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Keynote: Designing Dynamic Customer-Driven Supply Chains
Dr John Gattorna, Global SC ‘thought leader’ & Author*
7th Annual Supply Chain & Logistics Summit
* LATEST BOOK: Dynamic Supply Chains, 3rd Edn, Pearson, Harlow, UK 2015
Shangri-La Eros Hotel, New Delhi27 February 2017
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™‘Best-of-both-Worlds’ StrategyFrom one-size-fits-all to multiple supply chain alignment
CUSTOMER SATISFACTION
T r a d i t i o n a l p a r a d i g m
LOGISTICS COSTS
Time
Time
CUSTOMER SATISFACTION
LOGISTICS COST
N e w p a r a d i g m
Time
Time
% S
ale
s
% S
ale
s
100%
90%
80%
70%
60%
100%
90%
80%
70%
60%
Source: Adapted from Gattorna (2015) p.39 207/03/2017
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™The Knowledge Funnel in Design Thinking
Mystery
Heuristic
Algorithm
Unravelling complexity, from ‘outside-in’
Source: Adapted from The Design of Business, Roger Martin, Harvard Business Press, 2009, Figure 1.1, p. 8 307/03/2017
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™Dynamic Alignment™ business model at the Enterprise level
Market Place
Strategy
Culture
LeadershipStyle
Hu
ma
n
pe
rf
or
ma
nc
eS
tr
at
eg
y
Bu
sin
ess
Pro
cess
es
Tec
hn
olo
gy
I
nfr
astr
uct
ure
U n d e r l y i n g L o g i cAn organisation must be aligned with its operating environment.
U s e f u l n e s sShows the interaction between customers’ needs, the formulation
of appropriate strategic responses, and the successful execution of these strategies by shaping the necessary internal capabilities and corresponding leadership styles.
P r e r e q u i s i t eUnderstanding of the customers’
fundamental needs and buying behaviours that ultimately drive sales, revenues, and profit.
“ R u l e s ”
“ P l a y i n g
t h e g a m e ”
“ I n t e r n a l
C a p a b i l i t i e s ”
“ S h a p i n g &
C r e a t i n g ”
Introducing the overarching framework of Dynamic Alignment™
‘Outside-in’
‘Inside-out’
Source: Adapted from Gattorna (2015) p.25 407/03/2017
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Dynamic Alignment™ business model and heuristic – from a supply chain perspective
Market Place
StrategyCultureLeadership
Style
Business Enterprise
Market
Business Processes
Technology + Infrastructure
D y n a m i c A l i g nm e n t™
StrategyThe ‘bridge’ between
the market andthe enterprise
Dynamic Alignment™ as the heuristic in Design Thinking
Source: Adapted from Figure I.2 in Gattorna (2003), p. xiii; Gattorna (1998), p. 5; and Gattorna (2006), p.16. 507/03/2017
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™From ‘Static’ to ‘Dynamic’ design of enterprise supply chains
C u r r e n t
F u t u r e
Static Configuration – ‘one-size-fits-all’ (push)
ProcurementStrategies
LogisticsStrategies
The Enterprise
CEO
Functions /BUs/Geographies
Source Market (Supply)
Sales Market (Demand)
Procurement Manufacturing Marketing Sales IT Logistics
Market PlaceStrategyCulture
LeadershipStyle
Business Enterprise Market
Business Processes
Technology + Infrastructure
Strategy
D y n a m i c A l i g n m e n t ™ M o d e l
Dynamic Configuration – multiple alignment (push + pull)
ProcurementStrategies
LogisticsStrategies
CEO
Functions/ BUs/Geographies
Source Market (Segments)
Sales Market (segment)
COO
The Enterprise
Organisational Clusters
Source: Adapted from Gattorna (2015) p.xxix
See next slide for details on organisation design
607/03/2017
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™A new organisation design for supply chains of the future
L e a n
Customer Expectations (segments)
Internalorganizational
clusters
Demand-sidenetwork
F u l l y F l e x i b l e
C o l l a b o r a t i v e
A g i l e
MF
L
SI
MK
F
HRP
MF
L
SI
MK
F
HRP
MF
L
SI
MK
F
HRP
MF
L
SI
MK
F
HRP
CULTURE-LEADERSHIP
D
a
