GLOBAL
LOGISTICS
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EDITEDÊBYÊ DONALDÊWATERS
GLOBAL LOGISTICS
New directions in supply chain management
6THÊEDITION
4737 / 23 Ansari Road Daryaganj
New Delhi 110002 India
Publisher’s note
Every possible effort has been made to ensure that the information contained in this book is ac- curate at the time of going to press, and the publishers and authors cannot accept responsibility for any errors or omissions, however caused. No responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result of the material in this publication can be accepted by the editor, the publisher or any of the authors.
First published in Great Britain and the United States in 2010 by Kogan Page Limited
Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licences issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned addresses:
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© Donald Waters, 2010
The right of Donald Waters to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988.
ISBN 978 0 7494 5703 7 E-ISBN 978 0 7494 5936 9
British Library Cataloguing-in-Publication Data
A CIP record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Global logistics : new directions in supply chain management / [edited by ] Donald Waters. — 6th ed.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-7494-5703-7 — ISBN 978-0-7494-5936-9 (ebook) 1. Physical distribution of goods. 2. Business logistics–Management. I. Waters, C. D. J. (C. Donald J.), 1949–
HF5415.6.G55 2010 658.7–dc22
2010000351
Typeset by Graphicraft Limited, Hong Kong Printed and bound in India by Replika Press Pvt Ltd
Contents
Contributors xi
Preface xxiii
New directions in logistics 1
1
Martin Christopher
The emergence of the value-conscious customer 2;
Logistics and supply chain management 3; Procurement 5;
Manufacturing 5; Distribution 6; The new competitive framework: the four Rs 8; The organizational challenge 11;
Summary 13; References 13
Best practices in logistics and supply chain management 14 2
Krzysztof Rutkowski
The essence of the phenomenon of best practices in business 14;
Transferring best practices – one solution fits all? 16; The best practices – between the hammer of economic demands and the anvil of corporate social responsibility 19; Where do Central and Eastern Europe countries come from? From the world of worst practices! 23; Where are CEE countries going?
The case of Poland 24; The best practices – the Holy Grail of contemporary business? 28; Notes 29; References 30
Trends and strategies in global logistics 31 3
Frank Straube, Arnfried Nagel and Daniel Rief
Introduction 31; Trend research 32; Megatrends 33;
Conclusion and outlook 46; Notes 47; References 47
Incentives and the strategic management of suppliers 49 4
Glyn Watson, Chris Lonsdale and Joe Sanderson
Collaboration vs competition and the role of incentives in the exchange process 50; Incentivization and the question of make vs buy 57; Incentivization and the relationship management choice 60;
Incentives and the role of contract 62; Incentives and the impact of internal politics 64; Conclusion 67; References 67
Time compression in the supply chain 69
5
Adrian Beesley
Time compression and competition 70; The time compression approach – competitive advantage 75; The time compression approach – cost advantage 76; The time compression approach – technology advantage 79; The time compression approach –
customer focus 80; Benefits of time compression 82; Examples of the application of time compression 84; Time compression and the future 87; Conclusion 88; References 90
Building more agile supply chains 92
6 Remko van Hoek
Introduction 92; Operating circumstances requiring agility 94;
The categorization for operating environments 98; Mitigating the minefield of pitfalls 100; Conclusion and reflections 107;
References 107
Using marketing and services strategies for logistics customer 7
service 108
David Grant
Introduction 108; Logistics customer service today 111; Elements of logistics customer service 113; Strategies for logistics customer service 115; An example from online retailing 118; Summary 120;
References 121
People powering contemporary supply chains 123 8 John Gattorna
Opening comments 123; The people that drive contemporary supply chains 124; Dynamic alignment control 124; Finding the behavioural metric – key to unravelling the puzzle 126;
Now the head of the dog is back in control 128; But the ‘forces of darkness are lurking’ 131; Supply-side alignment 137; Hybrid supply chains 138; Reverse logistics 138; Last word 141;
Notes 142; References 142
Creating shareholder value through supply chain management 143 9
Heimo Losbichler and Farzad Mahmoodi
Introduction 143; Financial performance and its drivers 144; Linking supply chain management and financial performance 147;
Framework to identify initiatives that create the most shareholder value 153; Difficulties in improving supply chain financial
performance 159; Improving the financial performance across the supply chain 161; References 162
Outsourcing: the result of global supply chains? 164 10
Stephen Rinsler
Background 164; Definition 165; Reasons for outsourcing 165; How different is the public sector from the private sector with regard to outsourcing? 169; The pitfalls in outsourcing 170; Global supply chains and the outsourcing risks 173; Summary 177
Risk in the supply chain 178
11
Lars Stemmler
Introduction 178; Risk management and the supply chain – a new perception! 178; Objective and process of risk management 180;
From an enterprise perspective to the supply chain perspective 182;
Risk assessment and control along the supply chain 184;
Implementation in practice 188; Conclusions 189; References 191 Supply chain vulnerability, risk and resilience 192 12
Helen Peck
Introduction 192; Supply chain vulnerability: an idea whose time had come 193; Supply chain risk management: a recipe for confusion 195; Risk: the great divide 197; Supply chain resilience:
a holistic view 199; Supply chains and wicked problems 204;
References 206
Information systems and information technologies for supply 13
chain management 208
Xinping Shi and Simon Chan
Introduction 208; Functionality of IS / IT in SCM 209; Strategic issues of IS / IT in SCM 213; IS / IT adoption for SCM 216; IS / IT utilization in SCM 223; Summary 223; References 224
Improving management of supply chains by information 14
technology 227
Heikki Holma and Jari Salo
Introduction 227; Coordination of supply chains with information technology 229; Conclusions 240; References 241
Delivering sustainability through supply chain management 245 15 Kirstie McIntyre
Background 245; Purchasing or procurement 247; Production or manufacturing 250; Distribution and warehousing 251;
Use and maintenance 253; Dispose or reuse and recycle? 254;
Managerial and financial sustainability 256; Conclusion 258;
References 258
Performance measurement and management in
16 the supply chain 261
Alan Braithwaite
Introduction 261; Keeping score – a basic management principle 262; The balanced scorecard – the standard for goal setting and measurement 263; Fundamental concepts of supply chain management and measurement 265; Mastering the complexity of supply chain and logistics performance management 267; The principle of input and output
measures 269; Setting goals across the chain through service level agreements 270; The delivery, recovery and stewardship model 272; Defining specific metrics across the chain 274;
