BUSI 613 LU Efficiency Issues in Supply Chain Management Article Review assignments.pdf

bstract

This paper discusses the efficiency issues in purchasing, manufacturing, and transporting over various stages of a supply chain

such as supplier selection, production, and distribution. To address the efficiency questions, we group the supply chain into six

independent areas. Four of these, vendor management, scheduling, inventory management, and transportation, are related to the

product flow, whereas network design and information sharing are non-flow related.

Keywords: Efficiency, Supply Chain Management

Efficiency Issues in Supply Chain Management

S.K. Bhatt*, C.R. Bector**, S.S. Appadoo***

*Professor Emeritus, Department of Supply Chain Management, Asper School of Business, University of

Manitoba, Winnipeg, Canada. Email: [email protected]

**Professor Emeritus, Department of Business Administration, Asper School of Business, University of

Manitoba, Winnipeg, Canada.

***Assistant Professor, Department of Supply Chain Management, Asper School of Business, University of

Manitoba, Winnipeg, Canada. Email: [email protected]

Introduction

For the last two decades, the business organisations are

facing unprecedented challenges to improve efficiency

or productivity. The Black Monday of October, 1987

came as a warning to the business world to find better

ways to do business and the advent of personal computer

added to the competition among the organisations to

affect re-engineering. Even business ethics took its

toll and we saw the collapse of Enron and world dot

com through their cooked up books. The recent stock

market crash since the middle of 2008 added fuel to

fire that caused bank failures and shortage of liquidity

and investments. Several factors came in to the fore:

cure the flagging profitability, improve the bottom line,

improve the short-term share holder’s profit, and the fear

of merger. Governments, industries and businesses have

embraced downsizing and outsourcing as primary cure.

Downsizing has appeared in different paradigms such

as restructuring, reengineering, re-hosting, life-sizing

etc. The ideas of productivity, efficiency, effectiveness,

performance, quality, best practices and flexible

organisations and systems became the common paradigm

of doing business. Even the then Prime Minister of a

socialist country such as India, Atal Bihari Vajpayee,

was coining the word “utpadakta” meaning productivity

during the turn of the century. In this section we will

explain various terms mentioned above, that add to the

success of a business.

The concept of efficiency, effectiveness, quality,

productivity and overall organisational performance

in some form or the other has occupied researchers in

economics as early as 1957 (Ferrell), in management

science (Charnes et al., 1978), productions operations

(Eilon, 1987, Sumanth, 1988), organizational behaviour

(Proctor et al., 1994) and in accounting (Sherman,

1988) etc.). Efficiency is the totality of the outputs that

can be obtained from an economic unit. Effectiveness

is however, a nebulous concept. Bhatt et al. (2004),

while defining the overall productivity measure of

performance of Canadian orchestras in 12 cities, did

discuss what the meaning of effectiveness might entail.

One component of effectiveness is the amount of the

earned revenue generated and the number of audience

brought in. If these results are measured against inputs

provided, this measure would be used as efficiency. This,

of course, is using ‘efficiency’ in a particular way. It does

not measure other potential aspects of efficiency- the

number of musician hours used to rehearse and perform

music, the generation of largest possible audience with

the fewest possible performances or creation of the most

media exposure for the smallest possible advertisement

buy. Then, there is a question and the role of quality. If

the quality of the product or performance is not up to the

satisfaction, it will result in fewer audiences down the

road or a line up for the return of the tickets or products.

Maarten (2008) comes up with a general system theory

explanation that

10 Journal of Supply Chain Management Systems Volume 3 Issue 2 April 2014

effectiveness = actual outputs/ desired outputs.

Effi ciency = actual outputs/ actual inputs

and then productivity is a combination of effectiveness

and effi ciency. In an overall production/manufacturing

system productivity gets defi ned as

effi ciency + effectiveness + quality.

Deming (1986) defi ned

quality = worker’s efforts/ total cost

and argued that increasing quality will reduce cost.

Businesses would ensure quality through return policies

and poor quality would offset the savings garnered in

the input costs. He emphasized the change in the culture

of organisations to accept the dynamic and continuous

nature of quality and effi ciency improvement that it is

a continuous work in progress. A new dimension that is

going to be added to this concept is that of carbon trading.

The concern for global warming is already taking hold in

the “cap and trade” policy under consideration with the

U.S. administration. The call for buying local products to

save the fuel and carbon emissions is becoming a reality.

Any business, industry or government undertakings are

expected to be accountable to their stock/ stake holders

for the funds they provide. This generally guides their

internal culture to produce highest quality of goods and

services at the lowest possible cost. The aim is to follow

the best practices in their operations and dealings. The

concept of “best practices” also deals with effi ciency

and productivity but the concept is socio/technical.

Cormican and O’Sullivan (2004) defi ne a best practice

model as a socio/technical systems approach to all

aspects of organisation. This includes people, process

and the technology related issues. It is the sum total

of the effi ciencies obtained through optimizing the

performance levels strategy, culture, planning, structure

and communication and collaboration. The idea is to asses

where we are and where we aught to be. Productivity

being a well defi ned technical concept but to associate the

performance of the organisation as a whole we will use

effi ciency to defi ne the best practices of an organisation

as an over arching term.

The history of achieving better in a recorded formal

setting such as production or manufacturing or planning

dates back to the times of Taylor, and Gilbreth (time

and motion study) in the early twentieth century . But

the pioneer of it all was William Edward Deming. His

concept of effi ciency, productivity and organisational

performance is in the root of all these discussions of best

practices. His 14 points of management (Deming, 1986)

became a must for every CEO of US business in the

nineties. He helped Japanese business after the Second

World War to improve quality in production as well as in

management. His efforts resulted in developing the just-

in-time manufacturing process at Toyota Motors in 1975.

Deming was a statistician and taught statistical quality

control. He mentioned once that he considered Prof.

Prashanta Mahalanobis one of his gurus. Mahalanobis

was the creator of the second fi ve year plan of India

implemented from 1957-1962. The author is honoured to

have been associated with him during his tenure at Indian

Statistical Institute, Calcutta.

In a general production process, the overall effi ciency or

productivity is defi ned as an aggregate of cost effi ciency,

that converts capital cost into input resources; allocative

(optimal mix of inputs), technical (optimal amount of

inputs) and scale (optimal volume and minimum fi xed

cost) effi ciencies of the transformation process that

convert resources to products, and revenue effi ciency

that converts outputs to cash fl ow as in Fig.1 (Sherman,

1988). Revenue effi ciency, which is the marketing and

sales segment, depends on quality. An improvement in

quality will therefore increase productivity. A study by

General Electric on its dishwasher revealed that a 45%

improvement in quality increased the labour productivity

by 42% (Sumanth, 1988).

Fig. 1: A Production Process

Efﬁ ciency Issues in Supply Chain Management 11

In a complex system dealing with multiple outputs and

multiple inputs, Sumanth (1998), on similar lines, has

classifi ed productivity in four categories:

(a) Partial productivity, which is a ratio of outputs to

only one class of inputs, say labour.

(b) Total factor productivity with only capital and la-

bour inputs.

ered and

(d) Comprehensive total productivity that also in-

cludes undefi ned qualitative factors such as qual-

ity, relevance etc

Productivity (or effi ciency in reference to organisation as a

whole) is often defi ned as a performance index (PI), which

is a ratio of an output to an input. Ratio analysis typically

involves a number of PIs to gauge the overall performance

of an organisation. Generally PI is meaningful only when

there is a single output and a single input. Brinkerhoff

(1990) gives several such productivity ratios to consider

for an organisation. Governments and business report

their performance citing such indices as ROI (Return on

investment), ROS (return on sales), PE (Price –earning)

ratio etc. National Health Service of UK reports on 400

PIs that are published annually (Thanassoulis et al.,

1996). Thus productivity of an organisation as a whole

is hard to defi ne as it involves several outputs and

multiple inputs, some of them non-commensurable. This

is why, when a productivity improvement program is

designed for a production process, the process is viewed

in several stages. Rastogi (1988) identifi es productivity

improvement in three stages:

(a) Improvement in operation and technology of the

production process by using various methods such

as motion study, ergonomics, work study, value

analysis, learning curves, Quality control, CAD/

CAM, fl exible manufacturing system (FMS) etc.

(b) Improvement in organisation of production pro-

cess using suitable operation research techniques

such as production scheduling, material man-

agement, zero base budgeting network analysis,

PERT-CPM etc to improve allocative effi ciency

and effectiveness.

as job design, job enrichment, rotation, fl extime,

incentives, improving work conditions, and work-

er’s participation to improve quality and labour

productivity.

Su�� C��in M�n��nt

Bhatt et al. (2006) trace the history of supply chain

management (SCM) and its establishment as a subject

in academia. The new SCM turned out to be the merger

of purchasing and logistics and some more. Purchasing

tended toward an upstream, supplier-facing concept

whereas logistics tend to be outbound, a customer facing

concept. Later, procurement, manufacturing operations

and sales/marketing functions were added in the mix.

Lambert et al. (1998) rendered the most acceptable

defi nition of SCM so far. According to them, SCM is

“the integration of key business processes from end

user through original suppliers that provides products,

services, and information that add value for customers

and other stakeholders.” These key business processes

are: (1) customer relationship management, (2) customer

service management, (3) demand management, (4)

order fulfi llment, (5) manufacturing fl ow management,

(6) supplier relationship management, (7) product

development and commercialisation, and (8) return

management. For our purpose, in this paper, we shall

defi ne SCM as a process of using information with the

objective of optimizing the fl ow of products within a

supply chain. A supply chain is thus a fl ow of goods and

services through:

Suppliers → Manufactures → Distributors → Retailers → Customers

In order to discuss the effi ciency improvement in

activities in various parts a supply chain, we shall divide

the paper into six independent areas. The fi rst four:

vendor (supplier) management, scheduling, inventory

management, and transportation are related to the fl ow

of product and data within the supply chain. Although,

the product fl ow does not necessarily follow this order-

for example, inventories can be places almost anywhere

in the fl ow, this arrangement will be helpful in dealing

with the problem taxonomy in here. Finally, the last two

areas are non-fl ow related, which are: network design and

information sharing.

Su��i�r ��n��nt

One of the most important components for an effective

supply chain strategy is to have appropriate suppliers.

With SCM, suppliers are no longer an entity that can be

easily replaced. SCM requires partnership and vendor

relation development rather than simple contractual

relationships. In that sense, OR (operations research)

models have been used to support these new requirements.

Bhatt and Borgesa (2005) discuss the operation research

12 Journal of Supply Chain Management Systems Volume 3 Issue 2 April 2014

models in SCM. We shall briefl y discuss strategic issues

and new developments. For this, the problem taxonomy

in this area can be divided in to three categories: supplier

selection, supplier performance evaluation, and supplier

contract negotiation.

Supplier Selecti on

The objective of the vendor selection problem is to

choose from a potential list of vendor candidates the

ones that best suit the company’s interest. At the same

time, the problem also should determine how many

suppliers the company needs, and how much business

has to be allocated to each supplier. Normally, the

supplier selection problem involves attaining multiple

objectives at the same time; therefore, the OR models

used to address this problem tend to have multi-criteria

objectives. The most representative solution methods

that fi t this condition are Multi-objective Programming

(MOP) (Weber and Current, 1993), Data Envelopment

Analysis (DEA) (Weber et al., 2000), and Analytical

Hierarchical Process (AHP) (Nydick and Hill, 1992).

Recently, Appadoo, Bhatt and Bector (2007), and

Appadoo et al. (2008) used the fuzzy TOPSIS method

for the multi-criteria supplier selection problem for a

single decision and a group decision making situation.

For each product, the suppliers were evaluated for the

criteria such as: profi le, technology, quality, delivery

and fl exibility.

Supplier Performance Evaluati on

Once the suppliers have been selected, it is required

to monitor their performance continuously. DEA uses

fractional programming (Charnes et al.,1978; Bhatt,1989)

to compare relatively effi cient suppliers based on multiple

inputs and outputs (Weber, 1996)

Supplier Contract Negoti ati on

As stated before, with SCM, the importance of establishing

a long-term relationship with suppliers is critical. In that

sense, contract negotiation is the fi rst step in establishing

a successful relationship with suppliers. Charles Fishman

(2006) in his book- The Wal-mart Effect, cites an

example (described in section Packaging and Warehouse

Management) as to how they negotiate with the suppliers

to keep up to their slogan- We Sell for Less. Since the

introduction of food section, it is: Save Money, Live

Better. The concept of Reverse Marketing further alludes

to negotiating with suppliers to match the supplies with

the replenishment policies of the company (Leenders and

Blenkhorn, 1988)

Sc��du�in�

Scheduling is also known as production planning and

control. The scheduling process involves all activities

required to determine the amount of products to be

produced in a certain planning horizon (T) to accomplish

a certain demand (D). After determining the demand, the

next step is to prepare the aggregate plan. The aggregate

plan is a preliminary schedule of an organisation’s overall

operations that will satisfy the demand forecast at a

minimum cost (Leung and Chan, 2009). After obtaining

the Aggregate Plan, the next step is to develop the master

production plan. In comparison with the Aggregate Plan,

the master production plan includes capacity restrictions,

and is more short term in nature. Finally, the master

production plan is translated into loading and sequencing

decisions, which mainly deal with deciding which jobs

are going to be assigned to which specifi c work centers,

and in which order this assignment is to be carried out.

But, before we even embark upon production planning,

there are two necessary steps to consider: one, product

screening and two, brand selection. By designing an

appropriate production plan that meets the demand,

minimizes the costs of inventories and the costs of hiring

and fi ring, the manufactures save money and adds to

overall effi ciency.

Product Screening

Research in new product development has identifi ed

product idea (design) screening to be critical in the

development process in order to get a high quality

product. Smimou, Bhatt and Dahl (2005) proposed a

fuzzy analytical approach to a problem of selecting the

best design idea from among fi ve chosen. They were

compared against three criteria: originality, appeal and

effectiveness. In multi-criteria decision making, where

the criteria are not quantifi able and judgment choices are

to be made, fuzzy models are being used increasingly.

Br�nd (�roduct) ��ction

A manufacturer or a retailer or even a consumer often seeks

to purchase the best part or component or a product from

suppliers. Among various brands available, the question

boils down to selecting the one that fi ts their criteria best.

In marketing literature, it is known as the problem of

Efﬁ ciency Issues in Supply Chain Management 13

brand selection. This topic also falls under “purchasing”

which is a vital part of SCM. Not only the businesses, the

national governments do a lot of purchasing that makes a

large part of government budget. The Public Works and

Government Services Canada (PWGSC), of Government

of Canada manages 60,000 transactions annually and

purchases $12 billion in goods and services such as fl u

vaccine, security systems and military aircrafts (www.

tpsgc-pwgsc.gc.ca). For brand (product selection, the

most well know solution method is called scoring model

of Fishbein. Bhatt, Bhatnagar and Appadoo (2009) used

a TOPSIS (Technique for Order Preference by Similarity

to Ideal Solution) method to show over an example of

selecting keynote computers that, it betters the Fishbein

selection..

Enterprise Resource Planning (ERP)

As the organisations are embracing computer technology,

ERP is gaining a high priory in business operations.

ERP is an organisation- technology interface (Wang

et al., 2008). The success of ERP adoption depends on

external factors: vendor support, consultant competence,

and internal factors within the organisation such as ERP

team competence, ERP leadership, top management

support and fi nally, the user support. If ERP lacks these

factors, the studies found that almost 70% of ERP

implementations have been found unsuccessful. Bhatt,

Orellana and Jayaraman (2009) implemented ERP for

a Winnipeg manufacturing fi rm to consolidate separate

production, accounting and purchase systems for four

separate production lines. It saved company a huge

amount of money as well as it made it easier to monitor

inventory levels, issue production orders, and track the

fi nancial health of the organisation.

In��ntor� M�n��nt

In every segment of a supply chain, there are inventories

in the form of raw material, components, and end product

at manufacturing plants, warehouses, in transportation

and with retailers. These inventories are said to make up

20 to 60 percent of the asset of a fi rm. Therefore, using

proper inventory policies in a supply chain can give a

decisive

edge to a fi rm over its competitors. Inventories carry

huge costs such as variable cost,carrying cast, setup/

order cost, shortage cost, and transportation cost etc.

