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Integrating the Supply Chain
Pressures to Improve Logistics
Customers are more knowledgeable, and demand higher
quality, lower costs and better service.
Competition is getting fiercer, and organizations must
look at every opportunity to remain competitive.
There is changing power in the supply chain. Very large
retail chains demand customized logistics from their
suppliers.
Other changes in retail markets include the growth of 24-
hour opening, home deliveries, out-of-town malls, retail
parks, telephone and on-line shopping.
International trade continues to grow
Organizations are introducing new types of operation,
such as JIT, flexible manufacturing, etc.

Pressures to Improve Logistics
(contd)
Some organizations are turning from a product focus to a
process focus. This encourages improvement to
operations, including logistics.
There have been considerable improvements in
communication.
Organizations are increasing cooperation through
alliances, partnerships, and other arrangements.
Managers are recognizing the strategic importance of the
supply chain.
Attitudes towards transport are changing, because of
increased congestion on roads, concerns about air quality
and pollution, broader environmental issues, etc.
Current Trends in Logistics
Improving Communications
Improving Customer Service
Other significant trends:
Globalization
Reduced number of suppliers
Concentration of ownership
Outsourcing
Postponement
Cross-docking
Current Trends in Logistics
Direct delivery
Other stock reduction methods
Increasing environmental concerns
More collaboration along the supply chain
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Lean Logistics

Agile Logistics

Integration
Integrating Logistics within an
Organization
Integrating logistics within an organization has all the
related activities working together as a single function.
This is responsible for all storage and movement of
materials throughout the organization. It tackles
problems from the viewpoint of the whole organization,
and looks for the greatest overall benefit.
In practice, it is difficult to integrate all the logistics
within an organization.
The supply chain consists of many different activities,
with different types of operation, using different
systems and geographically dispersed

Stages in Integration
1. Separate logistics activities are not given much
attention or considered important
2. Recognizing that the separate activities of logistics
are important for the success of the organization
3. Making improvements in the separate functions,
making sure that each is as efficient as possible.
4. Internal Integration recognizing the benefits of
internal cooperation and combining the separate
functions into one.
5. Developing a logistics strategy, to set the long-term
direction of logistics.
.
Stages in Integration
6. Benchmarking - comparing logistics performance
with other organizations, learning from their
experiences, identifying areas that need improvement
and finding ways of achieving this.
7. Continuous Improvement accepting that further
changes are inevitable and always searching for
better ways of organizing logistics.
Benefits of Integration
Genuine cooperation between all parts of the supply
chain, with shared information and resources
Lower costs due to balanced operations, lower
stocks, less expediting, economies of scale, elimination
of activities that waste time or do not add value
Improved performance due to more accurate
forecasts, better planning, higher productivity of
resources, rational priorities, and so on
Improved material flow, with coordination giving faster
and more reliable movements

Benefits of Integration
Better customer service, with shorter lead times, faster
deliveries and more customization
More flexibility, with organizations reacting faster to
changing conditions
Standardized procedures, becoming routine and well-
practiced with less duplication of effort, information,
planning, and so on
Reliable quality and fewer inspections, with integrated
quality management programs.