Future directions in performance measurement 278;
Conclusion 281; References 282
Optimizing the road freight transport system 284 17
Alan McKinnon
Introduction 284; Assessing the utilization of vehicle fleets 284;
Factors constraining vehicle utilization 287; Measures to improve vehicle utilization 291; Conclusion 301; References 301
Retail logistics 305
18
John Fernie
The evolution of the logistics concept 305; Logistics and competitive strategy in retailing 309; Differences in logistics ‘culture’ in
international markets 319; The internationalization of logistics practices 322; The future 324; References 327
Internet traders can increase profitability by reshaping 19
their supply chains 331
Robert Duncan
Internet trading is forecast to account for a quarter of all purchases in 2006 331; Customer satisfaction is less than satisfactory 332;
Integration of business processes has not always received enough attention 333; Moving away from traditional supply chains adds complexity but provides an opportunity for profit 333; How can internet traders take advantage of opportunities? 340;
Opportunity waiting to be exploited 345; References 345
Time as a trade barrier 347
20
Hildegunn Nordås
Introduction 347; Time, logistics and trade – how are
they related? 348; Econometric analysis 354; Policy implications and conclusions 358; Notes 361; References 362
Learning from humanitarian supply chains 365 21
Rolando Tomasini and Luk Van Wassenhove
Introduction 365; Disasters are challenging learning settings 366;
Humanitarians and their supply chains are different 368;
Corporations moving in to help find they can also learn 370;
The value of cross-sector learning 373; Lessons for companies 374;
Notes 375
Global sourcing and supply 377
22
Alan Braithwaite
Background 377; Growth in global trade 378; Global sourcing as a way to change business strategy 381; Identifying and selecting sources 381; Commercial models 382; International logistics 383;
Flow management 384; Organization design 385; Information technology 385; Operational excellence 386; Risk management 387;
Critical success factors 387; Global sourcing – sustaining the trend 388; Reference 389
International road and rail freight transport activity 390 23
Jacques Leonardi, Allan Woodburn, Julian Allen and Michael Browne Introduction 390; Recent international trade activity and transport:
economic factors and trends 391; Recent trends in international freight transport volumes by road and rail 394; International road freight transport: recent developments and challenges 396; Factors influencing recent trends in international rail freight transport 402;
Concluding remarks 406; References 406
The changing supply of logistics services – a UK perspective 409 24
Colin Bamford
UK market trends 410; Market structure – continuing consolidation and globalization 413; The EU25 – new market opportunities and threats 416; Transport policy issues 418;
Conclusions 418; References 419
Developments in Western European logistics strategies 420 25
Michael Browne, Julian Allen and Allan Woodburn
Introduction 420; Changes in the demand for logistics services 421;
Market structure of logistics service providers 426; Transportation in Europe 430; Opportunities and pressures for logistics providers in a new Europe 438; Concluding remarks 440; References 441
Logistics in China 443
26 James Wang
Introduction 443; The major areas of improvement 445; Challenges in developing modern logistics 451; Concluding remarks 457;
References 457
Logistics strategies for Central and Eastern Europe 458 27
Grzegorz Augustyniak
Introduction 458; Conditions of economic development of CEE countries before 1990 460; Development of logistics in the period of transition and after joining the EU 463; Logistics strategies in CEE countries 472; Conclusions 474; References 476
North American logistics 477
28
Jean-Paul Rodrigue and Marcus Hesse
North American logistics: a regional realm 477; North American gateways 480; North American corridors and inland fright
distribution 486; Inland logistics 490; Corporate logistics and its role in North American freight transportation – three cases 494; A freight and logistics policy framework 497; Conclusion 502; References 503
Index 505
Contributors
Julian Allen is a Research Fellow at the Transport Studies Group, University of Westminster. His major research interests are urban freight transport, the impact of manufacturing and retailing techniques on logistics and transportation systems, the relationship between policy measures and freight transport operations, and the market structure of the freight transport industry. He has done many projects in these areas and has widely published the results.
Grzegorz Augustyniak was a faculty member of the Department of Logistics at the Warsaw School of Economics (SGH) and held visiting positions at Carleton University, University of Calgary, University of Minnesota and the University of British Columbia. He is now an assistant professor in the Department of Management Theory at SGH and is also coordinator of the student exchange programme within the Community of European Management Schools, and Deputy Director of the Polish- Japanese Management Center. He has been a consultant to many companies in manufacturing and distribution, and is currently working on improv- ing productivity and quality in Poland.
Colin Bamford is Professor of Transport and Logistics at the University of Huddersfield. His interest in transport issues originated in the early 1970s when he was one of Ken Gwilliam’s researchers at the University of Leeds. At Huddersfield he has been responsible for the development of a pioneering suite of undergraduate courses in transport and logistics management. More recently he has been involved in setting up a new
distance-learning training programme for logistics managers in Hungary.
He has written many articles and supervised research on a variety of supply chain management topics and published text books in the field of transport economics.
Adrian Beesley is the Head of Product Development for DHL Exel Supply Chain within its Consumer Sector. Before this he was Director of the Academy of Logistics and Director of Client Operations at BAX Global covering EMEA solutions and business development. He has been a Senior Research Fellow with the University of Warwick’s Manufacturing group where he worked on a number of projects for leading companies in the area of time compression. During this time he developed Time Based Process Mapping for supply chain re-engineering. Adrian started his career as a management trainee for Unilever, and his other experiences include Director of DLR Consulting in the Far East, Senior Consultant at PriceWaterhouse and Company Logistics Manager for B&Q.
Alan Braithwaite is the Chairman of LCP Consulting, which he founded in 1985. In more than 20 years the company has become a leading independ- ent consultancy in supply chain management, working internationally and receiving worldwide recognition.
Alan has worked with the LCP team to develop innovative new analytical and design tools including Cost-to-Serve®, Time-to-Serve®
and Carbon-to-Serve®. In his career he has consulted for more than 300 clients across every industry sector, applying key principles of supply chain management to manufacturing, purchasing, retailing, logistics and customer satisfaction.
