Supply chain management summary
Chapter 1 – Introduction
INTRODUCTION
A higher value freight is better able to 'absorb' transport costs than a lower value freight is, with the
‘transport cost penalty’ imposed by having to move freight over greater distances often being
somewhat offset by the fact that the freight if of higher value. Hence, we refer to a generally reducing
transport cost sensitivity of freight.
For many individual shipments: increased value + decreased volume = lower transport cost sensitivity
The replacement of a physical product by virtual product is referred to as material substitution. The
five principal modes of transport are air, road, water, rail and pipeline (6 with internet). The essence
of effective deregulation is that by removing unnecessary barriers to competition, markets become
more contestable and prices should decline and service should improve. In recent years, companies
have become less vertically integrated (less hierarchy), and outsourcing has become more common.
The six trends of the supply chain revolution are: (1) Reduced transport intensity of freight, (2) Falling
product prices, (3) Deregulation of transport, (4) Productivity improvements, (5) Emphasis on
inventory reduction, (6) Changes in company structures. Freight and cargo are mixed up often. Cargo
is freight + mail. On the other hand, ‘goods’ refer to freight, not cargo.
WHAT IS LOGISTICS?
Logistics is defined as: the detailed coordination of a complex operation involving many people,
facilities, or supplies. The origins from the word ‘logistics’ (logistique in France, logista in military use,
and logisticos in Greece) suggests that logistics had something to do with mathametics. The following
definition is suggested today: Logistics is the process of planning, implementing, and controlling
procedures for the efficient and effective transportation and storage of goods including services and
related information (LO2).
Another way of understanding what is involved in logistics is to see it as including various ‘rights’:
getting, in the right way, the right product, in the right quantity and right quality, in the right place at
the right time for the right customer at the right cost.
WHAT IS SUPPLY CHAIN MANAGEMENT?
The supply chain is the network of organisations that are involved, through upstream (supplier end
of the supply chain) and downstream (customer end of the supply chain) linkages, in the different
processes and activities that produce value in the form of products and services in the hands of the
ultimate consumer (LO2). It is our view that supply chains encompass a number of key flows:
Physical flows of materials
Flows of information that inform the supply chain
Resources (finance, people, equipment) which help the supply chain to operate effectively.
Another definition of SCM is: the management, across and within a network of up- and downstream
organisations, of both relationships and flows of material, information and resources. The purposes
of SCM are to create value, enhance efficiency, and satisfy customers. A terminology such as the
following can be used to describe the end-to-end supply chain: (1) farm to fork, (2) sketch to store, (3)
dust to rust. The term ‘echelon’ is sometimes used to refer to different
parts of the supply chain.
DISTINGUISHING LOGISTICS AND SCM
1
,Larson & Halldosson identified 4 perspectives:
1. Traditionalist: SCM is a subject of logistics
2. Re-labelling: SCM is a more recent term for logistics
3. Unionist: logistics is part of SCM
4. Intersectionist: SCM and logistics overlap
The actual difference is that logistics is part of SCM; SCM is a much wider, intercompany, boundary-
spanning concept, than is the case with logistics (LO2).
APPLICATIONS TO MANUFACTURING AND SERVICES
In general, for those who take a supply chain view, two dimensions of value often arise: (1) cost
savings, and (2) service enhancements. More and more manufacturers are using service criteria in
order to compete. In the health care sector, for example, expensive increases in medical technology
and increasing life expectancy are leading to greater demands on healthcare services.
BOOK FRAMEWORK – A number of perspectives are summarized below.
1. Global perspective: the terms international and global are often used interchangeably in a
logistics context, which is not accurate. International is defined as ‘of, concerning, or involving
two or more nations or nationalities’. Global is defined as ‘covering, influencing, or relating to
the whole world’. This books aims for a global perspective, not international.
2. Both practical and strategic perspectives: This books comprises both a practical element, as
well as a strategic element. The practical element helps the reader to ‘do’ logistics (select
carriers, how much inventory to carry etc). the strategic element is regarding the
understanding of the role of logistics and SCM in the wider business context. Practical and
strategic skills are both important. It is important to understand how global supply chain
strategies are developed, as well as to know how calculations regarding inventory work.
