Logistics and Supply Chain Integration

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Ian Sadler

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    Dedication

    I wish to dedicate this book to my late wife, Jo Sadler.

    Words cannot express the appreciation I feel for the support given to me by Jo over forty years.

    Until her untimely death late in 2006, Jo cheerfully endured my early rising and unavailability during my research and authorship. She has generously encouraged and supported me in ways beyond measure.

    Foreword

    We are pleased to introduce a new text Logistics and Supply Chain Integration which combines relevant concepts with practical applications and cases. Supply chains are now seen as a new, additional vantage point from which to manage the value streams that deliver products and services to consumers.

    In our work at the Lean Enterprise Research Centre of Cardiff University, we use these concepts in supply chain management every day with both practitioners and students. Our clients range from health services to vegetable processing; from automotive assembly to sheep dis-assembly. The wide strategies of supply chain integration aim to involve all company employees in achieving customers' exact needs. Doing this without wasteful processes has proved a powerful paradigm for achieving business excellence, for those prepared to stay the course.

    We have been involved in this book since its inception. It makes a worthwhile contribution to supply chain education for postgraduates, undergraduates and logistics managers. This novel contribution includes balanced coverage of information communication, inter-company relationships, service chains, international chains and supply chain improvements. The cases at the end of each chapter are a valuable aid to the aspects of knowledge covered. We commend Ian for producing this book.

    PeterHines, Director of the Lean Enterprise, Research Centre, Cardiff University
    DavidTaylor, Senior Research Associate, Lean Enterprise Research, Centre, Cardiff University

    Preface

    Approach

    The special perspective on business provided by supply chain management has been growing in importance over the last twenty years. This started with an emphasis on physical distribution management, then comprised the entire logistics of a company from receiving materials to despatch of finished goods. Recently, the emphasis has widened to include all the business partners required to source, make and deliver goods to end customers. With the universal availability of information and with supply chains that extend around the world, it is now clear that companies compete according to the strength of their entire chains, not according to the stature of one link in the chain. Hence companies should aim to have a supply chain for each product group which is healthy, satisfies customers and competes with other chains at a long-term profit. This set of chains needs to reflect current conditions and needs to be flexible when markets and resource costs change. The chains are an integral part of the formation and implementation of business strategy. This book addresses these company aims.

    The text provides several innovative features over existing texts. The big picture is examined through a generic ‘Double-Bell’ model which deals with multiple levels of suppliers in the first bell and multiple levels of distributors in the second bell. The manufacturing (or service) processes are sited between the two bells in a focal company. The logistics of service businesses is considered at length. Information communication is treated broadly by setting out both a framework and the specific systems which managers use to plan and execute logistics decisions accurately. A combination of personal contact and electronic information is involved in this process. Using the Internet and enterprise resource planning systems, correct information can replace inventory and enable accurate fulfilment of customer orders around the globe.

    There is a lack of suitable texts to support a postgraduate course in Supply Chain Management which are both conceptually sound and useful in practice. Many texts take a marketing approach, which is light on operational practice. Others have a strong analytical emphasis, which tends to provide an average answer with limited use to the individual situation. This work acknowledges that each supply chain is unique, although each will have commonalities with others in its industry.

    The author takes a management approach. This approach recognises that supply chains depend upon communications between people, shared understanding and decisions made from commercial knowledge rather than from mathematical calculations. The managerial challenge is to integrate numerous processes in different places and different firms so that both the short-term objectives of customer satisfaction and the strategic objectives of business development and efficiency are attained. The broad approach examines key concepts and practical considerations for designing, running and changing supply chains.

    As the book's title suggests, the key issue missing from many companies' thinking is integration, the synergy of contributions within the design and execution of product-delivery systems. Integration requires a systems approach by analysts and management decision-makers. Supply chain management must be given its correct place in the chain of companies at each of the decision levels from strategic to operational in order for greater value to be obtained for customers and stakeholders. Therefore the book devotes two chapters to important advice for integrating partner companies into a seamless supply chain. A further chapter addresses the means to attain operational and strategic improvement.

    The text reflects the belief that supply chain success requires:

    • insight into managers' behaviour,
    • a realistic management approach to individual chain links, and
    • visionary leadership to integrate the whole chain.

    It is primarily intended for use as a university textbook for teaching supply chain management at advanced undergraduate or Master's level. It is also intended for current and prospective logistics managers who wish to develop their thinking through its research and insights.

    Organisation and Content

    Given this managerial approach to chains, the book is organised into a wide foundation of supply chain knowledge in the first three chapters; key additional topics in the next two chapters; and the theory and practice of integration in the final three chapters.