Alan is a Visiting Professor at Cranfield University and holds an MSc in Business Administration from the London Business School and a BSc in Chemical Engineering from Birmingham University. He is a regular speaker at conferences, and the author of many papers and articles.
Michael Browne worked in international shipping and aviation before becoming an academic in 1985. He is now Exel Professor of Logistics at the University of Westminster, where he has been Head of the Transport Department and Director for the Graduate Centre for the Built Environ- ment. His current focus is on research and consultancy projects concerned with freight transport and logistics, specializing in urban logistics, logistics and energy issues and international developments in logistics.
Michael’s work is widely recognized through, for example, the European Commission, Department for Transport, Research Councils and commercial organizations. He is the Assistant Editor of the journal Transport Reviews, and on the editorial boards of several journals.
Simon Chan is a research member of the Logistics Management Research Centre, Hong Kong Baptist University. He earned his bachelor degree in business administration (information systems management) from the same university, and is currently a PhD candidate at the Department of Finance and Decision Sciences. His research interests are enterprise resource planning systems, information systems and technologies appli- cation, logistics and supply chain management. He has published re- search papers in international conferences, journals and book chapters, and is active in several academic and professional bodies.
Martin Christopher was Professor of Marketing and Logistics at Cranfield School of Management and chaired the Centre for Logistics and Transporta- tion, where his work in supply chain management gained international recognition. He is now Emeritus Professor at Cranfield University. He has published widely, with recent books including Logistics and Supply Chain Management and Marketing Logistics. Martin is also co-editor of the Interna- tional Journal of Logistics Management and is a regular contributor to confer- ences and workshops around the world.
Martin is an Emeritus Fellow of the Institute of Logistics on whose Council he sits, and was awarded the 1988 Sir Robert Lawrence Gold Medal for his contribution to logistics education. He continues to do research and teach with colleagues at a number of universities around the world.
Robert Duncan is a Director of B & C Business Services Limited and operates as an independent consultant in the field of supply chain management. He has over 35 years of global supply chain management experience as both an executive and a consultant in many industry sectors. Robert has particular expertise in the area of outsourced supply chain resources. His recent work has been in the areas of supply chain process improvement and the use of IT to support those process changes both within outsourced and in-house supply chain environments. Robert has contributed to a number of publications and conferences relating to supply chain management.
John Fernie is Professor of Retail Marketing and was Head of School of Management and Languages at Heriot-Watt University. He has written and contributed to numerous textbooks and papers, concentrating on the field of retail logistics and the internationalization of retail formats. He is editor of the International Journal of Retail & Distribution Management, and received the award for Editor of the Year in 1997 and Leading Editor awards in 1994 and 1998 and 2000. He is on the editorial board of several marketing and logistics journals, is an active member of the Institute of
Logistics & Transport and the Chartered Institute of Marketing in the UK and has held offices in the American Collegiate Retail Association. He is a member of the Logistics Directors Forum, a group of leading professionals in supply chain management.
John Gattorna is a former Professorial Fellow in Supply Chain Manage- ment and Co-Director of the Supply Chain Research Centre at the Sydney Business School, University of Wollongong. He holds Adjunct Professorial positions at universities in Australia, the UK and France, and is a prolific writer on the topic of logistics and supply chains, including his most recent book, Dynamic Supply Chain Alignment (Gower Publishing, Farnham, UK, 2009).
John is a highly innovative and insightful thought–leader on global logistics and is much sought after as a speaker at international confer- ences. Apart from a busy teaching and research schedule, he advises several multi-national companies in Asia Pacific, the Middle East, Europe and South America. He is also on the Global Advisory Board of Arshiya International, a new Indian 3PL registered on the Mumbai Stock Exchange.
David Grant is Professor of Logistics and Director of the University of Hull Logistics Institute. Previously he was Senior Lecturer and Deputy Director of the Logistics Research Centre at Heriot-Watt University in Edinburgh and Lecturer at the Universities of Calgary, Lethbridge and Edinburgh. David is also an adjunct faculty member at Mannheim Business School and Vienna University of Economics and Business Administration and has been a visiting professor at University of the Mediterranean-Aix-Marseille.
David’s doctoral thesis was awarded the James Cooper Memorial Cup from the Chartered Institute of Logistics and Transport (UK) in 2003. His research interests include customer service, sustainable logistics, and the integration of logistics and marketing. He has published widely on these topics, is on the editorial board of several journals and is a member of the British Retail Consortium’s Storage and Distribution Technical Advisory Committee.
Markus Hesse graduated in geography from the University of Münster, received his PhD in regional planning from the University of Dortmund (Faculty of Spatial Planning), and completed a post-doctoral degree in human geography from the Faculty of Earth Sciences of the Freie Universität Berlin. Since 2008, he has been Professor of Urban Studies at the University of Luxembourg, Geography and Spatial Planning research centre.
His research is concentrated on principles of urban and regional develop- ment, European urban policy, globalization and the flows of materials – especially the impact of global logistics on Western Europe and North America.
Heikki Holma is a senior lecturer in Seinäjoki University of Applied Sciences. Before this, he worked as a researcher and project manager in the Department of Marketing in the University of Oulu, and then as a special researcher in the Department of Logistics. He has over 25 years of experience in business-to-business marketing, and his main research interests are focused on industrial marketing, networks and business relationships in supply chains. Heikki is also a specialist in the forest industry, starting research with The Finnish Forest Research Institute in the early 1980s and consequently completing a dissertation on moderat- ing business cycles in the Finnish sawmill industry.
Jacques Leonardi is Senior Research Fellow in the Department of Transport Studies, University of Westminster. His research specialties are related to freight transport, energy and carbon footprint, surveys and survey methods, new technologies, data management, and policy impact evaluation. Recent work in these areas includes research for Green Logistics (www.greenlogistics.org), SUGAR (www.sugarlogistics.eu), Data and Knowledge Centre of TfL freight unit and COST SHANTI (a European network on transport data). He has published widely on these topics and also teaches at the University of Westminster.
Chris Lonsdale taught at the University of Hull and in 1993 moved to The University of Birmingham, Department of Political Science and Inter- national Studies and the Institute for Local Government Studies. The following year he moved to the Business School, from where he was awarded a PhD. He is now a senior lecturer in the Centre for Business Strategy and Procurement the School’s supply chain management group, and was Programme Director of the MBA (Strategy and Procurement Management). In 2000, he was awarded honorary membership of the Chartered Institute of Purchasing and Supply.
