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Warehousing,150

Third-PartyLogistics(3PL)Providers,153

ChapterHighlights,153

KeyTerms,154 DiscussionQuestions,154 Problems,154

CaseStudy:StrategicSolutionsInc.,154 CaseQuestions,156 References,156

8 FORECASTINGAND DEMAND PLANNING 157

WhatIsForecasting?,159

ManagerialInsightsBox:ForecastingbeyondWidgets,160 GlobalInsightsBox—MatchingSupplyandDemand:WorldHealth Organization(WHO),162 TheForecastingProcess,163

ManagerialInsightsBox:PredictiveAnalytics,165 TypesofForecastingMethods,166

BigDataAnalyticsBox—ImprovingWeatherForecasting:NOAA,168 TimeSeriesForecastingModels,169 CausalModels,175

MeasuringForecastAccuracy,178

CollaborativeForecastingandDemandPlanning,180 SupplyChainLeader’sBox—UsingCollaborativeTechnology:Li& Fung,181

ChapterHighlights,183

KeyTerms,183 DiscussionQuestions,183 Problems,184

CaseStudy:SpeedyAutomotive,185 CaseQuestions,187 References,187

9 INVENTORY MANAGEMENT 188

BasicsofInventoryManagement,190

ManagerialInsightsBox—ServiceInventory:Zoots,191

SupplyChainLeader’sBox:JohnDeere&Company,195 InventorySystems,195 Fixed-OrderQuantitySystems,198

BigDataAnalyticsBox—AnalyticsDrivenInventory:Dell,205 Fixed-TimePeriodSystems,205 IndependentversusDependentDemand,207

GlobalInsightsBox:IntelCorporation,208 ManagingSupplyChainInventory,208

ChapterHighlights,212

KeyTerms,212

DiscussionQuestions,212 Problems,213 References,213

10 LEAN SYSTEMSAND SIX-SIGMA QUALITY 214

WhatIsLean?,216

BigDataAnalyticsBox:GeneralElectric,218

SupplyChainLeader’sBox:U.S.Army,219

LeanProduction,220

GlobalInsightsBox:UPS,221

RespectforPeople,223

TotalQualityManagement(TQM),224

ManagerialInsightsBox:LeanToolsinthePopularPress,227

StatisticalQualityControl(SQC),228

SupplyChainLeader’sBox:IntelCorporation,229

SixSigmaQuality,236

TheLeanSixSigmaSupplyChain,237

ChapterHighlights,240

KeyTerms,240

DiscussionQuestions,240 Problems,241

CaseStudy:BuckeyeTechnologies,242

CaseQuestions,242 References,243

11 SUPPLY CHAIN RELATIONSHIP MANAGEMENT 244

SupplyChainRelationships,246

BigDataAnalyticsBox—TheNetworkEffect:Amazon,249

SupplyChainLeaders’Box—OpenInnovation:Proctor&Gamble,251

TheRoleofTrust,252

GlobalInsightsBox—GrowthThroughPartnership:Coca-Cola inAfrica,256

ManagingConﬂictandDisputeResolution,256

ManagerialInsightsBox:CommoditySwapping,260

NegotiationConcepts,Styles,andTactics,260

RelationshipManagementinPractice,265

ChapterHighlights,267

KeyTerms,267

DiscussionQuestions,267

CaseStudy:Lucidv.BlackBox,268

CaseQuestions,268 References,268

12 GLOBAL SUPPLY CHAIN MANAGEMENT 270

GlobalSupplyChainManagement,272

SupplyChainLeader’sBox—ChallengesofGlobal Culture:Wal-Mart,273 GlobalMarketChallenges,276

ManagerialInsightsBox:Coca-Cola’sChinaBrandingChallenge,278 GlobalInfrastructureDesign,280

BigDataAnalyticsBox—SupplierRisk:Cisco,281 CostConsiderations,282

ManagerialInsightsBox—BeyondCost:BMW,283 PoliticalandEconomicFactors,284 ChapterHighlights,286 KeyTerms,286 DiscussionQuestions,287

CaseStudy:Wú’sBrewWorks,287 CaseQuestions,291 References,292

13 SUSTAINABLE SUPPLY CHAIN MANAGEMENT 293

WhatIsSustainability?,295

GlobalInsightsBox:TheGreatPaciﬁcGarbagePatch,296

SupplyChainLeadersBox:FibriaCelulose,298 EvaluatingSustainabilityinSCM,302

BigDataAnalyticsBox:Coca-Cola,310 SustainabilityinPractice,312

ManagerialInsightsBox:CarbonFiberAutoParts,313 ChapterHighlights,316 KeyTerms,316 DiscussionQuestions,317

CaseStudy:HaitianOil,317 CaseQuestions,318 References,318

PREFACE

Supplychainmanagement(SCM)isthefastest-growingareaofbusinesstodayandisatthecore ofsuccessofmostleadingcompanies.KnowledgeofSCMisnecessarytoparticipateinthisgrowingandexcitingcareerfield.However,SCMischallenginginscopeandcomplexity.Eventoday thereisamisunderstandingofSCM.MostpeopleassumethatSCMispartoflogisticsanddistribution,orpurchasing,orperhapsmarketing.Theydonotunderstandtheintricaciesandbroad reachofthisrapidlyevolvingareaofbusiness.Thisbookisdesignedtoprovidestudentswitha comprehensiveunderstandingofSCM,keyissuesinvolved,andtheverylatestbusinessthinking. ThisbookisdifferentfromotherSCMtextbooks.Itisspecificallywrittenasacomprehensive SCMtextprovidinganintegratedglobalandtechnologyfocusedperspective.

RecenttrendshavemadethestudyofSCMespeciallychallenging.Today’sbusinessenvironmenthasforcedcompaniestocompeteinverydifferentwaysthanjustafewyearsago.The followingistrueoftoday’sorganizations:

• Inadditiontocompetingontraditionaldimensionssuchasquality,time,cost,andcustomization,companiesmustberapidinnovators.Theymuststayabreastofquicklychanging customerdemandsandhaveresponsivesupplychainsinplace.

• Technologicaladvancements—includingbigdataanalytics,autonomousvehicles,3-D printing,InternetofThings(IoT),andnextgenerationRFID—havetransformedsupply chains.The“intelligentsupplychain”thatistechnologicallydrivenisbecomingthenormfor companies.

• Today’sorganizationsoperateinaglobalenvironmentandareaffectedbyglobaltrade.Many companiesservemultipleglobalmarkets,withproductssourcedandproducedacrossmany continents.Theymustplan,design,andmanageacomplexsupplychainnetwork.

• Focuson“green”andsustainabilityhasbecomeprominent.Issuesofenvironmentalandsocial responsibilityarebecomingcriticalelementsofSCM,spanningconcernssuchassourcing, packaging,manufacturing,anddistribution.

• Unprecedentedthreatstosecurityareforcingcompaniestoinvestinsystemstoprotectproductsandinformationthroughouteverystepofthesupplychain.Addressingissuesofsecurity insupplychaindesignisacriticalaspectofSCM.

• Aglobalrecessionhascreatedtremendousfinancialpressuresoncompaniesandtheirsupply chains.Companiesarebeingforcedtoremaincompetitiveandinnovativewhilecutting,or maintaining,costs.

ThistextaddressesSCMwithinthisrealisticglobalandtechnologicallydrivenbusinessenvironment,inacompleteandcomprehensivemanner.Itiswritteninanaccessiblemannerenabling studentstoeasilygraspthematerial,thenextendandelevatediscussionintheclassroom.Each chapterendswithabusinesscasetoreinforcetheconceptslearned.Thetextbookisintended toprovidethefoundationalconceptsforundergraduateandgraduate-levelclassesinSCM,as

wellasrelatedareassuchasoperationsmanagementandpurchasing.Inaddition,thebookisan excellentresourceforexecutiveeducationandtrainingseminars.

GoalsoftheBook

1.ProvideaComprehensiveFoundationofSCM. ThistextiswrittentoprovideacomprehensivefoundationofSCM,fromitsbroadmeaningandstrategicimplications,tooperational conceptsandtechniques.WhiletherearesomeexcellenttextbooksthatprovidefoundationalconceptsofSCM,fewpresenttheseconceptsinacomprehensiveandintegratedmannerthatisthe hallmarkofSCM.

ThetextbeginswithanintroductiontotheholisticandintegratednatureofSCM.Supply chainstrategyisdiscussednext,asthedriverofSCM,followedbythedesignofthesupply chainnetwork.Participationoforganizationalfunctions—includingmarketing,operations,sourcing,andlogistics—arediscussed,aswellastheirlinkagestoSCM.Next,planningandcontrollingthesupplychainisdiscussed,fromforecastingandmaterialsmanagement,toleanandSix Sigma.AttentionisdevotedtotopicsthatareofspecificinteresttoSCM,includingcollaborativeforecastingmethodssuchasCPFRandS&OP.Finally,thetextlooksatissuesofmanaging thesupplychain.Thisincludesmanagingsupplychainrelationships,fromdevelopingalliances tonegotiationstrategies.Entirechaptersaredevotedtothemostcutting-edgeissuesinbusinesstoday:globalbusiness,atechnologicallydrivenenvironment,andsustainablesupplychain management.

2.ProvideCross-FunctionalandIntegrativeCoverageofSCM. Thistextiswritten topresentSCMwithanequalandbalancedcoverageofkeybusinessfunctions,theirinteractions, andtheirintegration.SCMistrulyboundaryspanningandisintertwinedwithallorganizational functions.Also,SCMiscross-functionalinitsdecision-makingrequirementsandneedstobe presentedassuch,ratherthanasanoffshootofanotherbusinessfunction.Thistexthasequal coverageoftherelevantbusinessfunctions,theirintegration,andtheirimpactonthefunctionality ofSCM.

