Gower Handbook of Supply Chain Management

John Gattorna, John Gattorna

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351932295
• Edition: 5
• Topic: Business
• Subtopic: Supply Chain Management
• Index: Business

The ability to build and also maintain a world class logistics and distribution network is an essential ingredient in the success of the world's leading businesses, but keeping pace with changes in your sector and in others is hard to do. With the Gower Handbook of Supply Chain Management you will need to look no further. Written by a team of leading consultants with contributions from leading academic experts, this book will help you to keep pace with the latest global developments in supply chain management and logistics, and plan for the future. This book has over thirty chapters with detailed accounts of key topics and the latest developments, from e-collaboration and CRM integration, to reverse logistics and strategic sourcing, and includes case studies from Asia, Europe and North America. It looks at all aspects of operational excellence in logistics and supply chain management. The Gower Handbook of Supply Chain Management will help managers to benchmark their operations against the best-of-breed supply chains across the world. It provides a unique single source of expert opinion and experience.

Part 1
Supply Chains in the Context of Customers and Strategy

Operational performance and sound strategic direction need to be aligned in order to drive out cost and revenue benefits. A paradigm shift has emerged where companies can simultaneously increase services while reducing cost-to-serve, achieving the 'best of both worlds'. Companies that are slow to adopt improved supply chain integration have seen their competitive positions eroded with startling speed. Chapter 1.1, 'The challenging new operating environment and size of the prize', deals with these issues and sets the scene for the following chapters in Part 1. Adopting a concurrent approach by managing multiple initiatives in parallel is designed to unlock value, quickly. The approach is complex to manage, but the results are worth the effort. To achieve world-class performance and maximum shareholder value, supply chain management therefore needs to address costs, revenues and use of capital, simultaneously.

It is apparent that few organizations today have a true vision of the future that guides and directs their strategies every day Chapter 1.2, 'Formulating a supply chain vision', contends that, for an ideal vision, individuals and organizations must analyse alternatives critically to arrive at the best decision. A vision template is introduced to help executive teams formulate a meaningful, yet practical, vision statement that takes into account customer needs, technology and geography.

Chapter 1.3, 'Developing an aligned supply chain operating strategy', introduces the Strategic Alignment Model, which can be used to align the supply chain with customer needs, thereby reducing over- or under-servicing. Appropriate segmentation allows the supply chain to better align services with buyer values and adjust cultures and leadership styles to improve the ability to deliver value to the customer.

Supply chain segmentation describes the nature of customer requirements in terms of how customers want to be serviced. This is an external, behavioral approach to segmenting customers. Chapter 1.4, 'Operating strategy: configuring segmented supply chains', defines how the supply chain will operate in practice. Channel relationships are as much about information and financial flows as they are about the physical facilitation of goods and services. Organizations need to assess the strategic potential and execution risks of new channel options versus that of proven channels, and weigh up short-term cost issues against the potential longer-term benefits of positioning for growth and seizing new opportunities. The design of logistics pathways provides the structure for managing differentiated service levels to different customer segments. Using segment-driven design principles will serve to reduce the complexity of what many organizations have found to be a costly and value-destroying exercise in 'over-customization'.

In Chapter 1.5, 'Customer relationship management capabilities in a supply chain context', the authors discuss how customer-driven enterprises, looking through the lens of the customer, take an outside in perspective to ensure that their best customers receive consistently differentiated and, wherever possible, personalized service. The challenge of customer relationship management begins with gaining deep insight into customers, then draws on that insight to strengthen supply chain responses – that is, to create more appealing value propositions, products and service delivery mechanisms.

Most traditional supply chain theory focuses on reducing costs and increasing asset productivity. Chapter 1.6, 'The impact of pricing on supply chains', addresses another aspect of future strategy execution. It explains how combining price optimization with new supply chain management tools will drive profit growth.

Chapter 1.7, 'Trading terms and customer account profitability', considers how commercial terms of trade in supply chains can be used to differentiate offerings in a trading relationship. Trading terms can be evaluated based on a superior understanding of the cost-to-serve and the corresponding profit contribution of particular accounts.

1.1 The challenging new operating environment and size of the prize

John L. Gattorna

The new operating environment for supply chains can be likened to a maze; the task for management is to find a way through this maze with optimal allocation of resources. Managers have no easy path to follow, as the Supply Chain Maze picture below depicts.

The real challenge is to improve the capabilities across supply chains significantly in order to drive out cost and realize revenue benefits – fast.

Two particular forces are at work in the evolving operating environment for supply chains. On the one hand, new technology is enabling the more rapid adoption of true supply chain integration (SCI) within companies and collaboration across the supply chains of multiple companies. But on the other, this wider access to technology brings with it additional complications that make it part of the problem as well as part of the solution. By 'technology' we mean the convergence of computing, communications and content technologies, all of which combine to enable the efficient exchange of supply and demand information. So despite the open access to new technology and the increased availability of information, which are the lifeblood of supply chains, relatively few companies on the global scene have improved their integration and collaboration capabilities. The real challenge is to improve the capabilities across supply chains significantly in order to drive out cost and realize revenue benefits – fast.