Heimo Losbichler is Professor of Finance and Control and Chair of the Department of Accounting, Control and Financial Management at the University of Applied Sciences Upper Austria in Steyr. He was the elected Dean at the School of Management for the last three years and is an elected member of the board of the International Controller Association. Heimo’s research and teaching interests include value-based management, financial performance analysis, and financial performance measurement within
the supply chain. He has published his research widely in academic and professional journals. He also has extensive experience in industry, serving as the CEO of Baudatentechnik GMBH (an Austrian IT company) and consulting for leading Austrian companies.
Farzad Mahmoodi is Professor of Operations Management and Director of Clarkson University’s Global Supply Chain Management Program. He has been actively involved in executive education and has served as a consultant for several Fortune 500 companies. His research interests focus on design and control of manufacturing and logistics systems, where he has published over 40 articles. Farzad has won several awards, including the Professor of the Year Award, the Commendable Leadership Award, the Distinguished Teaching Award, and the John W. Graham, Jr. Faculty Research Award. He serves on the editorial boards of the International Journal of Industrial Engineering and the International Journal of Integrated Supply Management.
Kirstie McIntyre leads Hewlett-Packard’s environmental compliance responsibilities in Europe, Middle East and Africa. Her remit covers all product-related environmental laws and agreements on energy efficiency, chemical and material restrictions and end-of-life considerations. She has a particular interest in the development of waste electronic management systems. She liaises with government, industry partners, supply chain members, business customers and consumers on the implementation of environmental directives and the takeback and recycling of HP’s pro- ducts. Kirstie has worked for a number of years in the strategic develop- ment of end-of-life programmes for various companies in the electronics sector. She has an engineering doctorate in environmental technology and has published widely on sustainability and supply chain issues.
Alan McKinnon is Professor of Logistics and Director of the Logistics Research Centre at Heriot-Watt University, Edinburgh. A graduate of the universities of Aberdeen, British Columbia and London, he has been researching and teaching in freight transport and logistics for 30 years.
He has published extensively on these subjects and was the European editor of the International Journal of Physical Distribution and Logistics Management.
Alan has conducted studies for numerous public and private sector organizations and has been an adviser to UK government departments, parliamentary committees and various international agencies. He is also a member of the World Economic Forum’s Global Agenda Council on the Future of Transportation. He is a fellow of the Chartered Institute of Logistics and Transport, chairman of their Professional Development
Policy Committee and a founder member of its Logistics Research Network.
He received the 2002 Herbert Crow Memorial Award from the Worshipful Company of Carmen of London and the 2003 Sir Robert Lawrence Award from the CILT.
Arnfried Nagel studied Industrial Engineering and Management at the Berlin Institute of Technology focusing on finance, controlling and supply chain management. He successfully completed international internships in France and worked as a consultant in Germany. Since 2005, Arnfried has been working as a doctoral assistant at the Berlin Institute of Technology with a focus on eco-efficiency in supply chain management.
Hildegunn Kyvik Nordås is a senior trade policy analyst at the OECD Trade and Agriculture Directorate where she is currently managing a project on measuring trade restrictiveness in services. Before joining the OECD she was a researcher in the WTO secretariat, a senior research fellow and research director at Chr. Michelsen Institute in Norway and at the University of Bergen. She has held visiting positions at Stanford University, University of Durban Westville and the University of Western Cape. She has published articles, book chapters and reports on interna- tional trade, trade and growth, trade and investment and macroeconomic management, and has served on the board of several programmes for the Norwegian Research Council.
Helen Peck is a senior lecturer at The Resilience Centre, Cranfield University. She joined Cranfield in 1983, from a major UK clearing bank, initially within the University’s library and information service, and then completing a PhD and transferring to the academic staff. She now works at the Defence Academy, MOD.
Since 2001 Helen has been at the forefront of Cranfield University’s government-funded programme of research into all aspects of supply chain related risk and resilience. Her publications include the Department for Transport’s report on Creating Resilient Supply Chains and numerous academic and practitioner articles. She is co-editor and author of several books and an award-winning writer of management case studies.
Daniel Rief studied Information Engineering and Management at Universität Karlsruhe and Concordia University, Montreal, focusing on information systems, business processes and e-business supply chains.
He completed internships in the financial sector and consulting and worked for international companies before becoming a doctoral assistant at the Berlin Institute of Technology (Technische Universitaet Berlin). He initially worked at the Competence Center for International Logistics
Networks focusing on logistics in the context of internationalization, and since 2009 works at the Kuehne-Foundation Chair of International Logistics Networks which focuses on global supply chain design.
Stephen Rinsler has extensive industrial experience including senior positions in Unilever (UK and European procurement and supply chains), Exel Europe (Services Director with a brief that included procurement, risk, health and safety), Volt Europe (SVP Operations), and Procurement and Supply Chain Director for Storehouse (Bhs and Mothercare). He is currently Director of Bisham Consulting, a vice president and trustee of the Chartered Institute of Logistics and Transport, a past chair of the CILT (UK) Board and the Supply Chain Faculty and a visiting Fellow of the Defence College of Management and Technology. He is commissioned as a colonel in the Engineer and Logistics Staff Corps RE(V) where he sits as the Non-Executive Director of the Defence JSCMB, an honorary Professor of Logistics and Engineering at the University of Nanjing, PR China and a Court Assistant of the Worshipful Company of Carmen.
Stephen was educated at Bristol University and attended Wharton Business School, Pennsylvania and is currently studying Mathematics at the Open University.
Jean-Paul Rodrigue received a PhD in transport geography from the Université de Montreal in 1994 and is now an associate professor in the Department of Global Studies and Geography at Hofstra University, New York. His research interests cover issues related to freight transportation, transport terminals, logistics and globalization, particularly as they relate to the economies of North America and Pacific Asia. His recent work focuses on the integration of maritime and inland freight distribution and the impact of intermodal transport on freight distribution. Jean-Paul’s website – The Geography of Transport Systems – has been adopted inter- nationally as a tool for education and research on transport issues. He is on the international editorial board of the Journal of Transport Geography, the Journal of Transport and Land Use and acts as a researcher in trans- port and logistics for the Van Horne Institute.
