Tài liệu quản lý chuỗi cung ứng bằng tiếng anh có bài giảng, bài giải, đáp án, nhiều bài tập. Giới thiệu chuỗi cung ứng là gì, mục tiêu, logisitics, dự báo nhu cầu khách hàng, thiết kế mạng lưới nhà kho phân xưởng.
This Global Edition has been edited to include enhancements making it more relevant to students outside the United States The editorial team at Pearson has worked closely with educators around the globe to include: Chopra Meindl Pearson International Edition FIFTH EDITION This is a special edition of an established title widely used by colleges and universities throughout the world Pearson published this exclusive edition for the benefit of students outside the United States and Canada If you purchased this book within the United States or Canada you should be aware that it has been imported without the approval of the Publisher or Author Strategy, Planning, and Operation • New! Chapter dedicated to sustainability and the supply chain • Updated! Designing global supply chains discussion Detailed examples are included that look at the arguments for onshoring vs offshoring • New! Online Spreadsheets for numerical examples in the book Spreadsheets are included so that students can work through and practice problems in the book Supply Chain Management The Global Edition of Supply Chain Management illustrates the key drivers of good supply chain management helping students understand what creates a competitive advantage New global mini-cases on Amazon UK, DHL, and Zara help students develop the analytical skills needed, to critically evaluate the effectiveness of the techniques described in the text GLOBAL EDITION GLOBAL EDITION GLOBAL EDITION Supply Chain Management Strategy, Planning, and Operation FIFTH EDITION Sunil Chopra • Peter Meindl A01_CHOP5226_05_PIE_FM.QXD 2/8/12 8:36 PM Page Fi f t h E d i t i o n Supply Chain Management STRATEGY, PLANNING, AND OPERATION Global Edition Sunil Chopra Kellogg School of Management Peter Meindl Kepos Capital Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo A01_CHOP5226_05_PIE_FM.QXD 2/8/12 8:36 PM Page Editorial Director: Sally Yagan Editor in Chief: Donna Battista Senior Acquisitions Editor: Chuck Synovec Senior Acquisitions Editor, Global Editions: Steven Jackson Print and Media Editor, Global Editions: Leandra Paoli Editorial Project Manager: Mary Kate Murray Director of Marketing: Maggie Moylan Executive Marketing Manager: Anne Fahlgren International Marketing Manager: Dean Erasmus Production Project Manager: Clara Bartunek Manager Central Design: Jayne Conte Cover Designer: Jodi Notowitz Manager, Rights and Permissions: Estelle Simpson Cover Art: © Xiaode/Dreamstime.com Media Project Manager: John Cassar Media Editor: Sarah Peterson Full-Service Project Management: Abinaya Rajendran, Integra Software Services Pvt Ltd Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearson.com/uk © Pearson Education Limited 2013 The rights of Sunil Chopra and Peter Meindl to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988 Authorised adaptation from the United States edition, entitled Supply Chain Management: Strategy, Planning, and Operation, 5th Edition, ISBN: 978-0-13-274395-2 by Sunil Chopra and Peter Meindl, published by Pearson Education, Inc., © 2013 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS All trademarks used herein are the property of their respective owners The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners Microsoft and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published as part of the services for any purpose All such documents and related graphics are provided “as is” without warranty of any kind Microsoft and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all warranties and conditions of merchantability, whether express, implied or statutory, fitness for a particular purpose, title and non-infringement In no event shall Microsoft and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from the services The documents and related graphics contained herein could include technical inaccuracies or typographical errors Changes are periodically added to the information herein Microsoft and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time Partial screen shots may be viewed in full within the software version specified Microsoft® and Windows® are registered trademarks of the Microsoft Corporation in the U.S.A and other countries This book is not sponsored or endorsed by or affiliated with the Microsoft Corporation Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text ISBN 13: 978-0-273-76522-6 ISBN 10: 0-273-76522-1 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 16 15 14 13 12 Typeset in Times 10/12 Times Roman by Integra Software Services Pvt Ltd Printed and bound by Courier/Kendallville in The United States of America The publisher's policy is to use paper manufactured from sustainable forests A01_CHOP5226_05_PIE_FM.QXD 2/8/12 8:36 PM Page Dedication I would like to thank my colleagues at Kellogg for all that I have learned from them about logistics and supply chain management I am grateful for the love and encouragement my parents, Krishan and Pushpa, and sisters, Sudha and Swati, have always provided during every endeavor in my life I thank my children, Ravi and Rajiv, for the joy they have brought me Finally, none of this would have been possible without the constant love, caring, and support of my wife, Maria Cristina —Sunil Chopra I would like to thank three mentors—Sunil Chopra, Hau Lee, and Gerry Lieberman—who have taught me a great deal Thank you also to my parents and sister for their love, and to my sons, Jamie and Eric, for making me smile and teaching me what life is truly all about Most important, I thank my wife, Sarah, who makes life wonderful and whom I love with all of my heart —Pete Meindl ABOUT THE AUTHORS SUNIL CHOPRA Sunil Chopra is the IBM Distinguished Professor of Operations Management and Information Systems at the Kellogg School of Management He has served as the interim dean and senior associate dean for curriculum and teaching, and the codirector of the MMM program, a joint dual-degree program between the Kellogg School of Management and the McCormick School of Engineering at Northwestern University He has a Ph.D in operations research from SUNY at Stony Brook Prior to joining Kellogg, he taught at New York University and spent a year at IBM Research Professor Chopra’s research and teaching interests are in supply chain and logistics management, operations management, and the design of telecommunication networks He has won several teaching awards at the MBA and Executive programs of Kellogg He has authored more than 40 papers and two books He has been a department editor for Management Science and an associate editor for Manufacturing & Service Operations Management, Operations Research, and Decision Sciences Journal His recent research has focused on understanding supply chain risk and devising effective risk mitigation strategies He has also consulted for several firms in the area of supply chain and operations management PETER MEINDL Peter Meindl is with Kepos Capital Previously, he was a research officer with Barclays Global Investors, a consultant with the Boston Consulting Group and Mercer Management Consulting, and the director of strategy with i2 Technologies He holds a Ph.D., M.S., B.S., and B.A from Stanford, and an M.B.A from the Kellogg School at Northwestern The first edition of this book won the prestigious Book of the Year award in 2002 from the Institute of Industrial Engineers A01_CHOP5226_05_PIE_FM.QXD 2/8/12 8:36 PM Page CONTENTS Preface 10 Part I Building a Strategic Framework to Analyze Supply Chains Chapter UNDERSTANDING THE SUPPLY CHAIN 13 1.1 1.2 1.3 1.4 1.5 What Is a Supply Chain? 