Indeed, the whole paradigm has changed dramatically, as depicted in Figure 1.1.1.

A paradigm shift has emerged where companies can simultaneously increase service while reducing cost-to-serve, thus achieving the 'best of both worlds'.

The traditional view was that increasing customer service levels was costly. However, we now know that if companies truly understand customer buying behaviors they can reallocate existing resources, rather than increase resources, as is so often assumed. They can then improve alignment with customers to the extent that a new paradigm is possible. We call this the 'best of both worlds', where service profile increases simultaneously with a reduction in cost-to-serve. Realization of this paradigm shift is the essential challenge for supply chain executives in the new millennium.

Figure 1.1.1
The cost / service paradigm shift

Table 1.1.1 Impact of the e-economy on supply chains

Supply chain domain	Traditional economy characteristics	e-Economy characteristics
Develop products and services	• Standard products	• Informated products
	• Mass market/uniform	• Individualized products and services
	• Optimized stand-alone functionality
		• Optimized value-add overall network performance
Generate demand	• Mass communication	• 'One-to-one' relationship
	• Supply push (extrapolated forecasting)	• Demand pull (real time demand management)
	• Vertical market structures	• Hybrid markets
	• One segment – one channel (market, sell)	• One segment – many channels (market, sell)
Fulfill demand	• One segment – one channel (fulfill, service)	• One segment – many channels (fulfill, service)
	• Make to stock	• Make to order
	• Supply chain	• Value network
	• Decreasing returns	• Increasing returns
Plan and manage the enterprise	• Physical enterprise	• Virtual enterprise
	• Industry-based strategy formulation	• Dynamic strategy formulation
	• Command and control	• Alliance building

The so-called e-economy is projected to be twice the size of the industrial economy in the US, as a percentage of gross domestic product (GDP), by 2006, according to Marvin Zonis & Associates. The world is certainly changing, because the distinctive characteristics of the new e-economy will have a significant impact on supply chains, as summarized in Table 1.1.1.

Winners and losers

Companies that can quickly adapt to the new operating conditions and evolve to stay aligned with emerging conditions will dominate the marketplace, as they will achieve both operational efficiency and revenue enhancement. Operational efficiency will mean reduced costs, shorter process cycles and better communications. Revenue enhancement will mean improved customer service, increased responsiveness and differentiation. The quantum of benefits achieved will increase with the degree of integration and collaboration as depicted schematically in Figure 1.1.2.

Slow adopters of improved supply chain integration have seen their competitive positions eroded with startling speed.

Source: Adapted from Gattorna, J. L., 'The E-Supply Chain Reaches Asian Shores', in ASCET, vol. 2., pp. 335-339, Montgomery Research Inc., San Francisco, 2000
Figure 1.1.2
Supply chain evolution

Table 1.1.2
Winners and losers in the PC market (market share) Source: Accenture

Unfortunately, despite the business benefits at stake, relatively few companies have achieved the desired level of supply chain integration. There are several reasons why Most have focused on business survival rather than business improvement and sought cost reduction through process improvement alone. They have mistakenly pursued enterprise resource planning (ERP) solutions as the 'silver bullet', become bogged down in Y2K issues and, generally, focused on the short term.

Undoubtedly, the slow adopters of improved supply chain integration have seen their competitive positions eroded with startling speed, such is the nature of the new operating environment. This is well illustrated by the marked changes that have taken place in leadership of the personal computer market in the United States in recent times, as illustrated in Table 1.1.2.

ERP as a solution 'for all times’

Many companies have had a very one-dimensional response to their increasingly unforgiving operating environment. They have focused on cost reduction and improving internal efficiencies, using ERP as the ultimate 'solution'. As Beth Enslow (1999) of the Gartner Group describes, 'an ERP application delivers the disciplined data processes, global control, and management oversight that many enterprises need to manage their myriad business processes. By bringing financial, distribution, and other business functions into balance, enterprises contain their operations and save money by being more efficient'. Depending on the degree of process re-engineering undertaken, cross-industry experience shows a consistent picture of effort-driven benefits, as outlined in Table 1.1.3. Unfortunately, too many companies have erred on the conservative side and not enjoyed the returns available through a more fundamental review of business strategy and corresponding processes to stay aligned with the evolving operating environment. In this ...

Table of contents

• Cover
• Half Title
• Dedication
• Title
• Copyright
• Contents
• Acknowledgements
• Foreword
• Introduction and frameworks
• PART 1 SUPPLY CHAINS IN THE CONTEXT OF CUSTOMERS AND STRATEGY
• PART 2 OPERATIONAL EXCELLENCE
• PART 3 SUPPLY CHAIN INTEGRATION AND COLLABORATION
• PART 4 VIRTUAL SUPPLY CHAINS
• PART 5 REGIONAL AND GLOBAL SUPPLY CHAINS
• PART 6 OTHER PRACTICAL CONSIDERATIONS IN SUPPLY CHAINS
• Notes on contributors
• Index