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TIL 3340 Ch1_Business Logistics Management
Transcript of TIL 3340 Ch1_Business Logistics Management
SUPPLY CHAIN MANAGEMENT
Explain the external change drivers in the global economy and their impact on global supply chains.
Discuss the development of supply chain management in leading organizations and understand its contributions to their financial viability.
The major objectives of this chapter are:
§ Understand the major external change drivers in the global economy and explain their impacts on global supply chains.
§ Understand the development of supply chain management in leading organizations and its contribution to financial viability.
§ Appreciate the significance and role of supply chain management among private, public and nonprofit organizations.
§ Understand the contributions of a supply chain approach to organizational efficiency and effectiveness for competing successfully in the global marketplace.
§ Explain the benefits that can be achieved from implementing supply chain best practices.
§ Understand the major challenges and issues facing organizations currently and in the future.
Globalization: Many believe that globalization has replaced the “cold war” of the post-World War II era as the driving force for world economics. Beginning in the 1970s, U.S. firms began procuring more globally.
Beginning in the 1970s, U.S. firms began procuring more globally.
Firms started asking:
• Where in the world should they source?
• Where in the world should they manufacture
• Where in the world should they market their products?
• From where in the world should they warehouse and distribute?
• What global transportation strategies should they utilize?
Beginning in the 1970s, U.S. firms began procuring more globally.
Firms started asking:
• Where in the world should they source our materials and service?
• Where in the world should they manufacture or produce products and services?
• Where in the world should they market their products or services?
• From where in the world should they warehouse and distribute their products?
• What global transportation strategies should they utilize and consider?
It is also a major force in changing the dynamics of the marketplace. Individuals and organizations are “connected” 24/7 and have access to information on the same basis via the Internet.
The speed and availability of information over the Internet has caused consumers to be much more aware of delivery cycles and to have a greater desire for instant gratification.
Developing countries such as China and India can participate in the global economy much more readily because of the Internet. The world is no longer tilted toward the developed countries such as the United States and European countries in terms of an economic advantage. The world has become "flat" where any country can participate in the global market and not just the US and Europe.
After World War II, manufacturing became the leading driver of supply chains. As markets became more fragmented and competitive, these manufacturing firms sought advantage through logistics excellence. Retail giants such as Walmart, Sears, Kmart, Home Depot, Target, Kroger, McDonald’s, and other Big Box Store chains have became powerful market leaders in driving logistics change.
The Empowered Consumer
Today’s consumers are more enlightened, educated, and empowered than ever before by the information they have at their disposal from the Internet and other sources.
The demographics of our society with the increase in two-career families and single-parent households have made time a critical factor for many households so demand quicker response times and more convenient offerings according to their schedules.
Government Policy and Regulation
The fifth external change factor is the various levels of government which impact businesses and their supply chains. The deregulation of the 1980s and 1990s included transportation, communications, and financial institutions.
Now that domestic transportation is deregulated, it has become possible for transportation services to be purchased and sold in a much more competitive environment. New carriers entered the marketplace while other sectors of transportation underwent consolidation through mergers and acquisition. Many service providers are offering logistics services companies and offer an array of related services that can include order fulfillment, inventory management, warehousing, etc. New technology such as radio-frequency identification (RFID) and other technology offer great potential for improvement.
Forces Driving the Rate of Change
The Supply Chain Concept
Development of the Concept
The concept started in the 1960s with the development of the idea of physical distribution which focused on the outbound side of a firm’s logistics system. The focus of physical distribution was on total systems cost and analyzing tradeoff scenarios to arrive at the best or lowest system cost.
During the 1980s, the logistics or integrated logistics management emerged. In its simplest form, it added inbound logistics to the outbound logistics of physical distribution. This increased coordination between the outbound and inbound logistics systems provided opportunities for increased efficiency and, perhaps, improved customer service.
A View of Logistics Management
Source: Center for Supply Chain Research, Penn State University.
Integrated Logistics Management
Generic Value Chain
Source: Center for Supply Chain Research, Penn State University
Integrated Supply Chain
Source: “Efficient Consumer Response: Enhancing Consumer Value in the Grocery Industry”
by Kurt Salmon Associates, Inc. (Jan. 1993)
Throughput time comparison
Cash flow has become one of the most important measures of financial viability in today’s global markets. Supply chains are an important determinant of improved cash flow since they impact order cycle time to customers.
Supply chains are an important determinant of capital consumption since they impact working capital, inventory levels, and other assets such as warehouses.
