction vs. Revenue Increase Considerations 132Effect of Outsourcing Movement 133

Aligning Entities along the Supply Chain 133Entities to Be Involved 134Allocation of Authority and Responsibility among Entities 134Collaboration Process 135Implementation Plan i 136

Evaluating the System Design 136Will It Accomplish Its Objectives? 136Is It Sustainable?' 137Is It Flexible? 138

Summary 139Discussion Questions 139References 140

5 Demand Management 145Learning Outcomes 145Introduction 145Definition of Demand Management 147Importance of Demand Management 149Managing Demand 150

Accept All Demand 150Select the Types of Demand to Accept 150

xii • Contents

Solicit External Input in Forming Demand Patterns 150Design the Form in Which Demand Will Be Accepted 151Impose Constraints on Demand Submission 151

Managing Supply 151Select a Demand Management Strategy 151Develop a Demand Forecasting System 152Determine the Resource Requirements to Meet the Demand 152

Merging Supply and Demand into a Demand Management Process 153Develop Sales and Operations Planning to Match Short-Term

Supply and Demand 153Collaboration among Supply Chain Participants 153

Demand Management in Manufacturing 154Demand Management in Services 156Proposed Demand Management Strategies 158Factors That Affect the Selection of a Demand Management Strategy 160

Resources' Value 160Type of Demand 162Top Management Strategies 162

Relationship between Factors and Strategies 163Model for Integrating Demand and Supply Management 165Programs Used to Implement Demand Management Strategies 171

Provide Strategy Programs 173Match Strategy Programs 173•Influence Strategy Programs 176Control Strategy Programs 176

Demand Management along the Supply Chain 177Retail 177Wholesale .' 178Manufacturer 178Mining and Agriculture 178


PART III: THE SUPPLY PERSPECTIVE—DISTRIBUTION,PRODUCTION, AND PROCUREMENT

6 Distribution and Retailing 185Learning Outcomes 185Introduction 185Retail Function 186

History of Retailing 186Retail Services 191

Contents • xiii

Characteristics of the Industry 191Customers and Markets 193Outputs 193Inputs 194Transformation Process 194

Impact on Operations Management 196Designing the Retail Process 196

Strategic Orientation 197Critical Design Points—Keys to Success 198Additional Factors to Consider in Retail Store Design 202

A Multidiscipline Project 202Continuing Need to Readjust or Redesign 202E-Commerce Considerations (Direct vs. Indirect Selling) 203Strategic or Long-Term Considerations 203

Managing a Retail Business 203Determine the Expected Demand 203Plan Capacity to Meet Demand 204Implement the Operating Plan 205Measure Performance 205Replan for the Next Period 206

Retail and Inventory Management 206Value 206Availability 206Variety 206Presentation 206Service : 207Response Time 1.207

Present Situation in Retailing )207Future in Retailing 209Role of Wholesalers and DCs 209

Ordering 210Receiving 210Stocking 210

/ Picking '. 211Loading the Trucks 211Transport to Stores 211Unloading and Display at Stores 211

Critical Success Factors for Distribution 212Inventory within Distribution Functions 212Inventory Management between Retailer and Distributor 213Technology in Distribution Functions 213

At the Retail Store 213Movement of Goods 214

xiv • Contents

At the Distribution Center 214Positioning Services within the Distribution Functions 215

Pre-Sale Services 215Post-Sale Services 215Role of Third-Party Service Providers 216

Predominant Delivery Methods 216Truck—Privately Owned or Third-Party Carriers 216Rail—For Selected Goods 218Waterways 218Air 218Pipeline 219Parcel 219Transmission Lines 219Fiber-Optic Cable Networks 219

Third-Party Service Providers 220Importance of RDCs 220Trend toward Outsourcing the Distribution Function 221Major Companies—UPS, FedEx, Ryder 222

Distribution Performance Measurement 222Financial Performance Measures 222Operating Performance Measures 222Collaboration Performance Measures 222

