FFIRS 08/09/2011 10:3:13 Page 2 FFIRS 08/09/2011 10:3:13 Page 1 SUPPLY CHAIN MANAGEMENT FFIRS 08/09/2011 10:3:13 Page 2 FFIRS 08/09/2011 10:3:13 Page 3 SUPPLY CHAIN MANAGEMENT A GLOBAL PERSPECTIVE Nada R. Sanders Lehigh University John Wiley & Sons, Inc. FFIRS 08/09/2011 10:3:13 Page 4 Vice-President & Publisher: George Hoffmann Executive Editor: Lise Johnson Associate Editor: Sarah Vernon Project Editor: Brian Baker Editorial Assistant: Melissa Solarz Marketing Manager: Kelly Simmons Media Editor: Allison Morris Media Associate Editor: Elena Santa Maria Media Specialist: Thomas Caruso Senior Production Manager: Janis Soo Associate Production Manager: Joyce Poh Assistant Production Editor: Annabelle Ang-Bok Designer: Jeof Vita Cover Photo: # Thomas Vogel/iStockphoto This book was set in 11/13 AGaramond-Regular by Thomson Digital and printed and bound by RR Donnelly (Von Hoffman). This book is printed on acid free paper.
Founded in 1807, John Wiley & Sons, Inc. has been a valued source of knowledge and understanding for more than 200 years, helping people around the world meet their needs and fulfill their aspirations. Our company is built on a foundation of principles that include responsibility to the communities we serve and where we live and work. In 2008, we launched a Corporate Citizenship Initiative, a global effort to address the environmental, social, economic, and ethical challenges we face in our business.
Among the issues we are addressing are carbon impact, paper specifications and procurement, ethical conduct within our business and among our vendors, and community and charitable support. For more information, please visit our website: www.com/go/citizenship. Copyright # 2012 John Wiley & Sons, Inc. All rights reserved.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc. 222 Rosewood Drive, Danvers, MA 01923, website www. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, (201)748-6011, fax (201)748-6008, website http://www.com/go/permissions. Evaluation copies are provided to qualified academics and professionals for review purposes only, for use in their courses during the next academic year.
These copies are licensed and may not be sold or transferred to a third party. Upon completion of the review period, please return the evaluation copy to Wiley. Return instructions and a free of charge return mailing label are available at www.com/go/returnlabel. If you have chosen to adopt this textbook for use in your course, please accept this book as your complimentary desk copy.
Outside of the United States, please contact your local sales representative. Library of Congress Cataloging-in-Publication Data Sanders, Nada R. Supply chain management : a global perspective / Nada R. Includes bibliographical references and index.7—dc23 2011024075 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 FTOC01 08/11/2011 12:39:47 Page 5 BRIEF CONTENTS CHAPTER 1 Introduction to Supply Chain Management 1 CHAPTER 2 Supply Chain Strategy 33 CHAPTER 3 Network & System Design 63 CHAPTER 4 Marketing 91 CHAPTER 5 Operations Management 121 CHAPTER 6 Sourcing 151 CHAPTER 7 Logistics 177 CHAPTER 8 Forecasting & Demand Planning 203 CHAPTER 9 Inventory Management 241 CHAPTER 10 Lean Systems & Six-Sigma Quality 273 CHAPTER 11 Supply Chain Relationship Management 311 CHAPTER 12 Global Supply Chain Management 343 CHAPTER 13 Sustainable Supply Chain Management 373 v FTOC01 08/11/2011 12:39:47 Page 6 FTOC02 08/11/2011 12:41:20 Page 7 CONTENTS PREFACE XV CHAPTER 1 Introduction to Supply Chain Management 1 What is Supply Chain Management (SCM)? 3 Supply Chain Leader’s Box: Amazon.com 11 The Boundary-Spanning Nature of SCM 12 The Rise of SCM 15 Supply Chain Leader’s Box: Dell Computer Corporation 17 Characteristics of a Competitive Supply Chain 18 Global Insights Box: Zara 19 Trends in SCM 20 Supply Chain Leader’s Box: Wal-Mart 21 Managerial Insights Box—Outsourcing Innovation: Goldcorp Inc.