•I
aa
COLLABORATIVE
TRANSACTIONAL
DEMANDING
INNOVATIVE
PROJECT ACCUMULATION
MF
L
SI
MK
F
HRP
C a m p a i g n
Key: P = ProcurementMF = ManufacturingL = LogisticsS = SalesMK = MarketingF = FinanceHR = Human ResourcesI = IT
SupplierExpectations (segments)
Supply-sidenetwork
F u l l y F l e x i b l e
C o l l a b o r a t i v e
A g i l e
L e a n
D
a
•I
aa
TRUSTED & RELIABLE PARTNERS
PROCESS DRIVEN
PLANNED CREATIVITY
OPPORTUNISTIC
EVER RELIABLE
C a m p a i g n
707/03/2017
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™The five most common behavioural segmentsTransactional
▪Predictable demand within contract
▪Regular delivery
▪Efficiency, low-cost focus
▪Multiple sources of supply
▪Little sharing of information
▪More adversarial
▪Standard processes
▪Transactional
▪Very price sensitive
Consistent low-cost response to largely predictable
demands
Innovative Solutions
▪Very unpredictable demand
▪Higher risk
▪Flexible delivery response
▪Innovation focus
▪Rapid change
▪Individual decision making
▪Solutions oriented
▪Management of IP
▪Incentives/ego
▪No price sensitivity
Supplier-led development and
Delivery of new ideas
Collaborative
▪Mostly predictable
▪Regular delivery
▪Mature or augmented products
▪Primary source of supply
▪ Trusting relationship
▪ Teamwork/partnership
▪ Information sharing
▪ Joint development
▪ Forgiving
▪Price not an issue
Close workingrelationships for
mutual gain
Dynamic
▪Unpredictable demand
▪Commodity relationship
▪ Time priority/urgency
▪Opportunity focus
▪Ad hoc source of supply
▪ Low loyalty, impersonal
▪ Fewer processes
▪Outcome oriented
▪Commercial deals based on pragmatism
▪Price aware
Rapid response to unpredictable supply and
demand conditions
Project Accumulation
▪ Time-specific deliveries
▪Stock reservation
▪Completed deliveries
▪Expedite if necessary
▪Accumulation off-site
▪Special packaging
▪Special transport if necessary
▪ Fixed price
▪Delay avoidance
▪Risk mitigation
▪Systematic and detailed supervision
Delivery to project site on time
and complete
Source: Adapted from Gattorna (2015) p.58 807/03/2017
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Research inputs to dynamic supply chain design
CUSTOMERBUYING BEHAVIOUR
IDENTIFY KEY SEGMENTS
Customer Research
Customer expectations
Service sensitivities
Demand drivers
Customer
Operational Drivers
Includes:
Lead time needs
Delivery needs
Stockholding
Planning horizon
Ordering patterns
• Business growth strategy
• Cost & risk imperatives
• Customer sales patterns
• Customer briefings
Network Modelling
Customer research & data analysis Business strategy
•
•
•
• xxxxxxxxx• xxxxxxxxx• xxxxxxxxx
•
•
•
• xxxxxxxxx• xxxxxxxxx• xxxxxxxxx
•
•
•
• xxxxxxxxx• xxxxxxxxx• xxxxxxxxx
•
•
•
• xxxxxxxxx• xxxxxxxxx• xxxxxxxxx
Design service offers and supply chains
Service offers
NetworkTailored
Common Network
• xxxxxxxxx• xxxxxxxxx• xxxxxxxxx
Source: Gattorna Alignment research
Combining primary research and analytics to understand the hidden patterns
907/03/2017
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™Flow characteristics typical of each supply chain configuration
Flow types Customer segmentsTypes of supply chains
C a v i t a t i o n
Fully FlexibleUnplanned and unplannable demand due to unknown customers with exceptional, sometimes emergency requests
S u r g e
AgileUsually unplanned, at least until the last possible moment. May result from promotions; new product launches; fashion marketing; unplanned stock-outs; or unforeseen opportunities.
B a s eCollaborativeVery predictable demand from known customers; easily managed through tight collaboration with these collaborative customers.
S e m i - W a v eLeanRegular pattern of demand, quite predictable and forecastable; although may be seasonal. Tend to be mature low-risk products/services.