Integration can be difficult and involve major
changes. There are, however, many benefits,
and most companies have moved in the direction
of internal integration.
There are also the benefits of extending
integration to more organizations in the supply
chain. There are several ways of organizing this
external integration, ranging from informal
agreements to vertical integration. The most
popular has some form of strategic alliance or
partnership.
Logistics and Supply Chain
Logistics Management
Seven-eleven convenience store
Describe the key logistics processes at 7-11.
What differences between the early reform
and the regional distribution center at 7-11.
What do you think are the main logistics
challenges in running the 7-11 operation.
Case study
Case study
Centralized
distribution
No
distribution
center
Built its own
distribution
center---joint
distribution
First stage Second stage Third stage
Key issues
1
What is supply chain, and
how is it structured?
2
What is the purpose of a
supply chain?
The Supply Chain Concept
Development of the Concept
Total systems cost - remains an important element
of logistics analysis.
Outbound logistics the warehousing and
distribution of finished goods.
Inbound logistics the receiving and warehousing
of raw materials, and their distribution to
manufacturing as they are required.
Value chain analysis integrated logistics activities.
Business Logistics in a Firm
A supply chain is a group of partners who
collectively convert a basic commodity (upstream)
into a finished product (downstream) that is
valued by end-customers, and who manage
returns at each stage.
The Supply Chain management Concept
Definition
Planning and controlling all of the processes
that link partners in a supply chain together in
order to serve needs of the end-customer.
The process starts with
several external suppliers
that move milk, cardboard,
and plastic to the processing
plant.
After the milk is processed
and packaged, it is delivered
to retailers, who sell it to
customers. The alternative
delivery system is delivery
from a warehouse directly to
customers homes.
Supply chain:
structure and tiering
Supply chain:
structure and tiering
Supply chain can be fairly
complex. The supply
chain for a car
manufacturer includes
hundreds of suppliers,
dozens of manufacturing
plants (for parts) and
assembly plants (for cars),
dealers, direct business
customers, wholesalers,
customers, and support
functions such as product
engineering and
purchasing.
Logistics concept
Definition
The task of coordinating material flow
and information flow across the supply
chain.
Activity 1
Wheat Flour
Praline Wafers
Chocolate
Confectionery
manufacturer
Packing
Creamery
(milk)
Cocoa
beans
Sugar
Vegetable
oil
Cocoa
butter
Lecithin
Emulsifiers,
Salt, etc.
Printed
materials
Aluminium Fiberboard
Multiple
retailers
Wholesalers
Others
(hospital etc.)
End
customers
Key issue
1
What is the relationship between
material flow and information
flow?
Case study: Seven-eleven
Case study: Seven-elevens distribution
strategy
Delivery arrives from over 200 plants
Delivery is cross docked at DC (over 80 DCs for
food)
Food DCs store no inventory
Combined delivery system: frozen foods, chilled
foods, room temperature and hot foods
11 truck visits per store per day (compared to 70
in 1974)
No supplier (not even coke!) delivers direct
Case study: Seven-elevens
Information Strategy

Quick access to up to date information (as
contrasts with data)
High speed data network linking stores, headquarters,
DCs and suppliers
Store hardware
Store computer
POS registers linked to store computer
Graphic Order Terminals
Scanner terminals for receiving

Integrated Logistics Management
Material and information flow
Material and information flow
Material flow
Information flow
Key issues
1
How do products win orders in
the marketplace?
2
How does logistics contribute
to competitive advantage?
Creating logistics advantage: three
basic ways
Logistics advantage
quality
time
cost
Creating logistics advantage:
controlling variability
Variability undermines the dependability with which a product or
service meets target.
Order winners and order qualifiers
Order winners
are factors that directly and
significantly help products to
win orders in the
marketplace.
Customers regard such
factors as key reasons for
buying that product or
services.
Different logistics
performance
objectives
Order qualifiers
are factors that are regarded
by the market as an entry
ticket.
Unless the product or service
meets basic performance
standards, it will not be taken
seriously.
The value chain: Linking supply chain
and business strategy
New
Product
Development
Marketing
and
Sales
Operations
Business Strategy
New Product
Strategy
Marketing
Strategy
Supply Chain Strategy
New product
Development
Ope
ratio
ns
Distri
butio
n
Se
rvi
ce
Finance, Accounting, I nformation Technology, Human Resources
Mark
eting
and
Sales
How to Achieve Strategic Fit
Understanding the Customer
Lot size
Response time
Service level
Product variety
Price
Innovation
How to measure?
Implied Demand
Uncertainty
Levels of Implied Demand Uncertainty
Detergent High Fashion
Low
High
Price
Responsiveness
Customer Need
Implied Demand Uncertainty
Understanding the Supply Chain: Cost-
Responsiveness Efficient Frontier
High
High
Low
Low
Cost
Responsiveness
Achieving Strategic Fit
Implied
uncertainty
spectrum
Responsive
supply chain
Efficient supply
chain
Certain
demand
Uncertain
demand
Responsiveness
spectrum
Strategic Scope
Suppliers
Manufacturer Distributor Retailer Customer
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
Drivers of Supply Chain Performance
Efficiency Responsiveness
I nventory Transportation Facilities I nformation
Supply chain strategy and structure
Drivers
Competitive strategy
Considerations for Supply Chain Drivers
Driver Efficiency Responsiveness
Inventory Cost of holding Availability
Transportation Consolidation Speed
Facilities Consolidation /
Dedicated
Proximity /
Flexibility
Information What information is best suited for
each objective