Managing inventories can be divided into two different

areas: packaging and warehouse management, and multi-

echelon inventory policies.

Packaging and Warehouse Management

Warehouse space is a scarce resource in many organisa-

tions; therefore it is important to fi nd the optimal arrange-

ment to place products in a warehouse – this objective is

formally known as Warehouse Management. One of the

earliest problems studied in this area was the packaging

problem. The problem objective is to determine the size

and number of packaging boxes that will minimise the to-

tal system cost. Packaging occupies valuable warehouse

and shelf space. With the new emphasis of environmen-

tal concerns, there has been a constant emphasis on bio-

degradability and waste management (Davis and Song,

2006)). There has been a surge in polymer, polythene,

plastic and polyester based packaging during eighties

and nineties. The jute industries of West Bengal and East

Bengal went in to a slump.

Charles Fishman in his book- The Wal-Mart Effect (2006)

cites an example of cooperation among the retailers and

suppliers that can change the mode of doing business and

enhance the savings not only for businesses and customers

but for environment as well. In the nineties, nearly every

brand and style of deodorant-roll- on and solid, powder-

fresh or unscented, came in a cardboard box. The product

already came in a sturdy and solid can or plastic container.

The box took up shelf space. It wasted cardboard.

Shipping the weight of cardboard wasted fuel. The box

itself cost money to design, to produce. The box turned

out to cost a nickel (fi ve cents). Half of it went to the

suppliers and the remaining to the customers. With 200

million adults in US, it caused a savings of $10 million

of which $5 million, the customers got to keep. This is

repeated atleast fi ve times a year. Millions of trees were

not cut down, acres of cardboard were not manufactured

only to be discarded and one billion of deodorant boxes

did not end up in landfi lls.

Inventory Policies

As stated above, the inventories in a supply chain form a

multi-echelon system. Inventories are supplied down the

stream of the supply chain from:

Suppliers  Manufactures  Distributors  Retailers  Customers.

However, the inventories are demanded from customers

to the upstream. The inventory demands are probabilistic

and periodic (say monthly or when the stocks are about to

fi nish and the order is triggered by the safety stock (s,S)

or a (s,Q) policy. The proper ordering policies would have

two objectives. One is to minimize the total inventory

14 Journal of Supply Chain Management Systems Volume 3 Issue 2 April 2014

cost that consists of: (1) purchase or manufacturing cost,

(2) inventory holding cost and (3) back-logging cost.

The second objective is to minimize or even eliminate

the “bullwhip effect”- the amplifi cation of demand

variability from a downstream site to an upstream site.

Supply chains are normally categorized in to three

types: arborescence chains, where each node supplies

more than one downstream node, coalescence chains,

where each node is supplied by more than one upstream

node. The fi nal type is a serial chain, where each node is

supplied by only one upstream node and supplies to only

one downstream node. These problems are immensely

challenging even for simple serial chain. Literature is

dense with solution methods ranging from mathematical

modeling to simulation. For a good appreciation of this

topic, see Aharon et al. (2009).

Tr�n��ort�tion

Transportation is the process of moving inventory among

nodes in the supply chain. A supply chain may have a

very complicated network with several nodes; hence, it is

critical to optimize the fl ow of materials in the supply chain

using adequate transportation procedures and logistical

support. More and more manufacturing, businesses and

industries are relying on the 3PL (third party logistics)

to move their goods due to the sophisticated nature of

logistics and transportation. For example, Dell Computer

Company does their business electronically through their

website to save the fi xed costs. Their monitors are built in

Mexico and the hard drives are made in China. All they

do in US is assemble and ship. The problem taxonomy in

this area can be grouped in to two types. The fi rst type is

the routing problem, which is related to fi nding optimal

transportation routes. The second type of problem is the

transportation scheduling problem, which deals with

determining the optimal order of different transportation

systems.

Vehicle Routi ng Problems

The Vehicle Routing Problem (VRP) is defi ned as the

problem of fi nding a set of routes for a fl eet of vehicles

which have to service a number of stops or nodes. The

vehicles depart and arrive at a single depot. This is

similar to the standard traveling salesman problem, and

the Chinese postman problem. In combinatorial analysis,

this is an NP-hard problem. Therefore, there are several

heuristics. Breedam (2001) compares a descent (local

optimizer) heuristics and two meta-heuristics: Simulated

annealing and Tabu Search.

The voluminous research in this fi eld, though mostly

theoretical, does translate in to useful practical

implications. For example, the well known UPS (united

postal service) designs their routes so that the vehicles

avoids taking left turns as much as possible while

distribution. It saves the company loads of money in gas

by avoiding idling at the intersections and time delays.

The Transportati on Scheduling Problem

The transportation scheduling problem states that after

the optimal routing has been established, the problem

now would be to decide what quantity of which product to

transport by how many vehicles over a given period from

a node to another downstream so that the total inventory

costs and total transportation costs are minimized.

(Arunapuram et al., 2003).

N�t�or� D��i�n

The objective of the facility location problem is to

determine the optimal location of plants, warehouses,

and distribution centers, etc., which minimizes the total

production and distribution costs. Facility location

problems are also known as fi xed charge problems;

because, if a company decides to open a facility, it will

need to incur in a fi xed cost (the fi xed charge). Due to the

fi xed charge nature of the problem, the solution methods

of management science models normally use binary

variables (Nickel et al., 2003). These problems are also

known as facility location and capacity allocation. There

are immense incentives and perks given to companies

to open their businesses by the local, state or federal

governments to create job opportunities for the people

of that region. Then, the “client matching” is done if a

group of clients (retailers) can be served by a common

warehouse to save transportation costs.

Location in network design is a key factor that enhances

the effi ciency of the SCM, by reducing the long term costs

of inventory and transportation. One has only to look at

the Wal-Mart’s example of location and market place.

In 2006 (Fishman), there were 2074 Wal-Mart stores in

US. More than half of Americans live within fi ve miles

of a Wal-Mart store, less than a 10-minute drive away.

Ninety percent of Americans live within 15 miles of a

Wal-Mart store. The retail chain has obviously redefi ned

the effi ciency by expanding the business while reducing

the prices.

Efﬁ ciency Issues in Supply Chain Management 15

In�or��tion S��rin�

Information sharing is probably the most important

concept behind the SCM theory. The whole SCM theory is

based on the idea that cooperation yields better results for

the players in the supply chain. Many SCM researchers

have tried to evaluate the impact of information sharing

by using game theory.

A representative example, here, would be of Aviv (2001)

who developed a game theory model to analyze a two-

member supply chain (a retailer and a supplier). The

author used two scenarios in its model: the fi rst scenario,

called local forecasting by the author, assumes that

each member updates the forecasts of future demands

locally without cooperation. The second scenario, called

collaborative forecasting by the author, assumes that the

players in the supply chain jointly maintain an update a

single forecast. The author concludes that both scenarios

can bring benefi ts to the supply chain. The fi rst scenario’s

benefi ts mainly depend on the forecasting strength of

each individual. On the other hand, the second scenario’s

benefi ts are primarily when each player in the supply chain

has different forecasting strengths, and those strengths are

used together in a single forecast effort.

Supply chain practice focuses on material movement

whereas information sharing focuses on information

fl ow about demand upstream. Information sharing has

three components to it: information sharing support

technology, information content, and information quality.

The objective of information sharing about the forecast

of demands at different nodes of the supply chain is to

improve delivery performance. Delivery performance

is measured against: (i) committed date of delivery, for

which percent of late deliveries becomes a performance

measure (less is better), (ii) order fulfi llment rate and (iii)

delivery reliability (order fulfi llment lead time). A good

read on this topic would be Zhou and Benton Jr. (2007)

and Yu et al. (2009).

Conc�udin� R��r�� nd Furt��r

R��rc�

The effi ciency of a supply chain is a sum total of the local

effi ciencies at different nodes or components of a supply

chain. This would further enhance if proper information

sharing is conducted in the system. There have been

several attempts to actually and formally defi ne an

effi ciency measure of a supply chain, end to end. Silva et

al. (2009) do provide a formal measure as:

PSCM = ∑wi× fi

where, j= 1,…,n, is the number of partners in the supply

chain, wi is the weight that measures the importance of

the partner in network, and fi is the contribution of each

of the partners to the evaluated cost of the supply chain

in monitory units. This topic is still growing and more

research is needed to support the analytic modeling to

company specifi c situations .

R��r�nc��

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Reproduced with permission of copyright owner. Further reproduction prohibited

without permission.

BUSI 613

JOURNAL ARTICLE REVIEW ASSIGNMENT INSTRUCTIONS

OVERVIEW

MBA programs around the country are starting to require their students to become more effective

writers. This is in response to industry’s urging for grad schools to improve the writing skills of

graduate students. Writing at the MBA level should be informative, colorful, and nuanced, and

the writing should include simple words vs. complicated (especially if used out of context).

As you read the journal articles for this course, remember the context of the MBA degree. The

MBA is a practitioner’s degree. The degree signifies that you can think, analyze, solve problems;

and then communicate solutions to business executives effectively and efficiently. Your analysis

of the discussion in the articles, their relationship to this course, and implications related to the

each reading assignment will prepare you to communicate in this manner.

INSTRUCTIONS

In each assigned module, you will choose 1 journal article from those provided in the course.

Reviews of substitute articles will not be accepted. Write a Journal Article Review of 900-1200

words, not including the title page or reference page. For each Journal Article Review, you

must discuss how the theoretical model or treatment described in the article compares to the

information discussed in your textbook. No more than 20% of each Journal Article Review

may be quotations. You must cite and reference the original article, the course textbook, and one

additional scholarly article.

Each Journal Article Review assignment must include these sections:

 Title page

 Article caption at top of first page of text (current APA style) to identify the article

 Statement of the author's purpose

 Background of the issue

 Application of supply chain management theory relevant to article

 Managerial implications of article findings (2–3 paragraphs)

 Summary of the article and its context

 References (Current APA style)

Students must follow this format for their review.

Chapter

Five

Warehousing

Packaging

and

Materials

Handling

Warehousing,

Handling,

and

Chapter

Outline

Strategic

Warehousing

Service

Benefits

Economic

Benefits

Warehouse

Ownership

Arrangements

Private

Public

Contract

Network

Deployment

Warehouse

Decisions

Site

Selection

Design

Product-Mix

Analysis

Expansion

Handling

Layout

Sizing

Warehouse

Operations

Primary

Warehouse

Operations

Product

Handling

Product

Handling

Considerations

Storage

Secondary

Warehouse

Operations

Accuracy

and

Audits

Security

Safety

and

Maintenance

Environmental

Concerns

and

Regulatory

Environment

Systems

Warehouse

Management

Systems

Yard

Management

Systems

Information-Directed

Systems

Packaging

Perspectives

Packaging

for

Handling

Efficiency

Package

Design

Unitization

Communication

Summary

Study

Questions

Challenge

Questions

Supply

Chain

Logistics

Management,

Fifth

Edition

CHAPTER

Materials

Packaging

219

Chapter

Warehousing,

Materials

Handling,

and

Packaging

production

strategies.

While

the

basic

notion

JIT

reduce

work-in-process

inventory,

such

manufacturing

strategies

need

dependable

logistics

support.

the

outbound,

market-facing,

side

manufacturing,

warehouses

can

used

create

product

assortments

for

customer

shipment.

The

capability

receive

mixed

prod-

uct

shipments

offers

customers

two

specific

advantages.

First,

logistical

cost

reduced

because

assortment

products

can

delivered

while

taking

advantage

consoli-

dated

transportation.

Second,

inventory

slow-moving

products

can

reduced

because

the

capability

receive

smaller

quantities

part

larger

consolidated

shipment.

Manufacturers

that

provide

sorted

and

sequenced

product

shipments

timely

basis

are

positioned

achieve

competitive

advantage.

important

goal

warehousing

maximize

flexibility.

Flexibility

facilitated

information

technology.

Technology

has

influenced

almost

every

aspect

warehouse

operations

creating

new

and

better

ways

perform

storage

and

handling.

Flexibility

also

essential

part

being

able

respond

ever-changing

customer

demand

terms

product

assortments,

value-added

services,

and

the

manner

which

shipments

are

sequenced

and

presented.

Information

technology

facilitates

flexibility

allowing

warehouse

operators

quickly

react

changing

customer

requirements.

Benefits

realized

from

strategic

warehousing

are

classified

service

and

economic.

warehousing

should

included

logistical

system

unless

fully

justified

some

combination

cost

and

service.

Ideally,

warehouse

will

simultaneously

provide

both

service

and

economic

benefits.

Service

Benefits

Warehouses

can

provide

services

that

enhance

top-line

revenue

growth.

When

ware-

house

primarily

justified

service,

the

supporting

rationale

that

profits

from

sales

improvements

will

than

offset

added

cost.

It is

difficult

assignment

quantify

service

return-on-investment

because

it’s

hard

measure.

For

example,

establishing

warehouse

service

specific

market

may

increase

cost

but

should

also

increase

market

sales,

revenue,

and

potentially

gross

margin.

Warehouses

can

improve

service

three ways:

(1)

spot-stocking,

(2)

full-line

stocking,

and

(3)

value-added

services.

Spot-Stocking

Spot-stocking

typically

used

support

customer

requirements.

Manufacturers

highly

seasonal

products

often

spot-stock.

Instead

maintaining

inventory

in a

warehouse

year-

round,

shipping

customers

direct

from

manufacturing

plants,

responsiveness

peak

selling

periods

can

enhanced

through

temporary

inventory

positioning

strategic

mar-

kets.

Under

this

concept,

select

inventory

positioned

spot-stocked

local

market

warehouse

anticipation

responding

customer

need

during

the

critical

sales

period.

Utilizing

warehouse

facilities

for

spot-stocking

allows

inventories

be placed

variety

markets

adjacent

key

customers

just

prior

period

high

seasonal

sales.

For

example,

agricultural

fertilizer

companies

sometimes

spot-stock

near

farmers

anticipa-

tion

the

growing

season.

After

the

growing

season,

such

spot-stocking

would

likely

reduced

eliminated.

Full-Line

Stocking

The

traditional

use

warehouses

manufacturers,

wholesalers,

and

retailers

stock

product

inventory

combinations

anticipation

customer

orders.

Typical

retail-

ers

and

wholesalers

provide

inventory

assortments

multiple

products

from

different

Supply

Chain

Logistics

Management,

Fifth

Edition

221

Chapter

Warehousing,

Materials

Handling,

and

Packaging

reduced.

When

total

cost

reductions

are

achievable,

the

warehouse

economically

justified.

Four

basic

economic

benefits

are:

(1)

consolidation

and

break-bulk,

(2)

sorting,

(3)

seasonal

storage,

and

(4)

reverse

logistics.

Consolidation

and

Break-Bulk

The

economic

benefits

consolidation

and

break-bulk

are to

reduce

transportation

cost

using

warehouse

capability

increase

the

size

shipments.

consolidation,

the

warehouse

receives

inventory,

from

number

sources,

that are

combined

into

a large

single

shipment

specific

destination.

The

benefits

of consolida-

tion

are the

realization

the

lowest

possible

freight

rate,

timely

and

controlled

delivery,

and

reduced

congestion

customer’s

receiving

dock.

The

consolidation

enables

both

the

inbound

movement

from

origin

and

the

outbound

movement

destination

consoli-

dated

into

larger

shipment,

which

generally

results

lower

transportation

charges

per

unit

and

most

often

quicker

delivery.

break-bulk

operation

receives

single

large

shipment

and

arranges

for

delivery

multiple

destinations.

Economy

scale

achieved

transporting

the

larger

shipment

from

origin

destination.

The

break-bulk

warehouse

terminal

sorts

splits

the

larger

shipment

into

individual

orders

for

customer

delivery.

Both

consolidation

and

break-bulk

arrangements

use

warehouse

capacity

improve

transportation

efficiency.

Many

logistical

arrangements

involve

both

consolidation

and

break-bulk.

Figure

9.1

illustrates

each

activity.

Sorting

The

basic

benefit

sorting

reconfigure

freight

being

transported

from

ori-

gin

destination.