3.ProvideUnderstandingofBusinessIssues. SCMisintertwinedwithbestbusiness practices.ItisatthecoreofsuccessofleadingcompaniessuchasApple,BMW,Wal-Mart,P&G, Amazon,Zara,Starbucks,Teslamotorcompanyandothers.Thesecompanieshaveachieved world-classstatusinlargepartduetoastrongfocusonSCM.Thistextisrichinbusinessexamples thatillustrateSCMbestpracticesandshowcasethecomplexityofSCMbusinessdecisions.These examplesshowSCMtobeanexcitingareaofstudy,onthecuttingedgeofbusiness.

Features

1.Cross-FunctionalCoverage. SCMispresentedasacross-functionalareaofbusiness studywithequalcoverageoffunctionssuchasmarketing,operations,sourcing,andlogistics, andtheirintegration.

2.GlobalFocus. Today’ssupplychainstraversetheglobe.Thiscreatesnumerouschallenges, suchasdesigningaglobalsupplynetwork,dealingwithinternationaltariffsandforeigngovernmentregulation,differencesintransportationandtechnology,managingcross-culturalwork teams,andaddressingcustomerissuesthatarisefromculturalexpectations.Eachchapterhasat leastoneboxlabeled“GlobalInsights,”whichprovidesasummaryofaglobalissuethatpertains tothetopicathandandanassociatedbusinessexample.

3.ManagerialFocus. ThetextisrichwithcuttingedgeSCMbusinessexamples.Each chapterhasatleastoneboxlabeled‘SupplyChainLeadersBox’thatillustratesthelatestbusiness practicesofthetopicaddressed.Eachchapterbeginswithacurrentbusinessexample.Inaddition,

eachchapterendswithauniquecasewrittentoaddresskeymanagerialissuesandastrongemphasisonmanagerialdecisionmaking.

4.StrategicFocus. SCMisastrategicfunction.Asaresult,thetexthasastrongstrategic focus.Eachchapterhasatleastoneboxlabeled“ManagerialInsightsBox,”whichillustrates currentbusinessthought,usingestablishedandrecognizedsources(HBR,BusinessWeek,The WallStreetJournal,SupplyChainManagementReview,etc.).

5.StrongPedagogy. Thetextiswritteninareadableandaccessiblemanner.Eachchapter endswithdiscussionquestions,acasewithquestionsdesignedtopromotemanagerialthinking, and,whereappropriate,homeworkproblemsandexercises.Iconsthroughoutchaptersshowfocus oncross-functionalcoverage,globalcoverage,sustainability,technology,andtheservicesupply chain.Further,thechaptersinthetextarelinkedtotheoveralltopicratherthanbeingpresented asanassembledcompilationofmaterial.

ChangestoThisEdition

Anumberofchangeshavebeenmadetothiseditiontomakethetextascurrent,user-friendly,and relevantaspossible.Allthechaptershavebeenupatedtoincorporatethelatestavailableinformation,withincreasedemphasisontechnology,digitization,andanalytics.Thebusinessexamples havebeenupdated,andalargenumberofclassexerciseshavebeenadded.Thefollowingfeatures havebeenaddedtothisedition:

BigDataAnalytics: Allchaptershavebeenupdatedtoincludestate-of-the-artimpactofbig dataanalyticsonsupplychains.Eachchapternowhasone‘BigDataAnalyticsBox’thatshowcasesanexampleofhowbigdataanalyticsisimpactingthetopiccoveredinthechapter.This rangesfromhowretailerssuchasTargetcapturecustomerpreferences,tohowUPSusesits state-of-the-artnavigationsystem.

TechnologyFocus: Advancementsintechnologyarechangingsupplychains.Theseinclude 3-Dprinting,driverlessvehicles,next-generationRFID,InternetofThings(IoT),cloudcomputing,machinelearning,andmanyothers.Thesetechnologieshaveenabledthe“intelligent supplychain”andarediscussedineverychapter.

ClassroomExercises: Eachchapternowincludesclassexercisesdesignedtofosterclassroom discussion.Theseexercisesareclassroomtestedandincludeinstructordetailsonhowto conducttheexerciseandprovideaseriesofquestionswithsuggestedsolutionstoguidethe discussion.

UpdatedExamples: Throughoutthechaptersallexamplesanddatahavebeenupdated.The focusoftheupdatewastomaketherevisionrichinexamplesofbothlargesupplychains,as wellasthoseofsmallandmediumfirmstohighlightkeyconcepts.

InstructorResources

Theinstructor’swebsiteoffersseveralresourcesdesignedtoassistprofessorsinpreparinglectures andassignments,including:

Instructor’sManual Includesasuggestedcourseoutline,teachingtipsandstrategies,answersto allend-of-chaptermaterial,additionalin-classexercises,andmore.

TestBank AcomprehensiveTestBankcomprisedoftrue/false,multiple-choice,shortanswer, andessayquestionsisavailableontheinstructorsite.Thequestionsarealsoavailableasa ComputerizedTestBank.

PowerPointSlides Fullcolorslideshighlightkeyfiguresfromthetextaswellasmanyadditionallectureoutlines,concepts,anddiagrams.Theseprovideaversatileopportunitytoadd high-qualityvisualsupporttolectures.

Acknowledgments

Thedevelopmentofthissecondeditionof SupplyChainManagement benefitedgreatlyfromthe commentsandsuggestionsofcolleagues.I’dliketoacknowledgethecontributionsmadebythe followingindividuals:

AnthonyJ.Avallone, BerkeleyCollege

Ming-LingChuang, WesternConnecticutStateUniversity

VerdaBlythe, UniversityofWisconsin

ThomasW.Buchner, UniversityofMinnesota

RobertR.Bugge, TempleUniversity

JohnF.Kros, EastCarolinaUniversity

SimonCroom, UniversityofSanDiego

DonaldB.Fisher, DixieStateCollege

JohnD.Hanson, UniversityofSanDiego

RogerDeanIles, UniversityofMemphis

ShamKekre, TepperSchoolofBusiness,CarnegieMellonUniversity

DaleFranklinKehr, UniversityofMemphis

RhondaLummus, IndianaUniversity

MaryJ.Meixell, QuinnipiacUniversity

MichaelJRacer, UniversityofMemphis

YoungRo, UniversityofMichigan

JeffreySchaller, EasternConnecticutStateUniversity

SridharSeshadri, UniversityofTexas

TheodoreStank, UniversityofTennessee-Knoxville

SrinivasTalluri, MichiganStateUniversity

TinaWakolbinger, UniversityofMemphis

SpecialThanks

IwouldalsoliketoofferspecialacknowledgmenttothepublishingteamatWileyfortheircreativity,talent,andhardwork.ThankyoualsotoJohnWoodforhishelpwithresearchonsustainability andsupplychainrelationships,aswellastocountlessstudentswiththeirassistanceoncasedevelopmentandend-of-chapterproblems.

IntroductiontoSupplyChain Management

LEARNINGOBJECTIVES

Aftercompletingthischapter,youshouldbeableto:

• Deﬁne“supplychainmanagement,”andexplaintheactivitiesinvolved.

• Identifytheﬂowsthroughasupplychain,andexplainthebullwhipeffect.

• Describetheriseofsupplychainmanagementanditsglobalimplications.

• Describecharacteristicsofacompetitivesupplychain.

• Identifyandexplainkeytrendsthatdrivetoday’ssupplychains.

CHAPTEROUTLINE

◾ WhatIsSupplyChainManagement(SCM)?

SCMActivities

ManagingFlowsThroughtheSupplyChain

TheBullwhipEffect

CustomerFocus

TheServiceSupplyChain

◾ TheBoundary-SpanningNatureofSCM

IntraorganizationalIntegration

Cross-EnterpriseIntegration

SCMVersusLogistics

◾ TheRiseofSCM

◾ CharacteristicsofaCompetitiveSupplyChain

Responsiveness

Reliability

RelationshipManagement

◾ TrendsinSCM

Globalization

Outsourcing

InformationTechnology

BigDataAnalytics

1

3-DPrinting,AdditiveManufaturing,andRobotics

Postponement

TheLeanSupplyChain

ManagingSupplyChainDisruptions

SupplyChainSecurity

Sustainabilityandthe“Green”SupplyChain Innovation

TheFinancialSupplyChain

◾ CareersinSCMandProfessionalOrganizations ◾ ChapterHighlights ◾ KeyTerms

DiscussionQuestions

◾ CaseStudy:McNulty’sMuscularMaterials(MMM)

MostofushavehadtheexperienceofsittingataStarbuckscoffeeshopenjoyingacup ofcoffee,afrappuccino,orperhapsapumpkinspicelatte.Wehaveenjoyedthe“Starbucksexperience,”sippingabeverage,lounginginoneofthemanychairs,andperhaps readinganewspaperoragoodbook.WemayhavebrieﬂynoticedthatStarbucks’coffee beanscomefromallacrosstheglobe,includingGuatemala,Sumatra,Brazil,Kenya,Mexico,andEthiopia.However,wehaveprobablynotgivenmuchthoughttothecomplexity ofdecisionsandcoordinationrequiredtomakesurethatwe,thecustomers,receivethe beveragesweareenjoyingaswesitinthecafé.