3. Logistics is part of SCM (unionist): the three flows across supply chains are (1) material, (2)
information, and (3) resources.
4. Neutral and non-political perspective adopted
Chapter 1 – hard words
Poultry: domesticated fowl; chicken, turkey, ducks etc.
Bulky: large amounts.
Transport cost sensitivity: sensitivity / elasticity of the transportation costs.
Material substitution: the replacement of physical product by a virtual product.
Configured: to set up a system or program for an application
Deregulated: revision, reduction, or elimination of laws and regulations that hinder free
competition in supply of goods and services.
KSF: key success factor
Cargo: freight + mail.
Consignment: a shipment of goods consigned (shipped).
Consignor: the company that consigns (ships).
Consignee: the party that receives the consignment (shipment).
Upstream: supplier end of the supply chain.
Downstream: customer end of the supply chain.
Echelon: refers to different parts of the supply chain.
LEARNING OBJECTIVES
1. Explain the origins of both logistics and supply chain management
2
, 2. Define both terms and outline how logistics and SCM differ from each other
3. Highlight the importance of these areas in both manufacturing and services contexts
4. Identify how best practice logistics and SCM can yield both cost reduction and value addition
5. Show how supply chains have a major influence on society
Chapter 2 – Globalisation and international trade
INTRODUCTION
The best practice of logistics and SCM can lead to both cost reduction and value addition. This
chapter will discuss growth of international trade and increased globalisation. Many companies now
have overseas facilities and SC partners due to the increasing volume of international trade (LO1).
GROWTH IN INTERNATIONAL TRADE
Global trade has grown due to the reduction of trade barriers. Regional trade agreements have been
developed, and allow more open trading between regions. Because of this, the logistics systems have
become more important. One of the key facilitators of this trade growth has been the humble
shipping container. The growth in both outsourcing and offshoring leads to supply chains becoming
more stretched, this also leads to increased freight movements between the various nodes in the
supply chain. There is also an influence of product tourism in international freight flows. This is
where there are unnecessary flows of goods to take advantage of lower tax rates etc. When goods or
services are transferred between divisions of the same company, a value is attributed to them called a
transfer price, multinational companies can thus move work-in-progress materials between countries
to take advantages of tax and export rules.
CONTAINERS: THE HUMBLE HERO
Containerisation has been a huge driver of globalisation. It allows developing countries to simply join
existing supply chains rather than build an entire industry from the ground up (LO3). The key
contributions of containerization have been the quicker safer and more cost-effective movement of
freight along the supply chain (LO2). The key benefits are productivity and scale, by shipping
containers on larger vessels, the unit cost per container moved reduces.
MEASURING LOGISTICS PERFORMANCE
The World Bank notes that the Global Logistics Performance Index (LPI) is an interactive
benchmarking tool created to help countries identify the challenges and opportunities they face in
their performance on trade logistics, and what they can do to improve their performance. The LPI
ranks 160 countries in terms of their logistics performance; six key dimensions are used in the index:
(1) customs, (2) infrastructure, (3) international shipments, (4) logistics competence, (5) tracking and
tracing, (6) timeliness.
The aim of the index is to benchmark countries’ overall performance on these dimensions and to
assess the quality of a country’s connections to the global market. Another measure that looks at
logistics performance is UNCTAD’s liner shipping connectivity index (LSCI), which measures 159
countries’ access to container shipping services. The LSCI is generated from five components:
1. The largest vessel deployed on services to a country’s ports. Larger vessels require deeper
ports and investments in specialized container cranes.
2. The number of companies that provide services to a country’s ports. A higher number of
competing companies implies more choices and often lower freight costs for shippers.
3. The number of services offered by the liner companies. A higher number of services gives
more options to shippers to connect to overseas markets.
4. The number of ships deployed on services to a country’s ports. More ships are correlated ith
higher frequencies.
