Doc. Ref. No.

PALAWAN STATE UNIVERSITY Effectivity Date: August 17, 2022

North External Campuses Revision No.: 001

Coron Campus Total Page No.: 40
Instructor: Mark Justine Vicera
Student Name: Program: BSBA MM3 Block: 1

DISTRIBUTION MARKETING WITH

FRANCHISING AND NETWORKING

Module No. 1

Student Signature: Date Returned:

Vision Mission
An Internationally recognized university that provides relevant and Palawan State University is committed to upgrade people’s quality of life by
innovative education and research for lifelong learning and providing education opportunities through excellent instruction, research and
sustainable development innovation, extension, production services, and transnational collaboration
 DISTRIBUTION MARKETING

Part I: Course Background

Main Topic and Subtopics:

Defining Logistics and Supply Chain Management

a. Employee Training
b. Defining logistics
c. Detailed Logistics Performance Measurements
d. Defining Supply Chain Management

The Evolution of Supply Chain Management

a. Stage 1: Basic Logistics

b. Stage 2: Total Cost Management
c. Stage 3: Integrated Logistics Management
d. Stage 4: Supply Chain Management

Supply Chain Structures

a. Basic Supply Chain Structures

b. Basic Supply Chain Strategies
c. The SCOR® Supply Chain Framework
d. Lean Supply Chain Model
e. Adaptive, Demand-Driven Supply Chain Model
f. Components of Adaptive Supply Chain Management
g. Demand-Driven Supply Network (DDSN)

Supply Chain Maturity Model

Trends in Supply Chain Management
Goals of Today’s Supply Chains

Introduction:
This course covers the principles and functions of distribution management, the roles of marketing
channels and physical distribution in the marketing system, the cost implications of management
decisions involving distribution. It also aims analysis of distribution cost through students’ participation
in exercises and projects in the area of distribution management.

Learning Outcomes:

Upon the completion of the course, the students will be able:

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 A. Cognitive
a. Understand and appreciate the importance of logistics in relation to
organization’s business performance.
b. Establishing plan of action using management functions to integrate distribution
management concepts to a given problem.
B. Psychomotor
a. Use of distribution management concepts and practices in both local and
international setting that is supplemented with information technology in
maximizing business operations.
b. Application of the concepts in ethical supply chain or logistics practices in
developing integrity and values of professional practice as a basis for decision
making and problem solving that arises in the corporate setting.
C. Affective
a. Recognizes the value of analyzing the business environment using distribution
management concepts and practices for establishing strategic direction to the
organization

Instructional Materials
a. Articles
b. Module
c. Reading Material
d. Videos

Learning Resources
1. Ross, David Frederick. 2015. “Distribution Planning and Control Managing in the Era of Supply
Chain Management 3rd Edition.” Springer Science+Business Media New YorkVideo:

2. Video : What is Supply Chain?

https://www.youtube.com/watch?v=Mi1QBxVjZAw&feature=youtu.be

3. Video: What is Logistics Management? Definitions and Importance in Supply Chain

https://www.youtube.com/watch?v=4-QU7WiVxh8

Learning Modalities
a. Google Classroom
b. Google Meet
c. Zoom
d. Facebook Room

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Part II: MODULE CONTENT

Discussion
DEFINING LOGISTICS AND SUPPLY CHAIN
MANAGEMENT

Introduction

From the beginnings of industrialized economies, businesses have been faced with the twin problems of
sourcing materials and dispersing their goods and services to the marketplace. When suppliers and
customers are in close proximity to the producer, demand and supply signals are easily communicated,
and materials and products can quickly make their way through the supply chain. As the time and
distance separating production and the points of supply and consumption widen, however, the ability of
companies to easily access materials and deliver to markets correspondingly diminishes. Without the
means to effectively move product rapidly from the supply source to the customer, producers find their
ability to expand their businesses restricted and the array of goods and services available to the
marketplace limited.

Bridging the distance gap between demand

and supply requires companies to perform two
critical functions. The first is the management
of logistics. The role of logistics is to efficiently
and cost-effectively deploy inventory,
warehousing, and transportation resources
that enable companies to satisfy the day-to-day
product and service requirements of their
supply chains. The second function is supply
chain management. The role of SCM is to
generate unique sources of customer value
through the creation of collaborative partnerships that leverage the resources, capabilities, and
competencies of channel members to increase the competitive advantage of the entire channel system.

Watch Video: What is Logistics Management? Definition and Importance in Supply Chain

DEFINING LOGISTICS

Over the past 50 years, logistics has evolved from a purely operational function focused on inventory,
delivery, and cost performance to a competitive weapon providing today’s enterprise with the capability
to link supply resources at the farthest regions of the supply chain with demand found across widely

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dispersed geographical marketplaces. In the age of the global supply chain, modern logistics has become
a critical competitive resource, creating value by enabling businesses to span geographical barriers,
delivering product in as quick and cost effective a manner as possible, and linking channels of trading
partners.

Simply defined, logistics management is the process whereby suppliers, manufacturers, and distributors
store and move products through the supply chain to their customers. The APICS Dictionary defines
logistics as “the art and science of obtaining, producing, and distributing material and product in the
proper place and in proper quantities”. The Council of Supply Chain Management Professionals (CSCMP)
defines logistics as “that part of supply chain management that plans, implements, and controls the
efficient, effective forward and reverse flow and storage of goods, services, and related information
between the point of origin and the point of consumption in order to meet customers’ requirements” .
These definitions imply that logistics creates competitive value by optimizing logistics operations costs
and productivity, high capacity and resource utilization, and close integration with customers and
suppliers. Furthermore, the success of these objectives depends upon the close collaboration and
integration of logistics partners that populate the supply channel system. Logistics creates competitive
advantage by flawlessly executing customer service objectives, achieving conformance to quality
standards, and increasing marketplace value. Perhaps the best way to define logistics is to divide it into
three closely integrated sets of management functions. The first is warehouse management. This
function is responsible for the storage and handling of inventories beginning with supplier receipt and
ending with dispersion to internal or external customers. Critical concerns are the pursuit of lean
philosophies, environmental sustainability, reduction of wastes, use of third party logistics (3PL)
partners, utilization of
warehouse management
systems (WMS), integration
with transportation, and
pursuit of flow-through
techniques for storage and
picking. The second function of
logistics is transportation
managemen This function is
defined as the movement of
product from one node in the
supply chain to another,
ending with delivery to the
customer. Critical concerns are
management of private fleets and
3PL partners; audit, payment, and claims; transport routing, tracking, and optimization; government
regulation, security, and compliance; and the utilization of transportation management systems (TMS).
The third and final function of logistics is performance measurement. Because of the size of the capital
invested in warehousing and transportation, managers must keep a close accounting of the
performance of these functions through the deployment of logistics administration and analytic
modeling techniques capable of providing full visibility to logistics costs and operational performance.

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 DETAILED LOGISTICS ACTIVITIES

Logistics management centers on the daily execution of several business activities. The goal is to pursue
the highest customer service at the lowest possible cost. These functions are separated into the
following operations areas:

• Order management. This activity is concerned with the navigation of the customer order
through the inventory allocation, picking, packing, shipping, and backorder cycles. The
fundamental performance target is ensuring product shipment based on quoted lead times,
order quantities, and quality specifications.

• Production and procurement. Providing information to production and purchasing concerning

the status of channel inventories is essential to high-performance logistics. Logistics is also
responsible for the inbound flow of materials into production and the outbound flow of finished
goods into the distribution channel.

• Freight cost and service management. These activities consist of managing inbound/ outbound
freight, third-party carrier management, total cost control, operations outsourcing decisions, and
execution of administrative services. Superior logistics performance is achieved by optimizing
inbound materials and outbound product movement, warehousing, and administrative services
that utilize the most cost effective yet efficient transportation methods and transportation
service
partne

• Warehouse management. The effective management of inventory in the supply chain requires
efficient and well-managed warehousing techniques. Key activities are inventory storage,
material handling, equipment and labor utilization, receiving, put away, and returns.

• Transportation routing and scheduling. The movement of product to its destination is a

primary function of logistics. Activities performed are optimization of shipping capacity
utilization, decreasing less-than-truckload shipments, and applying postponement strategies.
Another important function is selection of third-party transportation providers. An often
overlooked area is shipment documentation and compliance. Accurate documentation is
necessary to effectively

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manage country quotas, tariffs, import/export regulations, product classification, and letters of
credit.