    Figure 0.1 below shows the relationships between the various chapters. Chapter 1 defines supply chains and provides an overview of information communication, management and integration for chains. Chapters 2 and 3 focus on the organisation and functions of the focal companies in supply chains, covering manufacturing companies and logistics in service organisations, customer service and transport respectively. The next two chapters add important parameters to the whole chain: international logistics which becomes ever more important as globalisation of business progresses, and information communication which is critical to drive product delivery.

    Figure 0.1 Layout of the book

    After the first five chapters provide a wide foundation of chain theory and practice, the next two chapters examine supply chain integration. Chapter 6 considers the way in which the key links in chains can be integrated, focusing on primary processes, the creation of flows of products and services and the choice of relationships between link-companies. Chapter 7 studies the more complex areas of chain integration such as chain restructuring and leadership issues. Chapter 8 considers supply chain performance, immediate improvements and a process of strategic planning to achieve revolutionary change for the benefit of end customers and chain companies.

    Educational Methods

    This book provides numerous educational aids. The reader's learning objectives are given at the start of each chapter. The end of the text of each chapter has a summary and a set of review questions, so that participants can check that they have understood the material and attained the learning objectives. Brief answers to odd-numbered questions are on the book's website. Boxes are used for mini-cases or analysis, to separate them from the main flow of the text.

    Each chapter concludes with a case, related to its material, which is valuable for participants to use in groups. The cases are based on practical situations, modified to protect confidentiality and to improve the knowledge that they exemplify. The last section in each chapter is a list of references for further reading. A glossary is provided at the end of the book as an easy reference to meanings of terms and because the newness of supply chain management means that many terms have different meanings in the literature and commerce. Terms in the text in italics denoted by an asterisk* are defined in the glossary. The length of the book is determined by the amount of content which can be studied in a one-semester subject. The book's website also contains;

    • a set of PowerPoint slides for instructors to explain each chapter,
    • teaching notes for each chapter,
    • sample answers to cases,
    • several assignments for student assessment, and
    • exam questions.

    Logistics and Supply Chain Integration provides a state-of-the-art explanation of concepts and implementation issues for students and experienced managers. It is intended to cater for postgraduate and third-year undergraduate students. Directors and managers (where ‘managers’ is shorthand for all the people in companies who make things happen for customers) in logistics and related areas can use the concepts and well-developed cases to inform supply chain decisions, from strategic to operational. The melding of concepts, axioms and practical applications is a resource for academic researchers to use as a reference in any work which relates to supply chains.

    Acknowledgements

    This book would not have been accomplished without the help of colleagues and the executives at Sage Publications. I offer sincere thanks to my colleagues, in Australia and Britain, who inspired and supported me in this work.

    I express my sincere gratitude to all who assisted me with specific areas:

    • David Taylor of the Lean Enterprise Research Centre (LERC) at Cardiff University, who helped me write Chapter 4 and provided the material for the case ‘Shoes go global’.
    • G. Peter Dapiran, Senior Fellow in the Faculty of Engineering, The University of Melbourne, who gave generously of his teaching materials for the Benetton case, distribution centre strategy, logistics security, and outsourcing logistics.
    • Martin Christopher, Professor of Marketing and Logistics at Cranfield University, whose writings have enthused me for twenty years and who kindly provided the original case on which ‘Designing a European supply chain’ is based.
    • Peter Gilmour, late Professor of Logistics at Macquarie University, New South Wales, for his specific work on logistics customer service levels and his inspiration over the whole field.
    • Professor Nigel Slack, of Warwick University Business School, whose writings and personal contact informed my work on the operations aspects of the book.
    • Professor Robert Johnson, of Warwick University Business School, whose writings stimulated the chapter on service supply chains.
    • Terry Hill, Emeritus Professor at Templeton College, Oxford, who developed the concepts of order-winning criteria and strategic operations planning.
    • Ken Platts, Reader in Engineering Management at Cambridge University, whose ‘Manufacturing audit approach’ inspired the strategic planning process described in Chapter 8.

    I thank Professor Michael Muetzelfeldt, previous Head of the School of Management at Victoria University, who stimulated me to write the book, and Professor Peter Hines, the Director of LERC, for his advice that the book was worth publishing in a growing field.

    In writing this book I made use of the knowledge available and ‘picked the brains’ of my colleagues. I express my thanks to all who helped me, especially Professor Don Bowersox of Michigan State University; Dr Mark Francis and David Simons of LERC at Cardiff University; Richard Gough, Associate Professor Bernadine van Gramberg and Dale Harvey of the School of Management at Victoria University, Melbourne; Alan Harrison and Remko van Hoek of Cranfield University; Dan Jones of the Lean Enterprise Institute in Ross-on-Wye, Wales; and Thomas Vollmann of the International Institute for Management Development.