13 The Objective of a Supply Chain 15 The Importance of Supply Chain Decisions 16 Decision Phases in a Supply Chain 18 Process Views of a Supply Chain 20 1.6 1.7 Examples of Supply Chains 25 Summary of Learning Objectives 29 Discussion Questions 29 • Bibliography 30 Chapter SUPPLY CHAIN PERFORMANCE: ACHIEVING STRATEGIC FIT AND SCOPE 31 2.1 2.2 2.3 2.4 2.5 Competitive and Supply Chain Strategies 31 Achieving Strategic Fit 33 Expanding Strategic Scope 44 Challenges to Achieving and Maintaining Strategic Fit 46 Summary of Learning Objectives 48 Discussion Questions 48 • Bibliography 49 Chapter SUPPLY CHAIN DRIVERS AND METRICS 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 50 Financial Measures of Performance 50 Drivers of Supply Chain Performance 53 Framework for Structuring Drivers 55 Facilities 56 Inventory 59 Transportation 61 Information 63 Sourcing 66 Pricing 68 Summary of Learning Objectives 70 Discussion Questions 71 • Bibliography 71 왘 CASE STUDY: Seven-Eleven Japan Co 72 왘 CASE STUDY: Financial Statements for Wal-Mart Stores Inc 78 A01_CHOP5226_05_PIE_FM.QXD 2/8/12 8:36 PM Page Contents Part II Designing the Supply Chain Network Chapter DESIGNING DISTRIBUTION NETWORKS AND APPLICATIONS TO ONLINE SALES 80 4.1 4.2 4.3 4.4 4.5 4.6 The Role of Distribution in the Supply Chain 80 Factors Influencing Distribution Network Design 81 Design Options for a Distribution Network 85 Online Sales and the Distribution Network 98 Distribution Networks in Practice 111 Summary of Learning Objectives 112 Discussion Questions 113 • Bibliography 113 왘 CASE STUDY: Blue Nile and Diamond Retailing 114 Chapter NETWORK DESIGN IN THE SUPPLY CHAIN 120 5.1 5.2 5.3 5.4 5.5 5.6 The Role of Network Design in the Supply Chain 120 Factors Influencing Network Design Decisions 121 Framework for Network Design Decisions 126 Models for Facility Location and Capacity Allocation 128 Making Network Design Decisions in Practice 144 Summary of Learning Objectives 145 Discussion Questions 146 • Exercises 146 • Bibliography 151 왘 CASE STUDY: Managing Growth at SportStuff.com 151 왘 CASE STUDY: Designing the Production Network at CoolWipes 153 Chapter DESIGNING GLOBAL SUPPLY CHAIN NETWORKS 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 155 The Impact of Globalization on Supply Chain Networks 155 The Offshoring Decision: Total Cost 157 Risk Management in Global Supply Chains 160 Discounted Cash Flows 164 Evaluating Network Design Decisions Using Decision Trees 165 To Onshore or Offshore: Evaluation of Global Supply Chain Design Decisions Under Uncertainty 173 Making Global Supply Chain Design Decisions Under Uncertainty in Practice 182 Summary of Learning Objectives 182 Discussion Questions 183 • Exercises 183 • Bibliography 185 왘 CASE STUDY: BioPharma, Inc 186 왘 CASE STUDY: Global Supply Design for the Future: Nokia 188 Part III Planning and Coordinating Demand and Supply in a Supply Chain Chapter DEMAND FORECASTING IN A SUPPLY CHAIN 190 7.1 7.2 The Role of Forecasting in a Supply Chain 190 Characteristics of Forecasts 191 A01_CHOP5226_05_PIE_FM.QXD 2/8/12 8:36 PM Page Contents 7.3 7.4 7.5 7.6 7.7 7.8 7.9 7.10 7.11 7.12 Components of a Forecast and Forecasting Methods 192 Basic Approach to Demand Forecasting 193 Time-Series Forecasting Methods 195 Measures of Forecast Error 205 Selecting the Best Smoothing Constant 207 Forecasting Demand at Tahoe Salt 209 The Role of IT in Forecasting 215 Risk Management in Forecasting 216 Forecasting in Practice 217 Summary of Learning Objectives 217 Discussion Questions 218 • Exercises 218 • Bibliography 220 왘 CASE STUDY: Specialty Packaging Corporation, Part A 220 Chapter AGGREGATE PLANNING IN A SUPPLY CHAIN 223 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 The Role of Aggregate Planning in a Supply Chain 223 The Aggregate Planning Problem 225 Aggregate Planning Strategies 227 Aggregate Planning Using Linear Programming 228 Aggregate Planning in Excel 236 Building a Rough Master Production Schedule 238 The Role of IT in Aggregate Planning 239 Implementing Aggregate Planning in Practice 240 Summary of Learning Objectives 240 Discussion Questions 241 • Exercises 241 • Bibliography 243 왘 CASE STUDY: Specialty Packaging Corporation, Part B Chapter 243 SALES AND OPERATIONS PLANNING: PLANNING SUPPLY AND DEMAND IN A SUPPLY CHAIN 246 9.1 9.2 9.3 9.4 9.5 Responding to Predictable Variability in the Supply Chain 246 Managing Supply 247 Managing Demand 249 Implementing Sales and Operations Planning in Practice 256 Summary of Learning Objectives 257 Discussion Questions 257 • Exercises 258 • Bibliography 260 왘 CASE STUDY: Mintendo Game Girl 260 Chapter 10 COORDINATION IN A SUPPLY CHAIN 262 10.1 10.2 10.3 10.4 10.5 10.6 Lack of Supply Chain Coordination and the Bullwhip Effect 262 The Effect on Performance of Lack of Coordination 264 Obstacles to Coordination in a Supply Chain 266 Managerial Levers to Achieve Coordination 270 Continuous Replenishment and Vendor-Managed Inventories 275 Collaborative Planning, Forecasting, and Replenishment (CPFR) 276 A01_CHOP5226_05_PIE_FM.QXD 2/8/12 8:36 PM Page Contents 10.7 Achieving Coordination in Practice 279 10.8 Summary of Learning Objectives 281 Discussion Questions 281 • Bibliography 282 Part IV Planning and Managing Inventories in a Supply Chain Chapter 11 MANAGING ECONOMIES OF SCALE IN A SUPPLY CHAIN: CYCLE INVENTORY 283 11.1 11.2 11.3 11.4 11.5 11.6 11.7 The Role of Cycle Inventory in a Supply Chain 283 Estimating Cycle Inventory–Related Costs in Practice 286 Economies of Scale to Exploit Fixed Costs 288 Economies of Scale to Exploit Quantity Discounts 301 Short-Term Discounting: Trade Promotions 312 Managing Multiechelon Cycle Inventory 317 Summary of Learning Objectives 319 Discussion Questions 320 • Bibliography 322 왘 CASE STUDY: NAN 323 • Exercises 320 Appendix 11A: Economic Order Quantity 325 Chapter 12 MANAGING UNCERTAINTY IN A SUPPLY CHAIN: SAFETY INVENTORY 326 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 The Role of Safety Inventory in a Supply Chain 326 Determining the Appropriate Level of Safety Inventory 328 Impact of Supply Uncertainty on Safety Inventory 339 Impact of Aggregation on Safety Inventory 341 Impact of Replenishment Policies on Safety Inventory 353 Managing Safety Inventory in a Multiechelon Supply Chain 356 The Role of IT in Inventory Management 357 Estimating and Managing Safety Inventory in Practice 358 Summary of Learning Objectives 359 Discussion Questions 360 • Exercises 360 • Bibliography 363 왘 CASE STUDY: Managing Inventories at ALKO Inc 363 왘 CASE STUDY: Shall it be postponed? 365 Appendix 12A: The Normal Distribution 366 Appendix 12B: The Normal Distribution in Excel 367 Appendix 12C: Expected Shortage Cost per Cycle 368 Appendix 12D: Evaluating Safety Inventory for Slow-Moving Items 369 Chapter 13 DETERMINING THE OPTIMAL LEVEL OF PRODUCT AVAILABILITY 370 13.1 The Importance of the Level of Product Availability 370 13.2 Factors Affecting Optimal Level of Product Availability 371 13.3 Managerial Levers to Improve Supply Chain Profitability 382 A01_CHOP5226_05_PIE_FM.QXD 2/8/12 8:36 PM Page Contents 13.4 Setting Product Availability for Multiple Products Under Capacity Constraints 396 13.5 Setting Optimal Levels of Product Availability in Practice 398 13.6 Summary of Learning Objectives 399 Discussion Questions 399 • Bibliography 402 • Exercises 400 Appendix 13A: Optimal Level of Product Availability 403 Appendix 13B: An Intermediate Evaluation 403 Appendix 13C: Expected Profit from an Order 404 Appendix 13D: Expected Overstock from an Order 405 Appendix 13E: Expected Understock from an Order 406 Appendix 13F: Simulation Using Spreadsheets 406 Part V Designing and Planning Transportation Networks Chapter 14 TRANSPORTATION IN A SUPPLY CHAIN 409 14.1 The Role of Transportation in a Supply Chain 409 14.2 Modes of Transportation and Their Performance Characteristics 411 14.3 Transportation Infrastructure