• Fleet management. It is the responsibility of logistics to ensure the utilization of company-

owned transportation fleets. The goal is to determine the optimum use of transportation assets,
whether internal or through a third party supplier, without compromising service levels.

• Load planning. Utilizing transportation assets to achieve maximum fulfillment optimization

requires detailed load planning. Critical activities are packaging and labeling, load building and
consolidation, and possible third party transfer point or cross-docking functions.

• Special functions. Often logistics must manage a range of miscellaneous functions. Managing
service parts inventories and working with return goods are examples. A function growing in
importance is reverse logistics. This process involves managing customer returns and the
reclamation of packaging materials and other wastes and backhaul to a central collection point
for recycling. The object is the coordination of both the forward and reverse processes necessary
to fully utilize products and materials during the different stages of their life cycles. While the
effective management of each of these areas is essential to logistics success, their benefits
dramatically increase when the entire logistics channel network is integrated in the pursuit of
supply chain optimization and development of robust, flexible sourcing, warehousing,
transportation, and delivery capabilities that unify total logistics capabilities.

DETAILED LOGISTICS PERFORMANCE MEASUREMENTS

Logistics performance is composed of three important metrics. The first, logistics productivity,
provides information concerning productivity standards, level of logistics cost optimization,
integration of quality management processes, and broadening of logistics service levels. The
second metric, logistics service performance, tracks customer service goals, such as product
availability, order cycle time, logistics system flexibility, depth of service information, utilization
of technologies, and breadth of post-sales service support. The final performance component,
logistics performance measurement systems, details the content of performance metrics, how
performance data are captured, and the systems used to track and report on performance.
Superior logistics performance pursues the following seven operating objectives:

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 • Service. High performance
logistics functions possess
the following customer
service attributes: high
levels of service and
inventory availability, self-
service order entry, order
delivery status
management, order
configuration flexibility, and
short recovery time after a
performance failure.

• Fast flow response. Rapid response requires highly agile and flexible logistics resources
capable of quickly adding or reducing capacities based on expected demand. Besides
accelerating the order-to-delivery cycle, this attribute also means migrating away from a
dependence on stagnant pools of buffer inventory driven by forecasts to a demand-pull
model enabling rapid response to each customer order on a shipment-by-shipment
basis.

• Reduction of operating variances. Since logistics productivity increases when variances

are minimized, high performance logistics continuously pursues the architecting of
supply channels dedicated to the continuous elimination of all forms of supply chain
variance and waste.

• Minimum inventories. Maintaining the necessary levels of channel inventories is an

essential component of logistics’ commitment to customer service. High performance
logistics channels maintain the right levels of inventory demanded by the marketplace
while continuously searching to reduce stagnant pools of excess, obsolete, and safety
stock inventories. Achieving this goal means pursuing high inventory turns velocity for
the entire supply chain and not merely one trading partner.

• Transportation reduction. Transportation cost reduction is achieved by close inter

channel inventory planning and replenishment, assembling larger shipments traversing
longer distances to achieve movement economies of scale, the effective use of third
party service providers, and pursuit of sustainability objectives.

• Quality management. The pursuit of total quality management (TQM) is essential for
effective logistics. It can be argued that the requirement for absolute quality is even
more essential for logistics than anywhere else in the company. Logistics transactions
often deal with transporting large quantities of inventories and performing services
spanning large geographical areas. Once set in motion, the cost of a quality failure,
ranging from incorrect inventories to damaged goods, requires lengthy and costly
processes to be reversed.
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 • Product life-cycle support. The movement to increase environmental sustainability has
mandated an increase in reverse logistics functions. Activities include recalls and returns,
remanufacturing, repair, and disposition. An environmental sustainability strategy also
provides companies with a wealth of information on product performance, ease of use,
defects, and consumer expectation.

Play Video:
What is Supply Chain Management?

https://www.youtube.com/watch?
DEFINING SUPPLY CHAIN MANAGEMENT v=Mi1QBxVjZA w&feature=youtu.be
Companies have always known that by leveraging
the capabilities and resources of their supply chain partners they could enhance their own core
competencies and expand the footprint of their products and services. SCM began to gain traction when
companies came to recognize the competitive value arising from the integration of logistics functions
with those of other channel organizations. Soon it became apparent that using channel partners for
logistics collaboration was barely scratching the surface of the potential for strategic advantage. In place
of the opportunistic, tactical use of channel partners to achieve short term objectives, channel planners
began advocating the transformation of these transient relationships into integrated, mutually enriching
partnerships. By the early 1990s a new management concept began to gather traction to fill this gap:
supply chain management. The concept of SCM encompasses much more than simply the transfer of
products and services through the supply pipeline. SCM is about a company integrating its process
capabilities and
marketplace
objectives with those
of its suppliers and
customers on a
strategic as well as
tactical level.
Integrative supply
chains consist of many
trading partners
participating
simultaneously in a
collaborative network
containing multiple
levels of competencies
and various types of relationships. SCM enables companies to activate the synergy to be found when a
community of firms utilizes the strengths of each other to build superlative supply and delivery processes
that provide total customer value. SCM can be viewed from several perspectives. Definitions of SCM take
into account a wide spectrum of applications incorporating both strategic and tactical objectives. For

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example, the APICS Dictionary defines SCM as The design, planning, execution, control, and monitoring
of supply chain activities with the objective of creating net value, building a competitive infrastructure,
leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally.

The Council of Supply Chain Management Professionals (CSCMP) defines SCM as encompassing the
planning and management of all activities involved in sourcing and procurement, conversion, and all
logistics management activities. Importantly, it also includes coordination and collaboration with
channel partners, which can be suppliers, intermediaries, third-party service providers, and customers.
In essence, supply chain management integrates supply and demand management within and across
companies.

Array of Strategic Competencies

The collaborative, network-building attributes of SCM have revolutionized the role of the supply chain
and infused channel constituents with innovative ways of providing total customer value. Instead of a
focus on just logistics operations, SCM enables supply chains to collectively work to activate an array of
strategic competencies as illustrated in this diagram:

A detailed discussion of each of the six competencies are as follows:

1. Customer management. Managing the customer has taken on added significance in the era of
supply chain management and is termed customer relationship management (CRM). CRM is
founded on the recognition that as customers demand to be more involved in product/service
design, pricing, and order configuration, companies must focus their efforts beyond brand and
marketing-based strategies to establish enriching customer relationships. The goal of CRM is to
provide complete visibility to all aspects of the customer, from facilitating the service process
and collecting data concerning customer buying history to optimizing the buying experience.
CRM provides companies with the ability to architect a mosaic of processes for the generation of
fast flow, flexible, and synchronized delivery systems that enable customer self-service;
configuration of customized, individualized value-solutions; and fulfillment functions providing
the highest levels of service and value.

CRM enables supply networks to respond to three critical customer requirements:

 Superior service. The goal of CRM is to provide the customer with an unbeatable buying
experience that exceeds price, product availability, delivery, and service expectations.
Creating high service levels requires two critical value chain attributes: speed of response
and attention to reliability. CRM technologies realize speed of response by passing demand
information not serially, but simultaneously to channel partners through advanced shipping
notices, bar coding and RFID, on-line delivery tracking, event-management technologies, and
real-time fulfillment information. Reliability means executing the perfect order each and
every time. Reliability requires supply chains to be flexible enough to respond to last minute
changes while never compromising high service levels.

 Convenient solutions. Today’s customers are searching for supply chains capable of providing
them not just with products and services but solutions to their business needs. In addition,

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 customers want to search, configure, create, and review their orders in as convenient a
manner as possible. Visibility to customer requirements in turn provides each channel
partner with the opportunity to use core competencies that ensure each customer can
make individualized choice of product and service solutions.

 Customization. Today’s customers are no longer content to purchase standardized goods

and services, but instead require the ability to configure solutions that meet their own
individual needs. To realize these objectives, suppliers can deploy strategies that postpone
and place actual product differentiation at the channel delivery point that actually touch the
end- customer. Another strategy is to utilize Internet-enabled ordering that permits
customers to place orders and receive delivery from multichannel sources. Channel
synchronization is crucial: customization requires direct linkage of demand and supply at all
points in the channel with the goal of minimizing cost and accelerating total channel
throughput.