    I am also very grateful to many friends, consultants and company contacts for practical help. Special thanks go to Ulf Åslund of Malmo in Sweden; David Doherty of the SCLAA Association in Melbourne; Jesper Hovrell of SingTel Optus in Sydney; the late Richard Normann and Rafael Ramirez, authors of the book Designing Interactive Strategy. Kenichi Ohmae of Ohmae and Associates in Tokyo; authors of the Supply Chain Operations Reference model, Graham Stevens of Peat Marwick McLintock in London, John Stuart of JV Support Services, Melbourne and Ken Yendell of Publishing Solutions.

    Although all the cases are my own work, many of them are based on prior work, which I adapted to suit this particular text. In addition to those mentioned above, I gratefully acknowledge the following sources:

    • ‘Serving motorists’ is based on work by my Master's students J Kale and H Keskar.
    • ‘Betta Struts develops an e-supply chain’ was developed from a presentation by Mark Ottery.
    • ‘Preparing for a seamless supply chain’ is a revision of a case published by Dan Dimancescu, Peter Hines and Nich Rich.
    • Lucent Technologies Company’ was developed from work by my Master's students C Duan and T Kanjanakajit.

    I wish to thank Jennifer Pegg, of Thomson Learning, who first considered publishing my book. I especially thank Delia Alphonso and Anne Summers for reviewing my book and giving much sound advice during its publication. Katherine Haw was a tremendous help during production. They ‘held the hand’ of a first author on the other side of the world. I thank all the staff at Sage Publishing who have assiduously helped to achieve this outcome.

    I express my heart-felt thanks to my Australian editor, Margery Joan, who has unstintingly advised, edited, formatted and proofed all my work.

    Publisher's Acknowledgements

    I am grateful to the following for permission to reproduce copyright material:

    Figures 1.7 and 4.1 after Logistics Management and Strategy, by Harrison A and van Hoek R, reprinted by permission of Pearson Education Limited, copyright 2002, 2005.

    Figures 2.4 and 5.7 from Manufacturing Planning and Control Systems for Supply Chain Management, 2005, by Vollmann TE, Berry WL, Whybark DC and Jacobs FR, reprinted with permission of The McGraw-Hill Companies.

    Figure 3.6 after Service Operations Management, by Johnston R and Clark G, reprinted by permission of Pearson Education Limited, copyright 2001, 2005.

    Figure 3.9 reprinted from Journal of Purchasing and Supply Management, Volume 9, Harland C, Brenchley R and Walker H, ‘Risks in Supply Networks’, page 55, copyright 2003, with permission from Elsevier.

    Figure 4.4 after Supply Chain Management, by Chopra S and Meindl P, reprinted by permission of Pearson Education, USA (2004).

    Table 4.2 after Supply Chain Logistics Management, 2006, by Bowersox DJ, Closs DJ and Cooper MB, reproduced with permission of The McGraw-Hill Companies.

    Box 5.3 after Operations Management, by Slack N, Chambers S and Johnston R, reprinted by permission of Pearson Education Limited, copyright 2001.

    Table C6.2 page 183 adapted and reprinted by permission of AMACOM Inc (Dimancesceau D, Hines P and Rich N, 1997).

    Figure 7.2 reprinted from Relationship Marketing by Peck H, Payne A, Christopher M and Clark M, copyright 1999, with permission from Elsevier.

    Figures 2.11 and 8.5 from Manufacturing Strategy, ed. Voss CA (Jouffrey and Tarondeau, 1992).

    Every effort has been made to trace all the copyright holders. However, if any have been unwittingly overlooked, I will be pleased to make the necessary arrangements.