and Policies 415 14.4 Design Options for a Transportation Network 418 14.5 Trade-Offs in Transportation Design 423 14.6 Tailored Transportation 432 14.7 The Role of IT in Transportation 434 14.8 Risk Management in Transportation 435 14.9 Making Transportation Decisions in Practice 436 14.10 Summary of Learning Objectives 436 Discussion Questions 437 • Exercises 437 • Bibliography 438 왘 CASE STUDY: Designing a Sustainable Distribution Network for Euro-Grain 438 Part VI Managing Cross-Functional Drivers in a Supply Chain Chapter 15 SOURCING DECISIONS IN A SUPPLY CHAIN 440 15.1 The Role of Sourcing in a Supply Chain 440 15.2 In-House or Outsource 442 15.3 Third- and Fourth-Party Logistics Providers 448 15.4 Using Total Cost to Score and Assess Suppliers 451 15.5 Supplier Selection—Auctions and Negotiations 453 15.6 Contracts, Risk Sharing, and Supply Chain Performance 456 15.7 Design Collaboration 467 15.8 The Procurement Process 469 15.9 Designing a Sourcing Portfolio: Tailored Sourcing 471 15.10 Risk Management in Sourcing 472 15.11 Making Sourcing Decisions in Practice 473 A01_CHOP5226_05_PIE_FM.QXD 2/8/12 8:36 PM Page Contents 15.12 Summary of Learning Objectives 474 Discussion Questions 475 • Bibliography 476 • Exercises 475 Chapter 16 PRICING AND REVENUE MANAGEMENT IN A SUPPLY CHAIN 478 16.1 The Role of Pricing and Revenue Management in a Supply Chain 478 16.2 Pricing and Revenue Management for Multiple Customer Segments 480 16.3 Pricing and Revenue Management for Perishable Assets 487 16.4 Pricing and Revenue Management for Seasonal Demand 493 16.5 Pricing and Revenue Management for Bulk and Spot Contracts 493 16.6 Using Pricing and Revenue Management in Practice 495 16.7 Summary of Learning Objectives 497 Discussion Questions 497 • Bibliography 499 • Exercises 498 Chapter 17 INFORMATION TECHNOLOGY IN A SUPPLY CHAIN 500 17.1 The Role of IT in a Supply Chain 500 17.2 The Supply Chain IT Framework 502 17.3 Customer Relationship Management 503 17.4 Internal Supply Chain Management 504 17.5 Supplier Relationship Management 505 17.6 The Transaction Management Foundation 506 17.7 The Future of IT in the Supply Chain 507 17.8 Risk Management in IT 508 17.9 Supply Chain IT in Practice 509 17.10 Summary of Learning Objectives 510 Discussion Questions 510 • Bibliography 510 Chapter 18 SUSTAINABILITY AND THE SUPPLY CHAIN 512 18.1 18.2 18.3 18.4 18.5 18.6 The Role of Sustainability in a Supply Chain 512 The Tragedy of the Commons 514 Key Metrics for Sustainability 516 Sustainability and Supply Chain Drivers 517 Closed-Loop Supply Chains 520 Summary of Learning Objectives 520 Discussion Questions Index 522 521 • Bibliography 521 M18_CHOP5226_05_PIE_C18.QXD 2/8/12 9:25 PM Page 514 514 Chapter 18 • Sustainability and the Supply Chain or certified through C.A.F.E practices, Fairtrade or another externally audited system.” Besides helping attract customers who care about sustainability, these efforts have helped Starbucks reduce supply risk and ensure an ongoing supply of high-quality coffee, the most critical input for its business Sustainability has presented more of a challenge when it requires efforts that not provide obvious return on investment for a company In fact, customers themselves have not always backed up words about the importance of sustainability with a willingness to pay more for sustainable products In a survey, business leaders identified insufficient return on investment, customers’ unwillingness to pay a premium for green products, and difficulty evaluating sustainability across a product life cycle as the major barriers to an increased focus on sustainability.3 When the business rationale for an increased focus on sustainability is not clearly defined for individual firms, maintaining the focus needed for building more sustainable supply chains is much harder As we discuss in the next section, one of the biggest challenges to building sustainable supply chains is that in the short to medium term, an improved focus on sustainability provides benefits that are shared but costs that may be local to a firm, whereas the current status quo provides benefits that are local to firms but a cost that is global 18.2 THE TRAGEDY OF THE COMMONS In an influential article, Hardin (1968) described the tragedy of the commons as a dilemma arising when the common good does not align perfectly with the good of individual entities It is useful to study his example in somewhat greater detail Consider a pasture that is open to all herdsmen with cattle Each herdsman attempts to maximize his gain from this public asset When his cattle feed in the pasture, he gains from their growth and all the gains accrue only to him Any cost of overgrazing, however, is spread over all herdsmen whose cattle feed at the pasture Thus, overgrazing by the cattle of any herdsman provides a positive utility of +1 for the herdsman but a negative utility of only a fraction of –1 for the herdsman because the negative utility of –1 is spread over all herdsmen Thus, each rational herdsman continues to increase his herd because the positive utility to him of adding another animal exceeds the negative utility that he experiences from over grazing As Hardin writes, “Therein is the tragedy Each man is locked into a system that compels him to increase his herd without limit—in a world that is limited Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons Freedom in a commons brings ruin to all.” Hardin then describes how the issue of environmental pollution is essentially the tragedy of the commons Every individual and every company releases waste and pollution into the environment in the form of sewage, chemicals, and carbon dioxide The individual or the company would incur the entire cost of reducing the amount of waste it discards, whereas the cost of throwing waste into the environment is shared by the entire world The common environment available to all at no cost makes it difficult to get every company to invest in waste reduction efforts even though this waste hurts everybody This issue also shows up at the country level The Intergovernmental Panel on Climate Change, a United Nations body that has been assessing global warming since 1990, has written that even though most of the buildup of carbon dioxide in the atmosphere has come from the United States and Western Europe, it is poorer countries closer to the equator that are likely to pay the biggest price The risk of drought, disrupted water supplies, and the swelling of oceans from melting ice sheets as a result of global warming will mostly be experienced in Africa and the “crowded river deltas in southern Asia and Egypt, along with small island nations.”4 In such an environment, getting any agreement on action is difficult because the optimal joint action is “Gibbs & Soell Survey,” accessed on May 1, 2011, at www.cnbc.com/id/42432191/ Revkin, Andrew C “Poor Nations to Bear Brunt as World Warms.” New York Times, April 1, 2007 M18_CHOP5226_05_PIE_C18.QXD 2/8/12 9:25 PM Page 515 Chapter 18 • Sustainability and the Supply Chain not individually optimal, whether at the company or country level No wonder that it has been almost impossible to negotiate a climate change agreement that every country is willing to adhere to! Other examples of the tragedy of the commons come from the overuse of natural resources such as fish, water, and forests Overfishing of sturgeon in Russia and the destruction of salmon runs in rivers that have been dammed are well documented Every company and supply chain faces the challenge of the tragedy of the commons as it operates in a global environment They must compete against others that may be extracting benefits from the environmental or resource commons without spending to maintain these commons They must compete in a market where customers often value low cost and are not willing