Three

types

assortment—cross-docking, mixing,

and

assembly—are

widely

performed

logistical

systems.

Consolidation

Plant

Customer

“vareouses

ala|c

Plant

Break-Bulk

Customer

Pant

Customer

Supply

Chain

Logistics

Management,

Fifth

Edition

FIGURE

9.1

Consolidation

and

Break-Bulk

Arrangements

223

Chapter

Warehousing,

Materials

Handling,

and

Packaging

225

Cross-Dock

FIGURE

9.2

Sorting

Arrangements

Company

Plant

Customer

Company

Distribution

Customer

center

Customer

Company

Plant

Mixing

Customer

cy;D

Pied

Customer

€||>

Mixing

Product

point

Customer

Product

Customer

Sorting

and

Assembly

Vendor

Lead

supplier

Vendor

distribution

Manufacturing

plant

center

Vendor

Retail

Vendor

distribution

Retail

store

center

Vendor

Chapter

Warehousing,

Materials

Handling,

and

Packaging

for

lease

that

fits

specialized

logistical

requirements;

for

example,

the

physical

nature

available

building

may

not

conducive

for

efficient

handling,

such

buildings

with

inappropriate

storage

racks

with

shipping/receiving

dock

support

column

con-

straints.

The

only

suitable

course

of action

may

then

design

and

arrange

for

new

construction.

The

major

benefits

private

warehousing

are

control,

flexibility,

cost,

and

range

intangibles,

Private

warehouses

offer

substantial

control

since

management

has

authority

prioritize

activities.

Such

control

should

facilitate

integration

warehouse

operations

with

the

balance

firm’s

logistics

operations.

Private

warehouses

generally

offer

flexibility

since

operating

policies,

hours,

and

procedures

can

adjusted

meet

specific

customer

and

product

requirements.

Firms

with

very

specialized

customers

products

are

often

motivated

own

and

operate

warehouses.

Private

warehousing

usually

considered

less

costly

than

public

warehousing

because

private

facilities

are

not operated

for

profit.

result,

both

the

fixed

and

variable

cost

components

private

warehouse

may

lower

than

for-hire

counterparts.

Finally,

private

warehousing

may

offer

intangible

benefits.

private

warehouse,

with

the

firm’s

name

its

sign,

may

stimulate

customer

perceptions

responsiveness

and

sta-

bility.

This

perception

may

provide

marketing

image

comparison

competitors.

Despite

the

noted

benefits,

the

use of

private

warehousing

declining

because

increasing

managerial

interest

reducing

capital

invested

logistical

assets.

Also,

the

perceived

cost

benefit

private

warehousing

potentially

offset

public

warehouse’s

ability

gain

operational

economies

scale

and

scope

result

the

combined

throughput

multiple

clients.

Public

warehouses

are

used

extensively

logistical

systems.

Almost

any

combination

services

can

arranged

for-hire

basis

for

either

short

long

term.

Public

warehouses

have

traditionally

been

classified

based

operational

specialization

such

(1)

general

merchandise,

(2)

refrigerated,

(3)

special

commodity,

(4)

bonded,

and

(5)

household

goods

and

furniture,

General

merchandise

warehouses

are

designed

handle

package

products

such

elec-

tronics,

paper,

food,

small

appliances,

and

household

supplies.

Refrigerated

warehouses

typically

offer

frozen

cooler

capacity

designed

protect

food,

medical,

photographic,

and

chemical

products

requiring

temperature

control.

Special

commodity

warehouses

are

designed

handle

bulk

material

items

requiring

special

handling,

such

tires

clothing.

Bonded

warehouses

are

licensed

the

government

store

goods

prior

payment

taxes

import/export

duties.

They

exert

tight

control

over

movements

and

out

the

facility,

since

documents

must

accompany

each

move.

Finally,

household

goods

furniture

warehouses

specialize

handling

and

storing

large,

bulky

items

such

appliances

and

furniture.

course,

many

public

warehouses

offer

combination

services.

Public

warehouses

provide

flexibility

and

shared

services

benefits.

They

have

the

potential

offer

operating

and

managementexpertise

since

warehousing

their

core

business.

From

financial

perspective,

public

warehousing

may

able to

achieve

lower

operat-

ing

cost

than

private

facilities.

Such

variable

cost

differential

may

result

from

lower

wage

scales,

better

productivity,

and

shared

overhead

among

clients.

Public

warehouses

typi-

cally

not

require

capital

investment

the

part

their

customers.

When

management

performance

judged

according

return

investment,

the

use of

public

warehousing

can

attractive

alternative.

Public

warehousing

offers

flexibility

concerning

size

and

Supply

Chain

Logistics

Management,

Fifth

Edition

227

Chapter

Warehousing,

Materials

Handling,

and

Packaging

Warehouse

Decisions

The

basic

concept

that

warehouses

provide

enclosure

for

material

storage

and

handling

requires

detailed

analysis

before

the

size,

type,

and

shape

the

facility

can

determined.

This

section

reviews

planning

issues

that

establish

the

character

the

warehouse,

which

turn

determines

attainable

handling

efficiency.

These

decisions

are

common

private

warehousing

compared

public

when

facilities

already

exist.

Site

Selection

The

first

task

identify

both

the

general

area

and

then

the

specific

warehouse

location.

The

general

area

concerns

the

broad

geography

where

active

warehouse

makes

sense

from

service,

economic,

and

strategic

perspective.

The

general

question

focuses

the

broader

geographic

area

illustrated

the

need

place

warehouse

the

Midwest,

which

generally

implies

having

facility

Illinois,

Indiana,

Wisconsin.

contrast,

retailer

such

Target

Home

Depot

typically

selects

warehouse

location

that

central to a

prerequisite

number

retail

store

locations.

Thus,

the

selection

and

number

retail

outlets

drive

the

support

warehouse

location.

Network

design

discussed

Chapter

11.

Once

the

general

warehouse

location

determined,

aspecific

building

site

must

identified.

Typical

areas

community

for

locating

warehouses

are

commercial

develop-

ments

and

outlying

suburban

areas,

The

factors

driving

site

selection

are

service

avail-

ability

and

cost.

Land

cost

important

factor.

many

cities,

warehouses

are

among

industrial

plants

and

areas

zoned

for

light

heavy

industry.

Most

warehouses

can

oper:

ate

legally

under

the

restrictions

placed

upon

general

commercial

property.

Beyond

procurement

cost,

setup,

and

operating

expenses

such

transport

access,

util-

ity

hookups,

taxes,

and

insurance

rates

require

evaluation.

The

cost

essential

services

may

vary

extensively

between

sites.

Several

other

requirements

must

satisfied

before

site

selected.

The

site

must

offer

adequate

room

for

expansion.

Necessary

utilities

must

available.

The

soil

must

capable

supporting

the

structure.

The

site

must

sufficiently

high

afford

proper

water

drainage.

Additional

requirements

may

situationally

necessary,

depending

upon

the

structure

constructed.

For

these

reasons

and

others,

the

final

selection

the

site

should

preceded

extensive

analysis.

Design

Warehouse

design

must

consider

product

movement

characteristics.

Three

factors

determined

during

the

design

process

are

the

number

floors

include

the

facility,

cube

utilization

plan,

and

product

flow.

The

ideal

warehouse

design

one-floor

building

that

eliminates

the

need

move

product

vertically.

The

use

vertical

handling

devices,

such

as elevators

and

conveyors,

move

product

from

one

floor

the

requires

time

and

energy,

and

typically

creates

handling

bottlenecks.

So,

while

not

always

possible,

particularly

business

districts

where

land

restricted

expensive,

as a

general

rule

distribution

warehouses

should be

designed

one-floor

operations

facilitate

handling.

Warehouse

design

must

maximize

cubic

utilization.

Most

warehouses

are

designed

with

30-

40-foot

clear

ceilings,

although

selected

automated

and

high-rise

handling

equip-

ment

can

effectively

use

heights

over

100

feet.

Maximum

effective

warehouse

height

lim-

ited

the

safe

lifting

capabilities

handling

equipment,

such

lift

trucks,

rack

design,

and

fire

safety

regulations

imposed

sprinkler

systems.

Supply

Chain

Logistics

Management,

Fifth

Edition

229

Chapter

Warehousing,

Materials

Handling,

and

Packaging

Handling

handling

system

the

basic

driver

warehouse

design.

warehouse

appropriately

viewed

as a

structure

designed

facilitate

efficient

product

flow.

important

stress

that

the

handling

system

must

selected

early

the

warehouse

development

process.

Handling

equipment

and

technology

are

discussed

later

this

chapter.

Layout

The

layout

storage

areas

warehouse

should

planned

facilitate

product

flow.

The

layout

and

the

handling

system

are

integral.

addition,

special

attention

must

given

location,

number,

and

design

receiving

and

docks.

It is

difficult

generalize

warehouse

layouts

since

they

are

usually

customized

accommodate

specific

product

handling

requirements.

pallets

are

utilized,

early

step

determine

the

appropriate

size.

pallet

nonstandard

size

may

desirable

for

spe-

cialized

products.

The

most

common

pallet

sizes

are

inches

and

inches.

Analysis

product

cases,

stacking

patterns,

and

industry

practices

will

determine

the

size

pallet

best

suited

the

operation.

The

second

step

planning

warehouse

layout

involves

pallet

positioning.

The

most

common

practice

positioning

pallets

degree,

square,

placement

the

aisle.

The

placement

specific

products

selected

pallet

locations

called

slotting.

Naturally,

key

efficient

layout

well-developed

slotting

plan.

Finally,

the

handling

equipment

must be

integrated

finalize

layout.

The

path

and

tempo

product

flow

depend

upon

the

handling

system.

illustrate

the

relationship

between

handling

and

layout,

two

systems

and

their

respective

layouts

are

illustrated

Figure

9.4.

These

examples

represent

two

many

possible

layouts.

Supply

Chain

Logistics

Management,

Fifth

Edition

231

Truck

Receiving

Picking

Area

Storage

Area

Remote

Storage

Picking

from

Storage

along

Line

Truck

Shipping

Truck

Shipping

Layout

FIGURE

9.4

Layouts

and

Chapter

Warehousing,

Materials

Handling,

and

Packaging

damage.

Thus,

as a

general

rule,

longer

warehouse

handling

movements

are

preferred.

Ideally,

goods,

once

motion,

should

continuously

moved

until

arrival

their

final

destination.

Scale

economies

justify

moving

the

largest

quantities

loads

possible.

Instead

mov-

ing

individual

cases,

handling

procedures

should

designed

move

cases

grouped

pallets,

slipsheets,

containers,

The

overall

objective

handling

eventually

sort

inbound

shipments

into

unique

customer

assortments.

The

five

primary

handling

activities

are

receiving,

putaway

in-storage

handling,

order-picking,

and

shipping.

Receiving

The

majority

products

and

materials

arrive

warehouses

large-quantity

truck

ship-

ments.

The

first

handling

activity

unloading.

most

warehouses,

unloading

per-

formed

using

combination

lift

trucks,

conveyors,

and

manual

processes.

When

the

freight

floor

stacked

the

transportation

vehicle,

the

typical

procedure

group

prod-

ucts

SKU

into

unit

loads

using

pallets

other

methods

conveyance.

some

situa-

tions,

products

are

placed

directly

onto

conveyors

facilitate

receiving.

When

inbound

product

arrives

unitized

pallets

containers,

lift

trucks

are

primarily

used

move

the

product

from

vehicles

the receiving

dock.

primary

benefit

receiving

unitized

loads

the

ability

rapidly

unload

and

release

inbound

transportation

equipment.

The

receiving

process

also

responsible

for

ensuring

the

SKUs

and

quantities

the

bill

lading

match

the

physical

receipt.

Receiving

teams

are

often

responsible

for

reporting

over,

short,

and

damage

(OS&D)

the

administrative

office

can

shared

with

the

ship-

per

for

commercial

reconciliation.

Receiving

product

accurately

and

efficiently

the

first

step

toward

running

efficient

warehouse

operation.

Product

Putaway

the

vast

majority

applications,

the

second

handling

function

product

putaway.

Product

may

placed

in active

storage

locations

secondary

locations.

Depending

how

the

product

unitized,

this

could

include

floor-stacking

product,

placing

pallets

product

into

racks,

placing

individual

packages

into

flow

racks

other

storage

systems.

Product

putaway

usually

designed

efficient

possible,

meaning

the

use

fork

trucks

and

other

tools

help

achieve

speed

of operations

are

common.

In-Storage

Product

Handling

Once

product

placed

into

storage

location,

fairly

common

for

that

product

moved

within the

facility

for

variety

reasons.

One

reason

could

the

replenishment

active

storage

locations

with

inventory

originally

placed

secondary

location.

This

concept

often

referred

replenishment.

The

amount

replenishment

warehouse

must

complete

usually

good

indicator

active

storage

bin

sizing

and

strategy.

warehouse

never

needs

replenish,

active

storage

locations

may

too

large,

resulting

order-picking

labor

inefficiency.

replenishment

occurs

frequently,

active

storage

areas

may

too

small,

resulting

temporary

stockouts,

picking

inefficiency,

and

proliferation

replenishment

movements.

critical

strike

balance

regarding

how

much

replen-

ishment

activity

takes

place

within a

given

warehouse.

Another

handling

operation

could

product

consolidation

create

space

efficiency,

For

example,

warehouse

may

have

similar

product

with

quantities

hand

that

enable

the

products

combined

common

area

gain

storage

efficiency,

Sometimes

first-in,

first-out

(FIFO)

sequencing

requires

product

moved

from

secondary

primary

storage

design

due

product

Supply

Chain

Logistics

Management,

Fifth

Edition

233

Supply

Chain

Logistics

Management,

Fifth

Edition

Chapter

Warehousing,

Materials

Handling,

and

Packaging

235

TABLE

9.2

Equipment

for

handling

and

storage

should

as standardized as

possible.

;

Principles

Handling

When

motion,

the

system

should

designed

provide

maximum

continuous

product

flow.

Investment

should

handling

rather

than

stationary

equipment.

Handling

equipment

should

utilized

the

maximum

extent

possible.

handling

equipment

selection

the

ratio

dead

weight

payload

should

minimized.

Whenever

practical,

gravity

flow

should

incorporated

system

design

Handling

systems

can

classified

mechanized, semiautomated,

and

automated.

some

cases,

special

handling

considerations

exist.

combination

labor

and

handling

equipment

utilized

mechanized

systems

facilitate

receiving,

processing,

and/or

shipping.

Generally,

labor

constitutes

high

percentage

overall

cost in

mechanized

handling.

Automated

systems,

contrast,

attempt

minimize

labor

much

possible

substituting

equipment

capital

investment.

When

combination

mechanical

and

automated

systems

used

handle

material,

the

system

referred

semiautomated.

Mechanized

handling

systems

are

most

common,

but

the

use

semiautomated,

and

auto-

mated.

Each

approach

handling

discussed

greater

detail.

Mechanized

Systems

Mechanized

systems

employ

wide

range

handling

equipment.

The

types

equipment

most

commonly

used

are

lift

trucks,

rider

trucks,

towlines,

tractor-trailer

devices,

convey-

ors,

and

carousels,

Lift

Trucks

Lift

trucks,

also

called

forklifts,

can

move

loads

master

cartons

both

horizontally

and

vertically

but are

limited

handling

unit

loads.

Skids,

boxes, or

containers

may

also

transported,

depending

upon

the

nature

the

product.

Many

types

lift

trucks

are

available.

High-stacking

trucks

are

capable

feet

vertical

movement.

Palletless

clamp

trucks

are

available

for

handling

products

without

pallets

slipsheets.

Other

lift

truck

variations

are

available

for

narrow

aisle

and

side-loading

operations.

The

lift

truck

not

economical

for

long-distance

horizontal

move-

ment

because

the

high

ratio

labor

per

unit

transfer.

overcome

this

limitation

great

deal

research

has focused

“driverless”

fork trucks.

These

new

advances

are

discussed

under

semi-automated

handling

systems.

Conventionallift

trucks

are

utilized

shipping

and

receiving

operations

and

place

merchandise

high

cube

storage.

The

two

most

common

power

sources

for

lift

trucks

are

propane

gas

and

battery.

