Chapter 01 - 21st-Century Supply Chains

Chapter 1: 21st-Century Supply Chains

Study Questions
1. Compare the concept of a modern supply chain with more traditional distribution
channels. Be specifc regarding similarities and diferences.
Traditional distribution channels typically had an order fulfllment time of 15-30 days. ut if
somethin! "ent "ron!# this time "ould increase dramatically. $t "as a common practice to
maintain in%entory at e%ery sta!e of the supply chain li&e retailers# "holesalers# and
manufacturers. The mar&et "as characteri'ed by scarcity to the primary !oal of traditional
model "as to ensure a%ailability of products. (o"e%er# today customers "ant more options in
product o)erin!s. *odern supply chain is !eared to"ards meetin! the chan!in! consumer
needs. Transportation capacity and operational performance has become more reliable and
economical. +o!istical systems are capable of capable of deli%erin! products at e,act times.
So customer orders can be fulflled faster. -ith massi%e de%elopment in information
technolo!y# the need to maintain in%entory has reduced dramatically. The occurrence of
failures# characteristic of traditional supply chain# has been replaced by a commitment
to"ards 'ero-defect of si, si!ma performance. $n essence a hi!h le%el of performance is
achie%ed at a lo"er total cost "ith commitment of fe"er fnancial resources than that in the
past.
2. What specifc role does logistics play in supply chain operations
+o!istics is the primary conduit of product and ser%ice .o" "ithin a supply chain
arran!ement. $t is the "or& re/uired to mo%e and to position in%entory throu!hout a supply
chain. $t is a combination of order mana!ement# in%entory# transportation# "arehousin!#
material handlin! and pac&a!in! as inte!rated throu!hout a facility net"or&. +o!istics is
essential for e)ecti%e supply chain connecti%ity.
!. "escribe and illustrate an integrated ser#ice pro#ider. $ow does the concept of
integrated ser#ice pro#ider difer from traditional ser#ice pro#iders% such as for&
hire transportation and warehousing
$nte!rated Ser%ice 0ro%iders 1$S02 also &no"n as third-party lo!istics pro%iders pro%ide a
ran!e of lo!istics ser%ices that includes all "or& necessary to ser%ice customers. -ith the
re!ulatory chan!es in the transportation the traditional lo!istics ser%ices pro%iders started
o)erin! "arehousin! and shared transportation ser%ices. Therefore the $S0s initiated the
radical shift from sin!le function to multifunction outsourcin!. Their ser%ices include order
entry to product deli%ery and in certain situations they also pro%ide "ide ran!e of %alue-
added ser%ices. 3or e,ample 4nited 0arcel Ser%ices 140S2 stoc&s 5i&e shoes and "arm-ups at
its +ouis%ille "arehouse and processes orders hourly. 6ll the related communication and
fnancial administration are handled by an 40S call center in San 6ntonio. Therefore 40S
handles the basic lo!istics and %alue-added ser%ices for 5i&e.
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Chapter 01 - 21st-Century Supply Chains
$n contrast the traditional ser%ice pro%iders# such as for-hire transportation and "arehousin!
speciali'e in specifc functions. 3or instance# the for-hire transportation industry consists of
carriers "ho speciali'e in mo%in! products bet"een !eo!raphic locations. The companies
o)erin! "arehouse ser%ices are traditionally called public "arehouses and they pro%ide
stora!e supplemented by speciali'ed ser%ices.
'. Compare and contrast anticipatory and response&based business models. Why has
responsi#eness become popular in supply chain collaborations
6nticipatory and response-based business models are the t"o "ays used by frms to fulfll
customer re/uirements. (o"e%er the fundamental di)erence in the t"o models is timin!
(nticipatory model has been the traditional business practice# "hich "as mainly forecast
dri%en. Since information about purchasin! beha%ior "as not readily a%ailable# and the
channel partners "ere loosely collaboratin!# businesses "ere dri%en by forecasts. (o"e%er
the forecasts used by the manufacturers# "holesales# distributors# and retailers "ere often
di)erent that led to a lot of e,cess in%entory in the system. 6ll the "or& "as performed in
anticipation of future pro7ections# so the li&elihood of mis!au!in! customer re/uirements "as
%ery hi!h. $n addition each frm in the chain duplicated the anticipatory process.