to pay the price of a more sustainable solution, either in the form of a higher price or reduced consumption Unless all consumers suddenly change their mind-set, it is difficult to imagine a sustainable solution emerging without some intervention Whereas everyone agrees about the need for intervention, there is considerable disagreement on the required form of intervention What Are Some Solutions to This “Tragedy”? In his article, Hardin focused on the problem arising from the fact that the commons are “free” to all As he put it, no solution could be found without taking away some of the freedom that participants enjoyed in the commons Regarding the national parks in the United States, he wrote, “We might sell them off as private property We might keep them as public property, but allocate the right to enter them The allocation might be on the basis of wealth, by the use of an auction system It might be on the basis of merit, as defined by some agreed upon standards It might be by lottery Or it might be on a first-come, first-served basis, administered to long queues These, I think, are all objectionable But we must choose—or acquiesce in the destruction of the commons that we call our National Parks.” Rather than focus on Hardin’s many ideas, it is important to realize the point he makes is the need for us to choose from options that are unlikely to be supported by all of their own free will In the article, Hardin introduces the idea of “mutual coercion,” whereby social arrangements or mechanisms coerce all participants to behave in a way that helps the common good Mutual coercion can be attempted through a command-and-control approach or market mechanisms In a command-and-control approach, the government or regulators set standards that everybody must adhere to An example is carbon monoxide emission standards set by the United States for new automobiles Another example is the waste electrical and electronic equipment (WEEE) directive from the European Union that is geared at proper recycling and landfill avoidance in the electrical and electronics industry The challenge with command-and-control approaches is that they tend to be inflexible and rarely cost effective We give a couple of examples of market mechanisms that have been debated (but not yet implemented in the United States as of October 2011!) in the context of greenhouse gases, a problem that is only getting worse as supply chains become more global Currently, there is no “charge” for emitting greenhouse gases and no explicit limits that are strictly enforced The commons here is the environment, and the lack of any “mutual coercion” leads to excessive emission of greenhouse gases into the atmosphere The hope is to set mechanisms in place that can sustainably address the problem One mechanism has been referred to as “cap-and-trade,” which constrains the aggregate emissions by creating a limited number of tradeable emission allowances that emission sources must secure and surrender in proportion to their emissions Any failure to surrender the appropriate number of allowances leads to a significant fine The mechanism starts with the government creating a limited number of total allowances that are distributed among all players in the economy If players generate fewer emissions than the allowances they own, they can sell their surplus allowances to others that may be polluting above their limit and need additional allowances The “price” of allowances in this mechanism will be created by the supply and demand for allowances Such a mechanism offers companies an incentive to reduce their emissions because they get a financial reward for this improvement by selling their additional allowances to those 515 M18_CHOP5226_05_PIE_C18.QXD 2/8/12 9:25 PM Page 516 516 Chapter 18 • Sustainability and the Supply Chain that cannot (or are unable to) reduce their emissions The hope with this mechanism is that firms will choose the least expensive way to comply with the emissions limit by either implementing emissions reduction plans or buying allowances on the open market This mechanism has several challenges, however The first relates to the method that is used to evaluate the initial allowances awarded to each entity Should they be in proportion to current pollution levels or desired pollution levels? How are the desired pollution levels to be calculated? How should the fine be evaluated if a company is not able to provide allowances for its emissions in a given year? A second mechanism to control emissions is an emission tax Each entity generating greenhouse gases is charged a tax proportional to the size of the emissions This is similar in principle to the congestion-based toll we discussed to manage traffic congestion (see Chapter 14) A charge for emissions will encourage companies to reduce their emissions using all ideas whose marginal costs is less than the charge As a result of an emission tax, the total amount of greenhouse gases produced will decrease This mechanism has several challenges as well What should this charge for emissions be? To what extent will the charge hurt the economy? Answers to each question have a significant impact on the performance of either mechanism There is still considerable debate among experts on each issue, given the uncertainty in being able to estimate the cost to society from these emissions The significant challenge of whether these mechanisms can be implemented at the country level or need to be coordinated globally still exists This is a particularly important issue given that most of the existing emissions have come from the developed world, whereas with global growth, an increasing share of future emissions is likely to come from economies that are still developing 18.3 KEY METRICS FOR SUSTAINABILITY As we mentioned earlier many actions taken in a supply chain can improve both sustainability and supply chain surplus For example, the use of modular design by IKEA allows the company to tightly pack its parts when they are shipped from the production location to its retail stores Modular design allows the company to simultaneously reduce emissions as well as its transportation costs SC Johnson, a manufacturer of cleaning supplies and other consumer goods, has reported that between 1990 and 1999 the company used its eco-efficiency efforts to cut more than 420 million pounds of waste and save $125 million In scenarios like these, in which sustainability improvements also improve the financial performance of the supply chain, one can focus on financial metrics to evaluate sustainability efforts The majority of sustainability-related efforts, however, have a cost that the supply chain incurs for a benefit that may be more universal In such situations, defining explicit metrics that can be used to judge sustainability-related efforts in the supply chain is important In this section, we identify some important categories and metrics that supply chains can focus on A look at various corporate social responsibility (CSR) reports shows some commonality but also a lot of divergence in terms of the metrics they chose to report All companies report some social and environmental metrics A large variation exists, however, in terms of the precise metrics reported For example, transportation companies tend to report on greenhouse emissions, fuel consumption, and transportation efficiency whereas pharmaceutical firms have a greater focus on waste management and water consumption From an environmental perspective, all firms should measure and report on these four categories: Energy consumption Water consumption Greenhouse gas emissions Waste generation Two fundamental challenges exist in a supply chain in the measurement and reporting of the four categories The first challenge relates to the scope over which a category is measured Consider a company