Towlines

consist

either

in-floor

overhead-mounted

cable

drag

devices.

They

are

utilized

provide

continuous

power

four-wheel

trailers.

The

main

advantage

tow-

line

continuous

movement.

However,

such

handling

devices

have

far

less

flexibility

than

lift

trucks.

The

most common

application

towlines

for

master

carton

order

selection.

Order

selectors

place

master

cartons

four-wheel

trailers

that

are

then

towed

the

ship-

ping

dock.

number

automated

decoupling

devices

are available to

route

trailers

from

the

main

towline

specified

shipping

docks.

Tractor

Trailers

Tractor

trailers

consist

driver-guided

power

unit

towing

one

four-wheel

trailers.

The

typical

size

the

trailers

feet.

The

tractor

combination

with

trailer,

towline,

used

during

order

selection.

The

main

advantage

tow

tractor

with

trailers

flexibility,

not

economical

the

towline

because

each

tow

unit

requires

driver.

Chapter

Warehousing,

Materials

Handling,

and

Packaging

and

sequencing

into individual

orders

prior

shipment.

Most

sortation

devices

can be

pro-

grammed

permit

customized

flow

and

decision

logic

accommodate

unique

requirements.

Automated

sortation

provides

two

primary

benefits.

The

first

reduction

in labor.

The

second

significant

increase

speed

and

accuracy

order

selection.

High-speed

sortation

systems,

such

those

used

United

Parcel

Service,

can

sort

and

align

pack-

ages

rates

exceeding

one

package

per

second.

Robotics

One

the

fastest-growing

methods

materials

handling

the

use

robots.

The

robot

machine

that

can

programmed

perform

one

handling

activities

without

the

intervention

attendant

driver.

Initial

attention to

robotics

resulted

from

attempts

the

early

1980s

employ

limited-function

stationary

robots

automotive

assembly.

The

automotive

experiment

was

less

than

total

success.

However,

great

deal of

advance-

ment

robotics

has

occurred

over

the

past

years.

The

primary

use

robotics

today

materials

handling

both

manufacturing

and

warehouse

operating

environments,

Robotics

are

increasingly

being

used

many

different

handling

environments.

Ini-

tially,

robotic

applications

were

attractive

replacements

for

manual

labor

highly

repet-

itive

situations.

For

example

early

robotic

applications

were

palletizing,

order

selection,

and

routine

material

handling

situations.

primary

benefit

robotics

their

sustain-

able

performance

accuracy.

Economic

justification

robotics

typically

driven

some

combination

five

factors:

(1)

space

limitations;

(2)

faster

order

delivery

cycle

time

requirements;

(3)

predictable

and

substantial

throughput

volume;

(4)

high

labor

costs;

and/

(5)

restrictive

work

environments

such

frozen

food

warehouse

order

selection.

Recent

years

have

witnessed

significant

advancements

the

development

flexibility

robotic

applications.

Applications

gaining

popularity

are

inbound

merchandise

put-a-way

and

order

selection

frozen

food

distribution

centers.

In both

examples,

the

use

robots

reduces

exposure

ofworkers

the

low

temperature

maintained

the

working

environment.

The

long-term

potential

for

the

application

robots

throughout

the

supply

chain

promising.

Almost

any

handling

task

that involves

repetitive

movements

candidate

for

either

automation

robotic

processing.

When

the

activity

stationary,

such

palletizing

de-palletizing

cartons

merchandize,

the

likely

solution

will

some

form

automa-

tion.

When

the

work

task

involves

horizontal

movement

multiple

directions,

the

applica-

tion

likely

involve

some

form

robotics.

the

longer

term,

likely

that

limited

forms

driverless

vehicles

will

increase

utili-

zation.

Pilotless

airborne

drones

are

increasingly

being

used

military

operations

attack

weapons

and

for

surveillance.

Semi-trucks

have

successfully

been

driven

without

drivers

the

truck

both within yard

operations

and

for

limited

distances

public

roads.

While

this

form

robotics

requires

combined

human

and

technology

interaction,

the

range

of poten-

tial

applications

seems

unlimited.

particular

interest

future

supply

chain

operations

the

growing

combination

physicians

and

robots

medical

surgery.

selected surgical

procedures,

experienced

physicians

provide

guidance

and

make

critical

decisions

during

the

operation.

The

robot, a

precise

machine,

instructed

the

physician

specific

routine

and

complete

sequence

precise

surgical

procedures.

course medical

expertise

available

the

operating

facility

assist

and

complete

the

pre-

and

post-surgical

protocols.

important

point

for

future

supply

chain

logistics

applications

the

potential

generated

the

fact

that

the

physician

and

the

robot

not

have

the

same

physical

location

complete a

successful

medical

procedure.

capture

this

extended

deployment,

wherein

expert

knowledge

combined

with

robotic

capability,

have

adopted

the

term

probotics,

Significant

potential

exists

for

increased use

robotics

warehousing

and

material

handlings.

particular

interest

are

the

applications

that

are

extending

the

potential

probotics

beyond

the

warehouse

and

factory

walls.

237

Chapter9

Warehousing,

Materials

Handling,

and

Packaging

products

placed

shipment

containers

prior

to transfer to

the

shipment

staging

area.

Product

is,

ideally,

selected

and

loaded

sequentially

can

unloaded

the

sequence

desired

the

customer.

Substantial

advancements

have

been

made

automated

selection

case

goods.

The

handling

fast-moving

products

master

cartons,

typical

cross-docking,

can

fully

automated

from

the

point

merchandise

receipt

placement

over-the-road

trailers.

Such

systems use

integrated

network

power

and

gravity

conveyors

linking

power-

motivated

live

storage.

The

entire

process

computer

controlled

and

coupled

with

the

mer-

chandise

order

and

WMS.

Upon

arrival,

merchandise

automatically

routed

the

live

storage

position

and

inventory

records

are

updated.

When

orders

are

received,

merchan-

dise

precubed

package

vehicle

size

and

scheduled

for

selection.

the

appropriate

time,

merchandise

selected

sequence

and

automatically

moved

conveyor

the

dock.

some

situations,

the

first

and

only

manual

handling

the

merchan-

dise

within

the

warehouse

occurs

when

stacked

into

the

outbound

transport

vehicle.

Automated

Storage/Retrieval

automated

unitload

handling

system,

automated

storage

and

retrieval

system

(AS/RS),

using

high-rise

storage

increasingly

popular

form

automation.

Figure

9.5

illustrates

the

concept

high-rise

AS/RS.

AS/RSs

are

particularly

appropri-

ate for

items

such

heavy

boxes

those

products

controlled

environments

such

bakeries

frozen

food.

The

high-rise

concept

handling

typically

automated

from

receiving

shipping.

The

four

primary

AS/RS

components

include

storage

racks,

storage

and

retrieval

equipment,

input/output

system,

and

control

system.

The name

high-rise

derives

from

the

physical

appearance

the

storage

rack.

The

rack

structured-steel

vertical

storage,

which

can

high

120

feet.

The

typical

stacking

height

palletized

cartons

in a

mechanized

handling

system

feet,

the

potential

Unit

load

storage

rack

Storage

and

retrieval

aisle

Supply

Chain

Logistics

Management,

Fifth

Edition

FIGURE

9.5

ASIRS

High-Rise

Warehouse

239

Supply

Chain

Logistics

Management,

Fifth

Edition

Chapter

Warehousing,

Materials

Handling,

and

Packaging

241

and

handling

processes

most

appropriate

support

this

activity.

many

cases,

these

e-tailers

are

outsourcing

fulfillment

integrated

service

providers

(ISPs).

any

case,

the

e-tailing

environment

will

continue

place

increasing

demands

timely,

respon-

sive,

and

integrated

warehouse

and

materials

handling

operation.

Returns

Processing

For

variety

reasons,

merchandise

may

recalled

returned

manufacturer.

This

particularly

true

e-tailing

environment

where

percent

orders are

returned.

Normally

such

reverse

logistics

not

sufficient

quantity or

regularity

to jus-

tify

unitized

movement,

the

only

convenient

method

for

processing

reverse

flows

merchandise

manual

handling.

the

degree

practical,

materials

handling

design

should

consider

the

cost

and

service

impact

reverse

logistics.

Such

flows

often

involve

pallets,

cartons,

and

packaging

materials

addition

damaged,

dated,

excess

merchandise.

Many

firms

are

choosing

have

returns

processed

by an

integrated

service

provider

separate

flows

and

reduce

the

chance

for

error

contamination.

Storage

planning

warehouse

layout,

essential

that

products

assigned

specific

loca-

tions,

called

slots,

the

basis

individual

characteristics.

The

most

important

product

variables

consider

slotting

plan

are

product

velocity,

weight,

and

special

storage

requirements.

Product

velocity

the

major

factor

driving

warehouse

layout.

High-volume

product

should

positioned

the

warehouse

minimize

movement

distance.

For

example,

high-velocity

products

should

positioned

near

doors,

primary

aisles,

and

lower

levels

storage

racks,

Such

positioning

minimizes

warehouse

handling

and

reduces

the

need

for

frequent

lifting.

Conversely,

products

with

low

volume

are

typically

assigned

locations

distant from

primary

aisles

higher

storage

racks.

Figure

9.6

illustrates

stor-

age

plan

based

product

movement

velocity.

Receiving

docks

FIGURE

9.6

i 1

——

Storage

Plan

Based

——

—S

_——

Product

Movement

Storage

space

for

Velocity

high-volume

product

Storagespacefar

jas

sees

seme

cocses

Storage

space

for

low-volume

product

|__

low-volume

product

Staging

and

(rosette

ree

Shipping

docks

Chapter

Warehousing,

Materials

Handling,

and

Packaging

case,

the

discount

savings

have

traded

off

against

extended

storage

and

inventory

carrying

cost.

Commodities

such

grains,

oil,

and

lumber

are

often

purchased

and

stored

for

speculative

reasons.

The

warehouse

may

also

usedto

realize

special

discounts.

Early

purchase

forward-

buy

discounts

may

justify

extended

storage.

The

procurement

manager

may

able

real-

ize

substantial

price

reduction

during

specific

time

the

year.

Under

such

conditions

the

warehouse

expected

hold

inventory

excess

active

storage.

Manufacturers

fertilizer,

toys,

and

lawn

furniture

often

attempt

shift

the

warehousing

burden

cus-

tomers

offering

off-season

warehouse

storage

allowances.

Secondary

Warehouse

Operations

Accuracy

and

Audits

One

secondary,

but

critically

important,

warehouse

function

maintaining

accurate

account

product

hand

within

the

warehouse.

Inventory

accuracy

primary

con-

cern

firms

financial

organizations

because

the

inventory

the warehouse

is,

most

cases,

considered

asset

the

firm's

balance

sheet.

Inventory

accuracy

typically

main-

tained

by an

annual

physical

inventory

count

which

the

warehouse

operation

closed

while

all

on-hand

products

are

physical

counted

and

verified

against

system

quantities.

Physical

inventories

are

less

than

desirable

for

two

main

reasons:

(1)

The

warehouse

must

closed

facilitate

counting

environment

with

active

transactions,

resulting

the

warehouse

being

unable

conduct primary

functions

such

receiving

and

shipping,

and

(2)

the

audits

are

costly

because

they

require

significant

physical

labor

count

all

on-

hand

inventory.

One

tool

firms

use

support

ongoing

accuracy

and

help

avoid

complete

physical

inventories

referred

cycle

counting.

Cycle

counting

the

selective

audit

certain

number

SKUs

bin

locations

predetermined

schedule.

Selection

individual

items

counted

and

verified

can

based

the

dollar

value

the

item,

storage

locations,

frequency

movement.

completing

many,

small

cycle

counts,

warehouse

can

demonstrate

inventory

control

without

pervasively

affecting

day-to-day

operations.

The

outcome

both

physical

inventory

and

cycle

count

the

reconcilia-

tion

between

physical

on-hand

product

compared

the

book

warehouse

management

system

quantities.

Audits

inventory

accuracy

are

only

one

type

audit

that

typically

used

maintain

and

improve

warehouse

operating

efficiency.

Audits

are

also

common

main-

tain

safety,

assure

compliance

security

regulations,

drive

procedural

improvement,

and

facilitate

work

changes.

Security

broad

sense,

security

warehouse

involves

protection

against

merchandise

pilfer-

age,

deterioration,

and

any

form

operational

disruption.

Each

form

security

requires

management

attention.

Pilferage

warehouse

operations

necessary

protect

against

theft

employees

and

thieves.

Typical

security

procedures

should

strictly

enforced

each

warehouse.

Security

begins

the

exterior

fence.

standard

procedure,

only

authorized

personnel

should

permit-

ted

into

the

facility

and on

surrounding

grounds.

Entry

the

warehouse

yard

should

Supply

Chain

Logistics

Management,

Fifth

Edition

243

Chapter

Warehousing,

Materials

Handling,

and

Packaging

result

product seepage

onto

the

floor.

Proper

cleaning

procedures

can

reduce

the

acci-

dent

risk

such

hazards.

Environmental

safety

has

become

major

concern

govern-

ment

agencies

such

OSHA

and

cannot

neglected

management.

preventative

maintenance

program

necessary

for

handling

equipment.

Unlike

pro-

duction

machines,

movement

equipment

not

stationary,

difficult

properly

maintain.

preventative

maintenance

program

scheduling

periodic

checks

all

handling

equipment

should

applied

every

warehouse.

Additionally

preventative

maintenance

can

also

applicable

the

physical

warehouse

building

itself.

Common

building

preventative

maintenance

programs

include

the

facil-

ity

HVAC

and

fire

suppression

systems,

dock

leveling

equipment

used

enter

and

exit

transportation

vehicles,

the

restriping

the

warehouse

floor

maintain

traffic

pattern

efficiency.

Other

examples

include

replacement

light

bulbs

both

inside

and

outside

the

warehouse

the

resurfacing

the

exterior

warehouse

truck

yard

ensure

transportation

equipment

not

damaged

potholes.

Environmental

Concerns

and

Regulatory

Environment

There

increased

concern

regarding

environmental

impact

packaging

and

handling,

particular,

attention

has

been

directed

the

impact

handling

equipment

such

lift

trucks,

Pollution

gas

powered

lift

trucks

similar to that

automobile

engines.

There

also

increasing

interest

regarding

the

handling

and

disposal

hazardous

materials

used

stored

warehouse

operations.

Firms

have

ensure

that

such

materials

are

disposed

properly

avoid

pollution

liability.

The

distribution

warehouse

one

the

most

labor-intensive

operations

for

most

firms.

also

one

the

most

dangerous

numerous

injuries

occur

annually.

increase

safe

practices

OSHA

extended

its

regulatory

influence

over

warehouse

operations

and

technol-

ogy.

March

1999,

OSHA

established

the

Powered

Industrial

Truck

Operator

Training

(PITOT)

regulation

requiring

the

training

and

reevaluation

all

lift

truck

drivers.

Drivers

failing

evaluation

and

those

involved

accidents

must

undergo

refresher

training.

OSHA

concerned

with

all

aspects

safety

within

supply

chain

logistics

facilities

and

associated

shipping

and

receiving

docks.

Included

the

ongoing

safety

program

are

regu-

lar

inspections

facilities

ensure

existing

standards

are

being

adhered

during

daily

operations.

Table

9.3

reproduced

from

OSHA's

Handbook,

which

discusses

warehouse

safety.

The

table

lists

the

most

frequently

cited

warehouse

safety

violations.'

‘

Aadapted

from

OSHA:

Working

Safety

Series:

Warehousing,

United

States

Government,

OSHA

3220-10N,

2004,

Warehouse

operations

can

present

wide

variety

potential

hazards

for

the

worker.

For

warehousing

establishments,

the

OSHA

standards

most

frequently

included

the

agency's

citations

were:

Forklifts

Hazard

communication

Electrical,

wiring

methods

Electrical,

system

design

Guarding

floor

wall

openings

and

holes

Exits

Mechanical

power

transmission

Respiratory

protection

Lockout/tagout

10.