CampaignIrregular, but planned, sometimes months ahead. The task is to ensure all components are accumulated and delivered together to site at a predetermined date/time
P r o j e c t
These flows typically do not appear in need laminar flows as presented
Source: Adapted from Figure 2.4 in Gattorna (2006), p.46. 1007/03/2017
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™Matching SC types for the five most common behavioural segments
Transactional
LEAN SUPPLY CHAIN
Consistent low-cost response to largely
predictable demands
Innovative Solutions
FULLY FLEXIBLE SUPPLY CHAIN™
Supplier-led development and
delivery of new ideas
Collaborative
COLLABORATIVE SUPPLY CHAIN™
Close workingrelationships for
mutual gain
SE
GM
EN
T Dynamic
AGILE SUPPLY CHAIN
Rapid response to unpredictable supply
and demand conditions
Project Accumulation
CAMPAIGNSUPPLY CHAIN™
Delivery to project
site on time and complete
SC
RE
SP
ON
SE
These five supply chain types provide at least 80 percent coverage in most product/service market situations
Source: Adapted from Table 1.3.1 in Gattorna (2003), p. 32; see also Gattorna (2006), p.41. 1107/03/2017
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The metaphor for supply chain alignment – multiple conveyor belts running in parallel, but at different speeds
The same product can be placed in any one of the conveyor belts. Because of their different operating characteristics, they can be delivered according to customers’ needs.
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™Linking all three subsystems is the key to true alignment
SUPPLY THE MARKET
En
d U
sers
Logistics Network
Supply Patterns Demand Patterns
Level 1 Level 2
Inte
rmed
iari
es
Source: Gattorna Alignment Research
…and the ‘secret sauce’ for high performance
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Convergence of construction project processes and supply chains
Source: Adapted from Micael Thunberg Martin Rudberg Tina Karrbom Gustavsson , (2017),"Categorising on-site problems: A supply chain management perspective on construction projects ", Construction Innovation, Vol. 17, Iss 1 pp. 90 - 111
Transport ReceiveManu-
facturingVerify
Bid
din
g/ Ten
der
Design
Plan
nin
gP
re-con
structio
n
pro
cess
The C
on
structio
n p
roject p
rocess
The supply chain
On-siteinstallation
Order process
Customers’ expectations are that
suppliers will accumulate products,
subassemblies, equipment, and ancillary
services into a unified package, stage
these if necessary, and finally deliver to
site within a very tight time window.
But the reality is that few suppliers have
these precise capabilities, because they
come from the world of manufacturing
and delivery of discrete ‘products’!
accumulation
delay
InventoryHolding cost…
On TimeOn Budget
The meeting of two different worlds
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™Multiple supply chain alignment: demand-side
Customer segmentation
Value propositions
Internal capabilities
Shape & create
Customer/ markets
Strategy
Cultural capabilities
Leadership styles
Leadership
Subculture
Valueproposition
Needs
Leadership
Subculture
Valueproposition
Needs
Leadership
Subculture
Valueproposition
Needs
Supply-side supply chains are the mirror image of demand-side supply chains depicted here
Leadership
Subculture
Valueproposition
Needs
Leadership
Subculture
Valueproposition
Needs
Source: Adapted from Gattorna (2010) p.282 1507/03/2017
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™The five most common behavioural segments
▪ Predictable demand within contract
▪ Regular delivery
▪ Efficiency, low-cost focus
▪ Multiple sources of supply
▪ Little sharing of information
▪ More adversarial
▪ Standard processes
▪ Transactional
▪ Very price sensitive
▪Very unpredictable demand
▪Higher risk
▪Flexible delivery response
▪Innovation focus
▪Rapid change
▪Individual decision making
▪Solutions oriented
▪Management of IP
▪Incentives/ego
▪No price sensitivity
▪ Mostly predictable
▪ Regular delivery
▪ Mature or augmented products
▪ Primary source of supply
▪ Trusting relationship
▪ Teamwork/partnership
▪ Information sharing
▪ Joint development
▪ Forgiving
▪ Price not an issue
LEAN SUPPLY CHAIN FULLY FLEXIBLE SUPPLY CHAIN™
COLLABORATIVE SUPPLY CHAIN™
▪ Unpredictable demand
▪ Commodity relationship
▪ Time priority/urgency
▪ Opportunity focus
▪ Ad hoc source of supply
▪ Low loyalty, impersonal
▪ Fewer processes
▪ Outcome oriented
▪ Commercial deals based on pragmatism
▪ Price aware
AGILE SUPPLY CHAIN
▪ Time-specific deliveries
▪ Stock reservation
▪ Completed deliveries
▪ Expedite if necessary
▪ Accumulation off-site
▪ Special packaging
▪ Special transport if necessary
▪ Fixed price
▪ Delay avoidance
▪ Risk mitigation
▪ Systematic and detailed supervision
CAMPAIGN SUPPLY CHAIN™
SC
res
po
nse
Source: Adapted from Gattorna (2015) p.58
Consistent low-cost response to largely predictable
demands
Supplier-led development and
Delivery of new ideas
Close workingrelationships for
mutual gain
Rapid response to unpredictable supply and
demand conditions
Delivery to project site on time
and complete
Transactional Innovative SolutionsCollaborative DynamicProject Accumulation
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™Value proposition for Campaign Supply Chains™
CampaignSegment
Value Proposition: Understand, then comply
We will deliver to site exactly to your specifications, on time and in full.