Efficient and effective supply chains can free up valuable resources and improve customer fulfillment systems so as to increase return on investment or assets and improve shareholder value.
The accelerated rate of change in our economy has accelerated the necessity of continuing changes in organizations or even transformation to remain competitive.
The rate of change has been driven by a set of external forces including but not limited to globalization, technology, organizational consolidation and shifts in power in supply chains, an empowered consumer, and government policy and regulations.
The conceptual basis of the supply chain is not new. In fact, organizations have evolved from physical distribution management to logistics management to supply chain management.
Supply chains are boundary spanning and require managing three flows—products, information, financials (cash), and demand.
Supply chain management is a journey, not a goal, and there are no “silver bullets” since all supply chains are unique.
Information is power, and collaborative relationships internally and externally are a necessary ingredient for success.
The performance of supply chains must be measured in terms of overall corporate goals for success.
Supply chains need to focus on the customers at the end of the supply chain and be flexible and responsive.
Technology is important to facilitate change, but it must follow a process and educate people to address problems and issues appropriately.
Transportation management and security have become increasingly important in the twenty-first century because of changes that have occurred.
Change with the changes, or you will be changed by the change!
SAB Distribution Another Sequel
Change for new CEO
Current Sue Purdum
New: Susan Weber
Sells consumer products from Kraft, Kimberly-Clark, P&G, etc. then resells to smaller distributors, wholesalers, and retailers.
SAB Distribution was established in 1949 in Harrisburg, Pennsylvania, by three World War II
veterans who had served as supply officers in the U.S. Navy. They selected Harrisburg because
of its central location in Pennsylvania and the mid-Atlantic region and because of its access by
rail and highways. The founders of SAB—Skip, Al, and Bob—recognized the need for a food
wholesaling company to serve medium and small-size retailers within a 100-mile radius of
Harrisburg. Their vision proved to be correct, and the company grew and prospered in subsequent
years. The company was incorporated in 1978, and a CEO, Pete Swan, was appointed in
1983 when the founders retired.
EXECUTIVE COMMITTEE MEETING
As Susan looked across the table at her first SAB executive committee, she could see the
concern in their eyes. They knew that she had a successful career at P&G in the supply chain
area including global experience in Japan and other Pacific Rim countries, but could she make the transition to a smaller company with a different role in the supply chain?
SAB was faced with a number of challenges to its future existence. First and foremost, its
customers had to compete against large retailers like Wal-Mart that could buy direct from the
same consumer product manufacturers as SAB, i.e., “no middleman.” Wal-Mart’s buying
advantage had to be offset in some way to keep SAB’s customers competitive. In addition,
globalization was impacting SAB’s business because of an increase in imported products for
the more diverse population of the United States and the ongoing search for lower-priced
I need your help and insights as we transition through these difficult times. We need to change, and I need you to help me with not only implementing the changes but also helping me to decide on appropriate changes. If you are afraid of change and would rather maintain the status quo, then your days at SAB are probably numbered. I need you to be ‘agents of change’ not ‘keepers of the status quo.’ Let me give you a brief overview of my vision of how we have to transform our company.”
“Change is inevitable, but growth and improvement are optional.”1
“You either change and get better or you slip and get worse, you cannot stay the
“When the rate of change outside the organization is faster than inside, the end
Table 1-1 Leading Retailers: 1930–2005
Montgomery Ward—1930s and 1940s
Sears and Roebuck—1950s and 1960s
Kmart—1970s and 1980s
Wal-Mart—1990s to present
What could you improve?
What should you avoid?
What are people in your market likely to see as weaknesses?
What factors lose you sales?
What good opportunities can you spot?
What interesting trends are you aware of?
Useful opportunities can come from such things as:
Changes in technology and markets on both a broad and narrow scale.
Changes in government policy related to your field.
Changes in social patterns, population profiles, lifestyle changes, and so on.
What obstacles do you face?
What are your competitors doing?
Are quality standards or specifications for your job, products or services changing?
Is changing technology threatening your position?
Do you have bad debt or cash-flow problems?
Could any of your weaknesses seriously threaten your business?
What advantages does your organization have?
What do you do better than anyone else?
What unique or lowest-cost resources can you draw upon that others can't?
What do people in your market see as your strengths?
What factors mean that you "get the sale"?
What is your organization's Unique Selling Proposition (USP)?
Consider your strengths from both an internal perspective, and from the point of view of your customers and people in your market.