)esponse&based model aims to reduce or eliminate forecast reliance by 7oint plannin! and
rapid e,chan!e of information bet"een supply chain partners. This model has been made
possible because mana!ers can no" obtain and share accurate sales information faster.
Conse/uently customers can be pro%ided "ith their desired items faster. This model re/uires
fe"er steps and therefore less cost to complete a fulfllment process compared to the
anticipatory model. 8esponse-based model is similar to a build to order model ho"e%er the
former has a faster response time and allo"s hi!her de!ree of customi'ation.
8esponsi%eness propelled by information technolo!y de%elopment has become the
cornerstone of today9s supply chain collaboration. (i!her responsi%eness can not only
increase the le%el of customer satisfaction but can also reduce the o%erall cost of doin! that.
*. Compare and contrast manufacturing and geographic postponement.
*anufacturin! and !eo!raphic postponement are strate!ies and practices that reduces the
anticipatory ris&s of supply chain performance. The factors fa%orin! one pr the other form
depends on the %olume# %alue# competiti%e initiati%es desired customer ser%ice le%els.
+anufacturing or form postponement aims at manufacturin! the products one order at a
time "ith no preparatory "or& or component procurement until the customer specifcations
are fully &no"n and customer commitment is recei%ed. The !oal of this postponement
strate!y is to maintain products in a neutral or non-committed status as lon! as possible. $n
an ideal situation a standard or base product is manufactured in lar!e /uantities to obtain
economy of scale "hile deferrin! the fnali'ation until the customer commitment. $n this
scenario# economy of scope is introduced by producin! the base product to accommodate a
"ide ran!e of di)erent customers. 6n e,ample of manufacturin! postponement is obser%ed in
mi,in! paint color at retail stores to accommodate the indi%idual customer9s re/uest. This
strate!y not only reduces the ris&s of lo!istics malfunction but also increases the use of li!ht
manufacturin! and fnal assembly at lo!istical facilities
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Chapter 01 - 21st-Century Supply Chains
:n the other hand# ,eographical or logistical postponement focuses on response
acceleration. This strate!y aims to build and stoc& a full-line in%entory at one or more
strate!ic locations. 3or"ard deployment of in%entory is postponed until the customer order is
recei%ed. $n an ideal situation this postponement strate!y eliminates the ris& of anticipatory
ris& of in%entory deployment "hile retainin! manufacturin! economy scale. 6n e,ample of
!eo!raphical postponement is the Sears Store ;eli%ery System. The lo!istics of the
appliances is not initiated till the customer order is recei%ed. 6n appliance purchased on
*onday can be installed at customer9s home as early as -ednesday. 6nd there is a possibility
that the product is not manufactured until that ni!ht or early Tuesday.
$n a number of supply chains both types of postponement strate!ies are combined to create a
hi!hly responsi%e strate!y.
-. "efne and illustrate cash&to&cash con#ersion% dwell&time minimi.ation and cash
spin. $ow does supply chain strategy and structure impact each
Cash&to&cash con%ersion is the time re/uired to con%ert ra" material or in%entory purchases
into sales re%enue. $t is directly related to in%entory turn. $ts benefts are reali'ed by reducin!
and sharin! ris& and in%entory in%estment. $n traditional business the benefts "ere en7oyed
at the e,pense of business partners. 3or e,ample# terms of 2< net 10 meant that a prompt
payment discount could be earned if the in%oice is paid "ithin ten days from the time of
deli%ery. $n a response based system these benefts can be shared by mana!in! the in%entory
transfer %elocity across the supply chain. To facilitate such arran!ements supply chain
partners often use dead net pricin!# "hich factors discounts and allo"ances in the sellin!
price. Therefore incenti%es of timely payment are replaced by performance commitments at a
specifed net price. *ana!in! supply chain lo!istics as a continuous synchroni'ed process
also ser%es to reduce d"ell time.
"well time is the ratio of the time that an asset sits idle to the time re/uired to satisfy its
desi!nated supply chain mission. 6s an e,ample d"ell time "ould represent the ratio of the
time in%entory is in store to the time it is mo%in! or contributin! to achie%e supply chain
ob7ecti%es. ;"ell time can be reduced if the supply chain partners are "illin! to eliminate
duplicate "or&. Therefore each frm could be desi!nated to perform and be accountable for
the %alue-added "or& in order to reduce the o%erall d"ell.
