Supply Chain and Distribution Management

Term Paper, 2009

45 Pages, Grade: 83 %


Table of contents

1.1. Introduction

2.1. Supply Chain Management
2.1.1. What is Supply Chain Management?
2.1.2. Benefits and Problems of Supply Chain Management
2.1.3. The Importance of Supplier Relationships in Supply Chain Management
2.1.4. The Emergence of Global Supply Chain Management
2.1.5. Supply Chain Management in Developing Countries
2.1.6. Technology in Supply Chain Management The Role of Internet in Supply Chain Management Technology Trajectory in Developing Countries

3.1. Manufacturing Process
3.1.1. Just-In-Time
3.1.2. Issues with Just-In-Time
3.2.1. Total Quality Management
3.3.1. Synchronous Manufacturing
3.4.1. Mass Customization
3.5.1. Six Sigma
3.6.1. Dell's supply chain management strategy

4.1 Distribution management
4.1.1 Warehouse / Distribution centre Warehouse functions Warehouse operations
4.1.2 Inventory Wal-Mart's inventory technologies Toyota's Warehouse and Inventory control
4.1.3 Transportation Modes of transportation Key drivers for a third-party distribution DHL: An example of an efficient third-party distributor Toyota's Logistic

5.1 Value Chain

6.1. Conclusion

Appendices separately bound for convenient reading

Appendix 1: Supply chain network structure

Appendix 2: Scope of the Supply Chain

Appendix 3: Opportunities with the internet

Appendix 4: Areas in which internet is used

Appendix 5: E-procurement

Appendix 6: Technological Trajectories

Appendix 7: Comparison of Just-In-Time and Synchronous Manufacturing

Appendix 8: Distribution components

Appendix 9: Comparison of Distribution channels between Japan and the United States

Appendix 10: World-Class distribution centre

Appendix 11: Transport mode characteristics

Appendix 12: By what future business and supply chains will be affected

1.1. Introduction

In today's global economy, supply chain integration is essential in order to ensure 'speed to market' as it helps to link buyers and suppliers across all sectors. Being able to succeed in this competitive international environment, companies have to excel and innovate in global supply chain management and integration (Integrated Supply Chain Management in Manufacturing, 2009).

This assignment will examine different issues and challenges that organisations face with supply chain management and distribution management in the current business environment.

Warehouse Operations and Inventory Management are highly discussed across industries. More and more companies realise the need to find ways not only to reduce inventories, but also improve customer services, enhance productivity and increase stock-keeping units under limited space operation (Integrated Supply Chain Management in Manufacturing, 2009).

The authors discuss not only the importance of global supply chain and distribution management in the current environment, but also the challenges that have to be faced by companies deciding to source on a global scale.

Furthermore the authors discuss why the current trend of sourcing from developing countries such as China and India, due to their availability of low cost labour as well as raw materials, has to be carefully evaluated as in developing countries companies experience a high degree of uncertainty in economic, political, legal, social as well as cultural matters.

With the decision of a multinational firm to extend its supply chain into a developing country, many tradeoffs will be involved which have to be carefully evaluated. But, if the company spans their supply chain including developing countries effectively, the long-term payoffs can be substantial. In order to achieve this, companies need to align their goals and priorities, increase commitment towards their network partners and delegate appropriate authority for operational efficiency (Babbar, Addae, Gosen and Prasad, 2008).

Especially in times of a global financial crisis as it is currently the case, companies need to be aware of their costs and risks, but also evaluate alternate options available in terms of supply chain and distribution management.

This assignment is believed to capture a wide scope of advice for companies of what to be careful with when managing their supply chain and distribution management process.

2.1. Supply chain management

2.1.1. What is supply chain management?

"Supply chain' is the term used to describe the linkage of companies that turns a series of basic materials, products or services into a finished product for the client" (Constructing Excellence, 2004).

Supply chains include a firm's entire manufacturing and distribution process. Every step of the production from planning to manufacturing to handling defective goods is involved. The overall goal of supply chains is to keep all of the components (e.g. vendors, warehouses, etc) connected and to keep the entire process running smoothly at all times. Supply chains are generally concerned with the flow of raw materials, manufacturing, production and distribution (Epiq Technologies, 2008c).

According to Lancioni (2000) with the advent of supply chain management the perspective of managers changed from an intrafunctional vision, meaning that the focus was on the individual firm within the channel, to an interfunctional view, where emphasis is placed on the cooperation that takes place between firms (Lancioni, 2000).

By making use of modern procurement methods companies move into the direction of integrated supply chains. This means that the parties involved in the supply chain have a long term objective which is to work together collaboratively in order to deliver added value to the client. The power of supply chain management is enabled by these long term relationships (Constructing Excellence, 2004).

