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Designing and Managing the Supply Chain: Concepts, Strategies, and Cases with CD-ROM Package / Edition 1

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It is not surprising that many companies are involved in the analysis of their supply chains. Most textbooks do not include models and decision support systems robust enough for industry. DESIGNING AND MANAGING THE SUPPLY CHAIN: Concepts,Strategies,and Cases discusses these problems,models and concepts at that appropriate level. While many core supply chain management issues are interrelated,the authors have tried,when possible,to make each chapter as self contained as possible,so that the reader can refer directly to chapters covering topics of interest. Each chapter utilizes case studies and numerous examples. Mathematical and technical sections can be skipped without loss of continuity. The book also contains two software packages,the Computerized Beer Game and the Risk Pool Game which help illustrate many of the concepts discussed.
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Product Details

  • ISBN-13: 9780072357561
  • Publisher: McGraw-Hill Higher Education
  • Publication date: 9/28/1999
  • Series: McGraw-Hill Series in Information
  • Edition description: Older Edition
  • Edition number: 1
  • Pages: 321
  • Product dimensions: 7.25 (w) x 9.39 (h) x 0.72 (d)

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Chapter 1: Introduction to Supply Chain Management

1.1 What Is Supply Chain Management?

Fierce competition in today's global markets, the introduction of products with short life cycles, and the heightened expectations of customers have forced business enterprises to invest in, and focus attention on, their supply chains. This, together with continuing advances in communications and transportation technologies (e.g., mobile communication and overnight delivery) has motivated the continuous evolution of the supply chain and of the techniques to manage it. In a typical supply chain, raw materials are procured, items are produced at one or more factories, shipped to warehouses for intermediate storage, and then shipped to retailers or customers. Consequently, to re-duce cost and improve service levels, effective supply chain strategies must take into account the interactions at the various levels in the supply chain. The supply chain, which is also referred to as the logistics network, consists of suppliers, manufacturing centers, warehouses, distribution centers, and retail outlets, as well as raw materials, work-in-process inventory, and finished products that flow between the facilities (see Figure 1.1).

In this book, we present and explain concepts, insights, practical tools, and decision support systems important for the effective management of the supply chain. But what exactly is supply chain management? We define it as follows:

Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the rightlocations, and at the right time, in order to minimize systemwide costs while satisfying service level requirements.

This definition leads to several observations. First, supply chain management takes into consideration every facility that has an impact on cost and plays a role in making the product conform to customer requirements; from supplier and manufacturing facilities through warehouses and distribution centers to retailers and stores. Indeed, in some supply chain analysis, it is necessary to account for the suppliers' suppliers and the customers' customers because they have an impact on supply chain performance.

Second, the objective of supply chain management is to be efficient and cost-effective across the entire system; total systemwide costs, from transportation and distribution to inventories of raw materials, work in process, and finished goods, are to be minimized. Thus, the emphasis is not on simply minimizing transportation cost or reducing inventories, but rather, on taking a systems approach to supply chain management.

Finally, because supply chain management revolves around efficient integration of suppliers, manufacturers, warehouses, and stores, it encompasses the firm's activities at many levels, from the strategic level through the tactical to the operational level.

Of course, a natural question is what is the difference between supply chain management and logistics management? While the answer, surprisingly, will vary depending on who is addressing this issue, we do not distinguish between logistics and supply chain management. Indeed, our definition of supply chain management is similar to the definition of logistics management given by the Council of Logistics Management:

The process of planning, implementing and controlling the efficient, cost effective flow and storage of raw materials, in-process inventory, finished goods, and related information from point-of-origin to point-of-consumption for the purpose of conforming to customer requirements.

Both definitions place great emphasis on the integration of the different components in the supply chain. Indeed, it is only through supply chain integration that the firm can significantly reduce costs and improve service levels. Unfortunately, supply chain integration is difficult for two main reasons:

1. Different facilities in the supply chain may have different, conflicting, objectives. For instance, suppliers typically want manufacturers to commit themselves to purchasing large quantities in stable volumes with flexible delivery dates. Unfortunately, although most manufacturers would like to implement long production runs, they need to be flexible to their customers' needs and changing demands. Thus, the suppliers' goals are in direct conflict with the manufacturers' desire for flexibility. Indeed, since production decisions are typically made without precise information about customer demand, the ability of manufacturers to match supply and demand depends largely on their ability to change supply volume as in-formation about demand arrives. Similarly, the manufacturers' objective of making large production batches typically conflicts with the objective of both warehouses and distribution centers to reduce inventory. To make matters worse, this latter objective of reducing inventory levels typically implies an increase in transportation costs.

2. The supply chain is a dynamic system that evolves over time. In-deed, not only do customer demand and supplier capabilities change over time, but supply chain relationships also evolve over time. For example, as customers' power increases, there is increased pressure placed on manufacturers and suppliers to produce an enormous variety of high-quality products and, ultimately, to produce customized products. Also, even when customer demand for specific products does not vary greatly, inventory and back-order levels fluctuate considerably across the supply chain. To illustrate this issue, consider Figure 1.2, which suggests that in a typical supply chain, distributor orders to the factory fluctuate far more than the underlying retailer demand.

Example 1.1.1 A Korean manufacturer of electrical products such as industrial relays is facing a service level of about 70 percent; that is, only about 70 percent of all orders are delivered on time. On the other hand, inventory keeps piling up, mostly of products that are not in demand. The manufacturer's inventory turnover ratio, defined as the ratio of the annual flow to average inventory at the manufacturer's main ware- house, is about four. However, in the electronics industry, leading companies turn inventory over about nine times a year. If the Korean manufacturer can increase its inventory turns to this level, it will be able to significantly reduce inventory levels. The manufacturer is thus searching for new strategies that will increase service levels over the next three years to about 99 percent and, at the same time, significantly decrease inventory levels and cost.
Just a few years ago, most analysts would have said that these two objectives, improved service and inventory levels, cannot be achieved at the same time. Indeed, traditional inventory theory tells us that to increase service level, the firm must increase inventory and therefore cost. Surprisingly, recent developments in information and communications technologies, together with a better understanding of supply chain strategies, has lead to innovative approaches that allow the firm to improve both objectives simultaneously...
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Table of Contents

1 Introduction to Supply Chain Management 1
2 Logistics Network Configuration 15
3 Inventory Management and Risk Pooling 39
4 The Value of Information 67
5 Distribution Strategies 109
6 Strategic Alliances 121
7 International Issues in Supply Chain Management 145
8 Coordinated Product and Supply Chain Design 167
9 Customer Value and Supply Chain Management 197
10 Information Technology for Supply Chain Management 215
11 Decision-Support Systems for Supply Chain Management 249
App. A The Computerized Beer Game 275
App. B The Risk Pool Game 293
Bibliography 303
Index 309
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  • Anonymous

    Posted March 28, 2000

    A Great Book for All Levels

    I was looking for some basic knowledge on supply chain management. Some way, I came across this book, and found that everything that someone needs to know about supply chain management is there. Very well organized, concise and effective. The mix of academia and industry people as its authors has positive effect on the book. You get pedagogical discussion about the subject with very good supporting case studies from the industry. I think that this book is a must for all Supply Chain Management Professionals.

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