3
Chapter 1 – Introduction
INTRODUCTION
A higher value freight is better able to 'absorb' transport costs than a lower value freight is, with the
‘transport cost penalty’ imposed by having to move freight over greater distances often being
somewhat offset by the fact that the freight if of higher value. Hence, we refer to a generally reducing
transport cost sensitivity of freight.
For many individual shipments: increased value + decreased volume = lower transport cost sensitivity
The replacement of a physical product by virtual product is referred to as material substitution. The
five principal modes of transport are air, road, water, rail and pipeline (6 with internet). The essence
of effective deregulation is that by removing unnecessary barriers to competition, markets become
more contestable and prices should decline and service should improve. In recent years, companies
have become less vertically integrated (less hierarchy), and outsourcing has become more common.
The six trends of the supply chain revolution are: (1) Reduced transport intensity of freight, (2) Falling
product prices, (3) Deregulation of transport, (4) Productivity improvements, (5) Emphasis on
inventory reduction, (6) Changes in company structures. Freight and cargo are mixed up often. Cargo
is freight + mail. On the other hand, ‘goods’ refer to freight, not cargo.
WHAT IS LOGISTICS?
Logistics is defined as: the detailed coordination of a complex operation involving many people,
facilities, or supplies. The origins from the word ‘logistics’ (logistique in France, logista in military use,
and logisticos in Greece) suggests that logistics had something to do with mathametics. The following
definition is suggested today: Logistics is the process of planning, implementing, and controlling
procedures for the efficient and effective transportation and storage of goods including services and
related information (LO2).
Another way of understanding what is involved in logistics is to see it as including various ‘rights’:
getting, in the right way, the right product, in the right quantity and right quality, in the right place at
the right time for the right customer at the right cost.
WHAT IS SUPPLY CHAIN MANAGEMENT?
The supply chain is the network of organisations that are involved, through upstream (supplier end
of the supply chain) and downstream (customer end of the supply chain) linkages, in the different
processes and activities that produce value in the form of products and services in the hands of the
ultimate consumer (LO2). It is our view that supply chains encompass a number of key flows:
Physical flows of materials
Flows of information that inform the supply chain
Resources (finance, people, equipment) which help the supply chain to operate effectively.
Another definition of SCM is: the management, across and within a network of up- and downstream
organisations, of both relationships and flows of material, information and resources. The purposes
of SCM are to create value, enhance efficiency, and satisfy customers. A terminology such as the
following can be used to describe the end-to-end supply chain: (1) farm to fork, (2) sketch to store, (3)
dust to rust. The term ‘echelon’ is sometimes used to refer to different
parts of the supply chain.
DISTINGUISHING LOGISTICS AND SCM
1
,Larson & Halldosson identified 4 perspectives:
1. Traditionalist: SCM is a subject of logistics
2. Re-labelling: SCM is a more recent term for logistics
3. Unionist: logistics is part of SCM
4. Intersectionist: SCM and logistics overlap
The actual difference is that logistics is part of SCM; SCM is a much wider, intercompany, boundary-
spanning concept, than is the case with logistics (LO2).
APPLICATIONS TO MANUFACTURING AND SERVICES
In general, for those who take a supply chain view, two dimensions of value often arise: (1) cost
savings, and (2) service enhancements. More and more manufacturers are using service criteria in
order to compete. In the health care sector, for example, expensive increases in medical technology
and increasing life expectancy are leading to greater demands on healthcare services.
BOOK FRAMEWORK – A number of perspectives are summarized below.
1. Global perspective: the terms international and global are often used interchangeably in a
logistics context, which is not accurate. International is defined as ‘of, concerning, or involving
two or more nations or nationalities’. Global is defined as ‘covering, influencing, or relating to
the whole world’. This books aims for a global perspective, not international.
2. Both practical and strategic perspectives: This books comprises both a practical element, as
well as a strategic element. The practical element helps the reader to ‘do’ logistics (select
carriers, how much inventory to carry etc). the strategic element is regarding the
understanding of the role of logistics and SCM in the wider business context. Practical and
strategic skills are both important. It is important to understand how global supply chain
strategies are developed, as well as to know how calculations regarding inventory work.