Retailer—Distributor Relationship 223Summary 223Discussion Questions 224References 224

Production and Service Processes 227Learning Outcomes 227Introduction 227Evolution of the Production Function 229

From Craft to Mass Production 230From Mass Production to Mass Customization 231

Critical Success Factors for Manufacturers 231Cost and Efficiency 232Quality 232Responsiveness—Timing of Delivery 232Responsiveness—Product/Service Mix 232Flexibility 232Agility 233Information Technology 233

Manufacturing Strategies 233Make-to-Stock 234

Contents • xv

Locate-to-Order 234Assemble-to-Order 235Make-to-Order 235Engineer-to-Order 235

Batch to Lean Operations 236Present Batch Flow 236

Machine Breakdowns 237Supplier Failures 237Worker Flexibility 238Customer Lead Times 238Customer Order Size 238

Proposed Lean Production Flow 238Customer Lead Time 239Extra Available Space 239Faster Detection of Quality Problems 239Ease of Transferring Operators 240Reduced Scheduling Requirements 240Smaller Lot Sizes 240No Buildup of WIP Inventory 240Empowered Employees 240Reduced Equipment Breakdowns 241Reduced Late Material Deliveries 241Reduced Write-Off of Inventory 241

Make or Buy Strategies 241Vertical Integration 241Outsourcing 242

Capacity Planning... i 245How Much Capacity? When? What Kind? ). 245Location and Ownership 245

Service Production Strategies 246Relationships with Downstream Customers 248From Transactions to Processes '. 248

Transactions vs. Processes 249Basic Processes of a Business 250Benefits of a Process Orientation 250Effect of Process Orientation 251

Organizational Structure 251Strategies 252Knowledge Management 253Change Management 253

Trends in Production 253From Manual to Automated .• 254From Domestic to Global 254

xvi • Contents

From Standard Products to Customized 254Postponement 254Sales and Operations Planning 255

Performance Measurement ., 255As Measured by Accounting 255As Measured by Production 256Measures along the Supply Chain 256


8 Procurement/Purchasing 261Learning Outcomes 261Introduction 261Role of Procurement in the Supply Chain 262Traditional Purchasing 263Contemporary Purchasing 264Critical Success Factors for Procurement 265

Functionality 265Availability 265Cost 266Quality 266Match Inflow with Outflow 266Reduce Variances in Delivery 267Increase Supplier Dependability 267Reduce the Bullwhip Effect 267

>l Become an Intercompany Facilitator 268Find Sustainable Suppliers 268

Changing Role of Purchasing 268Purchasing Functions 271

Product Design 271Product Specifications 271New Product Introduction 272Target Costing 274Supplier Selection 275Supplier Location 275Inventory Management 276Purchasing Process 277

{•Supplier Evaluation 278Supplier Relationship Management 278Supply Chain Coordination/Collaboration 278

Purchasing at Different Stages of the Supply Chain 279Consumer 279Retail 279

Contents • xvii

Wholesale 280Manufacturer 280Mining and Agriculture 281Services 281

Dealing with Offshore Outsourcing 282As a Strategic Concept 282TCO Considerations 284As a Project, with Project Management Needs 284Other Considerations—Intangible Costs and Public

Acceptance 285Supplier Location as a Strategy for Entering an

Offshore Market 285Performance Measurement 286

Traditional—Positive Purchase Price Variance 286Contemporary—Enhanced Value from the Supply Chain for

the Consumer 286Future of Purchasing 287Summary 288Discussion Questions 289References 290

Reverse Supply Chains 293Learning Outcomes 293Introduction 293Description of Reverse Supply Chain Networks , 293

Benefits of Reverse Logistics 295Barriers to Reverse Logistics 295Continuation of Forward Supply Chains 29,6History of Reverse Logistics 298

Principal Drivers of the Movement 299Individual Consumers 299Individual Businesses 300Society—The Community 300Society as a Group 300