2. Supplier management. Businesses have always known that the relationship between buyer and
seller, and not just product price and quality, determines the real value-add component of
purchasing. This viewpoint has spawned a new concept and set of business practices termed
supplier relationship management (SRM). The mission of SRM is to activate the real-time
synchronization of the requirements of buyers with channel supplier capabilities. The goal is a
customized, unique buying experience while simultaneously pursuing cost reduction and
superior quality. SRM seeks to fuse supplier management functions into an efficient, seamless
process driven by relationships founded on trust, shared risk, and mutual benefit. The key
components of SRM include: – Strategic sourcing. Strategic sourcing not only provides for
technology-enabled sourcing from a universe of suppliers, but also reveals the depth of supplier
competencies, availability of value-added services, level of desired quality, capacity for
innovative thinking, and willingness to collaborate on new product development. – SRM
technology toolsets. Use of technologies that facilitate the communication of purchasing
requirements; negotiation of quality, pricing, and delivery objectives; product sustainability; and
financial settlement. The Internet has enabled purchasers to activate new forms of procurement,
such as on-line catalogs, interactive auction sites, spend analytics, and trading exchanges. These
integrative technologies provide purchasers with tools for the real-time, simultaneous
synchronization of demand and supply from anywhere, anytime across a global network of
suppliers. – Integrated procurement infrastructures. A goal of SRM is the establishment of
organizational infrastructures that link channel capabilities and performance objectives directly
with the customer. A SRM-driven organization is capable of expanding traditional purchasing
functions to include new players, such as trading exchanges, consortiums, and other e-
commerce service support partners providing payment, logistics, credit, shipping, and other
procurement-related processes.

3. Channel alignment. The structure of a supply chain is composed of its supply and delivery nodes
and the links connecting them. In the past this network was characterized as a series of trading
dyads. In this model, channel partners created trading relationships one partner at a time
without consideration of the actual extended chain of customers and suppliers constituting the
entire supply chain ecosystem. In reality, a company like Wal-Mart deals literally with
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thousands of
 suppliers and their supply chain resembles more a networked grid of business partners rather
than a linear pipeline-like structure (Figure 1.4). Maintaining a strategy of trading partner dyads
as the supply chain expands, risks decay of cost management objectives, leveraging resource
synergies, and maintaining overall marketplace competitiveness. To counter the inertia inherent
in the trading partner dyads strategy, effective SCM requires a continuous focus on network
node congruence. This means that each channel constituent must construct an individual supply
chain strategy and set of operational objectives that simultaneously provides for competitive
advantage for both the firm and the collective channel network. This step also reveals the gaps
and regions of potential conflict existing between the strategies and metrics of individual
partners. Without strategic and operational alignment, the supply chain will have weak links that
easily break as the pressure of demand variability and missing partner capabilities appears at
times of channel stress. As supply chain convergence matures, the number of nodes occupying
peripheral positions are more closely integrated into the direct channel. The goal is to increase
the length of the contiguous supply chain, thereby expanding opportunities for collaboration,
customer value, and operations excellence while at the same time minimizing conflict and
increasing compromise over costs, performance metrics, service value propositions, and delivery
velocity targets. Achieving supply chain congruence can be contentious as companies find
themselves working with several separate channel networks as their business ecosystems evolve
in new directions.

4. Integrative technologies. The convergence of integrative information technologies and SCM

constitutes a key theme in the evolution of SCM. Earlier, it was pointed out that it is virtually
impossible to think of SCM without the power of the enabling technologies that have shaped
and driven its development into a powerful management science. In today’s highly competitive
global marketplace having the best product or service is simply not enough: now, having the best
information has become the decisive differentiator between market leaders and followers.
Supply channel transparency consists of a single view of the supply chain and requires
information technologies that facilitate the collection, processing, access, and manipulation of
robust repositories of data necessary for determining optimal supply chain design configurations.
Information networks also provide companies with the necessary insight so that channel
resources and competencies can be synchronized to provide superior customer service. On the
marketing side, information networks enable companies to integrate customers directly into
their fulfillment systems thereby assisting in executing a perfect order every time. On the shop
floor, information networks improve planners’ visibility into supplier resources to smooth
capacity spikes and improve throughput. In the supply channel, information networks provide a
window into inventory availability so that companies can align their resources with the demand
pull of the marketplace.

5. Operations excellence. Ideally, operations excellence compels every firm in the channel network
to optimize both their own performance and, by extension, the performance of the entire supply
chain. By acting as a single integrated team, the supply chain has access to an expanding range of
processes and competencies individual companies would be incapable of achieving acting on
their own. In addition, integrated supply chains have a better chance to increase performance by
standardizing processes and leveraging shared information technologies.

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 6. Collaboration. The keystone of SCM is found in the willingness of supply channel partners to
engage in and constantly enhance collaborative relationships with each other. As displayed in
figure , the intensity of collaborative content can vary. On the lowest level, it is internally-
focused on the achievement of local objectives. On the next level, SCM collaboration consists in
linking inter-channel partner logistics functions to optimize channel operations. In level three,
channel partners seek to develop collaborative strategies to link core competencies and
resources to generate joint product and service value for the supply chain’s customers. Finally, in
level four, SCM leverages web-based interoperability technologies to create a completely
integrated supply chain focused on executing a common business strategy by presenting
customers with a seamless supply engine.

The six SCM competencies enable companies to realize the three success factors shown at the bottom of
the figure. By architecting highly integrated supply networks, companies achieve continuous competitive
advantage by jointly developing and delivering winning products and services that capture the customer
before the competition. Second, by converging the collective resources and innovative capabilities found
among supply network partners, SCM enables companies to act as if they were a single unified channel
capable of delivering customer value seamlessly across intersecting supply chains. And finally, by

deploying connective technologies, such as the Internet and social networking, companies can leverage
information to lead marketplace change, preserve brand integrity, effectively identify customers, and
provide total customer value and overall profitability.

The Evolution of Supply Chain Management

The SCM concept evolved through four distinct stages. The first stage is described as the era of logistics
decentralization. In the second stage, logistics moved from functional decentralization to organizational
centralization driven by increased requirements for cost optimization and customer service. Stage three
witnessed the dramatic expansion of logistics from a passive operational function to a strategic resource

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centered on the linkage of internal operations with analogous functions performed by channel trading
partners. As the concept of channel collaboration grew, the old logistics concept gave way in stage four
to full-blown SCM.

STAGE 1: BASIC LOGISTICS

The first stage of SCM occurred in the period extending from the early twentieth century to the mid-
1960s. Considered essentially as an operations execution function concerned with warehousing and
transportation, it was felt that logistics was purely a cost center with minimal effect on competitive
advantage. As such, logistics was considered unworthy of serious capital investment, accorded little
management status, and assigned less professional staffs. Often companies fragmented logistics into
stand-alone activities and placed control under different company departments. Not only were
functions such as procurement, transportation, and inventory management, separated from one
another, but local departmental performance measurements actually pitted logistics functions against
each other. What is more, the whole field of logistics was woefully ill-defined as a management science.
The result was a disjointed, relatively uncoordinated, and costly management of logistics activities.

STAGE 2: TOTAL COST MANAGEMENT

By the early 1970s, problems associated with decentralized logistics management had become so
evident that a sea change was necessary. Several facts were apparent:

1. The impact of decentralized logistics costs on enterprise profits was greater than most
managers had previously thought. Logistics costs constituted as much as 50 % or more of the
selling price of a product. A well-run logistics organization could actually have a significant
impact on the corporate bottom-line.

2. Opportunities for logistics cost improvement were largely unexplored because they had for so
long resided in a managerial no-man’s-land, outside the scope of responsibility of any single
executive.

3. Standard cost-cutting measures were woefully inadequate in reducing logistics costs.

Although improvement measures reduced local departmental costs, they were piecemeal and
had a relatively low effect on total logistics costs.

4. The splintering of logistics functions had made corresponding logistics cost reporting
incomplete. Concise statistics on total logistics costs were difficult to attain and often hidden
inside local departmental agendas. These deficiencies were at the core of the total cost strategy
for managing logistics. The goal was to structure logistics so that total costs, and not just the
cost of one logistics activity, are minimized. Effective total cost management occurs when cost
improvement initiatives are formulated based on an integrated view of logistics. By the mid-
l970s, companies began to merge logistics functions formally under a single manager. It was this
manager’s responsibility to make decisions that would benefit the whole logistics system and
not just local departmental optimization. Achieving such a synergy would involve not only
reengineering the logistics organization but also repositioning the role logistics had when
working

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 with other organizational functions. In Stages 1 and 2, logistics was perceived as internally and
externally neutral in providing competitive advantage. The role of logistics was considered as
defensive in nature and concerned purely with the daily management of inventories, delivery,
and cost-containment. When making logistics decisions, the goal of planners was to keep
logistics flexible and reactive so that products and services were always available for customer-
facing functions to meet any type of demand. In the business environments of the 1960s and
early 1970s, companies simply ignored the potential of logistics to provide competitive
advantage. By the end of the period, however, logistics managers had come to realize that
logistics could enhance competitive advantage by optimizing the flow of goods occurring both
within the boundaries of the company and, more importantly, through the supply chain right up
to the customer’s receiving dock. Such thinking cut-across traditional company departmental
boundaries and existing views of supply chain systems. Logistics was on the verge of its next
evolutionary step.