Infact,forStarbuckstobeabletodeliversuchahigh-quality,consistent,andbroad productofferingtomorethan23,000storelocationsworldwide,itmustmanageanextensiveglobalnetworkoftradingpartners,fromcoffeegrowerstoroastingplantstocoffee distributors.Itmustmanagerelationships,ensurethehighestquality,andguaranteeproductavailabilityateachstorelocation,allthewhilemaintainingefﬁciencyandkeeping costsaslowaspossible.Sowhilewe,thecustomers,sitinthedimlylitandhipcafé enjoyingthe“Starbucksexperience,”behindthescenesisacompanythatismanaging oneofthebiggestglobalsupplychainsintheworld.

Supplychainmanagement(SCM)isthefastest-growingareaofbusinesstoday.Infact, itisatthecoreofthesuccessofsuchcompaniesasAmazon,Nike,Toyota,Wal-Mart, P&G,Zara,PepsiCo,BMW,L’Oréal,andMcDonalds,aswellasStarbucks,andcountless others.Thesecompanieshaveachievedworld-classstatusinlargepartduetoastrong focusonSCM.

MostpeopleassumethattheyhavesomeideaofwhatSCMisabout.Theyusuallythink itispartoflogisticsanddistribution,orpurchasing,orperhapsmarketing.Itislikely, however,thatyoudonotyetknowthefullcomplexityandbroadreachofthisrapidly evolvingbusinessconcept.AtarecentconferencePaulMathews,ExecutiveVPofSupply ChainfortheLimited,jokedthatpeoplestillthinkofSCMas“kickingboxesandlicking labels.”HewantedtohighlightthemisunderstandingofSCMmanypeoplestillhave.

Thepurposeofthisbookistohelpyoudevelopacomprehensiveunderstandingof SCM.Thisincludesunderstandingthekeyissuesinvolvedandbecomingfamiliarwith

theverylatestbusinessthinking.Thiswillprepareforyouforasuccessfulcareerinanew andexcitingbusinessﬁeld.

Today’sbusinessenvironmenthasforcedcompaniestocompeteinverydifferentways fromjustafewyearsago.Inadditiontocompetingontraditionaldimensionssuchas quality,time,cost,andcustomization,companiesmustberapidinnovators.Theymust stayabreastofquicklychangingcustomerdemandsandincreasingglobalcompetition. Advancesintechnology,theInternet,bigdataanalytics,andunprecedentedthreatsto securityareforcingcompaniestobeﬂexibleandresponsive.Atthesametime,adown economyhascreatedtremendousﬁnancialpressures.SCMisthebusinessconcept throughwhichcompaniescanachievethislevelofcompetitivenesswhilemaintaining costs,anditisintertwinedwithtoday’sbestbusinesspractices.Companiesunderstand thattheycannotachievetheneededlevelofcompetitivenessinthecurrentglobal economywithoutSCM.

KnowledgeofSCMwillgiveyoutheskillsneededtohelpyourorganizationgaina competitiveadvantageinthemarketplace.Itwillalsohelpyoumoveintooneofthe fastest-growingcareerﬁeldstoday.

WhatIsSupplyChainManagement(SCM)?

Supplychainmanagement(SCM) isthedesignandmanagementofflowsofproducts, information,andfundsthroughoutthesupplychain.Itinvolvesthecoordinationandmanagementofalltheactivitiesofasupplychain.Assuch,SCMmayappeardeceptivelysimple.Infact, itisacomplexbusinessconceptthatisfarreachinginthenatureandtypeofdecisionsinvolved. BeforewecanbegintolookatthefullcomplexityofSCM,itisimportanttofirstunderstandthe meaningoftheterm supplychain.

A supplychain isthenetworkofallentitiesinvolvedinproducinganddeliveringafinished producttothefinalcustomer.Thisincludessourcingrawmaterialsandparts;manufacturing, producing,andassemblingtheproducts;storinggoodsinwarehouses;orderentryandtracking; distribution;anddeliverytothefinalcustomer.AsimplesupplychainisillustratedinFigure1.1. Theflowsthroughthesupplychainbeginwithsupplierswhosupplyandtransportraw materialsandcomponentstoproducersormanufacturers.Manufacturerstransformthese

materialsintofinishedproductsthatarethenshippedeithertothemanufacturers’owndistributioncentersortowholesalers.Next,theproductsareshippedtoretailerswhoselltheproductto finalcustomers.ConsidertheStarbuckssupplychainwejustdiscussed.Atthebeginningofthe supplychainarecoffeefarmersatvariouslocationsacrosstheglobethatgrowthecoffeebeans. Thecoffeebeansarepicked,packagedinburlapbags,andtransportedtocoffeeroasters,entities thatroastthebeans.Theroastedbeansarethensenttocoffeedistributors,whothensort,package, andmovethebeanstoretaileroutletssuchasStarbuckscafés,tobepurchasedbytheconsumer.

Atypicalsupplychainmayinvolvemanydifferenttradingpartners,calledstages.Thesesupply chainstagesmayincludethefollowing:

• Suppliers

• Producers

• Wholesalers/Distributors

• Retailers

• Customers

Notethateverysupplychainisdifferentandthatthesestagesareagenericrepresentationofa supplychain.Infact,eachstagemaynotbepresentineverysupplychain.Thenumberofstages thatarepartofasupplychainanditsappropriatedesignwilldependonboththecustomer’sneeds, therolesofthestagesinvolved,andthevalueeachstageprovides.

Supplychainsareunderincreasingfinancialpressure,andstagesthatdonotaddvaluetothe supplychainarequicklybypassedoreliminated.Forthisreason,asupplychainisoftencalleda valuechain ora valuenetwork.Today’sconceptofthesupplychaincomesfromtheconceptof a“valuechain”thatwasintroducedbyaHarvardBusinessSchoolprofessor,MichaelPorter,in thel980s.MichaelPorterexplainedthatacompany’scompetitiveadvantagecannotbeunderstood bylookingatafirmasawhole.Rather,itscompetitiveadvantagecomesfromthemanydiscrete activitiesthatafirmperformsandthateachoftheseactivitiescontributestothefirm’stotalcost position.Thisconceptofeachactivitycontributingtothetotalvaluehasnowbeenextendedto theentiresupplychain.Infact,ithasbeenoftensaidthatitisnotcompaniesthatcompete.Rather, itistheirsupplychainsthatcompete.

Aswelookatasupplychainitisimportanttopointoutsomecommonterminologyusedto describetherelationshipsofsupplychainstagestooneanother.Eachcompanyinasupplychain hasitssuppliersandcustomers.Thestagesofthesupplychainthatcomprisetheinbounddirection towardthecompany,orthe“focalfirm,”arecalledthe“upstream”partofthesupplychain.

Thestagesofthesupplychainawayfromthe“focalfirm”aretermed“downstream.”This isshowninFigure1.2.Forexample,ifthefocalfirmwasamanufacturer,allinboundsupplierswouldbeconsidered“upstream,”whereasdistributors/wholesalersandretailers/customers wouldcomprisethe“downstream”partofthesupplychain.Beingabletorefertopartsofthe supplychainaseither“upstream”or“downstream”providesaconvenientpointofreference. Similarly,suppliersthatdirectlysupplygoodsorservicestoacompanyaretermed“first-tier suppliers.”Suppliersthatsupplytoacompany’s“first-tiersuppliers”aretermed“second-tiersuppliers,”andsoonmovingupthechain.Thisprovidesacommonterminologyforcompaniesto understandwhichsuppliersarebeingreferenced.

Theterm supplychain impliesalinearchainofparticipantsfromsupplierstofinalcustomers. Atruesupplychainisactuallymorelikeacomplexnetwork,asshowninFigure1.3.Aproducermayreceivematerialsfrommultiplesuppliers.Manydistributorsandwholesalersreceive inventoryfrommanymanufacturers,andmostretailersreceiveproductsfrommanydifferentdistributors.Forthisreasonasupplychainisoftenreferredtoasasupplychainnetworkorsupply web,tomoreaccuratelydescribethenatureoftheserelationships.Infact,manycompaniesare partofmultiplesupplychains.

FIGURE1.2 Stagesofthesupplychain.

FIGURE1.3 Thesupplychainnetwork.

Thesupplychainnetworkcanactuallytakeonmanydifferentshapes.Somearelinear,as showninFigure1.3.Otherstakeontheformofhub-and-spokeoraweb.Oftenthetypeofnetworkcanberelatedtothenumberofsuppliers,theirlocations,andthetypeofproductbeing produced.Forexample,DellComputerCorporationbecamefamousformandatingthatallits first-tiersuppliersmustbewithina15-minuteradiusanywherearounditsAustin,Texas,manufacturingfacility.Thisisanexampleofahub-and-spokesupplynetwork,withthefocalfirmin thecenterofthedesign,andamodelthathasbeenfollowedbymanyothermanufacturers.

SCMActivities

Nowthatweunderstandwhatconstitutesasupplychainorsupplynetwork,wecanlookatthe issuesinvolvedinmanagingit.RecallthatSCMinvolvesthecoordinationandmanagementof all theactivitiesofasupplychain.Itisresponsibleformanagingthesystemofflowsbetweenthe differententitiesofasupplychaintosatisfythefinalcustomerandmaximizetotalsupplychain profitability.SCMisadynamicandever-changingprocessthatrequirescoordinatingallactivities amongmembersofthesupplychain.

SCMactivitiesincludethefollowing:

• Coordination: SCMinvolvescoordinatingthemovementofgoodsandservicesthroughthe supplychain,fromsupplierstomanufacturerstodistributorstofinalcustomers;italsoincludes

movementofgoodsbackupthesupplychain,asproductsmaybereturned.Coordination alsoinvolvesthemovementoffundsthroughthesupplychainasproductsarepurchasedand sold.Thisincludesvariousfinancialarrangementsandtermsofpurchasebetweenbuyersand suppliers.