CEO
Procurement Production Logistics Finance Marketing SalesIT
•Sourcing•Supplier relationships•Spent mgt•Tenders
•CapacityPlanningSchedulingLabour force mgtQuality Control
•Inventory•Capacity•Fulfilment•Cost-to-serve
•Promotions•Relationship mgt•Service offers
•Product mix•Branding•Product portfolio•Channels•Pricing•Allocation priority•Margin mgt
•Risk assessment•Financial Control•Governance
•ERP•IT Applications
Standard functional activities:
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™Campaign supply chain™ strategy - Projects
Positioning FinanceMarketing / Sales Fulfilment
Product mix • Combination of standard products and ETO
Marketing emphasis
• On-time and on-budget performance
Channels of distribution
• Direct to project constructors or via distributors
Pricing regime • Project costing
Promotional activity
• Project capability
Source: Adapted from Gattorna (2015) p.323
P r o j e c t s
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™Campaign supply chain™ strategy - Projects
Positioning FinanceMarketing / Sales Fulfilment
Innovation emphasis
• Embedded in project design
Service emphasis
• Service parts back-up
Relationship intensity
• Performance is tops; Relationship secondary
Resource allocation priorities
• Major construction customers get priority
Strategic risk profile
• Medium-high risk of liquidated damages
Source: Adapted from Gattorna (2015) p.323
P r o j e c t s
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™Campaign supply chain™ strategy - Projects
Positioning FinanceMarketing / Sales Fulfilment
Procurement/ Sourcing approach
• Source and assemble at Logistics Center
Production • MTO/ETO capabilities
Capacity considerations
• Can flex capacity as project demands vary
Logistics approach
• Consistently delivered on-time and in-full
Systems/ IT support
• Ability to accumulate/ manage/ deliver
Source: Adapted from Gattorna (2015) p.323
P r o j e c t s
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™Campaign supply chain™ strategy - Projects
Positioning FinanceMarketing / Sales Fulfilment
Financial • Tight project cost monitoring.• Review cash management, Foreign Exchange, and Tax
Source: Adapted from Gattorna (2015) p.323
P r o j e c t s
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™Practical Implications of Campaign Supply Chain™ Configurations
Supply
• Focussed DC and WMS preferable• Variable labour• Pop-up locations to support project sites?• Higher capacity required to allow accumulation by project and
lumpy demand• Dedicated locations within DC to provide visibility?
Ne
two
rk Manufacturing
DCs/Depots
Transport
• Driven by meeting project schedule with buffer to guarantee on time and in full
• Optimise manufacturing location – regional more feasible with longer project schedule
• Cannot be driven by economic batch size decisions alone
• Time specific commitments• Expediting paths when required
• Specialised transport to suit site – product• Time specific contracts/ KPI’s with carriers
• Extended role in achieving delivery eg. crane supply?• Time buffers to achieve high reliability
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™Practical Implications of Campaign Supply Chain™ Configurations
Pla
nn
ing
Demand Planning / Forecasting
• Project specific inventory build for large projects• As per Lean but driven by high availability targets for smaller
projects
Production Planning
Inventory
Deployment
• Build on project schedule for major projects/ collaborative customers
• As per Lean for smaller projects
• Long term planning based on historical data• Medium term uses sensing of project pipeline• Medium to short term – based on project commitments• Synchronise customer project plan into internal execution plan
• Tight coordination with Sales team and/ or project managers• Methods for capturing/ or early sensing of project plans• Specific order management• Where collaborative – BOM explosion to requirements
Demand / Order Capture
• Usually direct delivery to site, or to a consolidation centre
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CULTURAL LEVERS
EFFICIENT
LEADERSHIP STYLE
VALUE PROPOSITION
1. Org design2. People positioning3. Processes4. IT/systems5. S&OP 6. KPIs7. Incentives8. Job design9. Internal comms.10. Training & devel.11. Role modelling12. Recruitment
STRATEGIES
HIERARCHICAL SUBCULTURE
COMPANY BARON /TRADITIONAL
Require relentless focus on cost and efficiency
• Deep understanding of the project requirement (help develop them where possible)• Mirror customer schedules internally; and back up deviations with Fully Flexible SC• Ensure very high availability in lots aligned to use schedule – needs accumulation, quarantining
1. Organize clusters around major projects and major customers
2. Mix of ‘S’ (detail) and ‘N’ (big picture types
3. Schedule driven processes; expedite process available
4. Project specific systems – not adaptions of transactional systems
5. Project driven S&OP format
6. Schedule milestones; DIFOT; win-rate7. Meet schedules; meet cost targets8. Based around project portfolio; flexibility to resolve
variations when needed9. Regular; structured10. Emphasis on project management, analysis and
measurement11. Managers with ESTJ (PA), ISTP (Ap) profile a fit12. Recruit players with experience at the project
implementation end
Understand, then comply
• Results focus, but also …• Implements proven business practices• Cost controller; efficiency focus
• Uses information to control• Seeks stability• Is risk averse
TO PLAN Compliant, and complete execution to schedule. Ability to flex with project changes.