SCM Evolutionary Stages

STAGE 3: INTEGRATED LOGISTICS MANAGEMENT

During the 1980s, strategists became increasingly aware that focusing solely on total cost management
represented a passive approach to logistics’ potential. In place of a focus on logistics cost minimization,
managers began integrating logistics with other corporate departments in an effort to both reduce total
enterprise costs and enhance customer value.

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It was becoming apparent that operational processes, such as speed of delivery, value-added services,
and product availability, realized when the entire enterprise was closely integrated together, could in
themselves provide a powerful facilitator of competitive advantage beyond brand and price leadership.
In addition to the change in executives’ perception of the strategic role of logistics, powerful challenges
from the business environment were further fueling the growth of the integrated logistics model. If the
1980s could be compressed into two quintessential catchwords, they would be competition and quality
management. Competition came in the form of global companies, often deploying radically new
management philosophies and organizational structures that were realizing unheard of levels of
productivity, quality, and profitability. The second driver of change came from the deployment of new
management concepts, driven by just in time (JIT) and total quality management (TQM) philosophies,
that were providing competitors with tools to compress time out of product development cycles;
engineer more flexible, “lean” processes; tap into the creative powers of the workforce; and generate
entirely new forms of competitive advantage. Businesses responded first to these challenges by
revamping their organizations. According to a 1990 survey conducted by Ohio State University,
traditional areas of logistics responsibility, such as warehousing, transportation, and inventory
management, were almost 100 % under the control of a single logistics manager, along with a high
percentage of additional functions such as customer service and order management, purchasing, and
product planning. Second, companies began using logistics as a competitive weapon. Logistics became a
source enabling an enterprise to differentiate itself from its competitors. Recognizing its strategic value,
businesses drafted plant charters and mission statements to guide logistics development and ensure
alignment with other enterprise functions. The concept of integrated logistics also afforded logistics an
equal position alongside marketing, sales, and operations in the formulation of strategic plans,
determining the allocation of enterprise resources, and defining the scope of customer service
objectives. By closely aligning logistics capabilities and marketing, sales, and operations objectives, the
enterprise could present customers with a unified approach, enhancing product, price, and delivery

competitiveness.

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STAGE 4: SUPPLY CHAIN MANAGEMENT

By 1990, companies began to enhance the logistics concept to tackle the new realities of the
marketplace. The acceleration of globalization, the explosion in Internet technologies, business process
reengineering, increased outsourcing, and the growing power of the customer were forcing companies
to look beyond the boundaries of their own core competencies to the capabilities and resources of their
supply channel partners to remain competitive. Responding to these new challenges compelled
companies to implement what can only be called a dramatic paradigm shift from Stage 3 logistics to
Stage 4 supply chain management. In place of the informal, short-term, tactical use of supply chain
partners, corporate planners were now advocating strategies that sought the development of close
channel collaborative partner relationships with the objective of optimizing and synchronizing the
productive competencies of the entire supply chain. The logistics concept was to be replaced by supply
chain management.

SUMMARY

Supply channel management today is no longer the loose combination of business functions
characteristic of the early stages of logistics. New networking technologies and management models
have not only blurred internal departmental boundaries, but also the boundaries that separate supply
chain partners, transforming once isolated channel players into unified, “virtual” supply chain systems.
Today’s top companies are using SCM to reassemble and energize channel structures by tapping into the
core competencies of their channel partners and accelerating cross-enterprise collaborative processes.
They are also using technology enablers to activate new methods of providing customer value by
opening new marketing channels as they migrate from individual sources of supply to networks of
channel partners capable of servicing the customer across global space and time.

SUPPLY CHAIN STRUCTURES

A supply chain is a “global network used to deliver products and services from raw materials to end
customers through an engineered flow of information, physical distribution, and cash.” This definition
considers the supply chain as consisting of a network of channel entities and processes. A supply chain
network has many forms. Regardless of whether it is a product or service chain or how many channel
entities are involved, an effectively structured supply chain will enable firms to guarantee the flow of
goods and services, reduce channel costs, and pursue competitive leadership in their market space.

17
 This diagram illustrates the
three basic entities of a
supply chain: a producer
with one supplier and one
customer. The figure could
also refer to internal
entities within an
organization: supply chains
can be internal to an
enterprise as well as
external. The producing
entity is responsible for the
production of products (or
services). The role of the
supplier is to provide production inventories to the producer who, in turn, produces finished products
that are then sold to the customer. As indicated by the arrows on the figure, channel networks have four
basic flows that connect the three channel entities together. The first flow is concerned with the transfer
of information up and down the channel. The second flow represents the movement of inventory as it is
transformed from materials into finished goods and final sale to the customer . The third flow tracks
financial settlement at each entity in the channel. The final flow reflects today’s growing concern with
environmental sustainability and is centered on reverse logistics, recycling, conservation, and waste
disposal.

BASIC SUPPLY CHAIN STRATEGIES

There are three main supply chain strategies that could be followed in channel management: stable,
reactive, and efficient reactive.
 A stable supply chain is characterized by a long trading history between channel entities; a
heavy focus on execution, eff iciencies, and cost performance; and the use of simple
connectivity technologies with little need for real -time information sharing. An example is a
fastener supply chain that competes using scale production, stable pricing, and readily
available inventories.

 A reactive supply chain is one where channel entities act to fulfill the on-demand
requirements from customers. Such supply chains are perceived as cost centers, use
minimal networking technologies, and regard throughput as the main goal of the channel
structure. An example is a make-to-order producer of computer equipment, such as Dell,
that offers customers the ability to customize their orders.

18
 An efficient reactive supply chain acts as an efficient, low-cost provider of goods and
services. This channel entity focuses on efficiency and cost management to keep total
delivered costs low and regards connectivity technologies and internal process automation
as the key to increasing profits, expanding capacities, and increasing channel product and
information velocities. An example is a retail chain that uses point-of-sale (POS) and
collaborative planning, forecasting, and replenishment (CPFR) to broadcast demand to
various levels of upstream channel suppliers. Supply chains are managed using one of two
types of channel integration: vertical and horizontal. A vertically managed supply chain is
characteristic of businesses that seek to absorb as many channel entities as possible inside
the organization to create a monolithic supply chain. The classical example is the early Ford
Motor Company which pursued a strategy of owning as many tiers of supply channel entities
as possible. The advantages of this strategy are direct management control of the supply
channel, close materials and operations cost control, and high interaction with the
customer. Issues regarding supplier instability and capacity gaps are eliminated and focused
economies of scale are gained. Drawbacks are heavy management and facilities costs, the
expense involved in building new competencies, and the risk of not being responsive enough
to marketplace changes. Most companies today pursue a strategy where key core
competencies are integrated vertically, while non-essentials are outsourced to channel
partners. Horizontally managed chains all but replaced the traditional vertical approach. In
this strategy, corporate managers seek to outsource as many administrative, production,
and distribution functions as possible to supply network partners while retaining ownership
of core competencies. In place of direct control, channel flows are regulated by transaction
and long-term contracts. The advantages of this strategy are leveraging partners to achieve
local economies of scale and scope, concentrating company focus on internal core
competencies by outsourcing non- essential functions, gaining quick access to key
productive resources held by channel partners, and leveraging technology networking to
share and access information from anywhere across the global supply chain. Drawbacks
center on loss of control of functions,

19
 increased risk due to possible channel partner failures, the hollowing out of internal
competencies, increased burden to manage channel complexities, and possible
compromise of proprietary information to competitors.

THE SCOR SUPPLY CHAIN FRAMEWORK

An important alternative method to evaluate a supply chain structure is the Supply Chain Operations
Reference (SCOR®) framework developed by the APICS Supply Chain Council. The SCOR® framework was
created to assist in understanding, describing, and evaluating supply chains. SCOR® defines the supply
chain as “the integrated processes of Plan, Source, Make, Deliver, Return, and Enable spanning from the
suppliers’ supplier to the customers’ customer.” The framework reflects the collective wisdom of years
of field-based practices and combines elements of business process engineering, metrics, benchmarking,
best practices, and people skills into a single management framework for designing and managing the
supply chain. As illustrated in the figure below, the SCOR framework is composed of the viewer’s own
company at the center and tiers of suppliers and customers extending in either direction. To the
immediate right of the company are first tier customers that are either internal or external. To the left
are first tier suppliers that, again, are either internal or external.