One of the most important elements in supply chain management is the emphasis on continual improvement or what the Japanese refer to as Kaizen. This is manifested in many ways, such as improved productivity, better service levels, lower transport costs, reduced damage in transit, faster order processing, and more responsive complaint processing. However, one area that has not been driven by continual customer focus is sales forecasting (Lancioni, 2000).

Appendix 1 and Appendix 2 show how a supply chain network structure looks like

2.1.2. Benefits and Problems of Supply Management

There are several benefits for each individual company involved in the supply chain such as reducing costs, incentives to remove waste from the process, greater certainty of out-turn costs, delivering better underlying value to the client, more repeat business with key clients as well as a greater confidence in longer-term planning (Constructing Excellence, 2004).

For the end-users and clients the benefits include a more responsive industry, delivering facilities that better meet user needs, delivered to time and cost with minimum defects. This leads to higher customer satisfaction as well as an improved reputation for the industry (Constructing Excellence, 2004).

However, apart from the positive aspects such as reducing costs, improving the profit margin and offering a better return on investment, there are also potential problems related to supply chain management. Most of these problems involve a lack of control over data, technology or vendors (Epiq Technologies, 2008a).

A lack of quality data is the most often occurring challenge of many supply chain management systems. The results of the supply chain can only be as good as the data the system or software is using. The considerations that are of high importance are that data are from large enough samples. Additionally it has to be considered that data can change quickly or vary enormously even in a short time period. Therefore data must be continually re-evaluated and updated so that it matches reality (Epiq Technologies, 2008a).

Another big issue is the technology required in order to bring supply chains onto the internet. While some companies adapted the internet based supply chains very quickly, others have been reluctant towards this new technology. Their main reasons for this were that this is very costly and also time consuming to install (Epiq Technologies, 2008a).

Most companies expect that as soon as they set up a supply chain, everyone is going to see the benefits immediately. However, it takes some time for the supply chain to be beneficial to all companies involved. And not every company may benefit equally which in turn leads to some partners feeling unimportant in the overall sequence. In fact, companies, as a result of joining the supply chain, may even be afraid of losing their competitive advantage. This explains why many companies are simply not joining integrated supply chains (Epiq Technologies, 2008a).

2.1.3. The Importance of Supplier Relationships in Supply Chain Management

"The focus for manufacturers today is amongst others on decreasing costs and reducing time to market. These goals can largely be achieved by partnering with suppliers for everything from basic parts supply to technology innovation, product design and logistics services" (Choi, 2006).

" Supplier-supplier relationships occur in a more complex context than buyer-supplier relationships" (Choi, 2006).

Many companies now outsource their design activities and may even ask two or more suppliers to work together in terms of new product development. One supplier might be even asked to spread a new developed technology to other suppliers. This shows that although suppliers are competitors, they have to collaborate in different areas (Choi, 2006).

Being able to understand, predict as well as manage supplier-supplier relationships has become critical for the success of buying firms.

Choi (2006) defined three different types of supplier-supplier relationships: Competitive, cooperative and coopetitive.

Suppliers in competitive supplier-supplier relationships tend not to communicate or share information with each other as they are angling for the same business from a buying company.

Suppliers in a cooperative supplier relationship however, work closely together, exchange information freely and may even go as far as engaging in joint-venture projects in order to meet buyer needs better and also achieve their business goals (Choi, 2006).

Hybrid-coopetitive supplier-supplier relationships display characteristics of both competitive as well as cooperative relationships. In the one hand they cooperate with each other where necessary in order to learn and expand their market share but on the other hand they compete for survival.

According to Choi (2006) the type of relationship is largely dependent on the type of goods it purchases. Manufacturers have to learn what kind of supplier-supplier relationship best serves their business goals and how to create and manage those. All three relationships have their advantages as well as disadvantages (Choi, 2006).

Competitive supplier-supplier relationships allow the buyer to maintain a healthy level of control by restraining the information exchange among suppliers. However, the lack of supplier synergy can lead to spending a lot of time on coordinating information on new ideas, quality control, and product processed from each supplier separately.

For the cooperative supplier-supplier relationship the free knowledge sharing among the suppliers leads to product improved by collective brainpower which can hedge against capacity shortages as both suppliers have the necessary information to produce what the buyer needs.

In Coopetitive supplier-supplier relationships the buyer benefits of both competitive and cooperative relationships. However, the buyer also risks taking the double disadvantages (Choi, 2006).

In summary, strong relationships with the suppliers can lead to enormous positive business results. Taking a closer look at Toyota and Honda for example shows those results include faster production times than the majority of their US competitors. Compared to the industry average of two to three years, they design new cars in just twelve to eighteen months. Additionally they reduced manufacturing costs on the two best selling cars in the US- the 'Camry' and the 'Accord'- by 25 % in the 1990s while still scoring top spots on the JD Powers customer satisfaction surveys (Choi, 2005).

