Supply Chain and Logistics: Concepts, Issues, and Practices

Logistics and Supply Chain Management

Logistics: the physical activities involved in the procurement, movement, storage, and accounting for raw materials, partially processed, and finished goods.

Supply Chain Management (SCM)

SCM: management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at lower cost to the supply chain as a whole.

Benefits in SCM

Key benefits include:

• Response time improvements
• Delivery performance
• Inventory reduction
• Forecast accuracy
• Lower overall supply chain cost

The Bullwhip Effect

Bullwhip: increasing variability in orders received by entities upstream in a supply chain, which in turn affects the amount of inventory that those entities hold.

Page 7

Causes of the Bullwhip Effect (identified by P&G)

• Separate demand forecasts built by different players in the supply chain
• Price fluctuations: manufacturers and retailers periodically offer promotions, discounts on quantity, etc.
• Order batching: players in the supply chain accumulate demand orders before issuing an order to their suppliers
• Rationing and shortage gaming

Supply Chain Integration

Supply chain integration is a large-scale business strategy that brings as many links of the chain as possible into closer working relationships with each other. The goal is to improve response time, production time, and reduce costs and waste.

Extended Supply Chain

Extended supply chain: data of the final customer (from point of sale) are shared throughout the supply chain.

• Companies rely on software APS (Advanced Planning and Scheduling) → this requires a lot of time to become efficient (1–2 years). (It took 10 years for Carrefour!)
• Useful for forecasting, inventory planning, and availability to deliver products
• Efficient to lower inventories and produce the quantity of products that are needed
• Improves overall performance

Extended Chain: Financial and Operational Flows

Extended supply chain initiatives also work on financial flows and operational alignment across partners.

Ultimate Supply Chain Relationships

• Manufacturers work with suppliers for a very long time → supplier becomes a long-term partner; trust relationship develops
• Supplier payment is regular (e.g., monthly) → supplier can plan large projects
• Once or twice a year, goods will be valued
• Efficiency increases
• Logistics supplier may be in charge of building forecasts and be responsible for executing costs
• Develop stronger collaboration

Product Introduction and Collaboration Challenges

Introduction of new products always disturbs other products (flows are disrupted). It can be difficult to share product development information because manufacturers don't want to reveal developments to suppliers.