The model also displays a second tier illustrating suppliers’ suppliers and customers’ customers. In
actuality, the SCOR framework represents more than one external tier but only two are shown. The
SCOR

framework is composed of four major sections. The first is performance, which consists of five standard
attributes and accompanying metrics to describe process performance and define strategic goals. The
first attribute, reliability, addresses the ability of the supply chain to perform processes as expected . Key
metrics are perfect order fulfillment, percent of orders delivered in full, and delivery performance to
customer commit date. The second attribute, responsiveness, refers to the velocity at which processes
are performed. Key metrics are order fulfillment, source, make, and deliver cycle times. The third, agility,
refers to how quickly a supply chain can respond to changes in the external environment. Key metrics are

20
upside and downside supply chain flexibility, adaptability, and value at risk (VAR). The fourth, cost, refers
to the cost of operating a supply chain. Key metrics are total supply chain management cost, cost of
goods sold, and costs to plan, source, make, deliver, and return products. The final attribute, assets,
describes the ability of supply chain participants to effectively manage assets. Key metrics are cash-to-
cash cycle time, return on supply chain fixed assets, and return on working capital.

The , which consist of a set of six primary management

second section in the SCOR framework is processe
s
proc Plan, Source, Make, Deliver, Return, and Enable. By referencing these macro processes, SCOR
esses:
can be used to describe supply chains that are very simple or very complex by applying a common set of
definitions. The framework is also designed to support supply chain process analysis at four linked
levels. The SCOR® framework decomposes the six primary Level-1 processes into Level 2 process
categories. In turn, Level-2 categories are further decomposed into Level-3 process elements. For
example, Plan is decomposed into five process categories (supply chain, source, make, deliver, and
return). Category supply chain is then decomposed into four process elements (identify, prioritize, and
aggregate supply chain requirements; identify, prioritize, and aggregate supply chain resources; balance
supply chain resources with supply chain requirements; and establish and communicate supply chain
plans). Level-4 consists of company specific supply chain management practices decomposed from
Level-3 designed to achieve competitive advantage and to enable the company to rapidly adapt to
changing business conditions. The content of these improvement processes are company-dependent
and are outside the scope of the SCOR® framework.

The third section is practices, which provides a collection of industry-neutral “best practices” linked to
Level-2 and Level-3 processes. SCOR® 11 recognizes 21 classifications of practices, such as customer
support, distribution management, inventory management, and manufacturing/production. Each practice
is accompanied with a relevant set of performance metrics. The fourth section of the SCOR® framework
is people. This section provides a standard for describing skills required to perform tasks, manage
processes, and mange talent in the supply chain. The key elements of the people section are skills,
experiences, aptitudes, and training.

The next step is to determine the Level-2 process categories. Planners would start by picking an
important gateway process. For example, inventory planning at the plant would be an excellent opening
process. Using the SCOR Model Reference, sP1 (Plan Supply Chain) is chosen. Next, sP2 (Plan Source) is
selected which describes the sourcing plans. Next, sS2 (Source Make-to-Order) describes the production
strategy and determines the nature of the sourcing effort (Note that the dotted lines from the
warehouse sS2 stretch to the two suppliers and are connected to the sD1 (Deliver Stocked Product)
process category). Finally, the inventory is shipped and received at the Plant under category sS1 (Source
Stocked Product) and moved to production in sM2 (Make-to-Order). The other entities in the supply
chain would undergo the same process category review. The real value of using the SCOR® framework is
the ability not only to decompose processes into more detailed activities, but also to identify specific
performance metrics. Each one of the metrics in the SCOR Model Reference contains a full description
and, where applicable, the statistical formula. SCOR® recognizes three levels of pre-defined metrics:

21
  Level-1 metrics provide strategic metrics and key performance indicators (KPIs) assessing
the health of the over-all supply chain. Using the performance attributes previously
detailed, SCOR® recognizes 10 strategic metrics:

 Level-2 metrics serve as diagnostics for the Level-1 metrics. The diagnostic
relationship helps to identify the root cause of Level-1 metrics performance gaps.
For example, for Make process categories, the metrics are Total Cost to Serve,
Production Cost, and Cost of Goods Sold.
 Level-3 metrics serve as diagnostics for Level-2 metrics. For example, for process
category sM2 (Make-to-Order), there are 20 metrics that include Perfect Order
Fulfillment, Yield, Make Cycle Time, and so on.

Once the SCOR® framework is fully populated with the processes, metrics, and practices
describing the supply chain, the current channel configuration and performance is documented.
The next step is to begin a SCOR® improvement project to align the existing supply chain with
the configuration detailed in the SCOR® framework. A significant advantage of SCOR® is that
the production company can use the metrics from across supply chain members to gauge the
overall performance of the supply chain. For example, (providing the information is shared), the
plant can use the metrics attached to the sD1 process category to determine total supplier
channel delivery performance.
Lean Supply Chain Model

Another important supply chain model involves the blending of lean concepts and practices with
SCM. The story of lean process spring out of the teachings on quality management of W.
Edwards Deming and the assembly-line practices of the Ford Motor Company, the concept was
adopted by Japanese manufacturer, Toyota Production System (TPS). Over the decades, the
concept has migrated from just in time (JIT) to lean and was enhanced by the addition of
total quality
22
management (TQM), six sigma, and theory of constraints (TOC) management methods. Lean
has emerged as a business philosophy preaching the total elimination of all wastes, the
optimization of productive resources, building and delivering products to the demand-pull of the
customer, a toolbox of techniques for process improvement, and a system through which
companies and their business partners can deliver continuous improvement and customer
satisfaction everywhere in the supply chain.

What makes a supply chain lean? To target of lean supply chain is to reduce waste found
anywhere in the supply network, standardize processes across organizations, and optimize core
resources. Lean supply chains seek to achieve high levels of customer value at the lowest cost
through the real-time synchronization of product and service needs with the optimum channel
supplier. Achieving such objectives requires supply chains to be responsive (capable of rapidly
responding to changes in customer requirements for quality, delivery, and satisfaction) and

flexib (agile to adapt assets, pursue outsourcing, and deploy dynamic pricing and promotions
to meet marketplace requirements). Finally, lean supply chains are dedicated to the continuous
improvement of people and processes. A lean supp chain is defined as a network of
organizations that collaboratively work together to synchronize products, services, and
information while continuously reducing waste to meet the demand-pull of the individual
customer.

Lean supply chains contain six core competencies:

 Lean improvement tools. Lean advocates have identified a toolbox of methods designed
to attack wastes anywhere in the company or the supply chain. Important methods are
the “five S” system of improvement (sort, set in order, shine, standardize, and sustain
work management); SMED/quick change over(reduce operational lead times inhibiting
process performance in the supply chain); process flow analysis (linkage of processes
and removal of barriers between channel nodes enabling the acceleration of the flow of
goods to the customer); total productive maintenance (TPM) (ensuring the availability of
productive equipment in the supply chain); and six sigma and statistical methods
(performance metrics to ensure total quality across the supply chain).
 Process standardization. A fundamental objective of lean SCM is the elimination of
waste through the standardization of business processes. Standardization enables
companies to effectively apply improvement methods to any process and track,
measure, and demonstrate improvement results. Standardization also enables
identification of inhibitors of flow, such as batch and queue processing and unnecessary
transportation and product
23
 storage. Standards should not be limited solely to products and processes, but should
also be expanded to determine how information is shared across the supply chain.
Industry standards should be used whenever possible, and supply channel partners
should participate in confirming the common standards to be used. • Lean SCM
technologies. Today’s supply chain has access to a wide spectrum of technologies for
the implementation of lean practices. Technologies such as ERP and SCM business
systems; point technologies such CRM, APS, and global trade management (GTM); bar
coding and RFID devices; and Internet connectivity applications are fundamental in the
creation of a common information platform. These systems enable channel partners to
link systems to form an information network providing real-time, channel-wide visibility to
demand and supply, unplanned channel events and risks, and common performance
measurements.
 Cross-enterprise collaboration. The commitment of channel participants to the level of
lean involvement mirrors the general intensity of cross-enterprise collaboration. At the
lowest level, internal optimization, channel entities engage in lean initiatives focused on
reducing local internal costs and cycle times to enhance customer satisfaction, but rarely
will pursue lean improvement outside the four walls of their companies. Businesses at
level two, transactional/informational collaboration, will pursue lean with channel
partners to establish and monitor common channel performance metrics. These
companies normally use extended value-stream mapping to illuminate the process flows
with other channel players to quantify areas for improvement. Additional lean tools are
conducting joint Kaizen events, lean accounting and problem solving, and statistical
methods charting channel performance. Lean initiatives at this level seek to reduce
wastes in cross-channel functions such as transportation, warehousing, and inventory. In
level three, shared processes and co-development, network partners seek to more
deeply integrate lean by creating cross-channel lean project teams to effectively
establish consensus on improvements to common performance and planning processes.
Finally, in the fourth level, linked competitive vision, channel partners will utilize lean
improvement as a common lever to activate new dimensions of joint strategy and
marketplace collaboration, compliance and transparency, performance and risk
management, sustainability, and shared resources. On this level of collaboration, cross-
channel lean practices and metrics enable executives to determine the overall
performance and health of their own organizations and that of the supply chain in
general and illuminate new areas for continuous improvement.