For Honda and Toyota, suppliers have been the key to their innovation and success. Indeed they source 70-80% of their manufacturing costs from outside suppliers and many of the cost-cutting ideas that made the "Camry" and "Accord' so successful came from suppliers (Choi, 2005).

2.1.4. The Emergence of Global Supply Chain Management

With increased globalisation and offshore sourcing, global supply management is becoming more and more important. Whilst the underlying factors to reduce the costs of procurement as well as decrease the risks related to purchasing activities maintain the same, global supply chain management involves a company's worldwide interests and suppliers rather than a national or local orientation (Epiq Technologies, 2008b).

However, with more countries being involved in the supply chain process, new difficulties occur with which the company has to deal. One aspect to consider is the overall costs. Whilst labour costs may be significantly lower, other costs such as cost of space, tariffs at other expenses related to doing business overseas, have to be explored. In addition to that, exchange rates need to be considered as they will have huge impacts on the business. Therefore, before implementing global supply management, a lot of research has to be done by the company in order to evaluate the various areas of risk (Epiq Technologies, 2008b).

Another crucial factor which companies have to consider is time. There are several factors that can either have positively or negatively affects such as the productivity of the overseas employees, the extended shipping times, etc. These times need to be figured in the overall procurement plan (Epiq Technologies, 2008b).

Other factors, which can have a dramatic influence or even form a delay in production and shipping, are the weather, customs clearance times as well as a government's red tape. All this needs to be taken into the plan. The company has to decide on the overall outsourcing plan. Businesses may desire to keep some aspects of the supply chain closer to home for a particular reason. But the costs that could be saved with outsourcing also play an important role. Companies have to find the right balance here and evaluate their options (Epiq Technologies, 2008b).

Supplier selection is one further issue to be explored. Comparing vendor bids from an array of global suppliers can be very complex. Companies should take their time to evaluate not only the price, but also the time and costs involved as well as other possible dangers of risk involved. Furthermore, companies have to make a decision on the number of suppliers to use. Fewer suppliers may be easier to manage but for example if one supplier is facing delivery problems or if one vendor tries to leverage its supply power in order to obtain price concessions, more suppliers might be more appropriate. Additionally logistical problems for companies are related with the decisions on the location of plants and numbers of plants needed (Epiq Technologies, 2008b).

2.1.5. Supply Chain Management in Developing Countries

In today's world, multinationals expand overseas in order to access new markets and source components and raw materials. Therefore their supply lines span over multiple countries. China, India as well as other developing countries are on special focus for multinationals. Those countries not only offer large markets, but also have low labour and raw material costs available which can lead to a great potential for competitive advantage for a multinational firm (Fynes, De Burca and Voss, 2005).

According to Fynes, De Burca and Voss (2005) in today's environment it is supply chains competing against each other rather than companies competing against other (Fynes, De Burca and Voss, 2005). Firms and supply chain partners configure their plants, warehouses, distribution centres strategically around the world. Careful coordination among those is of highest importance (Pontrandolfo, Gosavi, Okogbaa and Das, 2002). The flow of information and materials throughout the supply chain has to be coordinated. Global supply chains are complex as they are characterized by many uncontrolled forces and complexity (Peck, 2005). Most developing countries have a high degree of uncertainty involved from a range of economic, political, legal, social and cultural factors. Such economic factors might be the quality of infrastructure, the relative distance to other nods within the supply chain, a poorly managed economy or even a limited availability of foreign currency for purchasing spare parts (Nollet, Lenders, and Dorio, 1994). Additionally fluctuating inflation rates (such as in the case of Zimbabwe), add to further uncertainty in some of the poorer developing countries (MacCarthy and Atthirawong, 2003). Furthermore, the transportation process in developing countries involves a lot of time due to an often poor quality of transportation infrastructure (Nollet et al, 1994). Finally, many components have to travel long distances from overseas in case that the developing country has no established local supply base available (Nollet et al, 1994). This does not only add to the length of the replenishment cycle, but also demonstrates additional costs. Political or legal factors might include problems when crossing borders such as border controls. Also corruption and bribery can be additional risks.

What is a matter of fact, is that supply chains are strictly dependent upon the quality of information available (Krause, 1998). What is also redefining the role for trading relationships in the developing countries are information networks and technology convergence (Sahay and Mohan, 2003).

Generally there is to say that supply chains perform better when the local suppliers are technologically sophisticated, a high degree of technological adaptation exists, and a use of computers and advanced technologies is available locally (Babbar, Addae, Gosen and Prasad, 2008).