26 Careers in SCM and Professional Organizations 27 Chapter Highlights 28 Key Terms 29 Discussion Questions 29 Case Study: McNulty’s Muscular Materials (MMM) 29 Case Questions 30 References 30 CHAPTER 2 Supply Chain Strategy 33 What is Supply Chain Strategy? 35 Achieving a Competitive Advantage 36 Supply Chain Leader’s Box: Wal-Mart 38 Global Insights Box: Toyota Motor Corporation 40 Building Blocks of Supply Chain Strategy 40 Managerial Insights Box—Outsourcing Alliances: Li & Fung Ltd. 48 Supply Chain Strategic Design 49 Supply Chain Leader’s Box: Barlean’s Organic Oils 53 vii FTOC02 08/11/2011 12:41:20 Page 8 viii Contents Strategic Considerations 55 Productivity as a Measure of Competitiveness 56 Chapter Highlights 58 Key Terms 59 Discussion Questions 59 Problems 60 Case Study: Surplus Styles 60 Case Questions 61 References 62 CHAPTER 3 Network & System Design 63 The Supply Chain System 65 Supply Chain Leader’s Box—Moving to Process Thinking: LG Electronics 69 Understanding Processes: Theory of Constraints (TOC) 70 Integration of Supply Chain Processes 75 Designing Supply Chain Networks 77 Managerial Insights Box—Outsourcing Versus In-House: Sony Versus Samsung 78 Enterprise Resource Planning (ERP) 82 Chapter Highlights 85 Key Terms 86 Discussion Questions 86 Problems 87 Case Study: Boca Electronics, LLC 87 Case Questions 88 References 88 CHAPTER 4 Marketing 91 What is Marketing? 93 Supply Chain Leader’s Box: Gap Inc. 94 Supply Chain Leader’s Box—Accommodating Changing Customer Preferences: PepsiCo 97 Customer-Driven Supply Chains 98 Managerial Insights Box—Understanding the Customer: Keurig Versus Flavia 101 Delivering Value to Customers 103 Global Insights Box—Global Customer Service: Coca-Cola 110 Channels of Distribution 110 Managerial Insights Box—Changing the Distribution Channel: Steinway Pianos 113 FTOC02 08/11/2011 12:41:20 Page 9 Contents ix Chapter Highlights 116 Key Terms 117 Discussion Questions 117 Case Study: Gizmo 117 Case Questions 118 References 119 CHAPTER 5 Operations Management 121 What is Operations Management (OM)? 123 Supply Chain Leader’s Box: Wal-Mart 127 Product Design 128 Global Insights Box: Smartcup 131 Process Design 134 Managerial Insights Box—A New Manufacturing Process: Rapid Manufacturing 138 Facility Layout 139 Managerial Insights Box: Mazzi’s Versus Totino’s Pizza 141 Line Balancing in Product Layouts 142 Process Automation 146 Global Insights Box: KUKA Robotics Corp. 147 Chapter Highlights 148 Key Terms 149 Discussion Questions 149 Problems 149 References 150 CHAPTER 6 Sourcing 151 What is Sourcing? 153 Supply Chain Leader’s Box—The Expansive Role of Suppliers: Philips Lighting 157 The Sourcing Function 157 Sourcing and SCM 160 Global Insights Box—Functional Products Challenge: Global Fast Food Markets 161 Supply Chain Leader’s Box—Innovative Product Challenge: Apple Computer Corp.
163 Managerial Insights Box—Outsourcing Alliances: Roots 167 Measuring Sourcing Performance 169 Chapter Highlights 170 Key Terms 171 FTOC02 08/11/2011 12:41:20 Page 10 x Contents Discussion Questions 171 Problems 172 Class Exercise: Toyota 172 Case Study: Snedeker Global Cruises 173 Case Questions 174 References 174 CHAPTER 7 Logistics 177 What is Logistics? 179 Supply Chain Leader’s Box: United Parcel Service (UPS) 180 Logistics Tasks 187 Transportation 189 Supply Chain Leader’s Box: Sysco 190 Global Insights Box—Rail Service Between China and Europe: ‘‘Northeast Passage’’ 192 Warehousing 193 Third-Party Logistics (3PL) Providers 197 Chapter Highlights 197 Key Terms 198 Discussion Questions 198 Problems 199 Case Study: Strategic Solutions Inc. 200 Case Questions 202 References 202 CHAPTER 8 Forecasting & Demand Planning 203 What is Forecasting? 205 Managerial Insights Box: Forecasting Beyond Widgets 207 Global Insights Box—Matching Supply and Demand: World Health Organization (WHO) 209 The Forecasting Process 210 Managerial Insights Box: How Information is Transforming Forecasting 213 Types of Forecasting Methods 214 Time Series Forecasting Models 217 Causal Models 224 Measuring Forecast Accuracy 227 Collaborative Forecasting and Demand Planning 230 Supply Chain Leader’s Box—Using Collaborative Technology: Li & Fung 231 FTOC02 08/11/2011 12:41:20 Page 11 Contents xi Chapter Highlights 233 Key Terms 234 Discussion Questions 235 Problems 235 Case Study: Speedy Automotive 238 Case Questions 239 References 240 CHAPTER 9 Inventory Management 241 Basics of Inventory Management 243 Managerial Insights Box—Service Inventory: Zoots 244 