24
 Sustainability. Environmental sustainability is a natural extension of lean and it resides at
the heart of a lean supply chain. By standardizing and rationalizing productive processes
to remove wastes and excess inventories, lean improvement teams can reduce the use
of materials, redundant and meaningless labor, pollution, and power. Lean sustainability
directly targets all forms of channel waste. Making processes more efficient removes
wastes caused by poor product and process design, inaccurate documentation, scrap,
and poorly used people skills, knowledge, and capabilities. An important consideration is
planning for the recycling or disposal of defective products and packaging materials.
The importance of environmental sustainability to organizations and their supply
chains is found in the concept of the triple bottom line. This strategy implies that
companies that design processes that preserve the environment will also add to
their financial bottom-lines. The three advantages are:
– Economic. This component is concerned with the application of sustainable
business practices and how they contribute to the financial well-being of supply
chain firms.
– Environmental. This component is concerned with a supply channel’s
sustainability practices aimed at controlling and regulating the production,
transportation, and use of toxic, dangerous, wasteful, and hazardous products.
– Social. This component is concerned with how organizations act and operate in
a socially responsible manner, including human rights, labor practices, and the
environment. As supply chains become more sustainable, business operations
become more agile and flexible and capital and assets are better focused to
further structure business practices that
continually enhance the triple
bottom line for everyone in the
supply channel network.

25
 Demand management. A central principle of lean is the demand-pull. The demand pull is
set in motion at the time of sale. Once triggered, inventory replenishment is then pulled
from upstream delivery channel partners, node-by-node, back to the producer. The
demand-pull requires lean processes that are:
1. Visible and transparent. Lean supply chains need to be immediately alerted when out-
of-bounds events occur that will increase costs and cause wastes to appear anywhere
along the supply channel continuum.
2. Demand-driven. Demand in the supply channel is no longer driven by forecasts but
only occurs when inter-channel or customer demand is present.
3. Instrumented. Information about marketplace conditions needs to be driven by
information technology applications that alert not just the next node but the entire
channel simultaneously of impending demand changes.
4. Integrated. Lean supply chains are organized around demand management process
teams whose activities are focused on creating optimum value for the customer.

Lean concepts and practices enable the structuring of supply chains that build and
sustain a stream of value to the customer. Lean supply chains enable cross-channel
teams to broaden and enrich channel communications concerning quality, change
management, collaboration opportunities, and joint metrics that keep supply chains
focused on continuous improvement as they drive toward network competitiveness and
profitability.

ADAPTIVE, DEMAND-DRIVEN SUPPLY CHAIN MODEL

Managing today’s supply chain requires businesses to confront the problem of risk. To
counter the growing sense of risk, businesses have turned to two new channel
strategies:
supply chains need to be adapti and demand-driven if they are to remain resilient.
Adaptive channel networks counter market uncertainty by being able to rapidly
restructure processes and even whole supply chains to meet changes in customer
requirements while remaining efficient. Adaptive supply chains are able to quickly
reconfigure themselves in response to disruptive events, such as the introduction of a
radically new product or service, information technologies, regulatory and environmental
policies, financial uncertainty, and massive market restructuring, without
compromising
efficiencie on operational

26
 Being demand-driven means that companies must move beyond internal operational
optimization and restructure their supply chains to sense
and proactively respond to demand signals
arising from customers rather than just
reactively countering emerging disruptions in the
supply network. Demand-driven organizations
are more demand sensing, capable of more
demand shaping, and able to execute a more
profitable demand response than companies
that are simply supply-centered. A demand-driven

strateg
infrastructure, centers
and information flows thatonare
thedriven
configuration of supply
by the demand chain rather than
channel
by the constraints of factories and distribution intermediaries located upstream in the
supply network. In the end, being demand-driven is more than just filling orders: it is
using demand signals to scale processes and resources quickly across the entire supply
network.

COMPONENTS OF ADAPTIVE SUPPLY CHAIN MANAGEMENT

In contrast to conventional supply chains, which depend on forecasting and inventory

buffers to manage risk, adaptive networks can be quickly reconfigured to meet changing
marketplace requirements. adaptive networks possess information tools that permit them
to sense changing conditions in the channel network wherever they occur. Illuminating
potential or actual network supply problems requires technologies that provide instant
visibility to threats occurring concurrently to channel partners. Data is crunched to reveal
systemic patterns of actions causing channel disruptions. Awareness of the level of
potential risk is then used by preconfigured system alerts to generate detailed action
messages to all network participants. Exception messaging provides warnings on both
tactical and strategic levels. Strategically, alerts may reveal emerging challenges that
endanger the fundamental assumptions upon which the supply chain is structured.
Tactically, alerts may indicate that market conditions have altered the supply chain’s
ability to execute detailed marketplace functions.

27
 Exception messages enable channel planners to
assess the degree of required plan revision. The
goal is to ensure that events occurring anywhere
in the supply network are visible to all
participants so that they can respond effectively
to the impending disruption. As mitigation plans
are developed, possible solutions must be
communicated to affected supply network
participants. The speed of response by channel
partners to plan revision is driven by two factors:
the level of existing network collaboration and the availability of communications tools.
The more integrated and collaborative the channel relations, the quicker alternative
plans are communicated and consensus reached. Once solutions are agreed upon, plan
execution follows. Quick adaptation by the supply chain permits event obstacle
resolution without adversely disturbing and destabilizing standard processes occurring at
other network points. If the volume or magnitude of tactical adaptive planning becomes
too great over time, fundamental change to the overall supply network is probably
warranted.

Adaptive supply chains assist companies to effectively manage risk by possessing the
following operational characteristics:
o Demand Flexibility. Utilization of demand-gathering, planning, and execution
technologies to capture real-time information that enables planners to sense both
planned and unplanned demand events as they occur. Such intelligence in turn
enables them to rapidly adapt and synchronize marketing factors, such as
inventory substitution, promotions, pricing, and auctions and exchanges, and
operations factors, such as network substitution, outsourcing, and logistics, to
meet new demand patterns, and activate visibility, collaborative, and analytical
toolsets enabling every node in the network to keep the right products flowing to
the right customers.
o Supply Flexibility. Ability of channel partners to link themselves together into
networks focused on collaborative integration. Suppliers that are ‘seamlessly’
integrated can focus their special competencies on accelerating joint product

28
 development, sourcing, order management, and delivery flexibility that enables
rapid deployment of inventories and transportation capabilities to respond to
demand as it actually happens at each point in the network.
o Delivery Flexibility. This characteristic enables supply chains to overcome
disruptive events by shrinking cycle times; synchronizing all logistics,
transportation, and fulfillment operations; deploying sense-and-respond
technologies enabling rapid response; and utilizing technologies that pinpoint in
real time information arising from people and physical objects.
o Organizational Flexibility. At the core of the adaptive supply chain stands
organizations agile enough
to rapidly alter resources
and competencies in
response to the threat of
channel disruption. Flexible
organizations are capable of
adaptive planning whereby
affected supply chain areas
o can rapidly devise and deploy risk and response alternatives by recalibrating
inventories, suppliers, logistics services providers, and carriers to optimize
possible financial and operational trade-offs. Adaptive execution enables
organizations to quickly implement and guide alternative plans by monitoring
events as they occur, coordinating understanding and assessment alternatives,
and ensuring rapid joint action for optimal recovery while minimizing the impact
on supply chain areas unaffected by the disruption.