Portable

fire

extinguishers

Supply

Chain

Logistics

Management,

Fifth

Edition

TABLE

9.3

Warehouse

Hazards

245

Chapter

Warehousing,

Materials

Handling,

and

Packaging

Warehouse

Management

Systems

Basic

Functionality

Advanced

Functionality

Receiving

‘Yard

management

Put-away

Labor

management

Cycle-count

Warehouse

optimization

Pick

Value-added

services

Task

management

Planned

cross-dock

Quality

analysis

Returns

management

Replenishment

Pack

Opportunistic

cross-dock

Inventory

control

Work

order

management

Ship

Interface

systems

(middleware)

[__ERP—TMS—Material

handlingSupply

chain

planning

systems

—_|

transportation

vehicles.

Labor

management

refers

maximizing

the use

warehouse

labor.

Historically,

warehouse

labor

has

been

quite

specialized,

allowing

for

relatively

easy

planning.

Warehouse

optimization

refers

to selection

the

best

location

within

the

ware-

house

for

the

storage

and

retrieval

of product

minimize

time

and movement.

Value-

added

services

refer

the

coordination

warehouse

activities

customize

product,

such

packaging,

labeling,

kitting,

and

setting

displays.

Planned

cross-docking

and

merging

the

integration

two

parts

cus-

tomer

order

that

have

been

supplied

from

different

source without

maintaining

inventory,

final

execution

function

the

capability to

manage

reverse

logistics

activities

such

returns,

repair,

and

recycling.

Both

customers

and

environmental

interests

are

increasing

their

demands

that

supply chains

can

accommodate

reverse

logistics.

Table

9.4

summa-

rizes

WMS

functionality

and

decision

support

benefits.

Yard

Management

Systems

important

part

warehouse-related

information

technology

the

yard

manage-

ment

system

(YMS).

The YMS

essence

couples

the

warehouse

with

inbound and

outbound

transportation

equipment.

This

coordination

takes

the

form

of arranging

dock

appointments

for

receiving

ordered

merchandise

and

transportation

equipment

for

ship-

ping

outbound.

From

performance

perspective,

the

YMS

the

scheduler.

For

high-

level

transportation

and

warehousing

efficiency,

essential to

appropriately

sequence

inbound

and

outbound

warehouseactivity.

also

important

maintain

accurate

accountability

what

merchandise

and

transportation

equipment

the

warehouse

factory

yard.

Many

stories

exist

illustrate

the

dilemma

expediting

inbound

product

shipment

due

from

supplier

only

have

arrive

time

scheduled

and

dispatched

the

warehouse

yard

due

dock

availability.

appropriate

way

view

the

YMS

the

software

that

links

and

coordinates

transportation

(TMS)

with

the

warehouse

(WMS).

Supply Chain

Logistics

Management,

Fifth

Edition

247

FIGURE

9.7

Warehouse

Management

System

Functionality

Chapter9

Warehousing,

Materials

Handling,

and

Packaging

The

use

RFID

capabilities

creates

the

opportunity

for

two-way

communication

between

specific

products

and

lift

truck

operators.

Because

the

RFID-equipped

product

can

respond

inquiry

from

the

WMS

the

operator,

the

potential

exists

identify

the

exact

location

the

warehouse.

Such

positive

identification

serves

facilitate

information-

directed

handling.

Information-directed

handling

offers

great

potential

because

selected

benefits

auto-

mation

can

achieved without

substantial

capital

investment.

Information-directed

sys-

tems

can

also

substantially

increase

productivity

tracking

lift

truck

performance.

Substantial

research

being

conducted

explore

new

concepts of

warehouse

design

and

layout

fully

exploit

the

potential

information-directed

material

handling.

Light

Directed

common

light

directed

technology

pick-to-light.

pick-to-light,

applications

car-

ousel

system

variation

that

becoming

increasingly

common.

this

system,

order

selec-

tors

pick

designated items

directly

into

cartons

onto conveyors

from

lighted

carousel

locations

storage

bins.

series

lights

or a

light

tree

front

each

pick

location

indicates

the

number

items

pick

from

each

location.

variation

the

pick-to-light

system

put-to-light,

where

order

selectors

place

product

lighted

containers.

Each

con-

tainer

tote

assigned

to a specific

order

customer,

the

light

telling

which

cus-

tomers

are

receive

a specific

product.

It’s

clear

that

effective

warehouse

operations

require

combination

state

the

art

systems,

including

WMS,

TMS,

and

other

information

directed

systems

handle

today’s

complexity

and

achieve

efficiency

the

21st-century

logistics

systems.

final

section

this

chapter

looks

packaging

and

the

integration

packaging

with

warehouse

operations

and

materials

handling

equipment,

Packaging

Perspectives?

Packaging

typically

viewed

being

either

consumer,

focused

primarily

marketing,

industrial,

focused

logistics.

The

primary

concern

for

logistics

operations

industrial

package

design.

Individual

products

parts

are typically

grouped

into cartons,

bags,

bins,

barrels for

damage

protection

and

handling

efficiency.

Containers

used

group

indi-

vidual

products

are

called

master

cartons.

When

master

cartons

are

grouped

into

larger

units

for

handling,

the

combination

referred to as

containerization

unitization.

Master

cartons

and

unit

loads

are

the

basic

units

handled

during

logistical

operations,

The

weight,

cube,

and

damage

potential

the

master

carton

determines

transportation

and

handling

requirements.

When

multiple

master

cartons

are

grouped

together

for

han-

dling

the

composite

referred

unit

load.

packages

and

unit

loads

are

not

designed

for

efficient

logistical

processing,

overall

system

performance

suffers.

Packaging

and

unit

loads

impact

all

supply

chain

movement

and

storage

costs.

Retail

sale

quantity

presentation

should

not

the

prime

determinant

master

car-

ton

size.

For

example,

beer,

often

sold

retail

units

normally packed

master

cartons

containing

units.

The

master

carton

should

large

enough

provide

econo-

mies

scale

but

light

enough

facilitate

handling

by an

individual

without

mechanical

assistance.

prime

objective

logistics

design

operations

handle

limited

assort-

ment

standardized

master

cartons.

*The

authors

express

their

appreciation

Professor

Diana

Twede

from

the

Michigan

State University

Schoo!

Packaging

for

assistance

provided

preparing

this

section.

Supply

Chain

Logistics

Management,

Fifth

Edition

249

Chapter

Warehousing,

Materials

Handling,

and

Packaging

The

determination

final

package

design

requires

a great

deal

testing

assure

that

both

marketing

and

logistics

concerns

are

satisfied,

While

the

marketing

aspects

are

generally

the

focus

consumer

research,

logistics

packaging

research

determined from

laboratory or

experimental

testing.

Laboratory

analysis

offers

reliable

way

evaluate

package

design

result

advancements

testing

equipment

and

measurement

tech-

niques.

For

example,

testing

equipment

available

measure

shock

severity

and

char-

acteristics

while

package

transit.

large

degree,

care

design

has

been

further

encouraged

increased

federal

regulation

regarding

hazardous

materials.

The

four

most

common

causes

product

damage

logistical

system

are

vibration,

impact,

puncture,

and

compression. Combinations

potential

damage

can

experienced

whenever

package

being

transported

handled.

Test

shipment

monitoring

expen-

sive

and

difficult

conduct

scientific

basis.

obtain

increased

accuracy,

computer-

ized

environmental

simulations

can

used

replicate

typical

conditions

that a

package

will

experience

the

logistical

system.

Laboratory

test

equipment

available to

evaluate

the

impact

shock,

vibration,

and

compression

upon

the

interaction

product

fragility,

packaging

materials,

and

design.

Packaging

for

Handling

Efficiency

Packaging

decisions

have

major

impact

logistical

productivity

and

efficiency.

All

logistical

operations

are

affected

packaging—from

truck

and

warehouse

picking

productivity

transportation

vehicle

and

storage

cube

utilization.

Handling

efficiency in

all

these

situations

significantly

influenced

package

design,

unitization,

and

com-

munication

characteristics.

Package

Design

Product

packaging

standard

configurations

and

order

quantities

facilitates

logistical

efficiency.

For

example,

cube

utilization

can

improved

through

reduced

package

size

concentrating

products

such

orange

juice or

fabric

softener,

eliminating

air

inside

packages,

and

shipping

items

unassembled,

nested,

and

with

minimal

dunnage.

most

cases,

dunnage

materials,

polystyrene

foam

peanuts,

can

minimized

simply

reducing

box

size.

IKEA,

the

Swedish

retailer

unassembled

furniture,

emphasizes

cube

minimization

the

point

that

ships

pillows

vacuum-packed,

IKEA

uses

cube

mini-

mization

packaging

strategy

successfully

compete

the

United

States

even

though

the

company

ships

furniture

from

Sweden.

Cube

minimization

most

important

for

lightweight

products

such

assembled

lawn

furniture

that

cubes

out

transport

vehicle

before

weight

limits

are

reached.

the

other

hand,

heavy

products

steel

ball

bearings

liquid

glass

bottles

typically

weigh

out

transport

vehicles

before

cube

capacity

filled.

When

vehicle

container

weighs

out,

the

firm ends

shipping

empty

cube

space

that

can’t

filled

with

product.

Total

weight

can sometimes

reduced

product

package

changes.

For

example,

substituting

plas-

tic

bottles

for

glass

significantly

increases

the

number

bottles

that

can

loaded

in a

trailer.

The

decision

Gerber

use

plastic

jars

for

baby

food

was

partially

designed

reduce

transportation

expenses.

Cube

and

weight

minimization

represent

a special

challenge

e-commerce

operations.

These

operations

tend

use

standardized

packaging

for

both

purchasing

and

operating

efficiencies.

The

result

often

oversized

packages

that

require

excessive

dunnage

and

increased

shipping

cost.

The

nature

the

products

and

the

breadth

e-commerce

prod-

uct

lines

often

require

multiple

packages

combined

single

order.

This

great

Supply

Chain

Logistics

Management,

Fifth

Edition

251

Supply

Chain

Logi

Chapter9

Warehousing,

Materials

Handling,

and

Packaging

The

decision

to invest

returnable

package

system

based

the

number

shipment

cycles

and

return

transportation

costs

versus

the

purchase

and

disposal

cost

expendable

containers.

Benefits

improved

handling

and

reduced

damage

should

taken

into

account,

as well

the

future

costs

sorting,

tracking,

and

cleaning

the

reus-

able

devices,

Flexible

Devices

the

name

implies,

flexible

devices

not

protect

a product by

complete

enclosure.

The

most

common

type

nonrigid

unitization

stacked

master

cartons

either

pallets

Slipsheets.

Pallets

are

most

commonly

constructed

out

wood.

However, an

increas-

ing

number

plastic

and

steel

pallets

are

being

used

specific

handling

situations.

hardwood

pallet

illustrated

Figure

9.9.

slipsheet,

which

similar

pallet

size

and

purpose,

flat

stocking

surface

generally

made

cardboard

plastic.

Because

slipsheets

lie

flat

the

floor,

special

lift

trucks

are

required

handle

slipsheet

unit

loads.

The

primary

advantage

slipsheets

comparison

pallets

cost

and

weight.

Slipsheets

are

less

costly

than

pallets

and

are

insignificant

from

weight

and

cube

perspective.

Most

industry

associations

recommend

that

standardized

pallet

slipsheet

size

used

a unit

load

platform.

The

Grocery

Manufacturers

America

have

adopted

the

48-inch

pallet

with

four-way

entry

and

similar

size

slipsheets

for

food

distribution.

The

beverage

industry,

the

other

hand, has

standardized

36-inch

pallets.

Throughout

industry,

the

sizes

most

frequently

used

are

48,

40,

and

36,

common

practice

first

identify

the

dimension

most

frequent

entry

handling

equipment.

Generally,

the

larger

platform,

the

efficient

the

associated

handling.

For

instance,

the

48-inch

pallet

provides

768

square inches

per

stacking

tier

than

the

36-inch

size.

Assuming

that

master

cartons

can

stacked

high

tiers,

the

total

added

unitization

space

the

48-inch

pallet

7680

square

inches.

This

percent

larger

than

the

36-inch

size.

The

final

determination

size

should

based

upon

load,

compatibility

with

the

handling

and

transport

equipment

used

throughout

the

logis-

tical

system,

and

standardized

industry

practice.

With

modern

handling

equipment,

few

restrictions

are

encountered

weight

limitations.

While

pallets

themselves

are

not

flex-

ible,

the

unit

loads

they

contain

are

very

flexible.

While

variety

different

approaches

can

used

tier

master

cartons

slipsheets

and

pallets,

the

four

most

common

are

block,

brick,

row,

and

pinwheel.

The

block

method.

used with

cartons

of equal

width

and

length.

With

differential

widths

and

lengths,

the

ics

Management,

Fifth

Edition

FIGURE

9.9

Hardwood

Four-Way

Entry

Pallet

253

Chapter

Warehousing,

Materials

Handling,

and

Packaging

Summary

Warehousing,

materials

handling,

and

packaging

combine

incorporate

many

different

aspects

logistics

operations.

Collectively,

they

form an

integrated

functional

area

that

affects

all

areas

the

supply

chain.

While

the

role

the

warehouse

has

traditionally

been

stock

inventory,

contemporary

warehousing

involves

broader

value

proposition

terms

the

service

and

economic

benefits.

Service

benefits

include

spot-stocking,

full-line

stocking,

and

value-added

services.

Economic

benefits

include

consolidation

and

break-bulk

sorting,

seasonal

storage,

and

reverse

logistics.

The

perspective

warehousing

changing

from

traditional

storage

mission

one

characterized

customization,

velocity,

and

movement.

Warehouses

are

usually

classified

the

basis

ownership.

private

warehouse

operated

the

enterprise

that

also

owns

the

merchandise

the

facility.

public

ware-

house

operated

independently

and

offers

various

for-hire

value-added

services.

contract

warehouse

long-term

business

arrangement

that

provides

tailored

services

for

limited

number

customers.

integrated

warehousing

strategy

often

incorporates

combina-

tion

warehouse

ownership

options.

There

are

numerous

managerial

decisions

planning

and

initiating

warehouse

operations,

including

site

selection,

design,

product-mix

analysis,

expansion,

handling,

layout,

and

sizing.

Distribution

centers

and

warehouses

are

designed

achieve

the

primary

activities

inventory

handling

and

storage.

Handling

includes

receiving,

putaway,

in-storage

handling,

order-picking,

and

shipping.

High-performance

handling

a key

warehouse

productivity

supported

series

unique

handling

arrangements,

including

mechanized,

semiauto-

mated,

and automated

systems.

certain

circumstances,

special

handling

considerations

must

accounted

for.

Active

storage

facilitates

cross-docking, consolidation,

break-bulk,

and

postponement.

Extended

storage

facilitates

balancing

supply

and

demand

speculation.

It's

very

common

for

warehouses

have

some

combination

active

and

extended

stor-

age

enable the

support

unique

business

requirements.

Secondary

warehouse

functions

including

accuracy

and

audits,

facility

security,

and

safety

and

maintenance,

compliment

primary

warehouse

functions

establish

the

entire

warehouse

ecosystem.

Modern

distribution

centers

and

warehouses

commonly

utilize

advanced

systems,

including

warehouse

management,

yard

management

and

other information-directed

sys-

tems

support

operational

complexity

and

drive

efficiency.

The

importance

these

sys-

tems

will

only

continue

grow

warehouses

are

required

continue

demonstrating

efficiency.

Packaging

has

significant

impact

the

cost

and

productivity

logistics.

Packaging

design,

the

use of

master

cartons,

and

containerization

unitization

are

critical

consider-

ations.

Flexible

and

rigid

devices

provide

unique

benefits

that

must

effectively

applied

given

application.

Finally,

packaging

fulfills

key

need

communication

information

transfer.

Study

Questions

Discuss

and

illustrate

the

economic

justification

for

establishing

warehouse,

Under

what

conditions

could

make

sense

combine

private

and

public

warehouses

in a

logistical

system?

Discuss

and

illustrate

the

role

warehouses

reverse

logistics.

Supply Chain

Logistics

Management,

Fifth

Edition

255

Chapter

Six

Strategic

Alliances

244

DESIGNING

AND

MANAGING

THE

SUPPLY

CHAIN

according

Richard

Berner,

chief

U.S.

economist

Morgan

Stanley

Dean

Witter.