Krzysztof Rutkowski is Professor and Chair of the Department of Logistics, Warsaw School of Economics, Lecturer at the Community of European Management Schools, and Adjunct Professor of International Studies at the Carlson School of Management, University of Minnesota. He studied at Warsaw University, the Warsaw School of Economics, Rayerson Poly- technic University in Toronto and Scuola Superiore Enrico Mattei, Milan.
Krzysztof has worked in logistics for many years with a professional career that began in Plastics Kanada in Toronto and continued in IPEX,
Pomaton EMI, UPS, and PEKAES Group. His current research interests are in development trends in supply chain management, demand-driven supply networks, global logistics and best practices in supply chain manage- ment. He has published widely in these areas.
Krzysztof was Vice Rector of the Warsaw School of Economics and has been an advisor and expert to governments, international organizations, and international companies. He is currently President of the Association of Polish Logistics Managers.
Jari Salo was a professor of ICT business at the University of Oulu in Finland and is now an assistant professor of Marketing at the Helsinki School of Economics. His research interests include business relationship digitization, electronic commerce including mobile marketing, and new product development and innovation. He has published widely in these areas and is the editor-in-chief of the Journal of Digital Marketing.
Jari has worked as a consultant and organized research projects in many companies, and has raised funding from companies such as Nokia, Rauruukki, Outotec, Metso Paper and Outokumpu.
Joe Sanderson is a senior lecturer at the Centre for Business Strategy and Procurement at the University of Birmingham. He is currently working on a project to map the structural characteristics of supply and Value chains in a range of service and industrial sectors. He has a BA in politics from the University of Hull and is writing his doctoral thesis on the regulatory and organizational drivers of procurement efficiency in the UK utilities after privatization. His principle research interests are in international business and supply management, power in supply chains, and the impact of national, regional and international regulation on procurement practices.
Xinping Shi is the Director of the Logistics Management Research Centre, and Associate Professor in the Department of Finance and Decision Sciences, Hong Kong Baptist University. Xinping has taught widely on business management subjects, and has supervised many research projects and published widely in information system and supply chain management. His research interests include logistics and supply chain management, decision making in organizations, enterprise resource plan- ning, knowledge management, and international business negotiations.
He is a visiting professor of Logistics Management at the College of Logistics, Beijing Normal University, and is an independent director of logistics firms in Hong Kong and China.
Lars Stemmler is Deputy Head of Structuring / Analysis Transportation Finance Europe of HSH Nordbank AG. Prior to joining HSH he worked
for BLG Consult GmbH (the consultancy branch of the BLG Logistics Group) Deutsche Schiffsbank AG (a leading ship and financial company) and the Oldenburg Chamber of Industry and Commerce. In these jobs he has been involved in several international projects concerned with port finance and logistics.
Lars is a guest lecturer at various universities and holds a PhD in economics and MSc in logistics from Cranfield University.
Frank Straube is Director of the Department of Technology and Manage- ment and Chair of Logistics at the Berlin Institute of Technology (Technische Universitaet Berlin). He is active as an international teacher at the CDHK of Tongji University, Shanghai, University of St. Gallen, Switzerland and University Paris II (Pantheon-Assas).
Frank is a member of the advisory board at the German Logistics Association, European Logistics Association, Bremer Logistics Group, and Deutsche Bahn AG. For the past 12 years he has also been chairman and board member of an internationally active consulting and planning company specializing in logistics and corporate planning. He is the founder of the International Transfer Center for Logistics, which imple- ments innovative planning and professional development operations for companies.
Rolando Tomasini is Programme Manager for the Humanitarian Research Group at the INSEAD Social Innovation Center. His work focuses on public–private partnerships between humanitarian organizations and corporate multinationals. Through numerous secondments to various UN agencies and NGOs he has acquired an extensive knowledge of emer- gency relief operations and corporate social responsibility. He is the author of several case studies at INSEAD, academic articles, and books on humanitarian logistics. He has a Master of International Business degree from Florida International University and is working on his PhD at Hanken School of Economics.
Remko van Hoek was a supply chain improvement director for Nike, CPO at Nuon (a major Dutch utility company) and is now Chief Procurement Officer at Cofely (part of GDF Suez) in the Netherlands.
Remko is a visiting professor of supply chain management at the Cranfield School of Management, having previously been a professor of supply chain management. He has also taught at the Rotterdam School of Management and the University of Ghent / Vlerick School of Management.
He is on the board of directors of CSCMP, and serves on editorial boards of several international academic journals. He is a frequent speaker in boardrooms and executive events, and his work is widely published.
He is co-author of the best selling textbook on Logistics Management and Strategy, and he has won 10 awards for academic work in the supply chain domain.
Luk Van Wassenhove holds the Henry Ford Chair of Manufacturing at INSEAD and is also the Academic Director of the INSEAD Social Innova- tion Centre. Before joining INSEAD he was on the faculty at Erasmus University Rotterdam and Katholieke Universiteit Leuven.
Luk’s research and teaching are concerned with operational excellence, supply chain management, quality, continual improvement and learn- ing. His recent research focus is on closed-loop supply chains (product take-back and end-of-life issues) and on disaster management (human- itarian logistics). He is senior editor for Manufacturing and Service Opera tions Management and departmental editor for Production and Operations Management, and publishes regularly in academic journals.
He is the author of several award-winning teaching cases and regularly consults for major international corporations. In 2006 he won the EURO Gold Medal for outstanding academic achievement.
James Jixian WANG is Associate Professor in the Department of Geography, University of Hong Kong. He has a Bachelor in Economics from the People’s University of China, MPhil from the University of Hong Kong, and PhD from University of Toronto. Currently he is a council member of Hong Kong Society for Transport Studies, and a Fellow of The Chartered Institute of Logistics and Transport. His research area is Transport Geography, particularly port development and port-city relations. He has published widely in many international journals and is on the editorial boards of the Journal of Transport Geography and Transportmatrica. As a port-city specialist, James has participated in planning projects and strategic studies for more than 25 cities in China and the rest of Asia.
Glyn Watson obtained a PhD from the University of Birmingham Business School in 1996 and is now a senior lecturer at the Centre for Business Strategy and Procurement. He was Programme Director of the MBA in Strategy and Procurement Management and recently became Director of Education for the Business School. He has done research in the broad area of integration and on European business issues, and his current interests include supply chain, supply chain typologies and supply chain management.
