This book brings together the strategic role of the supply chain, key strategic drivers of supply chain performance, and the underlying tools and techniques for supply chain analysis. Students are able to articulate the strategic importance of supply chain thinking and support their ideas with evidence that can be built using models.
This book has grown from a course on supply chain management taught to second-year MBA students at the Kellogg School of Management at Northwestern University. The goal of this class was to cover not only high-level supply chain strategy and concepts, but also to give students a solid understanding of the analytical tools necessary to solve supply chain problems. With this class goal in mind, our objective was to create a book that would develop an understanding of the following key areas and their interrelationships:
The strategic role of the supply chain
The key strategic drivers of supply chain performance
Analytic methodologies for supply chain analysis
Our first objective in this book is for the reader to learn the strategic importance of good supply chain design, planning, and operation for every firm. The reader will be able to understand how good supply chain management can be a competitive advantage while weaknesses in the supply chain hurt the performance of a firm. We use many examples to illustrate this idea and develop a framework for supply chain strategy.
Within the strategic framework, we identify facilities, inventory, transportation, and information as the key drivers of supply chain performance. Our second goal in the book is to convey how these drivers may be used on a conceptual level during supply chain design, planning, and operation to improve performance. For each driver of supply chain performance, our goal is to provide readers with practical managerial levers and concepts that may be used to improve supply chain performance.
Utilizing these managerial levers requires knowledge ofanalytic methodologies for supply chain analysis. Our third goal is to give the reader an understanding of these methodologies. Every methodological discussion is illustrated with its application in Excel. In this discussion, we also stress the managerial context in which they are used and the managerial levers for improvement that they support.
The strategic frameworks and concepts discussed in the book are tied together through a variety of examples that show how a combination of concepts is needed to achieve significant improvement in performance.
CHANGES TO THE NEW EDITION
Although the basic goal of the book remains unchanged, this second edition has several significant changes that we believe improve the book. The first such change is the addition of new chapters on distribution networks (Chapter 4), sourcing (Chapter 13), and price and revenue management (Chapter 15).
Chapter 4 provides a conceptual basis for designing a distribution network. It contains a discussion of different distribution networks and when a firm should prefer one over the other. The chapter provides a framework to answer questions such as: When is it best to structure a direct distribution system with all inventory stored at the manufacturer? When is it better to go through an intermediate distributor? When is it appropriate to stock and sell products at retail stores? Our goal is to provide managers with a logical framework for selecting the appropriate distribution network given product characteristics and the markets being served.
Chapter 13 takes a comprehensive look at various sourcing decisions within a supply chain. We discuss different sourcing activities including supplier assessment, supplier contracts, design collaboration, and procurement. Building on previous chapters, we show how a supplier's performance impacts total supply chain cost and provide a structure for supplier evaluation based on total cost. We describe various forms of supplier contracts and discuss their impact on supply chain profits, information distortion, and supplier behavior. Our goal in this chapter is to provide a framework for evaluating a variety of sourcing decisions.
Chapter 15 discusses how pricing and revenue management may be used to improve profits from a given set of supply chain assets. We discuss various situations where revenue management is applicable. The use of revenue management in supply chains is still in its early stages but is likely to become increasingly important. The goal of this chapter is to allow a manager to identify scenarios where revenue management can be used and then devise appropriate revenue management tactics. We believe that the areas addressed in the three new chapters are important and a significant addition to the first edition.
The second change in this edition is the sequence in which the material is presented. The major change relative to the first edition is that we have moved forward the section on designing the supply chain network (now Chapters 5 and 6). After developing a strategic framework, many will find it a more logical flow to discuss supply chain network design and then move on to demand, supply, inventory, and transportation planning.
In addition, we have completely rewritten Chapter 17 on information technology in the supply chain. Here we develop a new framework for supply chain software that we feel provides a much improved view of where enterprise software is headed. And finally, we have updated all of the remaining chapters, adding new ideas and examples, to keep the book on the forefront of supply chain management.
The book is targeted towards an academic as well as a practitioner audience. On the academic side, it should be appropriate for MBA students, engineering masters students, and senior undergraduate students interested in supply chain management and logistics. It should also serve as a suitable reference for both concepts as well as methodology for practitioners in consulting and industry.
There are many people we would like to thank who helped us throughout this process. We thank the reviewers whose suggestions significantly improved the book: Zhi-Long Chen, University of Maryland; Michael G. Kay, North Carolina State University; Ronald Lau, Hong Kong University of Science and Technology/University of South Dakota; Gregory N. Stack, Northern Illinois University; Dr. Srinivas Talluri, Michigan State University; and Lawrence E. Whitman, Witchita State University. We are grateful to the students at the Kellogg School of Management who suffered through typo-ridden drafts of earlier versions of the book. Specifically, we thank Christoph Roettelle and Vikas Vats for carefully reviewing several chapters and solving problems at the end of the chapters. Our developmental editor, Libby Rubenstein, who read all our writing with a critical eye and raised all the right issues, was instrumental in improving the book. The book is much better because of her involvement. We would also like to thank our editor Tom Tucker and the staff at Prentice Hall for their effort with the book. Finally, we would like to thank you, our readers, for reading and using this book. We hope it contributes to all of your efforts to improve the performance of companies and supply chains throughout the world.
Sunil Chopra Kellogg School of Management