DEMAND-DRIVEN SUPPLY NETWORK (DDSN)

A DDSN is defined as “a system of technologies and business processes that sense and
respond to real-time demand across a network of customers, suppliers, and employees” .
DDSNs have emerged in response to the significant risks inherent in today’s extended supply
chains and consist of the following competencies in the figure below.
 Demand-Driven. DDSNs succeed by creating value for their customers and supply chain
partners through the continuous re-alignment of all channel resources, infrastructures,
and information flows to serve the downstream source of demand rather than the

29
 upstream constraints of factories and distribution systems. Supply chains that can react
quickly to customer needs, present unique buying experiences, and continuously provide
innovative product and service mixes will be those who will be able to lock in brand
awareness, create an exceptional customer service benchmark, and be recognized as
the supplier of choice among peers.

 Demand/Supply Visibility. A key priority of a DDSN is improving visibility to demand as it

occurs anywhere in the supply channel. Agile supply networks excel in deploying
demand- gathering, planning, and execution technologies that reveal events as they
actually occur. At the heart of supply chain visibility is found technology tools that connect
supply network partners and focus them on customer value delivery. These technologies
provide for the merger, harvesting, and analysis of channel intelligence associated with
critical data such as demand forecasts, order status, production schedules, and finished
goods levels essential to effective demand management. Performance-wise, companies
with highly visible supply chains have customer service levels of at least 96 %, reduced
inventory levels of 20–30 %, and are twice as likely as their competitors to have an on-
time delivery rate of 95 % or higher. According to the Aberdeen Group, the top strategic
actions designed to promote channel supply and demand visibility are: – Improved
internal cross- department visibility and integration into supply chain transactions and
costs. – Streamlined processes for easier monitoring, enhanced usability, or efficiency. –
Improved timeliness and accuracy of data exchange about supply chain transactions. –
Increased
30
 business-to-business (B2B) connectivity/visibility into supplier-side processes, 3PLs, and
trading partners. – Networked use of predictive analytics and simulation to capture,
analyze, and simulate actual supply chain performance.

 Adaptive Channel Management. Supply chains cannot hope to leverage the demandpull
signal without agile infrastructures, scalable resources, and speed of information transfer.
Adaptive organizations effectively use global visibility and demand intelligence to make
informed, reality-based judgments affecting everything from major channel realignment to
disaster recovery strategies. Agile organizations also use demand intelligence to rapidly
and collaboratively assess an array of possible “whatif” marketplace alternatives.
Connective technologies enable action teams to then communicate simulation details to
channel areas at risk of demand disruption so that alternatives are jointly reviewed and
optimal courses of action pursued. Finally, adaptive organizations deploy a
comprehensive performance scoring mechanism that accurately predicts the impact of
possible demand management responses and weighs alternatives against emerging
demand requirements so the best course of action can be taken that meets overall
channel customer service and profitability. • Lean optimization. Lean assists supply
chains to be “demand-driven” by providing the value desired by customers, engineering
continuous flow to speed response times, enabling the customer to pull value from the
supply chain, and engaging channel partners in an endless search for perfection. Such
demand-driven objectives are achieved when supply chains continuously clear away
constraints, collapse processing times, remove redundant operations steps, and even
eliminate entire channel levels in order to optimize marketplace response. By applying
“lean” principles, companies can effectively pursue waste reduction at all supply chain
levels; leverage supply chain partnerships and technology tools to continuously build
and sustain a high-velocity stream of value to the customer; and finally, deploy cross-
channel metrics for effective quality, change management, and collaboration to maintain
a focus on network continuous improvement.

 Demand-driven channel collaboration. Leveraging lean, adaptive, DDSN models requires

companies to transform their supply chains from linear, sequential processes into
collaborative networks. Demand-driven collaboration streamlines the flow of joint product
design, cross-channel information regarding marketplace events and ongoing customer
management, and integrated logistics functions. Supporting collaborative demand

31
 networks are a variety of technology tools. Point-of-sale (POS), EDI, and RFID
technologies enable companies to directly input marketing events, such as promotions
and deals, as well as disruptions and last minute changes, directly into their supply chain
partners’ demand-management systems to ensure optimal customer service. Application
interoperability enables channel planners to assess in real-time the impact of excess
demand, out-of-stock, and over-stock information; apply the information for sales
forecast revision; drive replenishment scheduling; and communicate results to channel
partners. DDSNs can also deploy collaborative planning, forecasting, and replenishment
(CPFR) and sales and operations planning (S&OP) systems to directly export demand
requirements, production performance statistics, and available inventories directly into
the planning systems of channel partners.

 Fulfillment/Replenishment Flexibility. DDSN replenishment is defined as the

synchronization of supply channel sourcing, production, and distribution with the
demand- pull of the customer. DDSN requires that supply chains move from customer
fulfillment plans based on fixed forecasts to a demand pull-based strategy that leverages
the sensing and cascading of the demand signal down through the supply channel and
its translation into a replenishment signal to guide the priorities of channel production and
distribution. Steps to building effective DDSN fulfillment are:

– Integration of the demand-pull with channel business systems (ERP/SCM) so that

demand signals are driven all the way back through the supply chain.
– Replenishment processes capable of sensing impending stock-out conditions and then
feeding the data automatically into downstream ERP and advanced planning systems to
make demand-driven replenishment a reality.
– Demand management teams that have access to metrics and scorecards providing
visibility to cross-channel fulfillment performance.
– Replenishment resources (assets and labor) designed for flexibility and responsiveness.
– Demand team visibility to cross-channel production and distribution performance,
thereby promoting joint channel ownership of replenishment decisions. The effective
execution of the six demand-driven network competencies enables supply chains to
effectively pursue three critical performance drivers. Demandfocused technologies
provide the depth of visibility necessary for channel participants to sense real-time
information about demand and supply events that, in turn, enables them to be
responsive

32
 to demand as it occurs at each node along the channel network continuum. Productive
resource and replenishment flexibility promote agility by endowing supply chains with
nimbleness, simplicity, and speed to rapidly execute adjustments to demand and supply
capabilities as demand shifts over time. Finally, collaboration and optimization intensify
visibility and agility and help foster effective supply chain partnership that enhances and
optimizes the channel network’s competitiveness and profitability.

SUPPLY CHAIN MATURITY MODEL

All supply chains strive for three performance objectives: customer responsiveness, profitability,
and reduced costs by optimizing asset utilization. These objectives are measured by a handful of
key indicators:
 Perfect order attainment
 Demand management accuracy
 Time to value
 Cash-to-cash cycle time
 Supply chain cost
Achieving these high performance objectives requires that companies transform their supply
chains from static, insular organizations to dynamic networks providing customers with a totally
integrated value solution.

Achieving these high performance objectives requires that companies transform their supply
chains from static, insular organizations to dynamic networks providing customers with a totally
integrated value solution. Supply chain maturity is measured by assessing performance against
the following four critical attributes:
 Flexibility. This attribute places agility and nimbleness as the central operating features of
the mature supply chain. The flexible supply chain contains three operating principles:
management of visibility (access to and broadcast of critical supply chain information);

veloci (speed by which intelligence and inventories are moved through the supply chain);
and
variabili (management of change occurring in the marketplace and in supply chain
capabilities).
 Predictability. This attribute seeks to dampen the effect of supply chain disruption by
using risk management methods that make the channel environment more predictable.
The goal is making supply chains more resilient to disruptions by identifying and
profiling risk

33
 variables, quantifying risk for business decision making, and activating mitigation
alternatives so that supply chains are adjusted intelligently to meet the challenges of
today’s changing global economic and market conditions.
 Resiliency. This attribute is defined as the ability of a supply chain to recover from
disruptions of any type. Mature supply chains use metrics such as time-to-recovery,
value- at-risk (VAR), and resiliency indexes to provide visibility to impending disruptions
and enable the establishment of comprehensive preventive and mitigation plans that
ensure a company’s viability in the wake of disruptive events.
 Sustainability. The keynote of a world-class supply chain is its ability to sustain high
levels of performance regardless of changes in supply channel structures, the
trauma of disruptive events, and the pressure of the competition. Mature supply chains
overcome the negative challenges of the marketplace by leveraging the core
competencies of the internal organization and the deepening collaboration of channel
partners to build superior demand-driven supply networks.

There are four levels of maturity, see figure below.