Environmental Concerns 301Resource Scarcity Concerns 301

Business Sector 302Economic Benefits Possible 302New Businesses, Even New Industries, Possible 302

Government—At All Levels 303Activities in Reverse Logistics 303

Service—Assist Customer to Assure Proper Use of Product 303Returns—Product Is Intact and Needs Repackaging or

Relocation 303

xviii • Contents

Restoration—Product Needs Minor Modification or Repair 304Remanufacturing—Product Needs Overhaul and Major

Rebuilding 304Recycling—Product Components Needs Reconstitution as

Part of Another Product 305Disposal—Product Remains Need to Return to Natural State 305Hazardous Waste Disposal 305

Role of Private Industry 306New Paradigms in Product Design (Design for Sustainability) 306Design and Operate Green Supply Chains 307Develop Systems to Manage Reverse Logistics 307Participate in Joint Ventures to Seek Social Objectives 307

Role of Government 308Research—To Identify Threats and Opportunities 308Legislation-—To Standardize Business Requirements 310Regulation—To Monitor Performance 311Participation—To Encourage and Support Ongoing

Programs 312Role of Consumer 312

Participant in RSC Programs 312Educated Consumer 312Supporter of Green Supply Chain Efforts 313

Reverse Logistics Network 313Continuation of the Forward Supply Chain 313Operate in an Open System Environment 314Heavily Outsourced by Major Businesses 315

Support and Service 315Returns '. 315Repairs 315Remanufacture 316Rework 316Recycle 316

Need for a Lifecycle System Approach 316Need for IT 319Other Considerations in Designing Reverse Supply Chains 319

Future 320Growth in Amount of Materials Recycled 320Increase in Number of Companies Performing Reverse

Logistics Activities 320Joint Ventures between Private Business and Government 321Increased Emphasis on Prevention, Not Just Reusing 321More Companies Will Design Integrated Reverse Logistics

Systems 321

Contents • xix


PART IV: INTEGRATED SUPPLY CHAINS

10 The Need to Integrate 327Expected Outcomes 327Introduction 327Setting the Stage 329

Obstacles to Integration 330Status of Integration Efforts 331

From Mass Production to Mass Customization 333From Craft to Mass Production 334Prelude to Mass Customization 335

From Vertical Integration to Virtual Integration 337From Homogeneous Cultures to Diverse Cultures 339Drivers of Change 340

Global Competition :•. 340Global Markets 341Economic Advantage 341

Lower Costs 341Higher Revenues 342

Relationships and Trust among Supply Chain Participants 342Trust between Individuals 342Formal Contracts or Agreements 342Common Interests or Projects (Enforced Trlust) 343

Involves Change Management ). 343Change Is Difficult within a Company 343

Embedded Culture 343Policies and Procedures 344Organization Structure 344Customer Relationships 345Supplier Relationships 345Union Relationships 345

Change Is More Difficult for a Community 346Company-Community Relationship 346Difficulty in Changing Laws and Regulations 346Difficulty in Changing Infrastructure 347

Change Is Most Difficult for an Entire Country 347Political Implications 347Regional Differences 347

Steps in the Integration Process 347

xx • Contents

Build Interfaces with Customers and Suppliers 348Change Interfaces to Interlaces to Make the

Relationships Closer 348Change Interlaces to Integrated Relationships 348

Need for Strategic Planning 348Categories of Operations 349Normal Operations 350Improvement Programs 350Problem-Solving Programs 350Crisis Management 350

Need for a Multi-Year Project Plan 350Supply Chain Integration Is a Long-Term Program 351Requires a Coordinated Multi-Team, Multi-Entity Effort 351

Performance Measurement across the Supply Chain 351Integration Requires Sharing 351

Responsibilities 351Resources 352Sharing Requires Measurement 352


11 Why Integration Is Difficult 357Learning Outcomes 357Introduction 357Determining Strategic Objectives 358Evaluating the Potential Return on Investment 358