that reports only energy consumption within its own operations If it M18_CHOP5226_05_PIE_C18.QXD 2/8/12 9:25 PM Page 517 Chapter 18 • Sustainability and the Supply Chain decides to outsource some production to an offshore supplier, its own energy consumption will show a decline even though the energy consumption in the entire supply chain may have increased If it decides to bring some production in-house and onshore, the energy consumption within its operations will show an increase even if the energy consumption for the entire supply chain has decreased Thus, it is important to clearly define the scope across which all metrics are measured and reported In the context of greenhouse gas emission, the Greenhouse Gas Protocol (GHG Protocol) initiative5 defines three scope levels Scope refers to emissions from GHG sources that are owned or controlled by the reporting entity, also referred to as direct emissions Scope refers to indirect emissions from grid-sourced electricity and other utility services including heat, steam, and cooling Scope refers to the inclusion of other indirect emissions coming from the production of purchased materials, outsourced activities, contractor-owned vehicles, waste disposal, and employee business travel For most firms, the extent of direct emissions is typically only a small fraction of the extent of indirect emissions in the supply chain For example, a detailed analysis by the pharmaceutical company Abbott indicated that its indirect emissions were about to 14 times its direct emissions Ideally, all categories should be measured across the entire supply chain from the consumer to the lowest tier supplier to capture the full impact of the supply chain on the environment The second challenge in measurement and reporting relates to the use of absolute or relative measures of performance An absolute measure reports the total amount of energy consumption, whereas a relative measure may report the energy consumed per unit of output The advantage of using an absolute measure is that it reports the full impact of the supply chain (assuming we use scope 3) along the category being measured The disadvantage is that a drop in supply chain sales and production (e.g., in a downturn) will show an improved absolute measure of energy consumption even though the company may not have changed anything A relative measure of performance is more effective at capturing improvement The challenge with using a relative measure is the choice of basic unit because each category can be measured relative to dollars of sales, kilograms of output, or a variety of other units In general, it is better for firms to measure and report both absolute and relative measures to get a true picture of their performance 18.4 SUSTAINABILITY AND SUPPLY CHAIN DRIVERS Opportunities for improving supply chain sustainability can be identified by matching the four categories we have described (energy consumption, water consumption, greenhouse gas emissions, waste generation) with the various supply chain drivers discussed in the book The goal is for every firm to measure its environmental impact for each driver along each of the four categories In this section, we discuss some of the opportunities available for each driver and provide some examples Facilities Facilities tend to be significant consumers of energy and water and emitters of waste and greenhouse gases and thus offer significant opportunities for profitable improvement Once a firm measures the direct impact of each facility in terms of energy, water, emissions, and waste, it should separate the improvement opportunities into those that generate positive cash flows and those that not Successful companies start by identifying and implementing the profitable projects first According to its 2011 CSR report, Walmart has designed and opened a viable store prototype that is up to 25 to 30 percent more energy efficient and produces up to 30 percent fewer greenhouse gas emissions compared to the 2005 baseline Using more energy efficient light bulbs and building skylights for natural light has cut energy consumption at its existing stores Walmart has also worked to convert waste management at its stores from a cost to a profit Accessed on May 2, 2011, from www.ghgprotocol.org/ 517 M18_CHOP5226_05_PIE_C18.QXD 2/8/12 9:25 PM Page 518 518 Chapter 18 • Sustainability and the Supply Chain generator The company reported that in California, more than 80 percent of waste has been diverted from landfills and recycled to produce revenue Another example of profitable improvement comes from using technology to balance the peak load for energy across a chain of convenience stores By suitably staggering the time that air conditioners and freezers at its stores are turned on, the chain can reduce the peak demand for energy across the store network, resulting in lower costs for the chain and a reduced demand for peak load in the grid Production facilities often have significant opportunity to reuse heat energy generated and reduce water usage during the process Coca-Cola has worked hard to reuse heat energy from boilers in its production process and reduce its total water footprint Lee (2010) gives the example of Posco, which worked with its equipment supplier, Siemens VAI, to create a new production process that cut costs and emissions without hurting product quality by using local iron ore that was of lower quality but less expensive As a result, Posco reduced the cost of a new mill by percent to 17 percent and decreased its operating costs by 15 percent while producing lower levels of greenhouse gases and other waste As these examples illustrate, facilities often offer the best opportunity to simultaneously improve the environmental and financial performances through innovation Inventory Most supply chains focus on raw materials, work in process, and finished goods inventory as we have in this book, but few focus on the inventory sitting in a typical landfill While the inventory in the landfill may not show up in a firm’s balance sheet, it does show up as one of the most damaging aspects from a sustainability perspective The damage may be in the form of harmful additives or in the form of valuable energy and materials that are still locked in the landfill Arguably, the most significant waste in any supply chain occurs when a product is thrown into the landfill because both materials and energy used to produce the product are now lost forever, potentially doing harm The goal of every supply chain should be to track its landfill inventory and separate it in terms of harmful additives and unused value Life cycle assessment (LCA) can be used to assess the environmental impacts associated with a product’s life from cradle to grave The goal should be to reduce (or at least limit) the harmful inventory and unlock the unused value in products when they are discarded McDonough and Braungart (2002) discuss the importance of “cradle to cradle” design if we are to truly limit the landfill inventory generated by a supply chain They suggest designing products “that, when their useful life is over, not become useless waste but can be tossed onto the ground to decompose and become food for plants and animals and nutrients for soil; or, alternately, they can return to industrial cycles to supply high quality raw materials for new products.” Walmart, for example, reduced the amount of harmful phosphates in laundry and dish detergents in the Americas by 14.5 percent in 2011, with a goal of reaching a reduction of 70 percent The company also redesigned packaging to eliminate 91 percent of jewelry pallets and make all its jewelry boxes from recycled materials Transportation Transportation is another driver wherein firms are likely to find several positive cash flow opportunities Any supply chain design innovation that