“Supply-chain

manage-

ment

has

had

major

impact,”

says

Mr.

Berner,

who

compiled

his

analysis

from

government

data.

RETURN

UNISEX

There

also

potential

downside

for

consumers:

Fewer

choices

brands

and

types

packages.

For

example,

two

years

ago,

Kimberly-Clark

stopped

making

separate

diapers

for

boys

and

girls

and

reverted

unisex-only.

Less

variety

makes

for

easier

inventory-tracking

its

factories

and

trucks,

the

Dallas-based

company

says.

great

extent,

better

cooperation

between

retailers

and

suppliers

has

been

made

possible

improved

technology—such

as the

computer

link

Kimberly-Clark

uses.

It’s

also

consequence

ofthe

greater

strength

major

retailers

they

consoli-

date

and

expand

globally.

Many

economists

say

that

closer

retailer-supplier

coordination

the

supply

chain

the

model

the

future

and

will

ulti-

mately

determine

which

companies

succeed

the

new

millennium.

“A

shopper

buys

roll

Bounty

paper

towel,

and

that

would

trigger

someone

cutting

tree

Georgia,”

says

Steve

David,

who

heads

supply-chain

work

for

Procter

Gamble

Co.,

the

Cincinnati

con-

sumer-products

giant.

“That’s

the

holy

grail.”

These

days,

P&G

stations

about

250

people

Fayetteville,

Ark.,

minutes

from

Wal-Mart’s

head-

quarters

Bentonville,

solely

promote

its

prod-

ucts

the

discount

chain

and

ensure

they

move

quickly

possible

store

shelves.

The

two

giants

some

inventory

data.

The

price

inefficiencies

the

supply

chain

high.

Revlon

Inc. this

year

slowed

its

product

ship-

ments

because

store

shelves

were

backed

with

older

inventory.

Kmart

Corp.’s

new

chief

executive,

Charles

Conaway,

has

publicly

blamed

the

retailer’s

sagging

profits

part

weak

supply

chain

infras-

tructure.

Last

month,

said

expects

spend

$1.4

billion

over

the

two

years

update

Kmart’s

technology,

including

systems

for

coordi-

nating

with

suppliers.

And

earlier

this

year,

Estee

Lauder

Cos.

hired

away

Compaq

Computer

Corp.’s

executive

charge

of supply

chain

bolster

that

operation

the

cosmetics

concern.

several

accounts,

the

collaboration

between

Costco

and

Kimberly-Clark

serves

as a

Designing

and

Managing

the

Supply

Chain,

Third

Edition

model

for

other

merchandisers,

and

also

helps

explain

strong recent

sales

gains

the

two

companies.

the

past

two

years,

Kimberly-Clark

gradually

expanded

the

program

and

now

manages

inventory

for

some

retailers

its

products,

The

consumer-products

com-

pany

says

wrung

$200

million

costs

from

its

sup-

ply

chain

during

that

period,

and

vows

squeeze

out

another

$75

million

this

year.

“This

what

the

information

age

has

brought

this

industry,”

says

Wayne

Sanders,

chairman

and

chief

executive

officer

Kimberly-Clark.

“It

gives

competitive

advantage.”

fact,

Kimberly-Clark

says

the

cost

savings

achieves

its

supply

chain

are

one

reason

its

Huggies—and

not

rival

P&G’s

Pampers—

are

sold

Costco

stores

most

areas

the

country.

“Tf

company

finds

way

lower

its

costs,

gets

those

deals,”

says

Richard

Dicerchio,

Costco’s

chief

operating

officer.

spokeswoman

for

P&G

says

its

supply

chain

very

efficient,

and

Costco

carries

many

its

other

products.

oversee

ordering

for

the

retailers

whose

inven-

tory

manages,

Kimberly-Clark

employs

staff

people,

including

Mr.

Fafnis.

Kimberly-

Clark

spokeswoman

says

the

benefits

the

program

“more

than

offset”

additional

labor

costs.

Last

year,

Kimberly-Clark

posted

percent

rise

net

income

$1.67

billion

$13

billion

sales,

cap-

ping

three

years

improving

results.

For

Costco,

the

benefits

such

cooperation

with

major

supplier

are

equally

clear:

Costco

saves

money

not

only

staffing

its

inventory

department,

but

also

storage.

Before

Kimberly-Clark

began

managing

Costco’s

inventory,

in late

1997,

the

retailer

would

keep

average

month’s

supply

Kimberly-Clark

products

its

warehouses.

Now,

because

Kimberly-Clark

has

proven

can

replenish

supplies

efficiently,

Costco

needs

keep

only

two-week

supply.

What’s

more,

Costco

says

its

shelves

are

less

likely

empty

under

the

new

system.

That’s

important

for

both

retailer

and

supplier,

because

consumer

stud-

ies

indicate

that

majority

customers

will

walk

out

of a

store

empty-handed

they

can’t

find

particular

item

they

need.

P&G,

for

example,

estimates

that

average

retailer’s

loss

from

out-of-stocks

runs

about

percent

annual

sales.

For

Costco,

which

keeps

its

costs

down

typi-

cally

offering

just

one

brand-name

product

and

its

own

private-label

Kirkland

Signature

product

each

category,

maintaining

supplies

shelves

crucial.

246

DESIGNING

AND

MANAGING

THE

SUPPLY

CHAIN

and

competitors’

prices

and

chatting

store

man-

agers

and

customers,

Recently,

when

Ms.

Imes

saw

shoppers

stowing

diapers

the

bottom

rung

their

carts,

she

called

Huggies

brand

managers

caution

them

not

make

the

packages

wider.

Noticing

that

particular

store

often

ran

low

Depend

incontinence

under-

wear

the

beginning

the

month,

Costco

man-

ager

told

Ms.

Imes

that

residents

retirement

center

door

always

shopped

then.

she

alerted

Mr.

Fafnis,

who

programmed

his

computer

accordingly.

The

importance

supply

chain

hasn’t

been

lost

Kimberly-Clark

itself,

which

trying

apply

the

same

principles

its

own

suppliers.

These

days,

Designing

and

Managing

the

Supply

Chain,

Third

Edition

keeps

less

than

month’s

supply

diapers

its

own

warehouses,

down

nearly

percent

over

the

past

two

years.

For

now,

raw-material

shipments

remain

the

weak

link.

Advances

are

small,

focusing

such

details

how

the

company

stocks

Velcro

tabs

for

its

diapers.

Two

years

ago,

Kimberly-Clark

began

sharing

its

production

plans

with

Velcro

USA

Inc.

via

weekly

e-mails.

That

cut

Velcro

inventory

percent,

saving

several

million

dollars.

Kimberly-Clark

says

it’s

trying

cut

costs

fur-

ther.

Jim

Steffen,

the

company’s

president

U.S.

consumer

sales,

regularly

reminds

his

staff

that

the

retailer

the

customer.

“The

last

time

looked,”

says,

“we

didn’t

own

any

stores.”

the

end

this

chapter,

you

should

able

answer

the

following

questions:

inventory

levels

the

retailer?

nal

sources

used?

formance?

advantage?

8.1

INTRODUCTION

Why

are

major

retailers

moving

toward

relationships

which

the

supplier

manages

When

should

company

handle

its

logistics

needs

in-house,

and

when

should

exter-

What

other

types

business

partnerships

can be

used

improve

supply

chain

per-

Can

pressures

such

as the

ones

described

this

case

used

company’s

One

the

paradoxes

business

today

that

the

same

time

that

complex

business

practices

(such

the

ones

have

discussed

the

preceding

chapters)

are

becoming

essential

for

firms

survive

and

thrive,

the

necessary

financial

and

managerial

resources

implement

these

practices

are

becoming

increasingly

scarce.

This

one

reason

why

may

not

always

effective

perform

all

these

key

business

func-

tions

in-house.

Frequently,

company

may

find

effective

use

other

firms

with

special

resources

and

technical

knowledge

perform

these

functions,

Even

firm

has

the

available

resources

perform

particular

task,

another

firm

the

supply

chain

may

sometimes

better

suited

perform

that

task

simply

because

its

relative

location

the

supply

chain

better

positions

so.

Often,

combination

position

the

supply

chain,

resources,

and

expertise

determines

the

most

appropriate

firm

the

supply

chain

perform

particular

func-

tion.

course,

it is

not

enough

know

who

the

supply

chain

should

perform

particular

function—steps

must

taken

that

the

function

actually

performed

the

appropriate

firm.

with

any

business

function,

there

are

four

basic

ways

for

firm

ensure

that

logistics-related

business

function

completed

[125]:

248

DESIGNING

AND

MANAGING

THE

SUPPLY

CHAIN

firm.

Similarly,

partnerships

between

companies

with

complementary

product

lines

can

add

value

both

companies’

products.

Improving

market

access.

Partnerships

that

lead

better

advertising

increased.

access

new

market

channels

can be

beneficial.

For

example,

complementary

consumer

product

manufacturers

can

cooperate

address

the

needs

major

retailers,

increasing

sales

for

everyone.

Strengthening

operations.

Alliances

between

appropriate

firms

can

help

improve

operations

lowering

system

costs

and

cycle

times.

Facilities

and

resources

can

used

efficiently

and

effectively.

For

example,

companies

with

complementary

seasonal

products

can

effectively

use

warehouses

and

trucks

year-round,

Adding

technological

strength.

Partnerships

which

technology

shared

can

help

add

the

skills

base

both

partners.

Also,

the

difficult

transitions

between

old

and

new

technologies

can

facilitated

the

expertise

one

the

partners.

For

example,

supplier

may

need

particular

enhanced

information

system

work

with

certain

customer.

Partnering

with

firm

that

already

has

expertise

this

system

makes

easier

to address

difficult

technological

issues.

Enhancing

strategic

growth.

Many

new

opportunities

have

high

entry

barriers.

Partnerships

might

enable

firms

pool

expertise

and

resources

overcome

these

barriers

and

explore

new

opportunities.

Enhancing

organizational

skills.

Alliances

provide

tremendous

opportunity

for

organizational

learning.

addition

learning

from

one

another,

partners

are

forced

learn

about

themselves

and

become

flexible

that

these

alliances

work.

Building

financial

strength.

addition

addressing

these

competitive

issues,

alliances

can

help

build

financial

strength.

Income

can

increased

and

adminis-

trative

costs

can

shared

between

partners

even

reduced

owing

the

expertise

one

both

the

partners.

course,

alliances

also

limit

investment

exposure

sharing

risk.

Strategic

alliances

have

their

downsides.

The

list

above

useful

for

determining

these.

Each

company

has

its

core

strengths

competencies—specific

talents

that

differentiate

the

company

from

its

competitors

and

give

advantage

the

eyes

its

customers.

These

core

strengths

must

not

weakened

the

alliance,

which

can

happen

resources

are

diverted

from

these

strengths

technological

strategic

strengths

are

compromised

make

the

partnership

successful.

Similarly,

key

differences

with

competitors

must

not

diminished.

This

possible

key

technology

shared

entry

barriers

are

reduced

for the

competition

Determining

these

core

strengths

clearly

very

important;

unfortunately,

also

very

difficult;

what

they

are

depends

the

nature

the

business

and

the

firm.

Core

strengths

don’t

necessarily

correspond

large

investment

resources,

and

they

may

intangible

items

such

management

skills

brand

image.

determine

firm’s

core

strengths,

consider

how

the

firm’s

internal

capabilities

contribute

to dif-

ferentiating

from

its

competition

each

the

seven

key

items

listed

above.

Now,

how

will

strategic

alliances

help

hurt

each

these

areas?

See

this

topic

Chapter

where

discuss

outsourcing

decisions.

The

following

example

illustrates

the

advantages

and

disadvantages

strategic

alliances.

Consider

how

IBM,

Intel,

and

Microsoft

benefited

and

were

hurt

the

relationships

described

this

example.

Designing

and

Managing

the

Supply

Chain,

Third

Edition

250

DESIGNING

AND

MANAGING

THE

SUPPLY

CHAIN

services

but

not

own

assets

their

own.

Non-asset-owning

third-party

logistics

firms

are

sometimes

called

fourth-party

logistics

providers

(4PL).

Surprisingly,

the

use

third-party

logistics

most

prevalent

among

large

compa-

nies.

Firms

such

3M,

Eastman

Kodak,

Dow

Chemical,

Time

Warner,

and

Sears

Roebuck

are

turning

over

large

portions

their

logistics

operations

outside

suppli-

ers.

Third-party

logistics

providers

are

finding

hard

persuade

small

companies

employ

their

services,

although

this

may

change

the

use

3PL

becomes

prevalent

and

3PL

providers

make

larger

effort

develop

relationships

with

smaller

companies

[27].

8.3.2

Advantages

and

Disadvantages

3PL

Most

the

general

advantages

and

disadvantages

strategic

alliances

described

Section

8.2

apply

here.

Focus

Core

Strengths

The

most

frequently

cited

benefit

using

3PL

providers

that

allows

company

focus

its

core

competencies.

With

corporate

resources

becoming

increasingly

limited,

often

difficult

expert

every

facet

the

business.

Logistics

outsourcers

provide

company

with

the

opportunity

focus

that

company’s

particular

area

expertise,

leaving

the

logistics

expertise

the

logistics

companies.

(Of

course,

logistics

one

the

company’s

areas

expertise,

then

outsourcing

may

not

make

sense.)

EXAMPLE

8-2

The

partnership

between

Ryder

Dedicated

Logistics

and

General

Motors’Saturn

division

good

example

these

benefits.Saturn

focuses

automobile

manufacturing

and Ryder

man-

ages

most

Saturn's

other

logistics

considerations.Ryder

deals

with

vendors;delivers

parts

the

Saturn

factory

Spring

Hill,

Tennessee;and

delivers

finished

vehicles

the

dealers.Saturn

orders

parts

using

electronic

data

interchange

(EDI)

and sends

the

same

information

Ryder.

Ryder

makes

all

the

necessary

pickups

from

300

different

suppliers

the

United

States,

Canada,

and

Mexico,

using

special

decision-support

software

effectively

plan

routes

minimize

trans-

portation

costs

[55].

127M

eed

British

Petroleum

(BP)

and

Chevron

Corp.also

wished

stick

their

core

competencies.To

this,

they

formed

Atlas

Supply,

partnership

about

suppliers,

deliver

items

such

spark

plugs,

tires,

window-washing

fluid,

belts,

and

antifreeze

their

6,500

service

stations.Rather

than

use

the

distribution

networks

either

Chevron

create

new

one,

Atlas

outsourced

all

logistics

GATX,

which

responsible

for

running

five

distribution

centers

and

maintaining

inven-

tory

6,500

SKUs

each

service

station.Each

service

station

orders

supplies

through

its

oil

com-

pany,

which

forwards

the order

Atlas

and

then

GATX.Each

station

has

pre-assigned

ordering

day

avoid

system

bottlenecks.GATX

systems

determine

appropriate

routes

and

config-

urations

and

transmit

orders

the

DC.The

day,

the

selects

and

packs

the

orders,

and

trucks

are

loaded

the

appropriate

order

based

the

delivery

schedule.As

deliveries

are

made,

returns

and

deliveries

from

Atlas

suppliers are

picked

up.GATX

electronically

informs

Atlas,

Chevron,

and

the

status

all

deliveries.

The

companies

save

enough

transportation

costs

alone

justify

this

partnership,

and

the

two

oil

companies

have

managed

reduce

the

number

DCs

from

and

significantly

improve

service

levels

[5].

Provide

Technological

Flexibility

The

ever-increasing

need

for

technological

flexi-

bility

another

important

advantage

the

use

3PL

providers.

requirements

Designing

and

Managing

the

Supply

Chain,

Third

Edition

252

DESIGNING

AND

MANAGING

THE

SUPPLY

CHAIN

Important

Disadvantages

3PL

The

most

obvious

disadvantage

the

use

3PL

providers

the

oss

control

inherent

outsourcing

particular

function.

This

especially

true

for

outbound

logistics

where

3PL

company

employees

themselves

might

interact

with

firm’s

customers.

Many

third-party

logistics

firms

work

very

hard

address

these

concerns.