However, in many developing countries this is not the case. Therefore the use of dual technology comes into play. This means that multinationals of industrialized countries take an older technology into the developing market, than the current and updated one used at the time in the home market. Usually this also helps the multinationals to protect themselves of not getting the 'newer technology' copied and produced at lower cost. It may be even produced with some improved details and then enter the home market with the 'same product' but at significantly lower costs which might lead to losing sales of the company in the industrialised country.

With the decision of a multinational firm to extend its supply chain into a developing country, many tradeoffs will be involved which have to be carefully evaluated. But, if the company spans their supply chain including developing countries effectively, the long-term payoffs can be substantial. In order to achieve this, companies need to align their goals and priorities, increase commitment towards their network partners and delegate appropriate authority for operational efficiency (Babbar, Addae, Gosen and Prasad, 2008).

2.1.6. TECHNOLOGY The Role of Internet in Supply Chain Management

Technology plays an important role in the success of supply chain management. Only with the use of internet based software and communication, a supply chain can reach its full potential (Epiq Technologies, 2008c).

Before the internet, companies were limited in many areas such as receiving or sending updates, feedback, communication with global partners due to language barriers and different time zones, etc. The internet handles most of the elements in supply chain management including procurement and communication. One of the most important benefits the supply chain has gained from technology is the ability for companies to collaborate (Epiq Technologies, 2008c).

Lancioni, Smith and Oliva (2000) discuss the role of internet in supply chain management. It was already obvious in the year 2000 what a large impact the internet had in terms of cost reduction and service improvements. Today, with nearly 10 years in advance of the internet technology, the scope of opportunities is even broader. What seems normal business for companies nowadays was relatively new and unusual for companies then. These internet services abilities include: online vendor catalogues from which buyers can find, select and order items directly from suppliers, the tracking of shipments using a wide variety of modes including truck, rail and air transport, receiving orders from international customers, contacting vendors or buyers regarding late deliveries, stock-outs, alterations, late arrivals, etc The entire list can be seen in Appendix 2 (Lancioni, Smith and Oliva, 2000).

Point-of-sale information programmes show how beneficial to all parties the data exchange in the supply chain can be. This is experienced by mega-discounters such as Wal Mart which was one of the first retailers linking their point-of sale information with the computers of their vendors. The vendors are immediately informed of the stock levels of their particular products which are sold through the stores of the buyers. The cash scanners at the particular store outlets inform the vendors in case the stock level requires replenishment. If any item falls to the minimum level of stock, an order gets automatically issued for replenishment by the point-of-sale system. The vendor, receiving the order electronically, then sends the needed products directly to the store or central warehouse (Lancioni, Smith and Oliva, 2000). More information on Wal-Mart can be found on page 19.

Among vendors, carriers and shippers many traditional logistics practices such as face-to-face negotiations are rarely if any used these days. Rate negotiation can now be carried out via the internet which is faster and at lower costs than before.

Inventory management can now be more accurate with using bar code readers which transmit stock levels to computers. Through the internet the data can be transmitted directly to logistics managers. As stock levels can be reviewed frequently, this system is more accurate and also quicker.

The appliance division of General Electric makes use of the internet in order to schedule shipments out of the centrally located warehouses in metropolitan areas. Through this, they achieve a more accurate as well as more cost effective delivery of its products on time. As a result, the number of deliveries per hour increased whilst transportation costs per order decreased (Lancioni, Smith and Oliva, 2000).

The research taken by Lancioni, Smith and Oliva (2000) shows that the most popular use of the internet for supply chain management is in transportation, followed by order processing, managing vendor relations, purchasing procurement (e-procurement) and customer service (see Appendix 4, Table 1).

The internet has many tasks in procurement applications such as communicating with vendors, checking vendor price quotes and making purchases from vendor online catalogues (see Appendix 4, Table 2).

General Electric reduced its purchasing staff by 50% and makes use of online procurement from vendor catalogues by each department. Therefore the paper work flows is reduced and order cycle times, the time from when the order is purchased to the time it is delivered, has decreased by 40% (Lancioni, Smith and Oliva, 2000).

Tables 3 — 8 in Appendix 4 summarize the activities internet is used in the areas of inventory management, transportation, order processing, customer service, vendor relationships as well as production scheduling.

Further details on the topic e-procurement can be found in Appendix 5.


Excerpt out of 45 pages


Supply Chain and Distribution Management
University of Western Sydney  (Sydney Graduate School of Management)
83 %
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ISBN (Book)
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Supply, Chain, Distribution, Management
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Rakowski (Author)Cheuk Yin Tang (Author)Kammala (Author)Sorraphetpisai (Author)Sahai Mathur (Author), 2009, Supply Chain and Distribution Management, Munich, GRIN Verlag,


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