• InformationSharing: SCMrequiressharingrelevantinformationamongmembersofthe supplychain.Thisincludessharingdemandandsalesforecasts,point-of-saledata,promotionalcampaignsplanned,andinventorylevels.Considerthatamanufacturermustknowif aretailerisplanninganadvertisingcampaigntoensurethatenoughoftheproductisbeing produced.Otherwise,theretailermayrunoutofstock.Similarly,themanufacturer’ssuppliers mustbeawareofincreasedproductionplanstoprovidesufficientcomponentparts.Sharing thisinformationenablestheentirechaintoworkinunison.

• Collaboration: SCMrequirescollaborationbetweensupplychainmemberssothatthey jointlyplan,operate,andexecutebusinessdecisionsasoneentity.Thisisimportantfordecisionsthatrangefromproductdesignandprocessimprovementtoimplementingbusiness initiativesorfollowingaparticularbusinessstrategy.Forexample,thismayincludecollaboratingonwaystocutcostsorimprovequalitystandardsthroughouttheentiresupplychain.

ManagingFlowsThroughtheSupplyChain

Recallthatmanyflowsmovethroughasupplychainnetwork.Thefirstistheflowof products throughthesupplychain,fromthebeginningofthechainthroughvariousstagesofproduction, tothefinalcustomer.However,goodsalsoflowbackthroughthechain.Thisisintheformof returnedproductsthatareunacceptabletocustomersforavarietyofreasons,suchasdamagedor obsoletegoods.ThisisanareaofSCMcalled reverselogistics becausethedirectionofproduct flowisreversed.Theincreasedfocusoncustomeraccommodationhasresultedinanincreasein theamountofgoodsreturnedfromcustomers.

Thesecondimportantflowthroughthesupplychainisthatof information thatisshared betweenmembersofthesupplychain.Manysimplifiedsupplychainsviewtheproductflowing fromsupplierstocustomersandinformationflowingintheoppositedirection,frompoint-of-sale backtosuppliers.Inthissimplifiedcase,theprimaryinformationisdemandorsalesdata,which isusedtotriggerreplenishmentandservesasthebasisforforecasting.Inamorerealisticcase, salesinformationissharedonareal-timebasis,whichleadstolessuncertaintyandlesssafety stock.Thesharingofreal-timeinformationservestocompressorshortenthesupplychainfrom atimestandpoint.Theresultofthismoretimelyandaccurateinformationisareductioninthe amountofinventorycarriedthroughoutthesupplychain.

Thethirdimportantflowthroughthesupplychainisthatof funds.Inasimplifiedsupply chain,financialflowisoftenviewedasonedirectional,flowingbackwardinthesupplychain aspaymentforproductsandservicesreceived.However,asproductsflowinbothdirectionsso doesthetransferoffunds.Amajorimpactonfundtransferandthefinancialsofcompanieshas beensupplychaincompression.Ashorterordercycletimemeansthatcustomersreceivetheir ordersfaster.Itmeansthattheyarebilledsoonerandthatcompaniesreceivepaymentsooner. Thisspeedingupofthemoneycollectionprocesshashadahugeimpactontheprofitabilityof certainfirms.ConsiderDellComputerCorporation,acompanythathasgainedmuchfromthe compressedsupplychain.Dellturnsoveritsinventoryroughlyeveryfourdays.However,they oftenreceivepaymentaweekinadvance,wellbeforeDellpaysitssuppliers,providingalarge financialbenefittoDell.

ThekeytosuccessfulSCMisthemanagementoftheseflowsthroughthechain.SCMis adynamicprocessandprovidesmanyopportunitiestoreducethecostofdoingbusinessand improvecustomerservice.Atthesametime,thechallengesofSCMareoftenunderestimated. Infactthereasonforthefailureofmanyonlinebusinessesisduetotheirinabilitytomanage

supplychainflowseffectively.Manyhaveexcellentbusinessconceptsandmarketingstrategies, butareunabletomakeproductsavailabletocustomersinacost-effectivemanner.Forexample, Webvan,anonlinegrocerydeliverycompany,wasunabletobringthecostofgrocerypickingand deliverytoacompetitivelevelandwentoutofbusiness.ThesuccessofInternetretailerssuchas Amazon.comhasbeenprimarilydrivenbytheimprovementsintheirsupplychains.

TheBullwhipEffect

Asupplychainiscomposedofmanydifferentcompanies,orstages,eachwiththeirown objectives.Forasupplychaintobehighlycompetitive,itiscriticalthatitsmembersengagein theactivitiesofcoordination,informationsharing,andcollaboration.Otherwise,eachstageof thesupplychainwillhavedifferingandpossiblyconflictingobjectivesandmayfocusonsimply maximizingtheirownprofits.Similarly,ifinformationisnotsharedbetweenstages,butis delayedordistorted,eachstagemayhaveadistortedviewoffinalcustomerdemand.Asaresult, theywilllikelynotproducetherightquantitiesofitemsneeded,resultingineithershortagesor excessinventory.Bothsituationsresultinloweredprofitabilityoftheentiresupplychain.

Ithasbeenobservedthatfluctuationanddistortionofinformationincreasesasitmovesup thesupplychain,fromretailers,tomanufacturers,andtosuppliers.Thisiscalledthe bullwhip effect,asinaccurateanddistortedinformationtravelsupthechainlikeabullwhipuncoiling.In response,eachstageofthechaincarriesprogressivelymoreinventorytocompensateforthelack ofinformation.Thebullwhipeffecthasbeenwelldocumentedinmanyindustriesandiscostly forallsupplychainmembers.

Oneofthebest-knownexamplesofthebullwhipeffectwasobservedbyProctor&Gamble (P&G)inthesupplychainofitsPampersdiapers.Thecompanydiscoveredthatevenwhen demandfordiaperswasstableattheretailstorelevel,ordersfordiapersfromP&Gfluctuated significantly.Evengreaterfluctuationwasobservedinordersforrawmaterialsfromsuppliers overtime.Althoughconsumptionofthefinalproductwasstable,ordersforrawmaterialswere highlyvariable.

AsimilarexamplewasobservedatHewlettPackard(HP).HPobservedthatfluctuationsof ordersincreasedsignificantlyastheymovedfromtheresellersupthesupplychaintotheprinter divisiontotheintegratedcircuitdivision.LikeP&G,HPobservedthatalthoughfinalproduct demandwasfairlystable,ordersplacedateverystageupthesupplychainsignificantlyincreased invariability.BothP&GandHPfoundthattheresultofthebullwhipeffectwasanincreasein costanddifficultyinfillingordersontime.

Thelongerthesupplychain,thegreatertheopportunityforthebullwhipeffect,asmanufacturersandsuppliersarefurtherawayfromfinalcustomerdemand.Ifthereisnocoordinationor sharingofinformation,thesestagesdonotknowfinalcustomerdemandorwhenareplenishment ordermightarrive.Asaresultofthishigheruncertainty,theystockpileinventory.Thewaytocombatthebullwhipeffectistosharepoint-of-saleinformation,availablefrommostcashregisters, withallmembersofthesupplychain.Thisallowsallstagesofthesupplychaintomakereplenishmentdecisionsfromthesameinformationsource.Inadditiontoinformationsharing,coordination andcollaborationwillenablestagesofthesupplychaintoworktowardthesamegoals.

CustomerFocus

Thefinalcustomeristhedrivingforceofthesupplychain.Infact,theprimarypurposeforthe existenceofasupplychainistorespondtocustomerdemandsandgenerateprofitsforcompanies thataremembersofthechain.Therefore,meetingcustomerdemandsistheprimaryobjective. Theprocessisdrivenbyacustomerhavingaparticularproductneed.Theretailertriestosatisfythecustomerbyensuringthattheproductisavailable.Ascustomerscontinuetopurchase

FIGURE1.4 Productsare“pulled”throughthesupplychain.

products,theretailerrequestsadditionalproductsfromitssupplierstoreplenishthosesold.These suppliersthenpurchasematerialsfromtheirsuppliers,andtheprocess“pulls”rawmaterials throughtherestofthechainneededtoproducemorequantitiesoftheproduct.

ConsideracustomerwalkingintoaWal-Martstoretobuylaundrydetergent,asshownin Figure1.4.Theprocessthatdrivesthesupplychainstartswiththeneedofthecustomertobuy detergent.ThecustomervisitingWal-MarttakesdetergentofftheshelfthatWal-Martstocked frominventorysuppliedfromitsfinished-goodswarehouseorbyadistributor.Salesofthedetergenttriggerthewarehouseordistributioncentertoreplenishthesolditems.Theitems“pulled” outofthewarehouseordistributioncentertriggerthemanufacturer,suchasProctor&Gamble (P&G),toproducemoreandfillthewarehousewithmoreitems.Toproducemoreitems,inturn, P&Ghastorequestmorerawmaterialsfromtheirsuppliers,suchasthosethatsupplypackagingandchemicalcomponents.AsP&Grequestsmorerawmaterialsfromtheirsuppliers,their first-tiersuppliersrequestmorematerialfromlower-tiersuppliers.Inthismannerproductsare movedthroughthesupplychain.