Efforts

include

painting

company

logos

the

sides

trucks,

dressing

3PL

employees

the

uniforms

the

hiring

company,

and

providing

extensive

reporting

on each

customer

interaction.

Also,

logistics

one

the

core

competencies

firm,

makes

sense

out-

source

these

activities

to a

supplier

who

may

not

capable

the

firm’s

in-house

expertise.

For

example,

Wal-Mart

built

and

manages

its

own

distribution

centers

and

Caterpillar

runs

its

parts

supply

operations,

These

are

competitive

advantages

and

core

competencies

these

firms,

outsourcing

unnecessary.

particular,

cer-

tain logistics

activities

are

within

the

core

competencies

the

firm

and

others

are

not,

might

wise

employ

3PL

providers

for

only

those

areas

that

outside providers

can

handle

better

than

the

hiring

firm.

For

example,

VMI

replenishment

strategies

and

materials

handling

are

core

competencies

company

but

transportation

not,

3PL

firm

could

contacted

handle shipments

from

the

dock

the

customer

exclusively,

Similarly,

pharmaceutical

companies

build

and

own

DCs

for

controlled

drugs,

but

often

use

public

warehouses

located

closer

the

customer

for

items

that

are

less

expensive

and

easier

control

[10].

8.3.3

3PL

Issues

and

Requirements

third-party

logistics

contract

typically

major

and

complex

business

decision.

Other

than

the

pros

and

cons

listed

above,

there

are

many

considerations

that

are

criti-

cal in

deciding

whether

agreement

should be

entered

into

with

particular

3PL

provider.

Know

your

own

costs.

Among

the

most

basic

issues

consider

selecting

3PL

provider

know

your

own

costs

they

can

compared

with

the

cost

using

outsourcing

firm.

Often

necessary

use

activity-based

costing

techniques,

which

involve

tracing

overhead and

direct

costs

back

specific

products

and

ser-

vices

[89].

Customer

orientation

the

3PL.

course,

not

enough

select

provider

based

cost

alone.

Many

the

advantages

listed

above

involve

intangibles

such

flexibility.

Therefore,

the

strategic

logistics

plan

the

company

and

how

3PL

provider

would

fit

into

this

plan

must

considered

carefully.

survey

3PL

providers

[117]

identified

the

following

characteristics

most

critical

the

suc-

cess

3PL

agreement.

The

most

important

was

the

customer

orientation

the

provider;

that

is,

the

value

3PL

relationship

directly

the

ability

the

provider

understand

the

needs

the

hiring

firm

and

adapt

its

services

the

special

requirements

that

firm.

The

second

most

important

factor

was

relia-

bility.

The

flexibility

the

provider,

its

ability

react

the

changing

needs

the

hiring

firm

and

the

needs

that

firm’s

customers,

was

third.

Significantly

fur-

ther

down

the

list

were

cost

savings.

Specialization

the

3PL.

When

choosing

a potential

3PL

provider,

some

experts

suggest

that

companies

should

consider

firms

whose

roots

lie

the

partic-

ular area

logistics

that

most

relevant

the

logistics

requirements

question.

For

example,

Roadway

Logistics,

Menlo

Logistics,

and

Yellow

Logistics

evolved

from

major

LTL

carriers;

Exel

Logistics,

GATX,

and

USCO

started

warehouse

managers;

and

UPS

and

Federal

Express

have

expertise

the

timely

handling of

254

DESIGNING

AND

MANAGING

THE

SUPPLY

CHAIN

Specific

criteria

regarding

subcontractors

should

discussed.

Arbitration

issues

should

considered

before

entering

into

contract.

Escape

clauses

should

negotiated

into

the

contract.

Methods

ensuring

that

performance

goals

are

being

met

should

discussed

[9].

8.4

RETAILER-SUPPLIER

PARTNERSHIPS

The

formation

strategic

alliances

between

retailers

and

their

suppliers

becoming

ubiquitous

many

industries,

saw

Chapter

that

variation

demand

sup-

pliers

from

retailers

traditional

retailer-supplier

relationships

far

greater

than

the

variation

demand

seen

retailers.

addition,

suppliers

have

far

better

knowledge

their

lead

times

and

production

capacities

than

retailers

do.

Thus,

margins

get

tighter

and

customer

satisfaction

becomes

even

important,

makes

sense

cre-

ate

cooperative

efforts

between

suppliers

and

retailers

order

leverage

the

knowl-

edge

of both

parties.

These

are

called

retailer-supplier

partnership

(RSP)

and

describe

some

examples

the

sections.

8.4.1

Types

RSP

The

types

retailer-supplier

partnerships

can

viewed

continuum.

one

end

information

sharing,

which

helps

the

vendor

plan

efficiently,

and

the

other

consignment

scheme,

where

the

vendor

completely

manages

and

owns

the

inven-

tory

until

the

retailer

sells

it.

basic

quick

response

strategy,

suppliers

receive

POS

data

from

retailers

and

use

this

information

synchronize

their

production

and

inventory

activities

with

actual

sales

the

retailer.

this

strategy,

the

retailer

still

prepares

individual

orders,

but

the

POS

data

are

used

the

supplier

improve

forecasting

and

scheduling

and

to reduce

lead

time.

Among

the

first

companies

utilize

this

scheme

was

Milliken

and

Company,

textile

and

chemi-

cals

company.

Milliken

worked

with

several

clothing

suppliers

and

major

department

stores,

all

which

agreed

use

POS

data

from

the

department

stores

“synchronize"their

ordering

and

manufacturing

plans.The

lead

time

from

order

receipt

Milliken’s

textile

plants

final

clothing

receipt

the

department

stores

was

reduced

from

weeks

[185].

continuous

replenishment

strategy,

sometimes

called

rapid

replenishment,

ven-

dors

receive

POS

data

and

use

these

data

prepare

shipments

previously

agreed-

upon

intervals

maintain

specific

levels

inventory.

In an

advanced

form

continuous

replenishment,

suppliers

may

gradually

decrease

inventory

levels

the

retail

store

distribution

center

long

service

levels

are

met.

Thus,

structured

way,

inventory

levels

are

continuously

improved.

addition,

the

inventory

levels

need

not

simple

levels,

but

could

based

sophisticated

models

that

change

the

appropriate

level

based

seasonal

demand,

promotions,

and

changing

consumer

demand

[151].

vendor-managed

inventory

(VMI)

system,

sometimes

called

vendor-managed

replenishment

(VMR)

system,

the

supplier

decides

the

appropriate

inventory

levels

each

the

products

(within

previously

agreed-upon

bounds)

and

the

appropriate

inventory

policies

maintain

these

levels.

the

initial

stages,

vendor

suggestions

Designing

and

Managing

the

Supply

Chain,

Third

Edition

Designing

and

Managing

the

Supply

Chain,

Third

Edition

256

DESIGNING

AND

MANAGING

THE

SUPPLY

CHAIN

because

such

a partnership

may

shift

power

within

the

organization

from

one

group

another.

For

instance,

when

VMI

partnership

implemented,

the

day-to-day

con-

tacts

with

retailers

shift

from

sales

and

marketing

personnel

logistics

personnel.

This

implies

that

incentives

for

and

compensation

the

sales

force

have

be modi-

fied

since

the

retailer’s

inventory

levels

are

driven

supply

chain

needs,

not

pric-

ing

and

discount

strategies.

This

change

power

may

require

significant

involvement

top

management.

Finally,

RSP

requires

the

partners

develop

certain

level

trust

without

which

the

alliance

going

fail.

VMI,

for

example,

suppliers

need

demonstrate

that

they

can

manage

the

entire

supply

chain;

that

is,

they

can

manage

not

only

their

own

inventory

but

also

that

the

retailer.

Similarly,

quick

response,

confidential

infor-

mation

provided

the

supplier,

which

typically

serves

many

competing

retailers.

addition,

strategic

partnering

many

cases

results

significant

reduction

inven-

tory

the

retailer

outlet.

The

supplier

needs

make

sure

that

the

additional

available

space

not

used

benefit

the

supplier’s

competitors.

Furthermore,

the

top

manage-

ment

the

supplier

must

understand

that

the

immediate

effect

decreased

inventory

the

retailer

will

one-time

loss

sales

revenue.

8.4.3

Inventory

Ownership

RSP

Several

important

issues

must

considered

when

entering

into

retailer-supplier

partnership.

One

major

issue

the

decision

concerning

who

makes

the

replenishment

decisions.

This

places the

partnership

the

continuum

strategic

partnership

possi-

bilities

described

above.

This

can

done

stages,

first

with

information

and,

later,

decision

making,

which

shared

between

the

partners.

Inventory

ownership

issues

are

critical

the

success

this

kind

strategic

alliance

effort,

especially

one

involy-

ing

vendor-managed

inventory.

Originally,

ownership

goods

transferred

the

retailer

when

goods

were

received.

Now,

some

VMI

partnerships

are

moving

to a

con-

signment

relationship

which

the

supplier owns

the

goods

until

they

are

sold.

The

benefit

this

kind of

relationship

the

retailer

obvious:

lower

inventory

costs.

Furthermore,

since

the

supplier

owns

the

inventory,

will

concerned

with

managing

effectively

possible.

One

possible

criticism

the

original

VMI

scheme

that

the

vendor

has

incen-

tive to

move

the

retailer

much

inventory

the

contract

allows.

this

fast-

moving

item

and

the

partners

had

agreed

upon

two

weeks

inventory,

this

may

exactly

what

the

retailer

wants

see

stock.

If,

however,

this

complex

problem

inventory

management,

the

vendor

needs

have

incentive

keep

inventories

low

possible,

subject

some

agreed-upon

service

level.

For

exam-

ple,

Wal-Mart

longer

owns

the

stock

for

many

the

items

carries,

including

most

its

grocery

purchases.

only

owns

them

briefly

they

are

being

passed

through

the

checkout

scanner

[33].

less

clear,

however,

why

this

consignment

arrangement

beneficial

the

supplier

since

the

supplier

owns

inventory

for

longer

period

time.

Many

times,

the

case

Wal-Mart,

the

supplier

has

choice

because

the

market

dictates

this

kind

arrangement.

Even

ifthis

not

the

case,

such

arrangement

benefi-

cial

the

supplier

because

allows

the

supplier

coordinate

distribution

and

pro-

duction, thus

reducing

total

cost.

better

understand

this

issue,

recall

from

Chapter

the

discussion

the

difference

between

global

optimization

and

local

optimization.

the

traditional

supply

chain,

each

facility

does

what

best

for

that

facility;

that

is,

the

retailer

manages

its

own

inventory

without

regard

the

impact

the

supplier.

The

supplier

turn

identifies

policy

that will

optimize

its

own

258

DESIGNING

AND

MANAGING

THE

SUPPLY

CHAIN

8.4.5

Steps

RSP

Implementation

The

important

points

listed

above

can

summarized

the

following

steps

VMI

implementation

[97]:

Initially,

the

contractual

terms

the

agreement

must

negotiated.

These

include

decisions

concerning

ownership

and

when

transferred,

credit

terms,

ordering

responsibilities,

and

performance

measures

such

service

inventory

levels,

when

appropriate,

Next,

the

following

three

tasks

must

executed:

they

not

exist,

integrated

information

systems

must be

developed

for

both

sup-

plier

and

retailer.

These

information

systems

must

provide

easy

access

both

parties.

Effective

forecasting

techniques

used

the

vendor

and

the

retailer

must

developed.

tactical

decision

support

tool

assist

coordinating

inventory

management

and

transportation

policies

must

developed.

The

systems

developed,

course,

will

depend

the

particular

nature

the

partnership.

8.4.6

Advantages

and

Disadvantages

RSP

One

advantage

VMI

relationships

nicely

illustrated

the

following

example.

Saas)

Whitehall

Robbins

(WR),

which

makes

over-the-counter

drugs

such

Advil,

has

RSP

relation-

ship

with

Kmart.Like

First

Brands,

initially

disagreed

with

Kmart

about

forecasts.In

this

case,

turned

out

that

forecasts

were

accurate

because

the

company

has

much

exten-

sive

knowledge

its

products than

Kmart

does.For example,

Kmart’s

Chap

Stick

forecasts

did

not

take

the

seasonality

the

product

into

account.In

addition,

planners

can

take

production

issues,

such

planned

downtime,

into

account

when

planning

shipments.

Also,

benefits

another

way.In

the

past,

Kmart

would

order

large

quantities

seasonal

items

the

beginning

the

season,

often

linked

promotion.

This

practice

often

led

returns

because

was

difficult

for

Kmart

accurately

forecast

the

amount

would

sell.Now

supplies

weekly

demand

“everyday

low

cost,”so

large

orders

and

preseason

promotions

have

been

eliminated,

which

turn

has

greatly reduced

returns.

Inventory

turns

for

seasonal

items

have

gone

from

than

and

for

nonseasonal

items

from

12-15

17-20

[54].

Thus,

general,

huge

advantage

RSPs

the

knowledge

the

supplier

has

about

order

quantities,

implying

ability

control

the

bullwhip

effect

(see

Chapter

5).

This

course

varies

from

one

type

partnership

to another,

quick

response,

for

instance,

this

knowledge

achieved

through

transfer

customer

demand

informa-

tion

that

allows

the

supplier

reduce

lead

time,

while

VMI

the

retailer

provides

demand

information

and

the

supplier

makes

ordering

decisions,

thus

completely

con-

trolling

the

variability

order

quantities.

course,

this

knowledge

can

leveraged

reduce

overall

system

costs

and

improve

overall

system

service

levels.

The

benefits

the

supplier

terms

better

service

levels,

decreased

managerial

expenses,

and

decreased

inventory

costs

are

obvious.

The

vendor

should

able

to reduce

forecast

uncertainties

and

thus

better

coordinate

production

and

distribution.

spe-

cific,

reduced

forecast

uncertainties

lead

reduced

safety

stocks,

reduced

storage

and

delivery

costs,

and

increased

service

levels

[97],

noted

our

discussion

the

bullwhip

effect

Chapter

addition

the

important

benefits

listed

above,

implementing

strategic

partnership

provides a

variety

side

benefits.

provides

good

opportunity

for

the

reengineering

the

retailer-supplier

relationship.

For

example,

redundant

order

entries

can

eliminated,

Designing

and

Managing

the

Supply

Chain,

Third

Edition

260

DESIGNING

AND

MANAGING

THE

SUPPLY

CHAIN

Ease

Corporation’s

Market

Response

System

provides

another

success

story

VMI.

The

company,

which

has

many

well-known

brand

names

(e.g.,

Wrangler,

Lee,

the

North

Face,

and

Nautica),

began

Its

program

1989.Currently,

about

percent

its

production

handled

through

some

type

automatic

replenishment

scheme.

This

particularly

notable

because

the

program

encom-

passes

350

different

retailers,

40,000

store

locations,

and

than

million

levels of

replenish-

ment.Each

division

uses

automatic

software

manage

the

huge

influx

data,

and

special

techniques

developed

cluster

the

data

that

they

are

manageable.VF's

program

considered

one

the

most

successful

the

apparel

industry

[181].

Tse

Spartan

Stores,

grocery

chain,

shut

down

its

VMI effort

about

one

year

after

its

inception.In

examining

the

reasons

for

the

failure

the

program,

some

important

ingredients

for

successful

VMI

program

became

clear.One

problem

was

that

buyers

were

not

spending

any

less

time

reorders

than

they

had

before

because

they

didn’t

trust

the

suppliers

enough

stop

their

careful

monitoring

the

inventories

and

deliveries

the

VMI

items.Buyers

intervened

the

slightest

hint

trouble.Further,

the

suppliers

didn’t

much

allay

these

fears.

The

problems

were

not

with

the

suppliers'forecasts;instead,

they

were

due

the

suppliers'inability

deal

with

product

promo-

tions,

which

are

key

part

the

grocery

business.Because

suppliers

were

unable

account

for

promotions

appropriately,

delivery

levels

were

often

unacceptably

low

during

these

periods

peak

demand.In

addition,

Spartan

executives

felt

that

the

inventory

levels

achieved

the

VMI

program

were

lower

than

the

levels

the

company

could

have

achieved

with

well-managed

traditional

supplier

program.

should

noted

that

Spartan

considered

the

VMI

program

successful

with

some

suppliers.