Allan Woodburn is a senior lecturer in Freight and Logistics in the Transport Studies Group of the Department of Urban Development and Regeneration at the University of Westminster. He was previously a
lecturer in the School of the Built Environment at Napier University, where he completed his Doctorate in 2000. His areas of interest and experi- ence include freight transport (particularly rail), transport policy, and public transport planning and operations. Allan has also worked for Colin Buchanan and Partners (CBP), where he managed a number of projects relating to rail / bus operations and freight transport and other policy- based studies.
Preface
The first edition of Global Logistics and Distribution Planning: Strategies for Management appeared in 1988. Since then the whole field of logistics has changed. Of course, there is still agreement about the basic principle of a supply chain as ‘the series of activities and organizations that materials – both tangible and intangible – move through on their journeys from initial suppliers to final customers’ (Waters, 2009). Then logistics – or supply chain management – becomes the function that ‘plans, imple- ments 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’ (CSCMP, 2006). But the way that managers control the movement and storage of materials has changed dramatically.
Not long ago, logistics would hardly be mentioned in the long-term plans of even major companies; now its strategic role is clear and virtually every organization recognizes that it can only succeed by improving the management of its supply chains. There are many reasons for this change.
Communications and information technology offer new opportunities and ways of working; despite recent economic problems, world trade continues to grow; new markets and sources of materials appear; costs of materials and operations change; new types of operations appear;
customers become more demanding; there is increasing concern for the environment; and so on.
In response to these pressures for change, logistics managers have changed the way they work, forming a single integrated function that is responsible for all aspects of material movement and storage all the way from initial suppliers through to final customers. Within this function
there are dominant trends towards globalization, e-business, improving communications, lean and agile strategies, environmental concern, risk management, customer satisfaction – and all the other ideas that have become essential parts of logistics.
This book discusses the latest developments in this dynamic business function. The sixth edition builds on the success of earlier editions and follows the same general format. It is not an encyclopaedia of logistics that gives an exhaustive review of every aspect of a very broad subject.
Instead it is a forum in which a number of key issues are addressed. It focuses on areas that are of particular current interest, and emphasizes changes that have occurred in recent years.
The contributors are acknowledged experts in their fields with a wealth of experience and knowledge. Each gives an authoritative view of current thinking. Of course, this does not mean that they present the only view, and we hope that the material will encourage informed discussion.
This new edition has been completely rewritten. To keep its contempor- ary focus we have removed some of the previous chapters and replaced them by new ones. The remaining chapters have all been updated. And so the book continues to evolve, maintaining its focus on current issues that are relevant to an international readership.
The book will appeal to everyone with an interest in logistics. This includes academics and students doing a variety of courses that have some logistics content. It also includes logistics professionals, consultants – and managers from different backgrounds who want an appreciation of current thinking about the supply chain. It is important for all managers to realize the importance of logistics, the way that it crosses organiza- tional and disciplinary boundaries – and the way that it fundamentally affects the way that an organization works. The success of every organ- ization depends on its ability to deliver products to customers – and this is precisely the role of logistics. To put it simply, an organization cannot succeed without good logistics – and if it does not get its supply chains sorted out, it may as well put the lights out and close the door.
James Cooper edited the first two editions of this book and sum- marized the pleasures of editing the contents:
In my role as editor, I have already had the opportunity to read the thoughts and ideas expressed in each of the chapters. Indeed, one of the greatest pleasures of being editor was to be the first to enjoy the riches of the chapters as they converged into this book. I now leave it to new readers to explore the chapters that follow, in the anticipation that they too will benefit, both professionally and personally, from the wealth of knowledge and expertise that they contain.
References
CSCMP (2006) Publicity material, Council of Supply Chain Management Professionals, Oak Brook, IL, and website at www.cscmp.org
Waters, D (2009) Supply Chain Management: An introduction to logistics, Palgrave Macmillan, Basingstoke
Donald Waters Penzance
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1
New directions in logistics
Martin Christopher,
Cranfield School of Management
In recent years there has been a growing recognition that the processes whereby we satisfy customer demands are of critical importance to any organization. These processes are the means by which products are developed, manufactured and delivered to customers and through which the continuing service needs of those customers are met. The logistics concept is the thread that connects these crucial processes and provides the basis for the design of systems that will cost-effectively deliver value to customers.
Accompanying this recognition of the importance of process has been a fundamental shift in the focus of the business towards the marketplace and away from the more inwardly oriented production and sales mentality that previously dominated most industries. This change in orientation has necessitated a review of the means by which customer demand is satisfied – hence the dramatic upsurge of interest in logistics as a core business activity.
The emerGeNCe of The value-CoNsCIous CusTomer
Recession in many markets, combined with new sources of competition, has raised the consciousness of customers towards value. ‘Value’ in today’s context does not just mean value for money – although that is certainly a critical determinant of the purchase decision for many buyers – but it also means perceived benefits. Customers increasingly are demanding products with added value, but at lower cost, and hence the new com- petitive imperative is to seek out ways to achieve precisely that.
Michael Porter (1980, 1985) was one of the first commentators to highlight the need for organizations to understand that competitive success could only come through cost leadership or through offering clearly differentiated products or services. The basic model is illustrated in Figure 1.1. Porter’s argument was that a company with higher costs and no differential advantage in the eyes of the customer was in effect a commodity supplier with little hope of long-term success unless it could find a way out of the box. His prescription was that the organization should seek to become either a low-cost producer or a differentiated supplier.
However, in reality it is not sufficient to compete only on the basis of being the lowest-cost supplier. The implication of this is that a competitor in the bottom right-hand corner has to compete on price – if a company is only a cost leader, how else can it compete? Competing solely in terms of price will merely reinforce the customer’s view that the product is a
High
Low
High Low
Value added
Cost and value leader
Commodity Cost
leader Increasing
differentiation
Increasing cost advantage
Figure 1.1 The competitive options
commodity – the very thing the company wishes to avoid. On the other hand, a strategy based upon differentiation will make it possible to com- pete on grounds other than price. While value for money will always be an issue, the aim is to increase customers’ perception of the value they are receiving and hence their willingness to pay a higher price.