lowers transportation costs also tends to reduce emissions and waste generated from transportation In its 2011 CSR report, Walmart reported that in the United States, it decreased the amount of fuel used to deliver a case of product by 65 percent between 2005 and 2010 This improvement through increased aggregation, a more efficient loading of transportation vehicles, and an increase in their fuel efficiency cuts both cost as well as environmental damage Lee (2010) cites four companies—HewlettPackard, Electrolux, Sony, and Braun—that have formed a joint venture, the European Recycling Platform, to gain better economies of scale in their recycling efforts Lee reports that HP’s cost of recycling digital cameras is only or euro cents in countries with the environmental platform compared to euro cents to 1.24 euros in countries without the platform M18_CHOP5226_05_PIE_C18.QXD 2/8/12 9:25 PM Page 519 Chapter 18 • Sustainability and the Supply Chain Product design can also play a significant role in reducing transportation cost and emissions by reducing packaging and allowing greater density during transportation IKEA has always worked hard to design products that can be shipped flat to achieve high volume and weight density during transportation As a result, the company not only lowers its transportation costs, it also reduces emissions and energy use Sourcing For most firms, the majority of energy and water use and waste and emissions occurs in the extended supply chain outside their own enterprise Thus, to truly have an impact on sustainability, powerful players must look at the extended supply chain and work with their suppliers to improve performance As we have mentioned earlier, the C.A.F.E program at Starbucks encourages suppliers to improve their environmental and social responsibility scores by providing a price premium Walmart and IKEA have also set aggressive targets for their suppliers to improve overall supply chain sustainability Failure to work with suppliers on sustainability should also be viewed as a potential source of risk that can cause considerable damage to the reputation and sales of a firm The presence of lead paint in some of its most popular toys forced Mattel to recall hundreds of thousands of toys sold between April and July of 2007.6 Verifying and tracking supplier performance with regard to sustainability, however, continues to be a major challenge for most firms This effort has become more difficult as supply chains have become increasingly global and fragmented Information Good information continues to be one of the biggest challenges to improved supply chain sustainability The absence of standards for measurement and reporting has led to claims of improvement that are often not verifiable In the short term, this has led to company-specific standards and an explosion of certifications and certifying agencies Companies talk of working toward a common set of standards, but it is unlikely that such standards will emerge because incentives are not aligned across different firms This poses a challenge both within firms and across supply chains when it comes to improving sustainability The C.A.F.E standards and supplier rating are an effort by Starbucks to encourage suppliers to focus on sustainability Plambeck (2007) describes efforts within Walmart to measure and motivate both suppliers and associates To reduce packaging, Walmart implemented a Web-based scorecard that evaluated the packaging of each product along nine metrics such as cube utilization and recycled content This scorecard was used to measure and recognize improvements in packaging Even though universal standards may not be possible, the use of consistent scorecards within a supply chain can go a long way toward aligning the sustainability efforts of all members of the extended supply chain Pricing Consumption visibility and differential pricing by load or time of day have the potential to make a significant difference in the usage of energy by consumers Some studies have found that when people can see how much electricity they are using and the impact of turning off different appliances, their usage decreases by between 10 to 15 percent If this visibility is simultaneously coupled with lower price off-peak electricity, there is a potential to reduce peak load demand In general, increasing the visibility of the environmental impact of products can help customers make more informed choices, especially when the sustainable option costs more One of the biggest challenges to improved sustainability of a supply chain is changing the customer’s willingness to pay for a product that is produced and distributed by a supply chain in a more sustainable manner but ends up costing more Even a company such as Walmart, which is focused on improved sustainability, has not hit its targets for the use of renewable energy because Story, Louise, “Lead Paint Prompts Mattel to Recall 967,000 Toys.” New York Times, August 2, 2007 519 M18_CHOP5226_05_PIE_C18.QXD 2/8/12 9:25 PM Page 520 520 Chapter 18 • Sustainability and the Supply Chain these sources have higher costs compared to other sources of energy In the short term, government incentives supporting some sustainable products can help For example, in 2011, the Nissan Leaf electric vehicle qualified for a federal tax credit of $7,500 in the United States In the long term, however, sustainability cannot be improved in a supply chain simply by focusing on reducing costs or the use of incentives The efforts toward increased sustainability will pick up greater speed once customers place greater value on it, allowing supply chains to grow the supply chain surplus by being sustainable 18.5 CLOSED-LOOP SUPPLY CHAINS As we have discussed earlier, supply chains typically cause significant harm to the environment when their output ends up in a landfill One of the biggest opportunities to improve sustainability is for firms to design products that can be reused and recycled In practice, it is not sufficient to design a recyclable product The product has to be supported by a supply chain that ensures recycling Without the support of the supply chain, even products that can be recycled end up in the landfill! In this section, we raise some challenges in developing closed-loop supply chains that can profitably take back product from customers and recover value by reusing the entire product or some part of it Guide and Van Wassenhove (2009) provide an excellent discussion of closed-loop supply chains Guide and Van Wassenhove describe three scenarios wherein a supply chain may handle returns In the first, a customer returns a product either because it is defective or because he or she has decided during the return period that the product is not needed If the product is defective, the supply chain has to be able to perform any light repair (which may be as simple as cleaning) and reintroduce it into the market When a customer has used the product over its useful life and is ready to throw it away, the product is either trashed or can be picked up by the supply chain Trashing the product hurts the environment Even if the product is returned to the supply chain, several issues need to be addressed if environmental gains are to be realized Some of the returned parts can potentially be remanufactured and used in making other products The other parts will need to be successfully recycled The following three pairings result: Consumer returns are to be repaired, end-of use returns are to be remanufactured, and end-of-life returns are to be recycled for sustainability Besides any technical challenges of performing each task, one of the most significant challenges is to design products and supply chains in which these tasks can be performed economically In fact, many cities in the United States (including New York) cut back