    List of Figures

    • 0.1 Layout of the book xiv
    • 1.1 Chain representation: from tributaries through product manufacture to distribution 6
    • 1.2 Basic supply chain – physical movements 7
    • 1.3 Basic supply chain – information drives flow up the chain 7
    • 1.4 Major constituents of a process 9
    • 1.5 Supply chain as a series of company links (processes) providing goods and services to customers 9
    • 1.6 The Double-Bell model of the supply network for business 10
    • 1.7 Supply network structure 12
    • C1.1 Concept diagram of Shavers supply network 22
    • C1.2 Decision-making responsibilities in Shavers 22
    • C1.3 Revised European DC network 24
    • C1.4 Decision-making responsibilities in Shavers three years later 27
    • 2.1 Logistics operations functions 34
    • 2.2 Elements in the production process 37
    • 2.3 Production responses to variety of products wanted 37
    • 2.4 Main components of MRP systems in outline 40
    • 2.5 Distribution inventory systems 48
    • 2.6 Tissue carton stock at distribution centre 49
    • 2.7 Underlying inventory cycles for working stock for one product 49
    • 2.8 Economic order quantity cost trade-off 50
    • 2.9 Pareto analysis of inventory items 53
    • 2.10 Inventory cycles for traditional and JIT/lean for one product 53
    • 2.11 Relationship between design and provision cycles 55
    • 2.12 The structure of a company showing the main departments 57
    • C2.1 Partial organisation chart 63
    • C2.2 Processes in a smallgoods factory 64
    • C2.3 Links in the integrated supply chain for smallgoods products 65
    • 3.1 Cost of 100% service 73
    • 3.2 Model of service processes 75
    • 3.3 Functions in the service supply chain 76
    • 3.4 Service supply chain for a petrol station 77
    • 3.5 Many organisations together provide a service to customers 79
    • 3.6 Key stages of a service strategy 80
    • 3.7 Strategic distribution centre decisions 82
    • 3.8 Import freight information flow 86
    • C3.1 Service station flow of information 93
    • C3.2 Supply chain for service station 95
    • 4.1 Relative importance of international location factors 101
    • 4.2 Transnational commodity supply chain for shoes 103
    • 4.3 Overall functions in part of a TC supply chain 109
    • 4.4 An international information framework 111
    • C4.1 The five principles of lean thinking 117
    • C4.2 Current state map: product flow system 118
    • C4.3 Information flows in the current state 119
    • 5.1 A supply chain information network 127
    • 5.2 The main areas in order-processing 130
    • 5.3 The evolution of ERP 132
    • 5.4 The main logistics information systems for one link 133
    • 5.5 Example of overall ERP architecture 134
    • 5.6 Information communication modules for one link shown in relation to the Double-Bell model of the supply chain 135
    • 5.7 The main components of MRP systems in full 137
    • 5.8 Elements of an e-business model 149
    • C5.1 Supply chain structure for Monostrut 156
    • C5.2 Planned realignment 157
    • 6.1 Compare task and process-focused strategies 162
    • 6.2 Decoupling point and system boundary in a supply chain 163
    • 6.3 Steps to create a strategic supply chain plan 177
    • 7.1 The extended Double-Bell model 190
    • 7.2 Supply chain management as a series of company links 194
    • 7.3 Relationship marketing with respect to supply chains 197
    • 7.4 Value constellation for third-generation mobile phones 198
    • 7.5 The strategic dimension of outsourcing 199
    • C7.1 The whole supply chain of Lucent Technologies 204
    • C7.2 Network diagram for the EDI solution 206
    • 8.1 SCOR management processes 215
    • 8.2 Context for proposed process stages for supply chain planning 221
    • 8.3 Process stages undertaken by the supply chain planning team 224
    • 8.4 Supply chain diagram for a heavy equipment manufacturer 225
    • 8.5 Strategic structure required 229
    • C8.1 Thinking and worksheets in the SOLP process 232

    List of Tables

    • 1.1 Comparison between supply chains 14
    • 2.1 Production schedule for sausages at Bradley 39
    • 2.2 Examples of journeys by materials and products 44
    • 2.3 Inventory items grouped by sales 52
    • C2.1 Scheduled production of sausage – produce to stock (tonnes) 66
    • C2.2 Scheduled production of sausage – just-in-time production (tonnes) 67
    • C2.3 Study results 67
    • 3.1 Freight forwarder services 87
    • 3.2 Example of different aspects of risk 89
    • 4.1 Contrast in logistics support in different world regions 107
    • 4.2 Overseas sourcing guidelines 112
    • C4.1 Time summary 122
    • 5.1 Essential information in one link 129
    • C5.1 Issues identified 155
    • 6.1 Derivation of major flow criteria 167
    • 6.2 An example of supplier metrics 171
    • C6.1 Three-tier system of management for supplier integration 182
    • C6.2 Metrics and performance gaps 183
    • C6.3 Ranking improvement methods 184
    • C6.4 Top-rated improvement methods and the inputs required 184
    • 7.1 An offering comprises all the elements in this picture 198
    • 7.2 A framework for make-or-buy decisions 201
    • 8.1 Typical performance measures 214
    • 8.2 Summary of analysis tools 216
    • 8.3 Example of order winners and qualifiers 225
    • 8.4 Assessing the current operations strategy 227
    • 8.5 Supply chain management strategy according to the demand-supply matrix 229
    • C8.1 Composition of teams in the two processes 235
    • C8.2 Order-winners and qualifiers 236
    • C8.3 Worksheet 8: action plan for wheel loader buckets 237
    • C8.4 Worksheet 7: action plan for truck bodies 239
  • Glossary