3. Logistics is part of SCM (unionist): the three flows across supply chains are (1) material, (2)
information, and (3) resources.
4. Neutral and non-political perspective adopted
Chapter 1 – hard words
Poultry: domesticated fowl; chicken, turkey, ducks etc.
Bulky: large amounts.
Transport cost sensitivity: sensitivity / elasticity of the transportation costs.
Material substitution: the replacement of physical product by a virtual product.
Configured: to set up a system or program for an application
Deregulated: revision, reduction, or elimination of laws and regulations that hinder free
competition in supply of goods and services.
KSF: key success factor
Cargo: freight + mail.
Consignment: a shipment of goods consigned (shipped).
Consignor: the company that consigns (ships).
Consignee: the party that receives the consignment (shipment).
Upstream: supplier end of the supply chain.
Downstream: customer end of the supply chain.
Echelon: refers to different parts of the supply chain.
LEARNING OBJECTIVES
1. Explain the origins of both logistics and supply chain management
2
, 2. Define both terms and outline how logistics and SCM differ from each other
3. Highlight the importance of these areas in both manufacturing and services contexts
4. Identify how best practice logistics and SCM can yield both cost reduction and value addition
5. Show how supply chains have a major influence on society
Chapter 2 – Globalisation and international trade
INTRODUCTION
The best practice of logistics and SCM can lead to both cost reduction and value addition. This
chapter will discuss growth of international trade and increased globalisation. Many companies now
have overseas facilities and SC partners due to the increasing volume of international trade (LO1).
GROWTH IN INTERNATIONAL TRADE
Global trade has grown due to the reduction of trade barriers. Regional trade agreements have been
developed, and allow more open trading between regions. Because of this, the logistics systems have
become more important. One of the key facilitators of this trade growth has been the humble
shipping container. The growth in both outsourcing and offshoring leads to supply chains becoming
more stretched, this also leads to increased freight movements between the various nodes in the
supply chain. There is also an influence of product tourism in international freight flows. This is
where there are unnecessary flows of goods to take advantage of lower tax rates etc. When goods or
services are transferred between divisions of the same company, a value is attributed to them called a
transfer price, multinational companies can thus move work-in-progress materials between countries
to take advantages of tax and export rules.
CONTAINERS: THE HUMBLE HERO
Containerisation has been a huge driver of globalisation. It allows developing countries to simply join
existing supply chains rather than build an entire industry from the ground up (LO3). The key
contributions of containerization have been the quicker safer and more cost-effective movement of
freight along the supply chain (LO2). The key benefits are productivity and scale, by shipping
containers on larger vessels, the unit cost per container moved reduces.
MEASURING LOGISTICS PERFORMANCE
The World Bank notes that the Global Logistics Performance Index (LPI) is an interactive
benchmarking tool created to help countries identify the challenges and opportunities they face in
their performance on trade logistics, and what they can do to improve their performance. The LPI
ranks 160 countries in terms of their logistics performance; six key dimensions are used in the index:
(1) customs, (2) infrastructure, (3) international shipments, (4) logistics competence, (5) tracking and
tracing, (6) timeliness.
The aim of the index is to benchmark countries’ overall performance on these dimensions and to
assess the quality of a country’s connections to the global market. Another measure that looks at
logistics performance is UNCTAD’s liner shipping connectivity index (LSCI), which measures 159
countries’ access to container shipping services. The LSCI is generated from five components:
1. The largest vessel deployed on services to a country’s ports. Larger vessels require deeper
ports and investments in specialized container cranes.
2. The number of companies that provide services to a country’s ports. A higher number of
competing companies implies more choices and often lower freight costs for shippers.
3. The number of services offered by the liner companies. A higher number of services gives
more options to shippers to connect to overseas markets.
4. The number of ships deployed on services to a country’s ports. More ships are correlated ith
higher frequencies.
3