their recycling efforts in the early part of the 21st century because the cost of recycling was high and the market for recycled products was weak Whether products are to be repaired, remanufactured, or recycled, the economic interests of all the parties involved must be understood and aligned for the activities to be performed For example, does a company gain or lose economically by selling remanufactured products along with new ones? How can a firm ensure sufficient access to used products if it plans to remanufacture? Who should be responsible for collecting used products (the retailer, the manufacturer, or a third party)? What incentives need to be in place for the economic interests of the entire supply chain to be aligned in such a setting? Do any decisions change if the product has a short or long life cycle? Another issue arises with regard to the design of durable components if they are to be remanufactured Suppliers often have little interest in increasing durability of components because that may cut back on the sales of their own products What incentives need to be in place for them to design and produce durable products? The answers to these questions determine the extent to which supply chains will be sustainable 18.6 SUMMARY OF LEARNING OBJECTIVES Understand the importance of sustainability in a supply chain As supply chains have globalized and emerging countries have grown, it has become increasingly clear that the world’s resources and environment will not be able to support this growth unless supply chains M18_CHOP5226_05_PIE_C18.QXD 2/8/12 9:25 PM Page 521 Chapter 18 • Sustainability and the Supply Chain 521 become more sustainable Besides the need to make the world more sustainable, an increased focus on sustainability has allowed some supply chains to reduce risk, become more efficient, and also attract some customers who value these efforts Discuss the challenge to sustainability posed by the tragedy of the commons Many actions that improve sustainability of a supply chain impose costs that are local (to an individual, a firm, supply chain, or country) but provide common benefits that are more global In contrast, a disregard for sustainability provides benefits that are local but costs that are shared globally As a result, encouraging sustainability without some external pressure either in the form of a public mandate or economic incentive can be difficult Describe key metrics that can be used to measure sustainability for a supply chain Supply chain sustainability can be measured in terms of energy consumption, water consumption, greenhouse gas emission, and waste generation It is important that these metrics be tracked across as wide a scope of the supply chain as possible Identify opportunities for improved sustainability in various supply chain drivers Facilities can be redesigned to reduce both energy use and emissions Products should be designed with a “cradle to cradle” philosophy to decrease landfill inventory and increase the reuse of material Designing products to limit packaging and improve transportation density helps reduce costs as well as emissions during transportation Given that any one firm is only a small fraction of a supply chain’s impact on the environment, it is critical that powerful players work with the extended supply chain to improve sustainability Clearly defined standards for measurement and reporting of performance are important if sustainability is to improve across supply chains Finally, a significant driver of improved sustainability will be customers’ willingness to reward successful supply chains Discussion Questions What are some benefits to improved sustainability of a supply chain? What are some challenges that limit the effort put in by supply chains to improve sustainability? Describe the “tragedy of the commons” in the context of supply chain sustainability What are some “mutually coercive” mechanisms that could be implemented to encourage supply chain sustainability? What are some problems with firms reporting their sustainability performance based on metrics that not consider their extended supply chain? Study the CSR reports for a couple of firms Identify actions across a few supply chain drivers that have improved sustainability Which areas has the company found challenging to improve? Even if a product is designed to be recyclable, discuss some challenges in designing a closed-loop supply chain that can recycle sustainably Bibliography Creyts, Jon, Anton Derkach, Scott Nyquist, Ken Ostrowski, and Jack Stephenson Reducing U.S Greenhouse Gas Emissions: How Much at What Cost? McKinsey & Company, December 2007 Guide, V Daniel R., Jr., and Luk N Van Wassenhove “The Evolution of Closed Loop Supply Chains.” Operations Research 57 (January–February 2009): 10–18 Hardin, Garrett “The Tragedy of the Commons” Science 162 (1968): 1243–1248 Hawken, Paul, Amory Lovins, and L Hunter Lovins Natural Capitalism New York: Little, Brown and Company, 1999 Horne, Ralph, Tim Grant, and Karli Varghese Life Cycle Assessment: Principles, Practice and Prospects Collingwood, Australia: CSIRO Publishing, 2009 Lee, Hau L “Don’t Tweak Your Supply Chain—Rethink It End to End.” Harvard Business Review (October 2010): 61–69 McDonough, William, and Michael Braungart Cradle to Cradle New York: North Point Press, 2002 Plambeck, Erica “Wal-Mart’s Sustainability Strategy.” Stanford Graduate School of Business Case OIT-71 Prokesch, Steven “The Sustainable Supply Chain.” Harvard Business Review (October 2010): 70–72 Z01_CHOP5226_05_PIE_INDX.QXD 2/8/12 8:35 PM Page 522 INDEX Absolute deviation, 206 Actual average flow/cycle time, 58 Adaptive forecasting, 200–205 Adjustable customization, 468 Advanced shipping notices (ASN), 293 Agent effort, contracts for, 465–466 Aggregate forecasts, 191 Aggregate planning, 223–241 bibliography, 243 case studies, 243–245 discussion questions, 241 Excel and, 236–238 exercises, 241–243 implementation of, 240 information technology, 239–240 learning objectives summary, 240–241 linear programming, 228–236 master production schedule (MPS), 238–239 problem of, 225–227 production units, 226–227 role of, 223–225 strategies, 227–228 Aggregate supply planning, 443 Aggregation capacity, 443 capacity constraint, 297 coefficient of variation and, 346–347 information, 443–444 inventory, 426–430, 443 multiple products, 292–293 procurement, 444–445 receivables, 445 relationship, 445–446 safety inventory and, 341–353 temporal, 430 transportation, 444 value and demand, 433–434 warehousing, 444 Agile intercompany interfunctional scope, 45–46 Air transportation, 435 All unit quantity discounts, 301–303 Analysis CPFR, 276 sourcing decisions, 440–442 Apparel manufacturing and retail, 26–27 Assessment, of suppliers, 451–453 Assets, perishable, 487–493 Asset specificity, 447t Auctions, for supplier selection, 453–456 Auto manufacturing, 27–28 Average inbound transportation cost, 63 Average inbound transportation cost per shipment, 63 Average incoming shipment size, 63 Average inventory, 61 Average order size, 70 Average outbound shipment size, 63 Average outbound transportation cost, 63 Average outbound transportation cost per shipment, 63 Average price paid per unit purchased, 285 Average production batch size, 58 Average purchase price, 67 Average purchase quantity, 68 Average replenishment batch size, 61 Average safety inventory, 61 Average sale price, 70 Backlogged demand, 380–382 Bargaining surplus, 456 522 Batch size, 283–284 Behavioral obstacles, to supply chain coordination, 270 Bellman’s principle, 166 Bias, 207 Book supply chains, online sales and, 104–106 Bulk contracts, 493–495 Bullwhip effect, 182, 262–264, 279, 281 Business environment, changes in, 47 Buyer time, 287 Buy software, 505 Call centers, 506 Capacitated plant location model, 130–132, 137–142 Capacity aggregate