    • ABC inventory control A method to manage the stock of large numbers of products or parts by dividing them into groups according to the size of turnover of each product. Different methods and frequencies are then devoted to each product group. Employs Pareto analysis.
    • Action plan A table of specific actions required to transform a supply chain from its present situation to a desired future state. In effect, these actions constitute the required strategic direction.
    • Active information The word ‘active’ is used to distinguish data and information, which are flowing within links or along supply chains to help their management, from other information, for example in ERP systems, which is not needed or not adding value.
    • Aggregate or capacity planning Calculating the resources of equipment, staff and inventory required to satisfy a forecast of product sales for the next year, say.
    • Agile A capability of the supply chain that aligns organisational structures, information systems, logistics processes and mindsets to satisfy demanding customers.
    • Backbone A central relational communication link between all of a company's computer systems. Enterprise resource planning systems provide a ‘backbone’ for all the data and information which a company possesses.
    • Barcode A machine-readable, permanent form of identification.
    • Channel A logistics channel is an alternative name for a supply chain.
    • Communications system It moves data and information up the supply chain, both within and between links, so that it is quickly available to operators, schedulers and managers.
    • Contract distribution An undertaking by a third-party logistics company to carry all the goods for a manufacturer, or distributor, for a year or more. It may include wider elements of distribution, such as storage and order-processing.
    • Corporate governance Conducting the policy and actions of a company.
    • Cross-docking Immediate sorting of incoming loads at a distribution centre to send the resorted loads directly out to customers.
    • Customer or end consumer The person or organisation which requires the goods or services to be provided by the supply chain.
    • Customer relationship management A software system which assists companies to improve their connection with customers.
    • Cycle time The time that it takes to make a product or the time that a customer must wait to obtain a product.
    • Decoupling point The position in the supply chain at which materials or products are designated to a particular customer. In international supply chains, decoupling points have a wider meaning, including major points of transfer, production and international distribution.
    • Delivery The act of supplying finished products to a customer or the whole subsystem of physical distribution of goods to end customers.
    • Demand Present and future requirement for the products or services being provided by the supply chain to end consumers.
    • Dependent demand inventory Requirement for parts, for example, which can be calculated from another measure. For example, the number of tyres required to make cars depends exactly on number of vehicles wanted.
    • Design Detailed consideration of the ways of achieving new or extensively modified supply chain (value stream, lean enterprise) objectives.
    • Distribution The outbound movement of finished products from production facility to end consumer.
    • Distribution centre A warehouse which receives finished goods from a production facility and holds them for despatch to customers.
    • Distribution requirements planning A computer system which tracks individual products through various distribution centres to the end customer for current and future time periods.
    • ‘Door to door’ The logistics of one link (or partner company) from inbound receipts to despatch to the next link.
    • Double-Bell model A generic representation of a complete supply chain from sources of materials to end consumers of goods and services. The left-hand bell indicates many suppliers; the right-hand bell represents distribution to numerouscustomers.
    • Downstream A movement away from suppliers and towards customers. Conversely, ‘upstream’ is a movement towards suppliers.
    • Economic order quantity (EOQ) Is the amount ordered which will theoretically minimise the total cost of possessing inventory by balancing carrying cost against ordering cost.
    • Electronic communication Transferring data between two parties in digitised form by land line or radio transmission methods.
    • Electronic data interchange (EDI) A means of transferring data instantaneously between computers in different companies in the format required for each database.
    • Enterprise resource planning (ERP) A computer system which encompasses all the planning and control functions necessary to run a manufacturing plant and which records the current status of data in other functions throughout the divisions of a whole company.
    • Entrepreneur One who creatively matches customer needs to manufacturing or supply chain processes.
    • Essential information Comprises information elements which are considered to be absolutely necessary to manage the link facility: order-taking, purchasing, scheduling, inventory controlling and delivery recording.
    • Exclusive partnershipSeePartnership, exclusive.
    • Execution The production phase in which operating plans are carried out.
    • Factory or facility Building premises in which manufacturing, storage or sorting is carried out.
    • Flow The progressive achievement of tasks along the supply chain so that products are designed and physical movement from sources to customers is achieved without delays, waste or rework.
    • Flow-creating criteria Criteria which must be attained by various parts of the supply chain to satisfy the needs of customers and hence win business and ensure repeat orders. See alsoOrder winners.
    • Focal company The organisation in the centre of the supply chain which is responsible for converting materials into finished products. In some cases, such as with imported goods, the importer or distributor may be considered the effective focal company. In service supply chains the focal company provides the service to customers.
    • Forecasting Prior estimates of the quantity of goods or services which will be required, based on historic quantities and a knowledge of current trends in customer needs.