Campaign Supply Chain configuration: demand-side
Source: Adapted from Gattorna (2015)
…… where all is subservient to the schedule and the result
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™What type of supplier capabilities are warranted; from a client’s perspective
COLLABORATIVE
Trusted supplier availableAble to share informationWork with experienced suppliersGovernance restrictions preclude
supplier collaboration
INNOVATIVE
Problem known –but solution unclear
Leading edge/ untested requirements
LEAN
Cost weight > all other criteriaOnly basis schedule info shared
AGILE
Volatile situationDifficult to define schedule/
expectationsMany stakeholders Incomplete information planTime-to-complete pressure
CAMPAIGN
Capital (vs. operational) spentScheduled, sequenced deliveriesDiscrete vs. continuous requirements Longer term planning horizon
Supplier accumulation neededSupplier bundling neededSchedule changes possible
4 different project mindsets can be
present
Core supply chain expectation
The mindset can change over the course of consecutive projects –Ideally with more leveraging of collaborative approach
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™Behavioural forces within a conventional project life cycle
Project behavioural forces
or
Expensive,Ad hoc
(Pre-) Sales Project Planning Customer &Site Mgmt
Order Mgmt OrderExecution
ProjectClosure
Project life cycle
Act
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Source: Gattorna Alignment Research
Expediting
Explorative Specification
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™Behavioural forces within a collaborative project life cycle
(Pre-) Sales Project Planning Customer &Site Mgmt
Order Mgmt OrderExecution
ProjectClosure
Source: Gattorna Alignment Research
Accumulate additional capacities
• Short-term project changes
• Breakdowns
• Base – historic plans, stable forecast, low price• Scheduled maintenance
• Capacity booking in conjunction with long term outlook for collaborating parties
• Preferred contractor/supplier list
• Evaluation and selection based on quality-price
• Detailed production and load planning
• Performance feedback
Reduced cost,Increased
predictability
Project life cycle
Act
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™Requisite IT for the five typical SC configurations – a work in progress
ERP transaction system, data bases, HR, Performance Reporting…
Oracle Transport Management
Demantra – PredictiveTrade Planning + Promotion
Siebel CRM
Cost Based Optimiser
Advanced SC Planning
Collaborative
Collaborative supply chain™
Oracle Transport Management
Cost Based Optimiser
Advanced SC Planning
Strategic Network Optimisation
Transactional
Lean supply chain
Reporting Database
Primavera – Investment Portfolio Management
Primavera
Gateway
Contract Management
Risk Analysis
Project accumulation
Campaign supply chain™
Agile – Product Life Cycle Management
OTM – Transport Management
SNO – Numetrix
Demantra – PredictiveTrade Planning + Promotion
Rapid Planning
Demanding/ unpredictable
Agile supply chain
Oracle Communications ASAP
…
Innovative solutions
Fully Flexible supply chain™
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™Unravelled complexity
Source: Getty Images 2907/03/2017
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Managing the Supply Chain;a Strategic Perspective, with D.W. Walters, Macmillan Business, Basingstoke (UK).
1996
Strategic Supply Chain Alignment; Best Practice in Supply Chain Management, John Gattorna (ed.)., Gower Publishing, Aldershot (UK).
1998
Gower Handbook of Supply Chain Management, (ed.)., 5th edn, Gower Publishing, Aldershot (UK).
2003
Living Supply Chains;how to mobilize the enterprise around delivering what your customers want, FT Prentice Hall, Harlow.
2006
Dynamic Supply Chain Alignment; a New Business Model for Peak Performance in Enterprise Supply Chains across all geographies, (with friends), Gower Publishing, Farnham (UK).
2009
Dynamic Supply Chains; delivering value through people, 2nd edn., FT Prentice Hall, Harlow.
2010
LATEST BOOK: 2015
Dynamic Supply Chains; How to design, build and manage people-centric value networks, 3rd Edn, Pearson, Harlow, UK 201507/03/2017