SCMisadynamicprocessandinvolvestheconstantflowofinformation,products,andfunds betweendifferententitiesofthesupplychain.Toseehowthisworks,onceagainconsiderthe exampleofWal-Mart.Wal-Martprovidedtheproduct(detergentinthiscase)tothecustomer, andthecustomertransferredtheirfundstoWal-Mart.Usingpoint-of-salesdata,Wal-Mart thenconveyedtheneedtoreplenishorderstothewarehouseordistributor,whotransferredthe replenishmentorderviatrucksbacktothestore.Afterthereplenishmentwasmade,Wal-Mart transferredfundstothedistributor.Wal-Mart,thedistributor,andthemanufacturersharedpricing information,deliveryschedules,andforecastsoffuturesales.Thistypeofflowofinformation, products,andfundstakesplaceacrosstheentiresupplychain.

Thisexampleillustratesthattoprovidetimelyproductavailability,alltheparticipantsinthe chainneedtocoordinatetheirplansandrespondtothesameinformation.Also,noticethatthere aremanyflowsmovingthroughthesupplychain.Theprocessisdrivenbyacustomerorderand endswhenacustomerhaspaidfortheirpurchase.SCMisthecoordinationandorchestrationof alltheactivitiesnecessaryforthisprocesstooccurinthemostefficient,cost-effective,andtimely manner.

TheServiceSupplyChain

SCMisjustasrelevanttocompaniesintheserviceindustry,rangingfromhealthcaretoreal estatetobanking,asitistomanufacturingcompaniesthatproducetangibleproducts.However, servicesupplychainsdifferfrommanufacturingintheroleofthecustomerandthedirectionof flowofthedeliveryprocess.Unlikemanufacturingsupplychainsthatfocusontheproduction anddeliveryofatangibleproduct,servicesupplychainstendtofocusmoreontheinteraction betweenthecustomerandprovider.Forthisreason,theroleofthecustomerisevengreaterin drivingtheservicesupplychainthanitisinmanufacturing.Inserviceorganizationsthecustomer

isalsoasupplierofinputsandinformation,whichcanchangetheservicedelivery.Consider thelegalenvironment,wherethecourseoflegalactiongreatlydependsoninformationprovided bytheclienttotheattorney.Similarly,auniversitystudentmayhavetheoptiontoconductan independentstudyunderthesupervisionofafacultymember,changingthesetcourseofstudy.

Servicesupplychainstendtobeconsiderablyshorterthanmanufacturingsupplychains.The providertypicallyinteractsdirectlywithcustomers,withoutthebufferofretailersanddistributors, enablingeasiersharingofinformation.Servicesupplychainsalsotendtolookmorelikehubs thanchains.Oneofthedisadvantagesisthattheydonothavethebuffersofinventoryasseen inmanufacturing.Thismeansthattheyneedtohaveotherorganizationalmechanismsthatgive themflexibilitywhenhandlingthevariationofcustomer-suppliedinputsanddemands.Thisalso makesinformationsharingwithcustomersmuchmorecritical.

Evenservicecompaniesthatprovidepurecontenttocustomers,suchasthoseintheentertainmentindustry,relyheavilyontheirsupplychainstodelivercustomervalueandremain competitive.Thisincludesindustriessuchasfilm,computergames,andsportsandincludes companiessuchasDisney,WarnerBros.,andTicketmaster.Thesecompaniesareincreasingly relyingonSCMprocessandtechnologyimprovementstoensurecoordinationofinformation andmaintaincompetitiveness.

SupplyChainLeader’sBox

◾ AMAZON.COM

ThelargestInternet-basedretailerintheworld,Amazon .com,hassoughttomakeitselfacustomer-centriccompany fromitsbeginninginJuly1995.Amazon.comisaservice companythatisaleadingmerchandiserofeverythingfrom gourmetfoodtoappareltoelectronics,inadditiontobooks andmusic.Fromtheverybeginning,Amazonunderstood thatitsfocusmustbeonsatisfyingthecustomerbyproviding thehighestlevelsofservice.Ratherthanfocusingonmarketingoradvertising,Amazonplaceditsfocusonhavinga superiorsupplychainthatprovidesuncompromiseddeliverytocustomers.Inaddition,Amazonconductsbusiness onaninternationalscale,shippingtomorethan200countries.Coordinatingandorchestratingthisrangeofproduct offeringstosomanygloballocationswithperfectdeliveriesisadauntingtask.Toachievethis,Amazonhasbuiltan

impressivelogisticsnetworkthatincludesitsownﬂeetof jets,automatedwarehouses,robots,drones,andadigitally drivensupplychain.ForAmazon,logistics,shipping,anda superSCMhavecombinedtogivethecompanyitsstellar reputation.

PartofAmazon’ssupplychainproficiencyisbasedonits strictoperationsphilosophy,whichfocusesonleansystems, quality,andefficiency.Itismorereminiscentofindustrial manufacturingthantraditionalretailpractices.Forinstance, AmazontakesaSixSigma1 approachtoitsdistributionoperationsandappliesleanmanufacturingandtotalqualitymanagement(TQM)methodologiestoitsprocesses.Amazon’s onlineproficiencyissuchthatmanybrick-and-mortarretailerssuchasTargetandToys“R”UsusetheAmazonwebsite fortheire-commerceefforts.

Adaptedfrom:Leonard,David,“WillAmazonKillFedEx?” Bloomberg BusinessWeek ,August31,2016.

TheBoundary-SpanningNatureofSCM

Toorchestrateandoptimizeallflowsfromsourcetoconsumption,SCMmusttakeatotalsystems viewpoint.SCMmustensurethattheneedsoffinalcustomersaresatisfiedthroughthecoordinationofmaterialsandinformationflowsthatextendfromthemarketplace,throughthefirmand itsoperationstoallitssuppliers.

1 SixSigmaperformanceischaracterizedby3.4defectspermillion,or99.99966%perfect.Wewilldiscussthisindetaillaterin thetext.

SCMisunique,asitistrulyboundaryspanning.First,itspansandintegratesfunctionsand processeswithintheenterprise,called intraorganizationalcoordination.Second,itspansandintegratesfunctionsandprocessesbetweenenterprisesofthesupplychain,called cross-enterprise coordination.Inessence,asupplychainneedstofunctionasanextendedenterprise.Toachieve this,supplychainmanagementhastocrossovertheboundariesofindividualfirmsandintegrate businessfunctionsandprocessesacrossenterprises.

IntraorganizationalIntegration

SCMrequiresparticipationandcoordinationofactivitiesbetweendifferentorganizationalfunctions.Therelationshipbetweenthefunctionsofmarketing,operations,sourcing,andlogisticsis particularlyimportant.Foranorganizationtobeeffectivelyintegratedwithothermembersofits supplychain,itmusthaveinternalcoordination.Thismeansthatthevariousfunctionsmustshare informationandconductcoordinatedactivities.Therelationshipbetweenthevariousfunctionsis showninFigure1.5.

Marketing isthefunctionresponsibleforlinkingtheorganizationtoitscustomersandidentifyingwhatcustomerswantinproductsandservices.Itisthefunctionthatinterfaceswiththe customer. Operations ensuresthattheexactproductscustomerswantareproducedefficiently andinacost-effectivemanner.Itisthefunctionwhosejobistoorganizethetransformationof rawmaterialsintofinishedproducts. Sourcing isthefunctionresponsibleforlinkingtheorganizationtoitssuppliersandensuringanefficientsupplyofmaterials. Logistics isresponsiblefor movingandpositioninginventorythroughoutthesupplychainandensuringthattherightproductsaredeliveredtotherightplaceattherighttime.SCMwouldnotbepossiblewithoutthe supportofthesefunctions.

TosupportSCM,eachindividualfunctionmustalsohaveasystemsviewpoint.Thistypeof effortrequirescompany-wideintegrationandawayoforganizationalthinkingthatisdifferent fromthetraditional“silo”mentality,whereeachorganizationalfunctionoperatesindependently. Creatingsystemsthinkingcanbeabigchallengeformanycompanies.

THE ORGANIZATION

Theclassicillustrationofthe“silo”mentalitycanbeseenbetweenthemarketingand operationsfunctionsofanorganization.Historically,theoperationsfunctionwasfocusedon improvingtheefficiencyoftheoperatingsystem,throughproperscheduling,minimizationof setuptimes,andachievingproductstandardization.Thelexiconoftheoperationsmanager,as aresult,hadfocusedonoperatingmeasuresofperformancesuchasproductivitymeasures, unitsproduced,andnumberofdefects.Ontheotherhand,marketingfocusedonachievinga competitiveadvantagethroughexpandingmarketshare,creatingnewmarketopportunities, offeringproductvariety,andrespondingtomarketchanges.Thelexiconofthemarketing manager,bycontrast,hasfocusedonsales,profitability,andmarketshare.Asaresult,often operationsandmarketingmanagerswerenotabletocommunicateandhaddifferentgoals.

Today’shighlycompetitivebusinessenvironmentisnotforgivingtothistypeofsegmented approachbetweenorganizationalfunctions.Theneedtounderstandandmeetcustomerrequirementsisaprerequisiteforsupplychaincompetitivenessandsurvivalandistheresponsibility ofmarketing.Atthesametime,economiccompetitivenesshasplacedgreatpressureoncost competition,improvementsinquality,andresponsetime,placingtheoperationsfunctioninthe limelight.SCMisdependentonoperationsandmarketingworkingtogether,sharinginformation, andmakingjointdecisions.

Anotherorganizationalfunctionthathasgainedincreasingappreciationforitscriticalrolein SCMisprocurementorpurchasing,alsoknownassourcing.Historically,procurementwasconcernedwithpurchasingissuesofaprimarilytransactionalnature.Today,leading-edgecompanies placegreatfocusonthesupplysideofthechain,whichisthedomainofpurchasing.Notonlyis thecostofpurchasedmaterialsandsuppliesalargepartofthetotalcostofmostcompanies,but alsopurchasingcreatesanopportunitytointegratethecapabilitiesofthesupplierwithproducers.Therefore,whereasmarketingfocusesonthecustomersideoftheorganization,procurement focusesonthesupplyside.