    • Freight forwarder An independent company which arranges transport movements and documentation for a shipping company to any world-wide destination. The forwarder may or may not carry out the transport itself.
    • Freight transport A specialised form of transport to convey materials or finished goods to destinations along the supply chain. It can refer to any mode of transport.
    • Implementation A systematic process to ensure that activities required within a strategic plan are all effectively carried out.
    • Inbound logistics All the activities of supply and transport to bring materials into a manufacturing company.
    • Independent demand inventory A requirement for stock which cannot be calculated from a precedent situation because the demands are many, variable and unknown.
    • Information communication system (ICS) The gathering of electronic and other data and its movement to points of decision so that operators and managers have a greater understanding of current and planned conditions when they make decisions or allow automatic decisions. It is not information technology (IT) because the technology is not necessarily known to managers. See alsoLogistics information system.
    • Information flow Comprises the sharing of electronic and other information for use by any supply chain enterprise. Information flow has an overriding importance to the effective supply chain operation, although it is not a link in the chain.
    • Infrastructure The soft systems needed to run a company or a supply chain, comprising organisation, people and information systems.
    • Integrated supply chain Requires that the movement of material and product, and the provision of service, throughout the firms in the chain are planned and managed in a systematic way using electronic and person-to-person communications. Better design and implementation of provision and flow will dramatically improve the efficiency of the operation for customers and firms. Taking the system-wide perspective allows the firms to make appropriate trade-offs between costs such as purchasing, production, transport, inventory and distribution. Close coordination between these operations and the strategic environment produces high levels of service and performance for customers while reducing the total costs incurred. An integrated supply chain caters for one group of products within a supply network.
    • Intermediaries Organisations which are involved in the distribution of products with attendant services to end consumers. Intermediaries typically comprise wholesalers, retailers, importers, exporters and providers of storage and transport services.
    • Inventory Stocks of materials, components and products required for customers.
    • Kanban (Japanese for ‘card’) In a kanban system, cards are used to specify the number of containers of parts which are to be delivered to the next process or to a manufacturer.
    • Leader A leader promulgates visions of future forms of the company and the supply chain. He or she uses motivation, coordination and control to propel the company or chain towards that vision by strategic and operational actions.
    • Lean A method of removing wasted effort from processes while protecting and enhancing customer value.
    • Lean enterprise A conceptual name of supply chains optimally integrated from vendors to end customers to serve those customers with desired products at a profit.
    • Lean manufacture Achieving a waste-free production process by finding out what end customers want and reducing the manufacturing steps to the minimum required to achieve the customers' precise needs.
    • Lean thinking Using ‘lean’ principles and methods of thinking to remove waste from companies or supply chains so that they deliver value to customers and operating companies more effectively.
    • Lean value stream mapping (LVSM) A technique which allows a team to investigate a supply chain and use the ‘lean’ philosophy to remove wasted efforts while protecting steps required by customers.
    • Link A stage in a supply chain which performs tasks at one facility, contributing towards the eventual product. A link is often operated by a different company from other parts of the chain.
    • Logistics customer service The product and service delivery provided to end consumers by the supply chain, when and where they require it.
    • Logistics information system (LIS) The coordination and direction of people, equipment and procedures to gather, sort, analyse, evaluate and then distribute information to the appropriate decision-makers in a timely and accurate manner so that they can make quality supply channel decisions.
    • Make or buy decision A company decision to manufacture a component or carry out a service itself rather than buying it from another company.
    • Make-to-stock A method of production of goods in anticipation of orders.
    • Make-to-order Production of goods to satisfy orders received.
    • Manager A person who ensures that the aims of a company are met by regular oversight and decision-making. The term ‘managers’ or ‘management’ is used as shorthand for people in companies who make things happen for customers. The people concerned range from operators and supervisors to managers and directors.
    • Manufacturing Resources Planning (MRP II) An information system which contains all the data required by a company to carry out materials requirements planning and related functions, such as sales, accounting and human resources.
    • Mass services Mass services have high customer transactions with little contact time and low customisation. The offering is product-oriented and back officedominated (e.g. retail whitegoods, petrol station).
    • Master production schedule A schedule of the number of products to be made in each forward time period. This schedule drives the production process.
    • Materials Inputs to the production process, such as primary products, components, sub-assemblies and modules.
    • Materials handling Movements between processes in the factory, by, for example conveyor or forklift truck.
    • Materials requirements planning (mrp) Using a computer system to convert a schedule of finished products into the detailed components and assemblies required for those products, by means of a product structure, for many future time periods. It also provides the number of materials to be purchased from suppliers.