The first level, internal channel functions, is fairly immature. Goals are driven by the efficient
performance of internal functions only; commitment to the four supply chain maturity attributes is
minimal. Supply chain strategy is splintered with each channel node often pursuing separate
objectives. There is minimal to no global sourcing and no formal supplier relationships. The

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logistics network and infrastructure is insular and transaction based. The second level, inter-
channel logistics functions, is marked by horizontal integration of logistics functions across the
internal supply chain. Supply chains at this level of maturity focus on integrating internal channel
profitability, responsiveness, and cost reduction. Concerns with the four maturity attributes are
directed at internal channel entities. Supply chain strategies are integrated across internal
functions; orders and inventory are visible across the enterprise; purchasing is involved in cross-
functional leveraged buying; outsourced logistics and contract manufacturing are shared across
the internal supply chain; internal network assets are shared.

Supply chains at level three maturity (inter-channel value generation) grow profitability by
integrating customers and suppliers with the objectives of the core business. Supply chains
compete by espousing the attributes of flexibility and resiliency. A concerted effort is made to
standardize processes across channels, develop risk management mitigation alternatives
designed to ensure the flow of information and materials, and foster a common commitment to
sustainability practices. Strategies extend across supply channel partners; the distribution
network is oriented to be closely integrated with customer requirements; visibility to customer
demand is available across channel nodes; the supply network is integrated across upstream
channel partners.

Supply chains displaying the highest level of maturity (on-demand value interoperability),
understand that leadership in profitability, responsiveness, and cost control exponentially grows
when channel partners are closely integrated and their value generating competencies are
interoperable. Mature supply chains leverage each other to provide high levels of flexibility, use
risk management tools to ensure disruptive events are minimized throughout the supply chain,
link disruption recovery plans to ensure the continuous flow of goods and services, and leverage
environmental sustainability as a way to provide a valuable triple bottom line advantage for the
supply chain as a whole. Mature supply chains see themselves as a single virtual network,
collectively focused on superior customer services. Strategic resources are capable of rapid
reconfiguration and are rationalized and managed according to common performance
measurements

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 TRENDS IN SUPPLY CHAIN MANAGEMENT

Today’s supply chains are experiencing a number of trends that pose distinct challenges. Some
of these trends mark changes occurring within the organization while others are part of new
directions occurring on a global scale. The most important of these trends are:

1. Multichannel and omni-channel fulfillment. Today’s customer wants products and

services that are available at the shortest possible delivery time. This “buy from
anywhere, ship from anywhere” attitude requires supply chains to be able to respond
across multiple channels and delivery systems. Multichannel fulfillment refers to the
practice of selling goods through multiple channels, such as stores, distributors, e-
commerce, mobile, and so forth. The term omni-channel fulfillment refers to a form of
multichannel strategy practiced by retailers who sell goods both through stores and over
the Internet. The aim of these retailers is to offer multiple avenues of sales to provide
customers with a seamless shopping experience.

2. Service chains will become more important than product chains. As product sourcing
continues to expand on a global basis, pre- and post-sales service, rather than products,
will be the criterion for competitive advantage. Companies that couple superior service
with innovative products will emerge as the winners over their solely product-centric
competitors.

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3. Leveraging social media. The use of public social media (Facebook, LinkedIn, Twitter,
and other sites), company-level chat rooms, blogs, and social networking vendors
(Yammer, Jive, Moxie Software) will continue to have an important impact on supply
chain management. Social networks will either transform supply chain processes in
ways unimagined today or will make supply chain processes more efficient, respondent,
and effective.

4. Managing “big data.” Today’s technology has enabled supply chains to capture
enormous amounts of data. The concept of “big data” encompasses creating, enabling,
and operating data storage, processing, and reporting structures that provide
comprehensive insight arising from the analysis of all available data. Big data enables
supply chains to quickly spot new trends; gain faster access to important results; grow
confidence, accuracy, and precision in data management; and glean more accurate data
for strategic decision making.

5. Managing business analytics. An important tool in leveraging supply chain information is

business analytics. Predictive analytics (an integrated framework that uses quantitative
methods to derive insights from data) enables supply chains to identify possible patterns
in channel demand and supply before they occur. Descriptive analytics enables supply
chain to determine why something has or is happening now; predictive analytics provide
insight into what will happen next.

6. Growth of cloud computing and mobile networking. As the need for more sophistication
supply chain technologies grows, new deployment trends have emerged that reduce the
time to benefit and lower the cost of ownership. Migration to cloud computing and the
increased adoption of mobile technologies are expected to expand. As multichannel and
omni-channel fulfillment becomes more important, supply chains are expected to
leverage mobile technologies to ensure demand is fulfilled from anywhere in the supply
chain, while cloud-based applications continue to reduce the cost of information systems
ownership while improving the efficiency of channel players.

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 GOALS OF TODAY’S SUPPLY CHAIN

SCM enables channel businesses to function as an integrated, customer-centric supply

ecosystem that delivers goods and services to the marketplace at the lowest possible cost. By
leveraging the resources and competencies of channel partners, supply chains function as a
seamless supply system focused on total customer satisfaction. At the foundation of market-
winning supply chains are the following five success factors:

1. Value-generation.
Effective supply chains add
value to their customers and
stakeholders. A value chain
links the products and
services originating in the
supply chain starting from the
origination point and
continuing through delivery to
the final customer. The goal is
to
add value at each step in the supply chain. A commitment to the triple bottom line
requires that supply chains understand that value should be measured in three
dimensions: economic, social, and environmental in additional to the traditional
benchmarks of profitability and cost reduction.

2. Improved customer service. The best supply chains are configured to deliver customer
value by segmenting and matching customer needs (products, services, and
geographical access points) with supply chain strategies focused on optimizing total cost
across network structures, operational parameters, and processes. Resources and
investment are centered on configuring agile and scalable delivery networks by
establishing integral processes that drive the overall value proposition with metrics and
ownership defined at each channel point that touches the customer.

3. Use of information technology. Information technologies assist channel value creation by

optimizing supply chain processes. Today’s technologies provide value by establishing
data architectures capable of synchronous information flows needed by channel
members
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 to develop and execute joint strategies. Supply chain technologies enable a shared inter-
enterprise vision; channel business and process modeling capable of structuring the
best supply chains; a means by which channel participants are seamlessly integrated to
provide a common point of information; and a definition of what the networked structure
should look like, how network resources are accessed, the sources and types of data,
and how operational conflicts are to be resolved.

4. Leveraging partner strengths. The size of a supply chain’s footprint is measured by how
well it leverages channel partner collaboration. The value of collaboration is gauged by
how well it results in supply chain profitability, reduces redundant functions and wastes,
promotes a common supply chain strategy, and constructs the technical and channel
architectures that win the customer’s business. Collaboration enables the convergence
of individual channel partner objectives so that a common channel vision, integrated
planning and execution processes, and shared performance measurements can be
constructed. Collaboration enables companies to far exceed individual company
capabilities by providing for the connectivity of all channel nodes, visibility to supply
chain information and real-time data transfer, acceptance of common performance
metrics and benefits, and access to demand patterns and expectations as they stream
across the supply chain.

5. The intimate supply chain. Supply chains enable channel constituents to achieve a high
level of intimacy about what constitutes a successful customer experience when they
interact with channel products and services. Intimate supply chains are able to meet
customer expectations for total value, provide an ultimate buying experience, and
cement close relationships. These objectives are achieved by leveraging common
demand databases enabling channel nodes to sense demand signals as they occur in
the supply network, optimize demand fulfilling operations by reducing costs and wastes
at each channel touch point, and leverage channel-generated intelligence not only to
respond but to shape demand by opening new opportunities to reach the marketplace
ahead of the competition.

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 Learning Activity

PLEASE ANSWER THE FOLLOWING QUESTIONS:

SAVE IN PDF FORMAT
INDICATE NAME and SECTION

1. What are the components of logistics management?

2. Define the concept and practice of supply chain management (SCM).
3. What are the three basic channel entities and what is their role in the supply chain?
4. Describe the basic supply chain strategies.
5. World-class companies can be described as being “demand-driven.” Describe the operational attributes
necessary to being demand-driven.

REFERENCES

1. Ross, David Frederick. 2015. “Distribution Planning and Control Managing in the Era of Supply
Chain Management 3rd Edition.” Springer Science+Business Media New YorkVideo:

2. Video : What is Supply Chain?

https://www.youtube.com/watch?v=Mi1QBxVjZAw&feature=youtu.be

3. Video: What is Logistics Management? Definitions and Importance in Supply Chain

https://www.youtube.com/watch?v=4-QU7WiVxh8

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