Cash spin basically refers to free cash spin. This concept aims to reduce the o%erall assets
committed to the supply chain performance. Therefore capital in%ested on in%entory or
"arehouse can be made a%ailable for redeployment by re%isin! the supply chain
arran!ement. 3ree capital can be rein%ested in other pro7ects that "ould ha%e other"ise not
been considered.
Challenge /uestions
1. What are the operating challenges related to the 0oys ) 1s plan to establish -22
temporary or pop&up seasonal retail outlets Be specifc concerning the supply
chain challenges leading into% during% and after the Christmas selling season
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Chapter 01 - 21st-Century Supply Chains
There are se%eral challen!es "hen Toys 8 4s establishes temporary retail outlets.
Staf3 3irstly# recruitin! temporary sta) and trainin! the sta) to meet the customer ser%ice
re/uirements of Toys 8 4s may turn into a si!nifcant challen!e.
Space and location3 6s these stores are ne"# they should be located in the places "hich
are easily approachable by customers li&e malls. =ettin! space in these places# "hich are
already cro"ded# may turn into a si!nifcant challen!e.
4n#entory3 ecause of their temporary nature of these outlets# it mi!ht be di>cult to actually
forecast the demand for each of these indi%idual temporary retail outlets# resultin! in either
stoc& outs or e,cess in%entories.
5ogistics3 :ne of the ma7or challen!es is the lo!istics. 6s these stores are ne"# Toys 8 4s
needs to de%elop a ne" distribution system temporarily# "hich is a substantial challen!e. 6t
the end of season# mo%in! all the remainin! in%entory bac& is also a bi! challen!e.
2. $ow do the concepts of SaaS and cloud computing difer from the ser#ices ofered
by traditional data processing ser#ice centers
SaaS 1Soft"are as a Ser%ice2 and Cloud computin! is a ma7or step in current computer and
soft"are industry in turnin! into utilities. SaaS helps the small companies access the soft"are#
"hich is %ery costly other"ise. *oreo%er# the other ma7or ad%anta!e is that it these
companies based on their usa!e. Similarly# Cloud computin! helps small companies to access
a substantial amount of computin! po"er and space at a si!nifcantly lo"er costs and pay as
per their usa!e. The other ma7or ad%anta!e "ith SaaS and Cloud computin! "ill cost a
si!nifcantly lo"er initial capital re/uirements is that "hen compared traditional date
processin!# This feature helps not only small companies but also bi! companies# to try ne"
technical ad%ances "ith out si!nifcant capital in%estments
!. "iscuss how re#erse logistics can create #alue
$n hi!hly competiti%e mar&ets en%ironments# "hich "e see in many industries# customer
ser%ice plays a si!nifcant role. 8e%erse lo!istics plays a si!nifcant role in the customer
ser%ice as "ell as in impro%in! customer perception. $n addition to the beneft it pro%ides to
customers# re%erse lo!istics also helps company to ob7ecti%ely measure /uality of its products.
'. What is the primary #alue proposition of 6ane 4s (ble7s collaborati#e distribution
ser#ice Be specifc concerning how this collaborati#e distribution ser#ice difers
from traditional ser#ices ofered by !857s.
?ane $s 6ble is actually creatin! shared %alue. The primary %alue proposition of ?ane $s 6ble9s
is fnancial as "ell social. ?ane $s 6ble# "ith its inno%ati%e collaboration "ill result in sharin!
the infrastructure# resultin! "ith fe" truc&s# !reat utili'ation and fe"er deli%eries etc.# and
leadin! to substantial fnancial sa%in!s. $n addition to that it "ill also help all the participatin!
companies to reduce their carbon footprints.
The traditional ser%ices o)ered by 30+9s are only responsible for transferrin! the !oods for the
source to the destination# "ith in the specifed time. ut ?ane $s 6ble ser%ice helps the
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Chapter 01 - 21st-Century Supply Chains
companies to perform the similar acti%ities at a lo"er cost and at a much lo"er carbon foot
print.
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docu!ent !ay not be copied% scanned% duplicated% "orwarded% distributed% or posted on a website% in whole or part.