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No part of this book may be reproduced in any form or by any means, electronic, mechanical Chapter 3 Developing a Supply Chain Management. Strategy. A free online edition of this book is available at . of the research activity on supply chain management, the book will certainly serve as. He has written numerous books and articles and is on the editorial advisory board Logistics & Supply Chain Management examines the tools, core processes.

These initiatives reduced variations and uncertainties in demand, thereby reducing the need for surge production capacities and large inventories.

It may be helpful to think of the participants as the divisions of a large, vertically integrated corporation, although the independent companies in the chain are bound together only by trust, shared objectives, and contracts entered into on a voluntary basis.

Unlike captive suppliers divisions of a large corporation that typically serve primarily the parent corporation , independent suppliers are often faced with the conflicting demands of multiple customers. The technological and investment problems faced by SMEs in attempting to deal with these conflicting demands are discussed in Chapter 9.

All supply chains are integrated to some extent. One objective of increasing integration is focusing and coordinating the relevant resources of each participant on the needs of the supply chain to optimize the overall performance of the chain.

The integration process requires the disciplined application of management skills, processes, and technologies to couple key functions and capabilities of the chain and take advantage of the available business opportunities. Goals typically include higher profits and reduced risks for all participants. Traditional unmanaged or minimally managed supply chains are characterized by 1 adversarial relationships between customers and suppliers, including win-lose negotiations; 2 little regard for sharing benefits and risks; 3 short-term focus, with little concern for mutual long-term success; 4 primary emphasis on cost and delivery, with little concern for added value; 5 limited communications; and 6 little interaction between the OEM and suppliers more than one or two tiers away.

Integrated supply chains tend to recognize that all parties should benefit from the relationship on a sustainable, long-term basis and are characterized by partnerships with extensive and open communications. A well integrated system of independent participants can be visualized as a flock of redwing black birds flying over a marsh. Without any apparent signal, every bird in the flock climbs, dives, or turns at virtually the same instant.

That is an integrated system! Supply chain members, in a similar manner, must react coherently to changes in the business environment to remain competitive. Supply chain integration is a continuous process that can be optimized only when OEMs, customers, and suppliers work together to improve their relationships and when all participants are aware of key activities at all levels in the chain. Forces Driving Increased Integration The following worldwide trends and forces are driving supply chains toward increased integration: Increased cost competitiveness.

Having substantially improved the efficiencies of internal operations, OEMs are seeking further cost reductions by improving efficiency and synergy within their supply chains. Shorter product life cycles. The Model-T Ford, for example, was competitive for many years. A personal computer PC is state of the art for less than a year, and the trend toward shorter product life cycles continues.

Faster product development cycles. Companies must reduce the development cycle times of their products to remain competitive. Early introduction of a new product is often rewarded with a large market share and sufficient unit volumes to drive costs down rapidly.

Supply Chain Management Books

Globalization and customization of product offerings. Customers the world over can increasingly afford and are demanding a greater variety of products that address their specific needs.

Mass customization has become the new marketing mantra. Higher overall quality. Increasing customer affluence and tougher competition to supply their needs have led to demands for higher overall quality.

Logistics Operations, Supply Chain Management and Sustainability

These increased demands on OEMs for improvements in product design, manufacturing, cost, distribution, and support are being imposed, in turn, on their supply chains. Case Study: Dell Computer and Fujitsu America Dell Computer Corporation's success in the past few years and its growth relative to the rest of the PC industry made daily headlines throughout the s.

Based on the premise that bypassing resellers, building products to order, and reducing inventories would result in a lower cost, more responsive business, Dell has grown into one of the Page 29 Share Cite Suggested Citation:"3 Supply Chain Integration. They may soon be further reduced through real-time deliveries so that, as components are used, they are automatically and immediately replaced. The reduction in inventory not only lowers requirements for capital, it also enables rapid changeovers to new product configurations because no old parts must be used up.

Faster time to market for new products translates into increased revenues and profits.

The change in emphasis from inventory levels to inventory velocity throughout the supply chain has been made possible, in part, by the Internet. In Dell's new virtual corporation, inventories are reduced by use of timely information; emphasis on physical assets is being replaced by emphasis on intellectual capabilities; and proprietary business knowledge is being increasingly shared in open, collaborative relationships.

This extensive integration of the supply chain can be viewed as a shift from vertical corporate integration to a virtually integrated corporation Magretta, Vertical integration was essential in the early years of computer manufacturing when the supplier base was not well established and assemblers had little choice but to design and build components and assemble the entire end product in house.

Proprietary component technologies were a main source of competitive advantage, although in some cases they had little to do with creating value for the customer. Leveraging investments by these suppliers has freed Dell to focus on delivering complete solutions to its customers. However, because these components are available to all PC assemblers, it has become harder to compete in terms of end-product differentiation.