Uncertainty of Benefits 359Tangible, or Direct 359Intangible, or Indirect 359

Uncertainty of Costs 360Product Costs 360Support (Overhead) Costs 360

Uncertainty of Assets Employed 360Designing for Participant Differences 361

Participants Are Not Equal 361Commitment 361Contribution 362Different Roles—Drivers and Followers 362

Technical Differences 362Size 362Proximity 362Type of Operation 363

Contents • xxi

Attitudinal Differences 363Culture 363Mission and Strategy 363

Need for Multiple Supply Chains 364Different Customer Segments 364Different Supplier Segments 365Separating Interwoven Networks 366

Selecting and Implementing Technology 366Product and Service Processes 367

Remove Barriers 367Eliminate Redundancy 367Develop Compatible Processes 368Strive for Effectiveness and Efficiency 368

Interorganizational Systems 368Lack of Systems Compatibility 368Lack of Information 368Lack of a System 369

Financial Funds Flow 369Realigning Infrastructure 370

Internal Organization 370Effect of Outsourcing Movement 371External Organization 371Policies and Procedures 372Physical Infrastructure 372

Transforming Company Cultures 372Internal 372External 1 373

Building Relationships .: 373Communicate 373Coordinate 373Cooperate 373Collaborate 374

Why Do Companies Not Collaborate? 375Lack of Trust 375

Measuring Performance 378Maintaining the System 379

During the Implementation Process 379During the Operation of the Supply Chain 379Extension into Reverse Logistics 380

Obstacles to International SCM 380Summary : 381Discussion Questions 381References 382

xxii • Contents

12 How to Build an Integrated Supply Chain 385Learning Outcomes 385Introduction 385Who Manages the Supply Chain? 386

Past and Future of Supply Chain Management 386Present Supply Chains 388

The World of Lean Production 389Product 390Purchasing Process 390Production Process 390Delivery Process 391Demand Variation 391

Stages in Moving from Functional-Focus to Cross-EnterpriseCollaboration 391

A Comprehensive Supply Chain Model 393Decisions Needed to Achieve a Lean and Agile Supply Chain 395

Commitment 395Concept 396Configuration 397

Top Management 397Marketing 398Purchasing 398Manufacturing 399Distribution 400Finance and Accounting 400

Communication 401Culture ,; 402Customization 403

Integrated Supply Chain 403Coordination 404Cooperation 404Collaboration 410

Steps in the Change Process 411Investigate 412Involve 412Include 412Initiate 412Invigorate 412Implement 413Integrate 413Institutionalize 413Innovate 413

Contents • xxiii

A Look Ahead 413Complexity 414Clairvoyance '. 415


PART V: THE FINANCIAL AND INFORMATIONTECHNOLOGY PERSPECTIVES

13 Information Flow along the Supply Chain 423Learning Outcomes 423Introduction 423Need for Information Flow 424Types of Information Transmitted 426

Upstream Suppliers 426Midstream Supply Chains 426Downstream Customers 427Reverse Supply Chain 427Supply Chain Connectivity 427

Intracompany Technologies Used 429Data Capture 430

Computer-Aided Design 430Point-of-Sale Terminals 430Automatic Identification Systems 431Groupware 432

Data Storage and Retrieval i 433Data Manipulation and Reporting—ERP Systems 433

Supply Chain Direct Links 435Customer Relationship Management 435Supplier Relationship Management 435

Linking Technologies 436Interorganizational Systems 436EDI and Internet EDI 436Automatic Identification Systems 437

Linking Applications 437Video Conferencing 437Sales and Operations Planning 438Product Lifecycle Management 439

Third-Party Services 439Service-Oriented Architecture 439Software as a Service 440

xxiv • Contents

Cloud Computing 441Benefits of Information Technologies 442

Tangible Benefits 443Increase Revenues 443Reduce Product Costs 443Reduce Transaction Costs 443Reduce Product Development Lead Time 443Reduce Capital Investment Costs 444