    • Mode One means of transport to achieve the movement required between two stages in the supply chain (e.g. road or rail).
    • Module A large assembly within a product manufactured by a supplier from its own components and those of second-tier suppliers, reducing work by the manufacturer.
    • NetworkSeeSupply network
    • Offering Goods which are augmented by the addition of other products or services so that the customer obtains a more valuable product.
    • Operating decision Operating decisions are the huge number of decisions taken each day by each manager and operator to keep the company running properly in its current direction. Examples of operating decisions are: to purchase materials, to allocate fitters to maintain equipment, and to organise supervision of the entry of sales orders.
    • Order-processing All the business procedures from receipt of an order until the completed products or services are delivered to a customer.
    • Order winners The needs of end customers which, if fully met, will cause the customers to buy the product or service.
    • Outsourcing Using a contract with outside parties for services such as transport, warehousing and other distribution functions, often including concomitant information services.
    • Partners Separate companies which come together to provide one or more stages in the supply chain.
    • Partnership, exclusive The customer has sole rights over some supplier capabilities.
    • Partnership, strategic The customer wishes to improve some facet of the supplier's operations.
    • Partnership, transactional Business between two firms is conducted without commitment to a long-term relationship.
    • Performance measurement Using particular, relevant measures to show whether a supply chain, or a part thereof, is operating as effectively as desired.
    • Planning The preparatory phase in which future flows of material, products and information are mapped out and organised before execution commences. It is generally tactical, not to be confused with strategic planning.
    • Process A series of actions carried out as part of the provision or distribution of products or services. A process may operate on physical material or on information.
    • Product family A set of products which constitute a family because they have similar features in the eyes of the customers and/or the producers.
    • Production planning Deciding the amount of each product to be produced on major machines week by week for the medium-term future.
    • Professional services An intangible service operation with few transactions and a highly customised, process-oriented contact dominated by ‘front office’ work in which considerable judgement is applied (e.g. management consultancy).
    • Provision or manufacturing provision The four overall tasks, or processes, of purchase, produce, despatch and serve for customers. Put together, these tasks provide goods for customers.
    • Pull and push Pull is a supply principle in which providers manufacture and deliver only those products that the customers require. Push is the opposite principle in which goods are manufactured in the expectation that customers will require them.
    • Purchase orders Requests for suppliers to provide materials and services.
    • Relationship The way in which a supply chain organisation interacts with other organisations in the chain.
    • Reverse logistics The movement of products or materials up the supply chain in the opposite direction to the normal flow of products.
    • RFID (radio frequency identification) The identification or interrogation of goods at a distance by means of a microchip which is placed in the goods. The microchip contains information about a product or its shipment.
    • Safety stock Additional stock, beyond that known to be necessary, which provides higher levels of customer service or ensures uninterrupted operation of equipment.
    • Sales and operations planning (S&OP) A monthly procedure by which the disparate needs of sales, production, finance and other functions are resolved into one company plan for the forthcoming months.
    • Service businesses These carry out intangible acts which benefit, or meet the needs of, a person or a firm. Such businesses form a spectrum from mass service, in which there is little contact with the customer, through service shops, which provide a customised service with some contact, to professional service, which provides personal skills without any tangible product.
    • Service organisations These integrate value-adding activities in terms of outcome and experience by delivering a service product to customers by configuring resources and processes to create that service.
    • Servicescape The surrounds of the service operation, excluding the service product, which create an atmosphere in which the service is delivered.
    • Service shop A type of business which forms a class in the middle of the service spectrum. Such businesses have a medium number of transactions, medium customisation and medium front-office contact time. There are both process and product elements in the offering to customers (e.g. transport company).
    • Service supply chain The relationship and coordination of a number of organisations to create, develop and deliver a service product to a particular group of customers. The service chain creates value by the coordination of purchased goods and services with a suitable transformation operation and service delivery. Delivery may include passing goods or transformed objects to the end customer so that the customer perceives that the service is attractive and is likely to use it again.
    • Simulation An analytical technique for investigating the interaction of machines, operators and product movement by generating a probable picture of how events might unfold over time.
    • Sovereign companies Companies which are separately owned and managed although forming part of a wider supply chain.
    • Stage One level, or link, in the supply chain.
    • Stock-keeping unit (sku) An individual occurrence of a product variety, in which a separate stock may be kept.
    • Strategic business unit (SBU) A division of a larger company which operates under a distinct set of strategies.
    • Strategic decision A major decision which points the direction of the company and its supply chain for the future by committing considerable resources to achieve important outcomes (e.g a decision to purchase a new food packaging line which will replace numerous operators or a decision to attain quality accreditation).