Organizations create value for their customers either by increasing the level of ‘benefit’ they deliver or by reducing the customers’ costs. In fact customer value can be defined as follows:
Customer value = Perceived benefits Total cost of ownership
Perceived benefits include the tangible, product-related aspects as well as the less tangible, service-related elements of the relationship.
The key point to note is that these benefits are essentially perceptual and that they will differ by customer. The ‘total cost of ownership’ reflects all the costs associated with the relationship, not just the price of the product. Hence the customer’s cost of carrying inventory, ordering costs and other transactions costs all form part of this total cost concept.
Because logistics management, perhaps uniquely, can impact upon both the numerator and the denominator of the customer value equation, it can provide a powerful means of enhancing customer value.
An argument that is being heard more frequently is that logistics is a core capability that enables the firm to gain and maintain competitive advantage. More and more the view is expressed (Stalk, Evans and Shulman, 1992) that it is through capabilities that organizations compete.
These capabilities include such processes as new product development, order fulfilment, marketing planning and information systems. There can be little doubt that companies that in the past were able to rely upon product superiority to attain market leadership can no longer do so, as competitive pressure brings increasing technological conver- gence. Instead these companies must seek to develop systems that enable them to respond more rapidly to customer requirements at ever lower costs.
loGIsTICs aNd suPPly ChaIN maNaGemeNT
Logistics management is essentially an integrative process that seeks to optimize the flows of materials and supplies through the organization and its operations to the customer. It is essentially a planning process and an information-based activity. Requirements from the marketplace are translated into production requirements and then into materials require- ments through this planning process.
It is now being recognized that, for the real benefits of the logistics con- cept to be realized, there is a need to extend the logic of logistics upstream to suppliers and downstream to final customers. This is the concept of supply chain management.
Supply chain management is a fundamentally different philosophy of business organization and is based upon the idea of partnership in the marketing channel and a high degree of linkage between entities in that channel. Traditional models of business organization were based upon the notion that the interests of individual firms are best served by maxi- mizing their revenues and minimizing their costs. If these goals were achieved by disadvantaging another entity in the channel, then that was the way it was. Under the supply chain management model the goal is to maximize profit through enhanced competitiveness in the final market – a competitiveness that is achieved by a lower cost to serve, achieved in the shortest time-frame possible. Such goals are only attainable if the supply chain as a whole is closely coordinated in order that total channel inventory is minimized, bottlenecks are eliminated, time-frames com- pressed and quality problems eliminated.
This new model of competition suggests that individual companies compete not as company against company, but rather as supply chain against supply chain. Thus the successful companies will be those whose supply chains are more cost-effective than those of their competitors.
What are the basic requirements for successful supply chain manage- ment? Figure 1.2 outlines the critical linkages that connect the marketplace to the supply chain.
The key linkages are between procurement and manufacturing, and between manufacturing and distribution. Each of these three activities, while part of a continuous process, has a number of critical elements.
MANUFACTURING DISTRIBUTION
PROCUREMENT Co-makership Requirements planning Schedule coordination
Master scheduling JIT management Flexibility
Demand management Quick response Postponement
Figure 1.2 Critical linkages in the supply chain
ProCuremeNT
Typically in the past, supply management has been paid scant attention in many companies. Even though the costs of purchases for most businesses are the largest single cost, procurement has not been seen as a strategic task. That view is now changing, as the realization grows that not only are costs dramatically impacted by procurement decisions and procedures but also that innovation and response-to-market capability are profoundly affected by supplier relationships.
The philosophy of co-makership is based upon the idea of a mutually beneficial relationship between supplier and buyer, instead of the more traditional adversarial stance that is so often encountered. With this partnership approach, companies will identify opportunities for taking costs out of the supply chain instead of simply pushing them upstream or downstream. Paperwork can be eliminated, problems jointly solved, quality improved and information shared. By its very nature, co-makership will often involve longer-term relationships, but with fewer suppliers.
A fundamental feature of this integrated approach to supply chain management is the adoption of some form of alignment and synchroni- zation of the customer’s and the supplier’s processes.
The aim should be to view your suppliers’ operations as merely an extension of your own. Companies like Nissan, in their UK manufacturing facility, have developed closely linked systems with all of their suppliers so that those suppliers have full visibility not only of the production schedule at Nissan’s Washington plant, but also of the real-time sequence in which cars are moving down the assembly line. By the use of electronic data interchange (EDI) and open communications, Nissan has been able to reduce lead times, eliminate inventories and take costs out of the supply chain. Other companies may have introduced similar just-in-time (JIT) systems, but often, in so doing, have added to their suppliers’ costs, not reduced them.
maNufaCTurING
There has been much talk of ‘lean’ manufacturing in recent years (led by Womack, Jones and Roos, 1990). The idea of leanness in this sense is that wasteful activities are reduced or eliminated and that value-creating processes are performed more quickly. However, just as important as leanness is agility. Agility is a wider supply chain concept that is more concerned with how the firm responds to changes in marketplace requirements – particularly requirements for volume and variety. Leanness is undoubtedly a desirable feature of a supply chain unless it leads to a
misplaced emphasis on manufacturing costs. It may be preferable, for example, to incur a cost penalty in the unit cost of manufacture if it enables the company to achieve higher levels of customer responsiveness at less overall cost to the supply chain.
The key word in manufacturing in today’s environment is flexibility – flexibility in terms of the ability to produce any variant in any quantity, without significant cost penalty, has to be the goal of all manufacturing strategies. In the past, and even still today, much of the thinking in manu- facturing was dominated by the search for economies of scale. This type of thinking led to large mega-plants, capable of producing vast quantities of a standardized product at incredibly low unit costs of production. It also has led many companies to go for so-called ‘focused factories’, which produce a limited range of products for global consumption.
The downside of this is in effect the possibility of hitting the ‘disecon- omies’ of scale: in other words, the build-up of large inventories of finished product ahead of demand, the inability to respond rapidly to changed customer requirements and the limited variety that can be offered to the customer. Instead of economies of scale, the search is now on for strategies that will reduce total supply chain costs, not just manufacturing costs, and that will offer maximum flexibility against customer require- ments. The goal must be ‘the economic batch quantity of one’, meaning that in the ideal world we would make things one at a time against known customer demands.