Intangible Benefits 444Improve Customer Relations 444Improve Decision Making 444Streamline Administrative Processes 444Integrate Company Planning and Execution 444

Barriers to IT Adoption 445Technological Obstacles 445

Standards Interoperability 445Back-End Interoperability 446Scope of Applications 446Security 446

Managerial Obstacles 447Power Structure 447Trust 448Economic Issues 448Employee Acceptance 448

Societal Obstacles 449Model of an Integrated Supply Chain Information System 449Summary ... 450Discussion Questions '. 451References 451

14 Funds Flow along the Supply Chain 455Learning Outcomes 455Overview of the Flow of Funds 455Need for Electronic Funds Flow 456

Cash Is King 456Domestic Supply Chains Require EFT 457International Supply Chains Require EFT 457

Benefits and Obstacles of Funds Flow in Supply Chains 458Flows in a Supply Chain 458Benefits of Improved Funds Flow 459Obstacles 459

Contents • xxv

Participants Other Than Members of the Supply Chain 460Banks 461Value-Added Networks 461

Performance Measurement 461Financial Accounting Measures—Current Ratio 461Management Accounting Measures—Days of Receivables,

Inventory, Payables 462Contemporary Measures—Cash-to-Cash Cycle Time 462

Effect of Production Strategies on Funds Flow 464Effect of Outsourcing on Product Costs and Capital

Requirements 465Compare Companies—Retailers vs. Manufacturers 465Financial Institutions' Cash Supply Chain 465

Technologies Used 466Interorganizational Systems 466

Components of an IOS 466Benefits 468Obstacles 468Evolution 469Future 470

Electronic Data Interchange 471Benefits 472Obstacles 473Internet EDI 473Future 473

New Concepts in Funds Flow 474Funds Flow in the Reverse Supply Chain \ 475A Comprehensive Example ; 475

Components of a Financial Statement 476Analyzing the Cash Flow Statement 476Looking at Alternatives 479


15 ROI for Supply Chains and Other Issues 485Learning Outcomes 485Supply Chain Configurations 486Programs Requiring Close Supply Chain Relationships 487Need to Evaluate Supply Chain ROI 488

Tangible Benefits 488Reduced Inventory 488

xxvi • Contents

Reduced Cycle Times 488Improved Customer Service 489Improved Quality 489

Tangible Costs 489Communications 489Retraining Internal Employees 489Restructure Supplier Network 489Design Customer Network 490Capital Investment 490

Indirect Costs 490Meetings Required to Organize Customer and Supplier

Relationships 490Programs to Change Internal Culture 491Changes in Organization Structure 491Realignment of Roles of Supply Chain Participants 491

Cash Flow and Time Value of Money Considerations 491Intangible Benefits 492

Integrated Flow of Goods and Services 492Faster Resolution of Problems 492Match Customer Wants with Products Provided 493Reduced Excess Capacity along the Supply Chain 493Increased Knowledge 493

Intangible Costs 494Loss of Confidential Information 494Increased Awareness of Inequitable Treatment among

Participants ' 494Discrepancy between Contribution and Payoff among

Participants 494Legal Actions 494

Plan for Equitable Distribution among Members 495How to Organize? 495How to Distribute? 496

Role of Prime Mover in the Supply Chain 496Organize 496Select the Team 497Monitor Ongoing Operations 498Evaluate Performance 498Initiate Change 498

Changes in Supply Chain Composition 499Dictated by Prime Mover 499Consensus of the Supply Chain Participants 500Consultation with an Outside Adviser 500Mediation by Third Party 500

Contents • xxvii

Legal Action 500Case Studies 500

Use of Accounting Records 501RFID Implementation 501Cost Reductions with Investment Requirements 502Supply Chain Finance 502Benefits of Supply Chain Collaboration 503


PART VI: THE FUTURE

16 Trends in Supply Chain Development and Management 509Learning Outcomes 509From the Past to the Present 510

From the American Revolution to World War II 510From World War II until the Present 511

