Logistics and Supply Chain Integration

Ian Sadler

• Publisher: SAGE Publications Ltd
• Year: 2007
• ISBN:
  9781446231579
• Edition: 1
• Topic: Business
• Subtopic: Management
• Index: Business

For students who want to advance their understanding of company logistics and supply chains, the author examines how a number of firms in a supply chain work together to create a flow of products and services that satisfies end customers, whilst enabling all the manufacturing and service companies involved to grow profitably.

Including the most recent concepts and theoretical advances to emerge from the field of logistics and supply chain management, this text informs and assists its readers with the aid of case studies and accompanying questions, diagrams, photos and an accompanying website.

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1

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Examine a Supply Chain

The art of seeing the forest and the trees.¹

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Objectives

• To be able to identify the major stages in the location, transformation and movement of materials and goods in a supply chain of a manufacturing or service company
• To describe the increasing importance of supply chain management to all businesses in achieving a competitive advantage and controlling costs so that operations are profitable
• To apply the supply chain management concept to information and physical movement within logistics chains
• To understand how a supply network can be partitioned into a supply chain for each product family to achieve the desired flow of products and services to consumers
• To understand how the relationships between supply chain partners can be developed so that high value is generated for customers and partners

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INTRODUCTION

This chapter introduces supply chains as groups of companies which work together to source, produce and deliver goods and services to end customers. To survive, and to be competitive, it is not sufficient for firms to restrict their vision to their own processes. Instead they must consider the whole flow of materials and goods and the information which communicates the specific needs of consumers to the various levels of suppliers. Firms should also consider the management of those flows and the part which they play within the coordination of the entire supply network. The challenge is for companies in partnership* to collaborate in design and delivery of products and services so that a more effective service is given to consumers and each company prospers.

A basic supply chain comprises:

• a focal company, which forms goods or services for a set of consumers,
• a range of suppliers of raw materials and components,
• distributors, which deliver the goods to consumers, and
• modes of transport which move products between each location in the chain.

The overt chain is the physical movement of materials and products between each partner firm along the chain until they reach the consumer in the required form when needed. Other factors necessary to integrate the supply chain are information communication, management coordination and chain leadership. Information exchange between partners enables them to work closely in line with end consumer needs, even though the firm may be several stages removed from product or service delivery. The term ‘management’ refers to the organisation and control of all the internal logistics functions within one link, or partner firm, in the chain, while the coordination of the whole chain, to ensure that it functions as an effective system to provide goods and services, is called chain leadership.

Consider one link firm in the supply chain which handles the materials or goods on their way to consumers. The link’s task is to provide a product by purchasing components, converting them into products and despatching those products to the next level in the chain. On receiving specific orders, the link firm holds an inventory of components, and schedules conversion so that the movement satisfies its customers’ requirements. This entails cooperation between many departments and processes and the use of external services such as transport and maintenance. Information communication within the firm derives from the actual or forecast mix of product needed in a period, leading to all the data required to process that order, which are typically stored in a comprehensive enterprise resource planning system. The operations manager then has the task of planning all the required activities, organising their execution, measuring performance, and controlling outcomes so that customers receive their goods without expending an unreasonable amount of resources. This operations task would, optimally, be coordinated along the whole supply chain.

The impetus for working on complete supply chains arises because the activities across all the firms are never perfect in creating value for customers and retaining value for operating firms. Investigation by operators drawn from each link in the chain can allow elimination of costs while improving customer service. The first step is to design a chain, starting with its strategic purpose in delivering to a set of customers. The second step is to integrate the physical and information processes across each link, achieving an effective flow of goods and provision of services. This requires consideration of issues such as the decoupling point (at which materials or products are committed to a customer order), order-winning criteria and the type of product or service being provided.

A more frequent situation than designing a supply chain from scratch arises when we set out to change an existing chain to make it more effective for customers and owners. Then we need to:

• bring the owners together,
• obtain an overall view of the supply chain, its boundaries, scope and strategy,
• adopt a method to investigate activities carried out along the chain, and
• decide on simplifications which will deliver the precise needs of end consumers without wastage of effort by chain owners and operators.

Box 1.1 provides an example of the supply chain required to manufacture sweaters and distribute them to retailers throughout the world.