These

were

the

suppliers

with

better

forecasting

skills.In

addition,

Spartan

intends

maintain

the

continuous

replenishment

programs,

which

inventory

levels

automatically

trigger

fixed

delivery

quantities

with some

its

suppliers

[135].

8.5

DISTRIBUTOR

INTEGRATION

For

years,

business

experts

have

advised

manufacturers,

particularly

industrial

manufacturers,

treat

their

distributors

partners

[149].

Typically,

this

meant

appreciating

the

value

the

distributors

and

their

relationship

with

the

end

users,

and

providing

them

with

the

necessary

support

successful.

Distributors

have

wealth

information

about

customer

needs

and

wants,

and

successful

manufactur-

ers

use

this

information

when

developing

new

products

and

product

lines.

Similarly,

distributors

typically

rely

manufacturers

supply

the

necessary

parts

and

expertise.

Eee

Sees

The

former

chairman

and

CEO

Caterpillar

Corporation,

Donald

Fites,

credits

Caterpillar

dealers

with

much

his

company’s

recent

success.Fites

points

out

that

dealers

are

much

closer

cus-

tomers

than

the

corporation,

and

can

respond

rapidly

customer

needs.

They

arrange

financing

when

the

product

purchased

and

carefully

monitor,

repair,

and

service

the

product.

Fites

says

that

“the

dealer

creates

the

image

company

that

doesn't

just

stand

behind

its

prod-

ucts

but

with

its

products

anywhere

the

world."Caterpillar

believes

that

its

dealer

network

gives

the

company

tremendous

advantage

over

its

competition,

especially

the

big

Japanese

construc-

tion

and

mining

equipment

manufacturers

such

Komatsu

and

Hitachi

[74].

This

view

distributors

changing,

however,

customer

service

needs

present

new

challenges,

and

information

technology

rises to

meet

these

challenges.

Even

Designing

and

Managing

the

Supply

Chain,

Third

Edition

262

DESIGNING

AND

MANAGING

THE

SUPPLY

CHAIN

point-of-sale

materials.

The

other

subsidiaries,

well

customers,

are

directed

these centers

excellence

meet

particular

requests

[150].

8.5.2

Issues

Distributor

Integration

There

are

two

major

issues

involved

implementing

alliance.

First,

distributors

may

skeptical

the

rewards

participating

such

system.

There

the

chance

that

they

will feel

they

are

providing

some

their

expertise

inventory

control

less

skilled

partners,

especially

when

some

ofthe

distributors

are

larger

and have

big-

ger

inventories

than

others.

addition,

participating

distributors will

forced

rely

upon

other

distributors,

some

whom

they

may

not

know,

help

them

provide

good

customer

service.

This

new

kind

relationship

also

tends

take

certain

responsibilities

and

areas

expertise

away

from

certain

distributors

and

concentrate

them

few

distributors.

not

surprising

that

distributors

might

nervous

about

losing

these

skills

and

abili-

ties.

This

explains

why

establishing

relationship

requires

large

commitment

resources

and

effort

the

part

the

manufacturing

company.

Distributors

must

feel

sure

that

this

long-term

alliance.

Organizers

must

work

hard

build

trust

among

the

participants.

Finally,

the

manufacturer

may

have

provide

pledges

and

guaran-

tees

ensure

distributor

commitment.

EXAMPLE

Dunlop-Enerka

Dutch

company

that

supplies

conveyer

belts

mining

and

manufacturing

com-

panies worldwide.

Traditionally,

the

company

met

maintenance

and

repair

requirements

storing

vast

quantities

inventory

distributors

throughout

Europe.

reduce

inventories,

the

company

installed

computer-based

information

system,

Dunlocomm,

monitor

inventory

the

ware-

houses

each

its

distributors.When

part

needed,

distributor

uses

the

system

order

the

part

and

arrange

for

its

delivery.To

ensure

distributor

participation,

Dunlop-Enerka

guaranteed

24-

hour

delivery

each

part

each

distributor—if

part

wasn't

stock,

Dunlop-Enerka

custom

manufactured

and

shipped

within

the available

time

window.

This

guarantee

reassured

distribu-

tors

enough

they

committed

the

system

and,

over

time,

inventory

throughout

the

system

dropped

percent

[150].

SUMMARY

this

chapter,

examined

various

types

partnerships

that

can

used

manage

the

supply

chain

effectively.

started

off

discussing

the

different

paths

firm

can

take

ensure

that

particular

supply

chain—related

issues

are

addressed,

including

performing

them

internally

outsourcing

them

completely.

Obviously,

many

different

strategic

and

tactical

issues

play

part

the

selection

the

most

appropriate

strategy.

discussed

framework

that

can

help

selecting

the

most

appropriate

way

address

particular

logistics

issue.

Increasingly,

third-party

logistics

providers

are

taking

over

some

firm’s

logistics

responsibilities.

There

are

both advantages

and

disadvantages

outsourcing

the

logistics

function,

well

many

important

issues

consider

once

the

decision

has

been

made

and

3PL

agreement

being

imple-

mented.

Retailer—supplier

partnerships,

which

the

supplier

manages

portion

the

retailer's

business—typically

retail

inventories—also

are

becoming

common.

There

spectrum

possible

types

retailer-supplier

partnerships,

ranging

from

agree-

ments

that

cover

only

information

sharing,

agreements

which

the supplier

has

complete

control

over

the

retailer’s

inventory

policy.

Designing

and

Managing

the

Supply

Chain,

Third

Edition

264

DESIGNING

AND

MANAGING

THE SUPPLY

CHAIN

vendor-managed

inventory,

VMI,

agreement.

The

record

companies

will

put

charge

deciding

how

much

each

album,

CD,

and

cassette

title

delivered

each

store

and

when

each

delivery

made.

help

with

these

decisions,

the

record

com-

panies

will

provided

with

continuously

updated

point-of-sale

(POS)

data

from

each

the

stores.

Also,

the

record

companies

will

own

the

inventory

until

sold,

which

point

payment

will

trans-

ferred

from

the

retailers

the

record

companies.

Since

ADS

provides

the

record

companies

with

duplication

and

distribution

services,

the

record

companies

have

asked

ADS

help with

the

logis-

tics

the

VMI

agreement.

the

past,

ADS

has

shipped

the

distribution

centers

large

national

retailers,

and

the

retailers

have

arranged

for

distribution

the

individual

stores.

Now,

the

retailers

are

providing

strong

incentives

ship

directly

individual

stores,

course,

this

means

higher

expenses

for

ADS.

general,

ADS’s

shipping

costs

are

increasing.

Currently,

ADS

has

shipping

manager

who

arranges

with

different

shippers

make

deliveries

shipment-by-shipment

basis.

Perhaps

there

Designing

and

Managing

the

Supply

Chain,

Third

Edition

better

way

manage

these

deliveries,

either

purchasing

fleet

trucks

and

doing

the

shipping

house

outsourcing

the

entire

shipping

func-

tion

third

party.

Maybe

something

between

these

two

extremes

will

best.

course,

ADS

facing

even

bigger

issues,

such

the

future

the

audio

duplication

industry

online

audio

distribution

technologies

become

prevalent,

any

event,

each

record

company

period-

ically

reviews

its

contract

with

its

audio

duplication

service,

management

must

address

each

the

above

issues

effectively

for

the

company

remain

successful.

CASE

DISCUSSION

QUESTIONS

Why

are

ADS’s

customers’

customers

moving

toward

VMI

arrangements?

How

will

this

impact

ADS’s

business?

How

can

ADS

management

take

advantage

this

situation?

How

should

ADS

manage

logistics?

Why

are

the

large

national

retailers

moving

toward

direct

shipment

model?

The

Smith

Group

The

Smith

Group

leading

U.S.

manufacturer

high-quality

power

and

hand

tools,

such

electric

drills,

hammers,

and

forth,

and

major

competitor

ATW,

the

company

described

the

case

the

start

Chapter

ATW,

Smith

enjoys

very

successful

partnership

with

their

distributors

and

dealers,

who

provide

the

majority

their

revenue,

and

ATW,

Smith

has

always

had

VMI

agree-

ments

with

their

large

distributors.

Smith’s

small

distributors,

however,

have

not

tradi-

tionally

had

electronic

data

transfer

capability

neces-

sary

implement

VMI.

overcome

this,

however,

Smith

implemented

Kanban

system

with

many

the

small

distributors.

this

approach,

the

Smith

Group

imitating the

Kanban

approach

developed

Toyota

govern

the

flow

material

through

plant.

the

Kanban

system

used

Toyota,

produc-

tion

triggered

demand

through

the

use

cards.

This

also

the

approach

taken

Smith.

When

delivery

trucks

arrive

distributor’s

facility,

they

collect

all

the

cards

that

were

detached

from

items

sold

the

distributors.

This

provides

the

Smith

Group

with

information

about

the

customer

demand

that

they

can

use

their

production

and

dis-

tribution

planning.

The Kanban

approach designed

the

Smith

Group

clever

way

implementing

approach

similar

the

VMI

strategy

without

the

need

for

elec-

tronic

data

transfer:

The

system

provides

Smith

with

almost

real-time

information

about

customer

demand

without

the

need

for

EDI.

careful

analysis

the

card

system

used

the

Smith

Group

suggests

that

effectively

manages

ARTICLE REVIEW FINAL

Name

Institution Affiliation

Course Name

Instructor

Date

Article caption

The name of the article is “Efficiency issues in supply chain management.” As provided

by Bhatt et al. (2014).

Statement of the author's purpose

Supply chain management involves the flow of factor inputs from suppliers through final

customer management, making it one of the fundamental organizational functions. Indeed, the

authors of this article acknowledged the dire need for supply chain logistics in helping firms

achieve both effectiveness and efficiency through tracing the economic challenges that firms

experienced in the olden days (Bhatt et al.,2014). They highlighted that over the past couple of

decades (2 decades), business organizations have faced unprecedented challenges on improving

productivity and efficiency, highlighting Black Monday of October 1987as a perfect warning on

consequences of not finding a better operational way of conducting business.

Moreover, ethics is also highlighted as an insignificant factor but which, if not adequately

incorporated into the business setting, may hamper an organizational performance, even resulting

in a collapse just like Enron and world.com as they engaged in book cooking activities to

impress. Stock markets are considered an indicator of financial flow within a particular country,

and its eventual crash back in 2008 added “fuel to fire, "hence further highlighting the need for a

closer look at business operation (Bhatt et al.,2014). To improve on such mistakes, organizations

have focused on improving productivity, solutions like curing the flagging profitability,

improvement of the bottom line, maximum shareholders profit, and wealth creation through

improved profit level and downsizing.

Indeed, most organizations, businesses, and industries have come to embrace the practice

of downsizing and sourcing as the cure for such challenges. Despite all these efforts, it is still

apparent that a maximum level of productivity has never been achieved as many variables

contribute to better productivity. Thus, productivity, efficiency, effectiveness, quality, and

performance should be embraced by firms to achieve better operational levels. Thus, these terms

have become a modern paradigm of achieving success when applied correctly (Bhatt et al.,2014).

Hence, as discussed by the journal, the primary research purpose was to illustrate productivity

and efficiency and how businesses can incorporate such acts to achieve success.

Background of the study

A lot of research work has been conducted by many researchers on how many business

units can maximize their level of efficiency. For instance, scholars from management science,

economics, production operations, accounting system, and organizational behavior have done a

lot in this particular field. Factors like efficiency, effectiveness, quality, productivity, and overall

organizational performance, in conjunction with other factors, have been the variables that are

standard in improving performance (Bhatt et al.,2014). Even though effectiveness is difficult to

determine as it combines many aspects hence referred to as a nebulous concept, efficiency is a

subset of effectiveness that implies the totality of factor outputs obtained from a given unit of

economic value as described by the authors.

Some proponents argue that effectiveness is defined In terms of revenue that have been

generated and total facto inputs that have been sufficiently brought in. however, under this

definition, Bhatt et al. (2014) argues that it is just one of the definitions that assumes one best

way approach hence not possible for measuring other potential aspects which are also critical and

worth determining overall wellbeing. In this article, the work of Maarten (2008) is factored in to

give more information about the definition of efficiency (Bhatt et al., 2014). Here, through the

help of an equation, it is defined as actual outputs divided by the actual inputs. Therefore,

productivity combines both the use of effectiveness and efficiency as applied to a firm's

operations. Another aspect is the quality which is the worker’s efforts/ total cost.

Thus, it is true that increasing quality will reduce cost, meaning that in a production

process, the overall efficiency and or productivity, as per this article, is the aggregate of cost

efficiency, which entails converting capital to input resources (Liberty University Custom,

2020). Moreover, after it has been converted, other items like allocating through an optimal mix

of inputs, technicalities through the optimal amount of inputs, and scaling entail optimal volume

and minimum fixed cost. This section is completed by a study conducted by General Electric on

one of its product lines –dishwasher a study that revealed that 45% improvement in quality

increased overall labor productivity by 42% (Bhatt et al.,2014).

Application of supply chain theory

Many concepts relating to supply chain management (SCM) have been discussed in this

article. Just from the start of the article, there is just-in-time manufacturing (JIT) to improve the

overall productivity and cost reduction. Secondly, there is a broad explanation of how supplier

management can achieve operational efficiency and cost-effectiveness (Bhatt et al., 2014). In this

regard, the article stipulates that it is essential to achieve a better supply chain implementation as

forms have to identify appropriate suppliers. To clarify the critical concept, these authors

discussed factors subsets like supplier selection, supplier performance evaluation, and contract

negotiation as the critical consideration for effectively managing suppliers.

Indeed, supplier power is one of the core factors that can make an organization fail if

insufficient consideration is taken. Another application of the supply chain management theory

was on the tools used to improve such processes as Data Envelopment Analysis (DEA), Multi-

Objective Programming, and Analytical Hierarchical Process as the solutions for vendor

selection (Liberty University Custom, 2020). Moreover, DEA uses fractional programming was

determined to have the capacity of improving the evaluation process. Some other applications

discussed in this article include; scheduling, product screening, brand selection, and inventory

management, not forgetting transportation and information sharing.

Managerial implications

Managers can make use of this journal article in improving their level of efficiency and

effectiveness. In so doing, they can make a complete turnaround on their negative performances

by looking at the past case scenario that has been provided by this article and then take key

lessons into practice (Bhatt et al., 2014). For example, the management can learn that sustained

productivity within an enterprise is not achieved through revenue-based concentration and

modest and sound institutional practices like corporate governance and ethics, amongst other

salient factors (Min et al., 2019).

Moreover, this article looked across all aspects of the flow of systems within an

organization by connecting it with supply chain principles to provide the best solutions to most

organizations' problems. Thus, just by reviewing this article, managers can make better

decisions.

Summary

Over the years, many businesses have tried to meet their operational levels amidst

challenging economic and dynamic environments. Thus, to remain fully competitive and achieve

long-term sufficiency, it is important to consider efficiency in supply chain management. It is

prevalent that many business organizations have been faced with unprecedented challenges to

improve their productivity. However, what constitutes better productivity is not usually well

defined. Thus, some proponents argue that effectiveness is defined In terms of revenue that have

been generated and total facto inputs that have been sufficiently brought in.

In order to solve these problems, this article proposed factors like effectiveness and

efficiency and quality considerations as the perfect variables that contribute to productivity.

Some of the applications of supply chain theory include supplier management through supplier

selection, supplier performance evaluation, and contract negotiation as the key consideration for

effectively managing suppliers, amongst other factors. By considering this article, managers can

improve their decision-making by factoring in supply chain essentials in daily practice.

References

Bhatt, S. K., Bector, C. R., & Appadoo, S. S. (2014). Efficiency issues in supply chain

management. Journal of Supply Chain Management Systems, 3(2), 9.

Liberty University Custom (2020). Supply chain management (Custom ed.). New York, NY: McGraw-Hill

Create. ISBN Loose Leaf Print: 9781307611601. ISBN eBook: 9781307611458

Min, S., Zacharia, Z. G., & Smith, C. D. (2019). Defining supply chain management: in the past,

present, and future. Journal of Business Logistics, 40(1), 44-55.

BUSI 613 LU Efficiency Issues in Supply Chain Management Article Review assignments.pdf

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