Thus, a high premium has been placed on speed and process efficiency, blurring the traditional boundaries between supplier, manufacturer, and customer. For instance, peripherals, such as monitors, keyboards, speakers, and mice, need not be gathered in one location prior to shipment to the customer. Manufactured by separate suppliers and labeled with the Dell logo, shippers gather them from all over North America, match them overnight merge-in-transit , and deliver them as complete hardware sets to customers as if they had come from the same location.

Dell's virtual integration has the following characteristics: use of rapid, seamless communication to build direct relationships between customers, OEM, and suppliers a clear definition of what Dell does best i.

By , the success of the Dell model, as might be expected, was causing problems for competitors, including Fujitsu America, which had large inventories and high shipping costs Washington Post, May 2, Customers had to wait 10 days for laptops, while competitors were delivering in five.

In response, Fujitsu moved its distribution center from Portland, Oregon, to Memphis, Tennessee, and turned distribution over to FedEx Corporation, the parent company of Federal Express.

In direct response to orders, FedEx coordinates the shipment of components from worldwide suppliers, oversees the assembly of PCs, and ships them out, all in three or four days. By early , the cycle time on the ground was eight to twelve hours, and the goal was to reduce it to four hours. Fujitsu has essentially eliminated geographic proximity as an issue and has made maximum use of the benefits of globalization, including low cost. Even with the premium price of express shipping, this modification of the Fujitsu supply chain saved the company millions of dollars, slashed inventories by about 90 percent, and increased profits by 25 percent.

Most important, these changes have enabled Fujitsu to compete effectively with Dell for Internet sales directly to consumers. However, as is evident from these examples, these innovations in supply chain integration can also impose large burdens on suppliers in terms of responsiveness, inventories, and management of their own supply chains.

Thus, most supply chain integration efforts to date have been very limited in scope. Some of the major costs are listed below: time devoted to managing, training, and support effort devoted to becoming a better customer investment in supply chain integration software and compatible information systems throughout the chain Opportunity costs i.

A highly integrated, interdependent supply chain that consists primarily of sole-source suppliers practicing just-in-time manufacturing with minimal inventories is highly reliant on the timely delivery of quality components and services. Failure by one participant to deliver can rapidly bring other parts of the chain to a halt.

This happens, on occasion, even to the best suppliers and logistics providers. Automakers, for example, who are under constant pressure to reduce costs, have tightened their supply chains to the point that they typically have less than a one-day supply of parts at final assembly facilities.

Thus, a breakdown anywhere in the supply chain has the potential of bringing production to a halt e. Potential threats, including storms, power outages, terrorism, computer hackers, disruptions in communications, and equipment breakdowns, can be very difficult to predict and costly to prepare for. One of the keys to improving supply chain reliability is through reducing process variability.

The concept of six sigma will be discussed in more detail in Chapter 10 but in essence these tools are designed to enable variability in a process to be reduced and controlled. Thus, for example, if there is variability in order processing lead times then the causes of that variability can be identified and where necessary the process can be changed and brought under control through the use of six sigma tools and procedures.

The wider business, economic and political environments are increasingly subjected to unexpected shocks and discontinuities.

As a result, supply chains are vulnerable to disruption and, in consequence, the risk to business continuity is increased. Whereas in the past the prime objective in supply chain design was probably cost minimisation or possibly service optimisation, the emphasis today has to be upon resilience.

Resilience refers to the ability of the supply chain to cope with unexpected disturbances.

There is evidence that the tendencies of many companies to seek out low-cost solutions because of pressure on margins may have led to leaner, but more vulnerable, supply chains. Resilient supply chains may not be the lowest-cost supply chains but they are more capable of coping with the uncertain business environment.

Resilient supply chains have a number of characteristics, of which the most important is a business-wide recognition of where the supply chain is at its most vulnerable.

Richard van Hooijdonk

Managing the critical nodes and links of a supply chain, to be discussed further in Chapter 10, becomes a key priority. It is usually suggested that the benefits of such practices include improved quality, innovation sharing, reduced costs and integrated scheduling of production and deliveries.

Increasingly companies are discovering the advantages that can be gained by seeking mutually beneficial, long-term relationships with suppliers. The more that processes are linked between the supplier and the customer the more the mutual dependencies increase and hence the more difficult it is for competitors to break in.

Supply chain management by definition is about the management of relationships across complex networks of companies that, whilst legally independent, are in reality interdependent. Successful supply chains will be those that are governed by a constant search for win-win solutions based upon mutuality and trust. This is not a model of relationships that has typically prevailed in the past.

It is one that will have to prevail in the future as supply chain competition becomes the norm.These four themes of responsiveness, reliability, resilience and relationships provide the basis for successful logistics and supply chain management.

Therefore, the goal of this book is to present a cross-section of research and applications where simulation and optimization technologies have and can enhance sustainability in logistics and manufacturing. In other words, their ratio of benefits to costs is superior to other players in that market or segment. At the same time we should constantly seek opportunities to develop the volume of business that we do with them whilst keeping strict control of costs.

The table below illustrates this effect:

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