    • Strategic Operations and Logistics Planning (SOLP) A process which assists managers from supply chain companies to formulate strategic direction and the actions required to satisfy the needs of the end consumers of the goods and services provided by the chain.
    • Strategic partnershipSeePartnership, strategic.
    • Strategic planning A process to determine the best future direction of an organisation or supply chain.
    • Stream A channel down which water and, by analogy, goods flow.
    • Supply chain (SC) A supply chain is the flow of one family of products within a supply network, which comprises all the significant product families in the network, with reference to one focal partner or firm. A supply chain runs from suppliers and their suppliers through manufacturers and distributors to satisfy end customers and obtain value for those companies. It is also known as value stream. See alsovalue stream.
    • Supply chain management Requires that the movement of material and product, and the provision of service, throughout the firms in the chain is planned and managed in a systematic way using electronic and person-to-person communications. Hands-on control by managers can achieve better design and implementation of provision and flow, and hence improve the efficiency of the operation for customers and firms. See alsoIntegrated supply chain.
    • Supply chain planning The process of deciding the direction in which all significant parts of the supply chain should head and the specific actions to enable the chain to reach that long-term goal.
    • Supply network The set of production and service companies which work with the focal company to assist it to produce a whole range of products. The facilities of companies in the network collectively source, produce and deliver products and services to customers. The supply network comprises a set of supply chains, each providing one group of products to industrial and individual customers.
    • Supply partnership An alliance between several service firms to work together to deliver a service to a group of customers.
    • System A collection of parts which work together to make a whole function. The prime emphasis is on the output of the whole system rather than the contribution made by any part.
    • Tactical decision A decision intended to change the company, like a strategic action, but through short duration tasks which fill out the overall strategy in some particular area. Examples of tactics are training employees in the methods of achieving quality assurance or involvement in an external body which overviews new guidelines for a particular industry.
    • Third-party logistics (3PL) A company which carries out logistics functions for shippers (the first party) or customers (the second party). The term ‘4PL’ (fourth party logistics) is used in some quarters to mean the overall management of transport and other logistics services along the whole supply chain.
    • Tier Frequently, manufacturing companies receive parts from suppliers who in turn source components from their suppliers, and so on. Each stage in this supply process is known as a tier.
    • Total quality management (TQM) A management technique, prevalent in the 1990s, which tries to organise employees to optimise effectiveness by treating their internal customer as equally important as the eventual end customer. TQM uses statistical quality control and problem-solving methods.
    • Trade-off The choice to carry out a supply chain function at one point so as to save greater effort or cost at another point.
    • Transaction An individual process which forms part of the whole task of satisfying customer orders and frequently involves information transfer.
    • Transport The geographical movement of materials or goods between two partners, or to a customer. Transport is achieved by a particular mode and a carrier, such as a 3PL operator.
    • Transfer prices The price at which goods change hands between divisions of an organisation. Such prices may not represent the external value of the goods.
    • Transformation The physical and chemical changes made to input materials, such as steel or plastics, to convert them into finished products for consumers. In some industries transformation can comprise two separate links.
    • Transnational commodity supply chain A world-wide supply chain in which the manufacture of non-customised finished products is carried out in several countries. Suppliers of materials and components reside in many global locations and distribution is made to customers located in many parts of the world (e.g. the footwear supply chain).
    • Unitisation Building up the product into larger quantities for effective transport such as a pallet or container load.
    • Upstream A movement away from customers towards suppliers. Conversely, ‘downstream’ is a movement toward customers.
    • Value constellation The extra value created by a number of companies (i.e. stars) which work together to obtain synergy in the products and services that they are able to provide. Implicit in this definition is a move away from linear flow to a mixture of for-ward, backward and sideways flows.
    • Value stream The creation of a flow of a group of products or services from partner organisations to customers which provides more worth for the customer and the part-ners. Some authors use this term as a synonym for supply chain because it stresses the economic and need benefits which are provided.
    • Vendor-managed inventory (VMI) An arrangement between a supplier and a man-ufacturer or distributor whereby the supplier takes responsibility for replenishing stocks at the manufacturer's premises.
    • Waste An activity that consumes resources without creating any value. Muda can be physical or information waste. It originates from the Toyota Production System.
    • Warehouse management system (WMS) A computer system which records the sta-tus of stocks and movements of goods in a distribution centre.
    • Wholesalers Organisations that exist in the chain between manufacturers and retail-ers for some products to assist in the breaking down of bulk production and in contact. They occur as owners of distribution centres, distribution networks or headquarters of supermarket chains.

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