Evolution of Critical Success Factors in the United States 512Beginning (from First Settlements through 1800) 514Industrial Revolution (1840s-1890s) 515Growth and Recovery (1890s-1930s) 515Mass Production (1940s-1950s) 515Arisings (1960s-1970s) 516Awakening (1980s) 516Globalization I (1990s) 516Globalization II and Mass Customization (2000 and After) i. 516

Major Drivers of Change in Supply Chains ..517Global Competition 517Outsourcing 518Increased Complexity and Risk 518

Changes Needed in the Future 518Global Business Perspective 519Balanced Approach to Offshore Outsourcing 520

Total Cost of Ownership 520Risk Management 521Other Issues 521

Continuing Changes in Technology 522Retail Operations 522Demand Forecasting 522Transportation and Distribution 523Information Systems 523From Special-Purpose to General-Purpose Resources 524

xxviii • Contents

Vanishing Boundaries between Manufacturing and Services 525Process Evolution from Transactions to Integrated 526

Transactions vs. Processes 526Benefits of a Process Orientation 527

Infrastructure Refinements 527From Vertical to Horizontal Organizations 528From Rigid Rules to Flexible Policies and Procedures 528From Tacit Knowledge to Implicit Knowledge 529From Financial Accounting to Management Accounting 529

Culture and Employees 530From Passive or Obstructing Culture to Engaged and Receptive

Culture 530Employees—From Specialized to Empowered 531

Supply Chain Relationships 532From Adversarial to Collaborative 532Trust and Distrust 533Emergence of Third-Party Supply Chain Coordinators 535


17 Preparation for the Future 539Learning Outcomes 539Recognize the Need to Adapt to Changing Conditions 540

Open System Environment 540Globalization : 540Competition 540Economy 541Technology 541Customers 541Employees 542

New Measure of Success—Sustainability 542Financial Success 542Social Responsibility 543Environment 544Integrating Financial Results, Society Equity, and

Sustainability 544Identify What Needs to Be Done 544

7ISM Study 545IBM and IW Study 546APICS E&R Foundation Inc 548

Summary of Challenges 548Role of Government 550

Contents • xxix

Environment 550Business Ethics 551Product Safety 551Social Equity 552Infrastructure 552

Role of Third Parties 553Direct Support—Outsourcing 553Indirect Support—Financing and Insurance 553Advisory—Consulting and Training 553Analyst—Measure Performance and Identify Needs 553Manager—Virtual Holding Company 554

Future Technology—Information Technology Oriented 554ERP Extension 554Service-Oriented Architecture 555Internet Processes 555Interorganizational Systems 555Process Technology 556Non-IT Technology 556

Build Strategic and Operational Plans 557Continue the Drive for Collaboration 557Develop Performance Measures for Supply Chain Management 557

Integrate Delivery Effectiveness Measures 558Integrate Cost and Quality Measures 559Supplier Profitability 559Effectiveness of Supply Chain Integration 559

Structure the Organization to Manage Change 560Purchasing .',...560Integrate All Functions ....562Educate the Work Force 562Marketing 562Overcome Inertia 563

Modify the Culture to Accept Change 563Drive for Sustainability 564

Sustainability 564Triple Bottom Line 564Beyond the Triple Bottom Line 565Why Should Business Take the Lead? 566Need for Alliances 566Benefits and Obstacles 567Sustainability in the Future 567

Wisdom—Education and Training 568Definitions 568From Data to Information 569

xxx • Contents

From Information to Knowledge 570From Knowledge to Wisdom 570Some Ways to Learn 571Obstacles to Knowledge Transfer 572Will Knowledge Replace "Things"? 573

Vanishing Boundaries between Manufacturing and Services 574Application of Chaos Theory to Business 575Summary 576Discussion Questions 577References 577

Index 581

Principles of Supply Chain Management · Merging Supply and Demand into a Demand Management Process 153 Develop Sales and Operations Planning to Match Short-Term Supply and Demand

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