Supply Chain Leader’s Box: John Deere & Company 249 Inventory Systems 250 Fixed-Order Quantity Systems 253 Fixed-Time Period Systems 261 Independent Versus Dependent Demand 263 Global Insights Box: Intel Corporation 264 Managing Supply Chain Inventory 265 Chapter Highlights 269 Key Terms 270 Discussion Questions 270 Problems 271 References 272 CHAPTER 10 Lean Systems & Six-Sigma Quality 273 What is Lean? 275 Supply Chain Leader’s Box: U. Army 278 Lean Production 279 Global Insights Box: Elcoteq 280 Respect for People 283 Total Quality Management (TQM) 285 Managerial Insights Box: Lean Tools in the Popular Press 289 Statistical Quality Control (SQC) 290 Supply Chain Leader’s Box: Intel Corporation 291 Six Sigma Quality 298 The Lean Six Sigma Supply Chain 300 Chapter Highlights 303 Key Terms 304 FTOC02 08/11/2011 12:41:20 Page 12 xii Contents Discussion Questions 305 Problems 305 Case Study: Buckeye Technologies 307 Case Questions 308 References 308 CHAPTER 11 Supply Chain Relationship Management 311 Supply Chain Relationships 313 Supply Chain Leader’s Box: Proctor & Gamble 319 The Role of Trust 319 Global Insights Box: Coca-Cola in Africa 325 Managing Conflict and Dispute Resolution 325 Managerial Insights Box: Commodity Swapping 330 Negotiation Concepts, Styles and Tactics 330 Relational Management in Practice 337 Chapter Highlights 339 Key Terms 340 Discussion Questions 340 Case Study: Lucid Versus Black Box 341 Case Questions 342 References 342 CHAPTER 12 Global Supply Chain Management 343 Global Supply Chain Management 345 Supply Chain Leader’s Box—Challenges of Global Culture: Wal-Mart 347 Global Market Challenges 350 Managerial Insights Box: Coca-Cola’s China Branding Challenge 353 Global Infrastructure Design 356 Cost Considerations 358 Managerial Insights Box—Beyond Cost: BMW 360 Political and Economic Factors 361 Chapter Highlights 364 Key Terms 365 Discussion Questions 365 Case Study: Wu’s Brew Works 365 Case Questions 371 References 372 FTOC02 08/11/2011 12:41:20 Page 13 Contents xiii CHAPTER 13 Sustainable Supply Chain Management 373 What is Sustainability? 375 Global Insights Box: The Great Pacific Garbage Patch 375 Supply Chain Leader’s Box: Aracruz Celulose 378 Evaluating Sustainability in SCM 384 Sustainability in Practice 396 Managerial Insights Box: Carbon Fiber Auto Parts 397 Chapter Highlights 402 Key Terms 402 Discussion Questions 403 Case Study: Haitian Oil 404 Case Questions 405 References 406 APPENDIX 407 GLOSSARY 409 INDEX 417 FTOC02 08/11/2011 12:41:20 Page 14 FPREF 08/09/2011 18:8:16 Page 15 PREFACE S upply chain management (SCM) is the fastest growing area of business today, and is at the core of success of most leading companies. Knowledge of SCM is necessary to participate in this growing and exciting career field.
However, SCM is challenging in scope and complexity. Even today there is a misunderstanding of SCM. Most people assume that SCM is part of logistics and distribution, or purchasing, or perhaps market- ing. They do not understand the intricacies and broad reach of this rapidly evolving area of business.
This book is designed to provide students with a comprehensive understanding of SCM, key issues involved, and the very latest business thinking. This book is different from other SCM textbooks. It is specifically written as a comprehensive SCM text providing an integrated and global perspective. Recent trends have made the study of SCM especially challenging.
Today’s business environment has forced companies to compete in very different ways than just a few years ago. The following is true of today’s organizations: & In addition to competing on traditional dimensions such as quality, time, cost, and customisation, companies must be rapid innovators. They must stay abreast of quickly changing customer demands and have responsive supply chains in place. & Today’s organizations operate in a global environment and are affected by global trade.
Many companies serve multiple global markets, with products sourced and produced across many continents. They must plan, design, and manage a complex supply chain network. & Focus on ‘‘green’’ and sustainability has become prominent. Issues of environ- mental and social responsibility are becoming critical elements of SCM, spanning concerns such as sourcing, packaging, manufacturing, and distribution.
& E-business, the Internet, and advances in information technology (IT) are enabling supply chain collaboration and coordination. IT system design is an important element of SCM.