Finally,thefunctionoflogisticscoordinatesthematerialsandinformationflowsthatextend fromthemarketplace,throughthefirmanditsoperationsandbeyondthatofthesuppliersto ensurethatgoodsaredeliveredtotherightplace.Therefore,likeSCM,logisticsisanintegrative functionthathasasystems-wideviewoftheorganization,fromthecustomerormarketside,to thesupplyside.Ithasacriticalresponsibilitytoensurethatthedemandsofthemarketplaceare passedonfrommarketingtomanufacturingandthenarelinkedtopurchasinganddistribution.

Cross-EnterpriseIntegration

Themanagementofasupplychainasanextendedenterpriseinvolvescoordinatingtwo-wayflows ofgoodsandservices,information,andfunds.Theintegrationacrosstheboundariesofseveral organizationsmeansthatthesupplychainshouldfunctionlikeoneorganizationinsatisfyingthe finalcustomer.Infact,theultimategoalofasupplychainistooperateasasingleentity.Informationtechnologyisthekeyenablerofthiscapability,withoutwhichcross-enterpriseintegration wouldnotbepossible.

Thisintegrationcanbedifficult,asreal-worldsupplychainsareusuallycomplexandhave manysupplychainparticipants.Achievingintegrationandcoordinationofactivitiesinthesupply chainispredicatedonrelationshipmanagement.Conceptssuchaspartnershipsandallianceshave becomeapartoftheSCMvocabulary.Traditionaladversarialrelationshipswithsuppliershave givenwaytolong-termpartnering.However,supplychainrelationshipsneedtoincorporatemore thansharedinformationandafocusontotalsupplychaincost.Supplychainsneedtoachievea levelofintegrationthatinvolvescollaborationamongpartnersindevelopingstrategicplansand jointsettingoflong-termgoals.Animportantfactortoachievingthislevelofintegrationisfor companiestohaveaninternal,cross-functionalteamthatengagesinongoingexternalefforts withsuppliers,transportationcarriers,anddistributors.Toyotaisagoodexampleofsuccessful

suppliercollaboration.Toyotaengagesincollaborationwithsuppliersfromtheearlieststagesof productdesign—asystemcalled“earlysupplierinvolvement.”Thishasledtoasignificantcost reductioninproducingitscars.

Inadditiontocollaborativeplanning,achievingfullcross-enterpriseintegrationrequiresthe sharingofrisksandrewards.Mostorganizationsstillfunctioninawaythatminimizestheirown riskandmaximizestheirownrewards.Thisstrategymaymeanthatoutcomestheyachieveare attheexpenseofothercompanies.ThecooperativeandcollaborativeapproachofSCMispredicatedonthewin–winoutcome.Althoughadversarialrelationshipscanprovidefinancialgain,the win–winstrategyhasshowntobethebeststrategyoverthelongrun.

SCMVersusLogistics

ManypeopleconfuseSCMwithlogistics.Therefore,itisimportanttoclarifytheirdifferentroles indevelopingacompetitiveadvantage.SCMisaboutthecollaborationbetweensupplychainpartnersinastrategicefforttoachievesuperiorcompetitiveness.Therefore,SCMrequiresmanaging differentaspectsofthecoordinationprocess,suchasinformation,technology,distribution,products,rawmaterials,finances,andmostofall,relationships.TherelationshipsinvolvedinSCM arecomplexandrequirecoordinatingmanagerialprocesseswithinfirms(intraorganizational)and betweenfirms(cross-enterprise).

Logistics,incontrasttoSCM,consistsofthetasksinvolvedinmovingandpositioninginventorythroughoutthesupplychain,asshowninFigure1.6.Logisticsisafunctionthatsupports SCMonparwithmarketing,operations,andsourcing.SCM,ontheotherhand,isastrategicand managerialconcept.Thefunctionoflogisticsinvolvesorderprocessingandtracking,inventory management,transportation,warehousing,materialhandling,andpackaging.Theseactivities needtobecoordinatedandintegratedthroughoutallentitiesofthechain.Withoutlogisticsthere wouldbeinventorystock-outsatsomelocationsandtoomuchinventoryatothers.Consequently, logisticsisafunctionthatsupportsSCM.

NoticethatSCMisaboutmanagingandcoordinatingmanyflows,includinginventory. Logistics,ontheotherhand,isthepartofSCMthatisconcernedwithmanagingtheflowof inventory.

LogisticsisvitaltoSCMasitisakeysupportingfunction.Logisticsmustplanandcoordinate allmaterialflowfromsourcetousersasoneintegratedsystem,ratherthanaseriesofindependent activitiesashasbeendoneinthepast.Logisticsisthefunctionthatisbasicallyresponsiblefor linkingthemarketplacewiththemanufacturingprocess,sourcingactivities,andthedistribution networktoprovidehighcustomerserviceatlowercosts.Inessence,logisticsisthelinkbetween themarketplaceandtheoperatingactivitiesofthebusiness.Thescopeoflogisticsspansfrom managementofrawmaterialsthroughthedeliveryofthefinalproduct.

TheRiseofSCM

TofullyappreciateSCM,itisimportanttolookatitsrapidriseasacriticalbusinessconcept.SCM evolvedinthe1990sandusheredinaneweraofbusinesscompetition.Thiswasadirectresultof greateconomicchangesofthetimefortheglobaleconomyandanincreasinglyuncertainbusiness

environment.Leading-edgecompanies,suchasAmazon,demonstratedthatreductioninorder fulfillmenttimecoupledwithcustomizationcanbeacompetitiveadvantagethatthesupplychain canprovide.Infact,SCMenablescompaniestosignificantlyreducethetimerequiredtodesign, process,anddeliverproductstocustomers,atalowercost.Thisallowsforgreaterresponsiveness andhasevolvedintoamajorstrategictoolforcompanies.

InterestinSCMhasrapidlygrownovertheyears,asithasproventobeanecessaryingredient forsuccessfulglobalcompetition.Anumberofforceshavecontributedtothistrend.First,in recentyearsmanycompanieshavediscoveredthelargemagnitudeofsavingsthatcanbeachieved byplanningandmanagingtheirsupplychainmoreeffectively.Second,advancesininformation technologieshaveprovidedaccesstocomprehensivedatafromallcomponentsofthesupply chain.Finally,improvementintransportationmethodshasledtoareductionintransportation costs,whilesignificantlyincreasingspeedofdeliverytomultiplelocations.Oneofthemost strikingexamplesofthisisWal-Mart’ssuccess,whichisprimarilyattributedtomasteryofits supplychain.Wal-Martishighlysuccessfulincollaboratingwiththeirsuppliers,usingthelatest availabletechnologyfordatagatheringandtransfer,andimplementingthelatesttransportation techniques.

PriortotheSCMrevolution,orderprocessingwasalongprocessandpronetoerrors.In the1980sand1990s,forexample,theaveragetimetoprocessanddeliveranordertoacustomerrangedfromweekstomonths.Thereweremanystepsintheorder-to-deliverycyclethat hadtobecompletedforthecustomertoreceivetheorder.Also,manyofthestepswereperformedinefficiently.Thecustomerinitiatedtheorderprocessthroughtelephone,fax,ormail. Thisorderwasthenprocessedeithermanuallyorusingacomputersystem.Theprocessinvolved creditauthorization,orderplacementtoawarehouseordistributioncenter,andthearrangement ofproductdeliverybyshipper.Oftenmistakesweremadeinthisprocess,suchasinventories beingout-of-stock.Thisresultedinexpeditingordersatextracostwhengoodsfinallyarrived. Shipmentswereoftensenttothewronglocation,andmistakesweremadeinthemanualprocessingofforms.Tohelpguardagainsttheseproblems,companiesbegantostocklargeamounts ofinventoriesinwarehousestoensurethattheyhadstockavailable.Duplicateinventorieswere oftenheldindifferentwarehouses.Theresultwasahighercostthatwasultimatelypassedonto thecustomer.Thelargeramountsofinventories,however,stilldidnotguaranteenostock-outs, andmanyfirmsfoundthemselveshavingtoomuchofthe“wrong”inventoryandnotenoughof whatthecustomerwanted.Allthismadecompanieslesscompetitive.

Thischangedinthel990swhenleading-edgecompaniessuchasDellComputerCorporation beganofferinghighlycustomizedproductswithasignificantlyreducedcustomerresponsetime. Suddenly,othercompanieshadtofollowsuitorriskgoingoutofbusiness.Theresultwasthat historicalmanagementoforderfulfillmentsuddenlybecameobsolete.Companiesfoundthatthey hadtogobeyondtheirownorganizationsanddesigncompetitivesupplychains.

SupplyChainLeader’sBox

DellComputerCorporationmadeitsreputationasanicon ofhowacompanycandesignandmanagetheirsupply chaintoreducecustomerresponsetime,whilestillofferingproductcustomizationatapricelowerthancompetitors. ThisprovidedDellwithaclearcompetitiveadvantageanda modelthatotherstriedtoemulate.AcustomizedDellcomputercouldbeenroutetothecustomerwithin36hours oforderplacement.SuchaquickresponseenabledDellto reduceitsinventorylevelscomparedtotheindustrystandard.Dellhasbeenabletoachievesuccessduetoitsagile, adaptable,andshortsupplychain,requiringsupplierstobe withina15-minuteradiusoftheirassemblyplant,permitting just-in-timedelivery.Thesystemhasbeensetupsothatsuppliersautomaticallyrestockwarehousesasneeded,andDell isbilledforitemsonlyaftertheyareshipped.Theresultis bettervalueforthecustomerandlesscostforDell.