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Box 1.1 The Benetton Supply Chain: successful vertical integration

Benetton² is a highly successful manufacturer and deliverer of sweaters and other woollen clothing. It makes these sweaters in Italy and sells them in its own licensed shops throughout the world. Benetton’s supply chain starts with the purchase of wool yarn in northern Italy. The wool is woven into garments by dozens of small knitting firms. The garments are stored in a central warehouse. When orders are received, the sweaters and scarves are dyed into a huge range of colours, producing the exact combination of colours, sizes and styles which customers want in 6,000 shops in 83 countries on every continent.

Benetton’s 6,000 outlets sell 60 million garments each year. Their one range of clothes is sold in small boutique-style shops, strictly merchandised and heavily advertised. Benetton’s target market is young and multiracial. They operate in a highly competitive, mature industry with a fickle consumer base demanding a large variety of products. They change their product line ten times a year. Benetton’s Italian owners match the demands of fashion by flexibility and speed. They rapidly adapt to consumer tastes while gaining efficiencies of scale. To do this their supply chain must operate very competently to support the incessant pace.

The lynch-pin of Benetton’s supply chain is information communications. Benetton’s agents in each country use electronic data interchange (EDI) to transmit orders daily to the head office near Venice. Eliminating the filters between customer and production, Benetton manufactures only those garment styles, colours and sizes required.

The traditional manufacturer of clothing dyes the yarn, then knits the garment. But knitting is slow and would lead to high levels of finished garments. Benetton’s solution is to manufacture clothes from bleached yarn and delay the dyeing until colour information comes from customers via EDI. The process is:

• Garments are designed in-house using CAD technology
• Design data are transferred directly to computer-controlled garment cutters and knitting machines
• Garment assembly is done by sub-contractors, small family operations
• Garment dyeing is done by Benetton, retaining control of the high-technology elements
• Garments are sent to an automated distribution centre in Italy, packed in standard boxes
• On receipt of an order from their agent in one country, Benetton picks the required boxes to make up the order and air freights them direct to the destination country.

Benetton has replaced a raft of carriers, freight forwarders and customs brokers with its own integrated distribution function to manage internal freight forwarding and customs clearance. Again EDI is used to transmit documents ahead of consignment arrival to allow speedy clearance and on-forwarding to retail shops in the destination country.

Benetton uses a blend of in-house expertise and outsourced resources throughout the value chain. For example, manufacturing is carried out by subcontractors who receive support for production planning, quality control and advice on technology. In return, Benetton demands exclusivity. The partnership arrangement is a version of the Italian extended family. This gives Benetton a high level of flexibility. Risks and rewards are shared without the use of legal contracts. At each stage of the supply chain Benetton consciously decides whether to process in-house or sub-contract, considering the effect on cost, flexibility, speed and service.

• Why is Benetton so successful?
• What is the key innovation which enables this success?
• How does Benetton handle information about orders and shipping?
• What are the key parts of this supply chain?

This chapter provides the answers to these questions.

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1.1 THE SUPPLY CHAIN CONCEPT

The biggest challenge facing companies today is not the Internet, by itself, or globalisation or stakeholder needs. Rather, the greatest challenge is the integration of supply chains* from vendors through manufacturers and distributors to satisfy end customers* and obtain value for those companies. Supply chain management is the planning and flow* of materials and products between a number of companies to deliver goods and services to end consumers. The insight examined in this book is that business supply chains are more likely to survive, grow and profit if they integrate the development of new products with a balanced supply chain in which each link* combines to provide the goods that consumers want.

We suggest that managers* in all the links in the supply chain need to plan and achieve a seamless stream of products in order to fully satisfy chosen customers while making a good return for each link. However there are some potential problems. Directors of different companies do not trust each other sufficiently. Managers of some chain links have more power than others and therefore push their own needs rather than working with their partner links to optimise the entire chain. A link is a company which performs some function within a supply chain, joining other parts into a complete chain. We accept that entrepreneurs* will promote strategies which ...

Table of contents

• Cover Page
• Title Page
• Copyright
• Dedication
• Contents
• Foreword
• Contents Summary
• Preface
• Acknowledgements
• List of Figures
• List of Tables
• 1 Examine a Supply Chain
• 2 Logistics in Manufacturing Organisations
• 3 Logistics in Service Organisations, Customer Service and Transport
• 4 International Logistics (with David Taylor)
• 5 Information Communication
• 6 Integration of the Supply Chain
• 7 Applied Integration Issues
• 8 Implementing Change in the Supply Chain
• Glossary
• Index