One of the lessons that the Japanese have taught us is that the route to flexibility in manufacturing does not necessarily lie through new technol- ogy, eg robotics, although that can help. A lot can be achieved instead through focusing upon the time it takes to plan, to schedule, to set up, to change over and to document. These are the classic barriers to flexibility and if they can be removed then manufacturing can respond far more rapidly to customer requirements. In a factory with zero lead times, total flexibility is achieved with no forecasts and no inventory! While zero lead times are clearly an impossibility, the Japanese have shown that impressive reductions in such lead times can be achieved by questioning everything we do and the way in which we do it.
dIsTrIbuTIoN
The role of distribution in the supply chain management model has extended considerably from the conventional view of the activity as being concerned solely with transport and warehousing. The critical task that underlies successful distribution today is demand management.
Demand management is the process of anticipating and fulfilling orders against defined customer service goals. Information is the key to demand management: information from the marketplace in the form of medium-term forecasts; information from customers, preferably based upon actual usage and consumption; information on production schedules and inventory status; and information on marketing activities such as promotions that may cause demand to fluctuate away from the norm.
Clearly, while forecasting accuracy has always to be sought, it must be recognized that it will only rarely be achieved. Instead the aim should be to reduce our dependence upon the forecast by improved information on demand and by creating systems capable of more rapid response to that demand. This is the principle that underlies the idea of quick response logistics.
Quick response logistics has become the aim for many organizations, enabling them to achieve the twin strategic goals of cost reduction and service enhancement. In essence, the idea of quick response is based upon a replenishment-driven model of demand management. In other words, as items are consumed or purchased, this information is transmitted to the supplier and this immediately triggers a response. Often more rapid, smaller consignment quantity deliveries will be made, the trade-off being that any higher transport costs will be more than covered by reduced inventory in the pipeline and at either end of it, yet with improved service in terms of responsiveness. Clearly information technology has been a major enabling factor in quick response logistics, linking the point of sale or consumption with the point of supply.
A further trend that is visible in distribution is the search for postpone- ment opportunities. The principle of postponement is that the final con- figuration or form of the product should be delayed until the last possible moment. In this way maximum flexibility is maintained, but inventory minimized. The distribution function takes on a wider role as the provider of the final added value. For example, at Xerox the aim is not to hold any inventory as finished product but only as semi-finished, modular work in progress, awaiting final configuration once orders are received. Similarly, at Hewlett-Packard, products are now designed with ‘localization’ in mind.
In other words, products will be designed for modular manufacture but with local assembly and customization to meet the needs of specific markets. In this way economies of scale in manufacturing can be achieved by producing generic products for global markets while enabling local needs to be met through postponed configuration.
What is apparent is that distribution in the integrated supply chain has now become an information-based, value-added activity, providing a critical link between the marketplace and the factory.
The New ComPeTITIve framework:
The four rs
We began this chapter with a brief review of how today’s customer is increasingly seeking added value and how logistics management can provide that value. In the past, the primary means of achieving competi- tive advantage were often summarized as the ‘four Ps’ – product, price, promotion and place. These should now be augmented with the ‘four Rs’
– reliability, responsiveness, resilience and relationships – and logistics strategies need to be formulated with these as the objectives. Let us briefly examine each in turn.
Reliability
In most markets and commercial environments today, customers are seeking to reduce their inventory holdings. Just-in-time practices can be found in industries as diverse as car assembly and retailing. In such situations it is essential that suppliers can guarantee complete order-fill delivered at agreed times. Hence a prime objective of any logistics strategy must be reliability.
Making logistics systems more reliable means that greater emphasis must be placed upon process design and process control. The processes that are particularly germane to logistics are those to do with order fulfilment and supply chain management. Because traditionally these processes have been managed on a fragmented, functional basis they tend to have a higher susceptibility to variability. These processes are typified by multiple ‘hand-offs’ from one area of functional responsibility to another and by bottlenecks at the interfaces between stages in the chain. One of the benefits of taking a process view of the business is that it often reveals opportunities for simplification and the elimination of non-value-adding activities so that reliability inevitably improves.
One of the main causes of unreliability in supply chain processes is performance variability. Recently, the use of so-called ‘Six Sigma’ meth- odologies has been adopted to reduce that variability. Six Sigma is the umbrella term applied to a range of tools that are designed to identify the sources of variability in processes and to reduce and control that variability.
Responsiveness
Very closely linked to the customers’ demands for reliability is the need for responsiveness. Essentially this means the ability to respond in ever-shorter
lead times with the greatest possible flexibility. Quick response, as we have seen, is a concept and a technology that is spreading rapidly across industries. For the foreseeable future, speed will be a prime competitive variable in most markets. The emphasis in logistics strategy will be upon developing the means to ship smaller quantities, more rapidly, direct to the point of use or consumption.
The key to time compression in the logistics pipeline is through the elimination or reduction of time spent on non-value-adding activities.
Hence, contrary to a common misconception, time compression is not about performing activities faster, but rather performing fewer of them.
The old cliché ‘Work smarter, not harder’ is particularly relevant in this context.
As Hammer and Champy (Hammer, 1990; Hammer and Champy, 1993) have pointed out, many of the processes used in our organizations were designed for a different era. They tend to be paper-based, with many – often redundant – manual stages. They are sequential and batch-oriented rather than parallel and capable of changing quickly from one task to another. Even though eliminating or reducing such activities may in- crease cost, the end result will often be more cost-effective. For example, shipping direct from factories to end customers may be more expensive in terms of the unit cost of transport compared to shipping via a regional distribution centre, but time spent in the distribution centre is usually non-value-adding time.
Resilience
Today’s supply chains are more complex and vulnerable to disruption than ever before. In many cases, as a result of outsourcing and the in- creasingly global nature of supply chains, the likelihood of interruption to product and information flows has increased significantly.
Identifying, mitigating and managing supply chain risk is now a critical requirement to ensure business continuity. The idea of resilience in the context of supply chain management is that supply chains need to be able to absorb shocks and to continue to function even in the face of unexpected disruption.
The paradox is that in many cases, because companies have adopted
‘lean’ strategies and reduced inventories and, often, capacity, there is little ‘slack’ left in their systems. Resilient supply chains will typically incorporate strategic buffers at the critical nodes and links in their networks. These buffers could be in the form of inventory or capacity, possibly shared with competitors.
As uncertainty in the business environment continues to increase, organizations need to adopt a more systematic and structured approach