Dell’ssupplychainmodelwastheindustrynormfor manyyears.However,asothercompaniesbegantoemulatethismodelitwasnolongeranindustrydifferentiator.To remaincompetitiveDellhasusedthestrengthofitssupply chaintoshiftfocusondifferentindustrysegments,providing

technologytohealthcare,education,andthemilitary.The iconicsupplychainhasenabledthecompanytobelimber andeasilyadapttochangingmarkets.

Adaptedfrom:Phillips,EricaE.“Dell’sEMCPurchaseMarksShiftfrom ConsumerSupplyChain.” TheWallStreetJournal ,October15,2015.

OnefactordrivingthegrowthofSCMhasbeenthemassivechangeinthecapabilityand availabilityofinformationtechnology.Theeconomyofthe1990swasforeverchangedbyinformationavailabilitythroughtheInternetandcomputerization.Thesetechnologiesprovidedrapidly accessibleinformationtoallparties.Theycreatedthefoundationforrapidandeconomicalmethodsofdoingbusiness,suchasbusiness-to-business(B2B)andbusiness-to-consumer(B2C),from whichtheneweconomyquicklyemerged.

Anothersignificantfactorwasgreatercustomeraffluenceandsophistication,resultingin greatercustomerdemandforawidechoiceofqualitygoodsandservices.TheInternetand otherinformationtechnologiesacceleratedthischangebyempoweringconsumers.Customers suddenlyshiftedfrombeingpassiveandpowerlessparticipantstodriversoftheneweconomy. Customerstodaydemandcustomizedproductswithhighqualitydeliveredatrecordspeed.

Advancesininformationtechnology,transportationmethods,andgreatercustomerempowermentcreatedariseinSCM.The1990switnessedSCMbecomingapartofthestandardvocabulary ofcorporatepresidentsandCEOs.SCMhasbecomeaneworderofbusinessandatoolforcompaniestosurviveandthrive.Managersarenowfocusingonimprovingallaspectsoftheprocess fromproductdesigntoproductdelivery,focusingonimprovingcustomization,speedofdelivery, andacommitmenttoaconceptofzerodefectscalledSixSigmaperformance.

CharacteristicsofaCompetitiveSupplyChain

Therearethreekeycharacteristicsofacompetitivesupplychain:responsiveness,reliability,and relationshipmanagement.Wediscussthesehere.

Responsiveness

Theabilitytorespondtocustomers’requirementsinever-shortertimeframeshasbecomecritical. Todaycustomerswantshorterleadtimes,greaterflexibility,andgreaterproductchoice.This meansthatthesupplierandmanufacturerhavetobeabletomeettheprecisedemandsofthe customerinashorteramountoftimethaneverbefore.Theabilityforasupplychaintohave thislevelofresponsivenessisoftendescribedas“agility,”whichistheabilitytomovequickly tomeetcustomerdemands.Infact,inrapidlychangingenvironments,agilityismoreimportant thanlong-termstrategy,asthereisno“longterm.”Agilitywillcomefromshortsupplychains thataremuchmoredemanddriven—respondingtowhatthecustomer“demands”—ratherthan forecastdriven.

Reliability

Uncertaintyisafactoflifeformostbusinesses,suchasuncertaintyaboutfuturedemands, uncertaintyaboutasupplier’sabilitytomeetdeadlines,oruncertaintyaboutthequalityof componentmaterials.Infact,uncertaintyisthemainreasonwhycompaniescarrysafetystock

inventories—toguardagainstthisuncertainty—whichthenresultsinhighercosts.Thebestway toreduceuncertaintyisbyincreasingreliabilitythroughtheredesignofprocessesthatimpact performance.

Onefactorthatgreatlyimprovesreliabilityinsupplychainsisimprovedvisibility.Typically, thefurtheronegoesupthesupplychain,themorelimitedthe“visibility”ofdownstreamactivities. Organizationsthatarefurtherupthechainhavetypicallyreliedondemandfromtheirimmediate customerinthechaintoforecastdemand.Thislackofcoordinationhasresultedintheclassic“bullwhip”effect.Supplychaincoordinationandsharingofreal-timedataandinformation throughinformationtechnologyhaspermittedvisibilitytoallentitiesinthechain.Thisresultsin greatlyimprovedvisibilityand,consequently,supplychainreliability.

RelationshipManagement

Animportantcharacteristicofcompetitivesupplychainsistheirfocusonrelationshipbuilding andcollaboration,ratherthanthearm’s-lengthadversarialrelationshipsthathadbeendominant inthepast.Inmanyindustries,forexample,thepracticeof“single-sourcing”iswidespread. Ithasbeendocumentedthatsuchpracticesimprovequality,productinnovation,anddesign whilereducingcostsandimprovingoverallresponsiveness.Underlyingthisideaisthatthe buyer–supplierrelationshipshouldbebasedonapartnershipoftrust,commitment,andfairness. Therearenumerousadvantagestosuchrelationshipsthatcanbelongtermandmutually beneficial.ThecompetitiveadvantageofcompaniessuchasToyotaandHondaovertheir competitorsintheautoindustrycomesfromthecollaborativerelationshipstheyhavedeveloped withtheirsuppliers.Aswehaveseenthusfar,SCMisprimarilyaboutthemanagementof relationshipsacrosscomplexnetworksofcompanies.Successfulsupplychainswillbethosethat aregovernedbyaconstantsearchforwin–winrelationshipsbasedonreciprocityoftrust.

GlobalInsightsBox

◾ ZARA

TheSpanishretailerZaraexempliﬁesthattooperateasuccessfulglobaloperationacompanymayhavetodefymost ofthecurrentconventionalwisdomabouthowsupplychains shouldberun.Zarahasadaptednumerousbestpracticesto createitsownbrandofglobalSCMthatmayseemunorthodoxtosome.Forexample,Zarahasbeenknowntosend ahalf-emptytruckacrossEurope,paytoairfreightcoatsto Japantwiceaweek,ormoveunsolditemsoutofitsretail storesafteronlytwoweeks.Formostobservers,thiswould benowaytorunasupplychain.Ofcourse,noneofthesetacticsareespeciallyeffectivebythemselves.Rather,theystem fromaholisticapproachtoSCMthatoptimizestheentire chaininsteadoffocusingonindividualparts.

Intoday’seconomy,wheremostcompanieshaverushed tooutsource,Zarakeepsalmosthalfofitsproduction in-house.Ratherthanpushingitsfactoriestomaximizeoutput,thecompanyfocusescapitalonbuildingextracapacity

togiveitflexibility.Also,Zaramanufacturesanddistributes productsinsmallbatches,ratherthanchasingeconomies ofscale.Toensuretopperformance,thecompanymanages alldesign,warehousing,distribution,andlogisticsfunctions itself.Theresultisasuper-responsivesupplychainuniquely tailoredtofullysupportZara’sbusinessmodel.Zaracan design,produce,anddeliveranewgarmenttoits2,100-plus storesworldwideinjustafewdays.However,Zarakeeps alimitedamountofinventory.InaZarashop,customers canalwaysfindnewproductsbuttheyknowthatsupplyis limited.Thiscreatesasenseofurgencyforthecustomer topurchaseratherthanwaitingforamarkdown,translating intohighprofitmarginsandaconsistentyearlygrowth.More recentlyZarahasnoticedgrowthinonlinesalesandisshifting moreinventorytobeavailableonline,usingthesamesupply chainstrategy.Zaraoffersamodelwhereprofitsaregained throughcontrollingtheentireend-to-endsupplychain.

Adaptedfrom:“ZaraLookstoOnlineGrowthandCutsStoreSalesForecasts.” Fortune,March2016.

TrendsinSCM

Today’sorganizationsfaceanumberoftrendsthatimpactthewaysupplychainsaredesigned andmanaged.Thesetrendsarearesultofafast-changingglobalandtechnologicallyconnected economythatcreatesuniquechallengescompaniesmustaddress.Welookatthesehere.

Globalization

IntheeyesoftheeconomistThomasFriedman,globalizationhasreplacedtheso-calledColdWar ofthepost–WorldWarIIeraasthedominantdrivingforceofworldeconomics.2 Theconceptof the“globalmarketplace”haschangedthemeaningofhowandwherebusinessisconducted,for allenterprisesandforindividualcustomers.Changesininformationtechnology,transportation, andgovernmentpolicieshavemadetheconceptoftheglobaleconomyafactoflife.Anumberof countrieshaveaggressivelypursuedopeningupinternationaltrade.Thishasservedtoopennew marketsandsourcesofsupplyformostcompanies,bothlargeandsmall.Further,theseopportunitieshavebeenmadepossiblethroughinformationtechnology,whichhashelpedbreakthe distancebarrier.Companieshavebenefitedfromalargerchoiceofproductsources.Consumers havealsobenefitedduetogreaterproductchoice,higherquality,andlowercost.

Managingglobalsupplychains,however,hasanumberofchallenges.Thedistancefactor canbecomeasignificantbarrierwhenshipmentsmovethousandsofmilesfromsuppliersto customers.Inanenvironmentofreducedcycletimes,expectedhigherlevelsofreliability,and emphasisonefficiency,thedistancefactorpresentsspecialchallengestosupplychainmanagers.

Outsourcing

Outsourcing ishiringathirdpartytoperformasetoftasksforafee.Companieshavehistorically androutinelyoutsourcedcertainactivities,suchasjanitorialservices,recordsmanagement,or uniformcleaning.Thedifferencetodayisthatcompaniesareoutsourcingalmostallactivities andonamuchlargerscale.

Increasedcompetitivepressurehasforcedcompaniestorecognizethattheycompetethrough their corecompetencies (sometimestermed“distinctivecompetencies”).Thismeansthatan organizationcreatessuperiorvalueforcustomersbymanagingtheircorecompetenciesbetter thancompetitors.Tobeabletofocusoncorecompetencies,manycompaniesoutsourceother activitiestothosethatcandothembetter.Outsourcingcaninvolvehiringoutoneaspectofthe operation,suchasshipping,tooutsourcinganentirepartofthemanufacturingprocess.Thepracticehasrapidlygrowninrecentyearsandhashelpedcompaniesbemoreefficientbyfocusingon whattheydobest.

SupplyChainLeader’sBox

◾ WAL-MART

Evensomeofthemostsuccessfulcompanieshaveencountereddifﬁcultiesinmanagingtheirglobalsupplychains.For example,Wal-MartencounteredlargeproblemswhenenteringtheBrazilianmarket.Wal-Martquicklyfoundthatthey

neededtoadaptproductofferingstolocaltastes,suchas replacingfootballswithsoccerballsandofferingdelicounter itemsthatincludedsushi.Changingproductlines,however, wastheeasypart.TherewereotheraspectsofWal-Mart operationsthatcausedgreaterproblems.Thelogistical aspectsofoperatingintheSouthAmericanmarketshave

2 ThomasL.Friedman, TheLexusandtheOliveTree (NewYork:Farrar,StrausandGiroux,l999),1–25.

beenespeciallychallenging.Forexample,rapidorder fulﬁllmenttimeisnotnearlyaseasytoaccomplishinBrazil asintheUnitedStates,whereWal-Marthaseasyaccessto suppliersandtransportationcompanies.

SãoPauloischaracterizedbybumper-to-bumpertrafﬁc, whichimpedestimelydeliveryandsmoothreplenishment forWal-Martstores.Further,thereareoccasionalmysterious“disappearances”ofshipmentsthatcreatesigniﬁcant

deliveryproblems.Finally,largestoresinBrazilhavedifﬁculty achievingtheeconomiesofscaleoftheirU.S.counterparts. Still,Wal-Martfeelsthatthereistremendouspotentialfor growthandexpansion,anditisconﬁdentthatitcanadjust tobesuccessful.

Adaptedfrom:Friedman,ThomasL. TheLexusandtheOliveTree NewYork:Farrar,StrausandGiroux,May1999.

Theconvergenceoftechnologiesattheturnofthiscenturyhastakentheconceptof outsourcingtoanewlevel.Massiveinvestmentsintechnology,suchasworldwidebroadband connectivity,theincreasingavailabilityoflower-costcomputers,andthedevelopmentof softwaresuchase-mail,searchengines,andothersoftwarehaveallowedindividualstowork togetherinrealtimefromanywhereintheworld.Theresulthasbeentheoutsourcingofvirtually anyjobimaginable.Manufacturershaveoutsourcedsoftwaredevelopmentandproductdesign toengineersinIndia,accountingfirmshaveoutsourcedtaxpreparationtoIndia,andevensome hospitalshaveoutsourcedthereadingofCATscanstodoctorsinIndiaandAustralia.

InformationTechnology

Animportantdriverofsupplychainmanagementistechnology.Technologicaladvanceshave enabledcompaniestoproduceproductsfaster,withbetterquality,atalowercost,andthistrend willcontinue.Manyprocessesthatwerenotimaginableonlyafewyearsagohavebeenmade possiblethroughtheuseofinformationtechnology.

Advancementsin informationtechnology haveinparticularhadthegreatestimpactonSCM. Informationtechnologyistechnologythatenablesstorage,processing,andcommunicationwithin andbetweenfirms.Infact,informationtechnologycanbeviewedasanenablerofSCM,as withoutitcoordinationbetweensupplychainmemberswouldnotbepossible.Themostpopulartypeofinformationtechnology,andmostfamiliartoall,istheInternet,whichhashad thegreatestimpactonthewaycompaniesconductbusiness.TheInternethaslinkedtrading partners—customers,buyers,andsuppliers—andhasenabledelectroniccommerceandthevirtualmarketplace.Thisisoneofthegreatestforcesthathasmadeinformationsharingalongthe supplychainpossible.

Anotherpowerfulinformationtechnologyisenterprisesoftware,suchas enterpriseresource planning(ERP).Thesearelargesoftwareprogramsusedforplanningandcoordinatingall resourcesthroughouttheentireenterprise.Theyallowdatasharingandcommunicationwithin andoutsidethefirm,enablingcollaborativedecisionmaking.

Otherexamplesofinformationtechnologiesthathaveimpactedthesupplychaininclude wirelesscommunicationtechnologies.Weareallfamiliarwithcellularphonesandpagersfrom everydaylife.However,thesetechnologiescanalsosignificantlyimprovebusinessoperations. Forexample,wirelesshomingdevicesandwearablecomputersarebeingusedinwarehousesto quicklyguideworkerstothelocationsofgoods.Thisservestosignificantlyimprovewarehouse operationsandlogistics.Wirelesstechnologies,enhancedbysatellitetransmission,canrapidly transmitinformationfromonesourcetoanother.Forexample,Wal-Martusescompany-owned satellitestoautomaticallytransmitpoint-of-saledatatocomputersatitswarehousesfor replenishment.

Globalpositioningsystems(GPS) areanothertypeofwirelesstechnologythatuses satellitetransmissionstocommunicateexactlocationsandhavedramaticallyimprovedlogistics

transportation.GPShasnumerouslogisticsapplicationssuchasindistribution,wheretrucking companiesuseGPStechnologytoidentifytheexactlocationoftheirvehicles.

Radiofrequencyidentification(RFID) isyetanotherwirelesstechnologythatisdramatically changingsupplychainoperations.RFIDusesmemorychipsequippedwithtinyradioantennas thatcanbeattachedtoobjectstotransmitstreamsofdataabouttheobject.Forexample,RFID canbeusedtoidentifyanyproductmovement,revealamissingproduct’slocation,orhavea shipmentofproducts“announce”theirarrival.Emptystoreshelvescansignalthatitistimefor replenishmentusingRFID,orlowinventoriescansignalthevendorthatitistimetoordermore products.Infact,RFIDhasthepotentialtobecomethebackboneoflogistics,asitcanidentify andtrackbillionsofindividualobjectsallovertheworld,inrealtime.

Theseinformationtechnologiescollectivelyprovideaccesstodataneverbeforeavailable.This informationhaschangedhowproductsareboughtandsoldandhaschangedthemodusoperandi ofthemarketplace.Buyersnolongerhavetogototheseller’splaceofbusinesstoviewandbuy products.Rather,consumerscancompletepurchasessevendaysaweek,24hoursaday.IThas changedhowbuyersandsellersinteractinthemarketplace,both business-to-business(B2B) and business-to-consumer(B2C).

BigDataAnalytics

Bigdataanalytics hashadoneofthebiggestimpactsonsupplychainmanagement. Bigdata referstolargedatasetswhosesizeissolargethatthequantitycannolongerfitintothememorythatcomputersuseforprocessing.Businessesareawashindatacapturedfromeverysource imaginable,whichcanbestructuredorunstructured.Thisdataincludespoint-of-sale(POS), radio-frequencyidentification(RFID),orglobalpositioningsystems(GPS)data,oritcanbe intheformofTwitterfeeds,Facebook,callcenterdata,orconsumerblogs.Thisdatacanbecaptured,stored,communicated,aggregated,andanalyzed. Analytics isapplyingmathandstatistics totheselargedatasets.Manyofthesestatisticaltools,suchascorrelationandregressionanalysis,havebeenaroundfordecades.Whatisdifferentisthecombinationofbigdatawithstatistical algorithms—oranalytics—fueledbytoday’scomputingpower.Thiscombinationcreatestheabilitytoextractmeaningfulinsightsandturninformationintointelligence.Further,advancements inmachinelearningandartificialintelligence(AI)havecreatedsignificantnewopportunitiesto usebigdataanddevelopnewandmorepowerfulalgorithms.

Fewareasofbusinesshavebeentransformedbybigdataanalyticsasmuchassupplychain management.Technologyhasenabledphysicalobjectstobeembeddedwithelectronics,suchas sensorsandsoftware,enablingtheseobjectstocollectandexchangedata.Theseobjectscanbe buildings,vehicles,machines,andallotherentitiesthatmakeupthesupplychain.Theconnectivityofthesephysicalobjectswithelectronicdevicesiscalledthe Internetof Things(IoT). Asconsumers,weareallaccustomedtosame-dayretaildeliveriesandtheabilitytoquicklyfind andpurchaseitemsonline.However,achievingsuchhighresponsivenessrequiresadata-driven, end-to-end,supplychainsystem.

BigDataAnalyticsBox

ConsiderthesupplychainofTesco,theBritishmultinational groceryandgeneralmerchandiseretailer.Thecompanyuses itsloyaltyprogramtocreatebigdatabytrackingallsales andlinkingthemtocustomerinformation.Thedataisthen minedtoinformavarietyofdecisions,suchasbestways tomicrosegmentitscustomerbase,targetingpromotions, optimizingproductmix,andpricing.Basedondataanalysis,thecompanythenalignsorganizationaleffortstoward