planning and, 227, 485–487 chase strategy and, 227 dedicated, 162–163 facilities, 57–58 flexible, 165–167 management of, 248–249 revenue management and, 485 safety, 235 time flexibility from, 247–248 Capacity aggregation, 443 Capacity allocation, selection of, 120, 121 Capacity allocation models, 128–144 gravity location models, 132–136 network optimization models, 129–132, 136–144 taxes, tariffs, and customer requirements, 144 Capacity constraints, 231, 396–398 Capital, cost of, 261–262 Carrier delivery, distributor storage with, 89–91 Carriers, package, 412 Case studies aggregate planning, 243–245 cycle inventory, 323–325 demand forecasting, 220–222 distribution network design, 114–119 global supply chain network design, 186–189 predictable variability management, 260–261 safety inventory, 363–366 supply chain network design, 151–154 supply chain performance drivers, 72–79 transportation in supply chain, 438–439 Cash-to-cash cycle time, 61 Causal forecasting methods, 192–193 Central DC, shipments via, 422 Chaining, 162–163 Chase strategy, 227 Clicks-and-mortar networks, 112 Coefficient of variation, aggregation value and, 318, 319 Collaborative assortment planning, 278 Collaborative forecasting, 217, 271 Collaborative planning, 271 Collaborative Planning, Forecasting, and Replenishment (CPFR), 276–277 Commoditization, 112 Commodity products, quantity discounts for, 306–308 Communication, in supply chain coordination, 280 Competitive changes, over time, 31–32, 34–35 Competitive factors, in supply chain network design, 124–125 Competitive strategy, 31–33, 42 facilities and, 57 information, 63–64 inventory and, 59 pricing, 68 sourcing, 67 transportation, 62, 436 Complete information, 262 Complexity, information decisions and, 66 Component commonality, 350–352 Computer-assisted ordering (CAO), 273 Conflict resolution mechanisms, 275 Connectivity, in supply chain coordination, 280 Constraints, 231–235 See also Capacity constraints Containment, 162–163 Contingency plans, 205 Continuously stocked items, cycle service level for, 379–381 Continuous replenishment programs (CRP), 275 Continuous review policies, 330, 353–354 Contracts agent effort and, 465–466 buybacks, 457–460 bulk and spot, 493–495 cost coordination, 464–465 performance improvement, 466–467 product availability, 456–464 quantity flexibility, 462–464 revenue sharing, 460–461 risk sharing, and performance, 456–467 supply chain costs, 464 third parties and, 448 Coordination See Supply chain coordination Cost of capital, 286–287 Cost-responsiveness efficient frontier, 38 Costs aggregate planning and, 229 contracts for, 464–465 cycle inventory, 285, 286–300 facility, 126 fixed, 288–300 inbound transportation, 426–427 inventory, 264 labor, 265 manufacturing, 264 marginal, 303 minimization of, 44 online business and, 98–99, 102–103, 104 optimal level of product availability and, 398 overstocking, 371 sourcing, 446 stockouts, 380–381, 398 suppliers and, 452–453 supply chain coordination, 264–265 total, 157–158 transportation, 424–431 understocking, 371 Criticality, 112 Cross-docking, line haul with, 420, 422 Cultural implications, of supply chain network designs, 145 Customer demands, increase in, 34–35 Customer density and distance, tailored transportation by, 432–433 Customer-driven substitution, 348 Customer-driven two-way substitution, 349 Customer experience distribution network design, 87 online business, 98–99 Customer order cycles, 20, 21, 23 Z01_CHOP5226_05_PIE_INDX.QXD 2/8/12 8:35 PM Page 523 Index 523 Customer pickup manufacturer or distributor storage with, 93–95 retail storage with, 95–96 Customer preferences, for distribution networks, 112 Customer relationship management (CRM), 24, 25, 502, 503–504, 506 Customer requirements, in network optimization models, 144 Customer response time, in supply chain network design, 125 Customer responsiveness, 430–432 Customers distribution networks and, 112 lot sizing for, 293–300 revenue management and, 495–496 supply chain surplus and, 448 Customer segments multiple, 42–43 revenue management and, 480–482 understanding and identifying, 194 Customer service, online business and, 98–99, 102–103, 104–111 Customer size, tailored transportation by, 433 Customer uncertainty, 34–37 Customization, 468 Cycle inventory, 60, 283–325 bibliography, 322–323 case study, 323–325 cost estimation, 286–288 discussion questions, 320 exercises, 320–322 fixed costs, economies of scale exploiting, 288–300 learning objectives summary, 319 multiechelon, 317–319 quantity discounts, economies of scale exploiting, 301–311 role of, 283–286 trade promotions, 312–316 Cycle service level (CSL), 329 continuously stocked items, 379–382 monitoring, 359 quantity discounts and, 378–379 replenishment policy and, 330–334 safety inventory and, 334–336 seasonal items, 374–378 Cycle view of supply chain processes, 20–22 Days payable outstanding, 67 Days sales outstanding, 70 DC central shipments, 419–420, 421 DC milk-run shipments, 421, 422 DC replenishment collaboration, 277 Decision making information technology and, 509 sourcing, 473–474 transportation, 436 Decisions See Facilities decisions; Global supply chain network design decisions; Supply chain decisions Decision trees, 165–173 case study, 173–174 Decision variables, in aggregate planning, 229 Dedicated capacity, 43, 57, 162, 166 Deliveries case study, 323–225 distribution network design and, 89–91 independent, 294–295 joint, 295–300 Delivery frequency/minimum lot size, 451 Demand backlogged, 379–380 CPFR and, 276 cycle inventory and, 291 demand forecasts and, 194, 217 management of, 249–256 seasonal, 358, 493 stockouts and, 380–381 tailored transportation by, 433–434 Demand allocation, to production facilities, 136–137 Demand forecasting, 246 basic approach to, 193–195 bibliography, 220 case study, 220–222 characteristics of, 191 components and methods, 192–193 discussion questions, 218 error measures, 205–207 exercises, 218–219 information technology in, 215 learning objectives summary, 217 practice of, 217 risk management in, 216–217 role of, 190–191 Tahoe Salt example, 209–215 time-series forecasting methods, 195–205 Demand lumpiness, 358 Demand planning, 215, 504–505 Demand planning integration, 194 Demand planning module, 215 Demand risk, 123 Demand uncertainty, 35, 328–329, 338 Demand variability, 66 Deseasonalized demand, 197 Design See Distribution network design; Global supply chain network design; Supply chain network design Design collaboration, 441, 467–468, 505 Design for manufacturability, 468 Design options, for transportation network, 418–423 Design phase of supply chain relationships, 467 Design trade-offs, in transportation networks, 423–431 Developing countries, tariffs and tax incentives in, 123 Diamond retailing case study, 114–119 Dimensional customization, 468 Direct materials, 469 Direct sales, 99 Direct sales manufacturing, 25 Direct shipment network, 418, 422 Direct shipment with milk runs, 419, 422 Direct shipping, manufacturer storage with, 85–88 Disaggregate forecasts, 191 Discounted cash flows, 164–165 Discounts/discounting quantity, 269, 274, 301–311, 378–379 short-term, 312–316 Distribution, 80 Distribution network design bibliography, 113–114 case study, 114–119 clicks-and-mortar network, 112 customer preferences and, 112 discussion questions, 113 distribution strategy and, 112 factors influencing, 81–85 learning objectives summary, 112–113 online business, 98–111 options, 85–98 ownership structure, 111 role of, 80–81 selection of, 97–98, 111–112 Distribution strategy, 112 Distributor storage carrier delivery, 89–91 customer pickup, 93–95 last-mile delivery, 91–93 Double marginalization, 309 Down time, 58 Drop-shipping, 85–88 Dual facilities, 248 Dutch auctions, 454 Duties, 122–123 Dynamic pricing, 487–490 Echelon inventory, 356–357 Economic order quantity (EOQ), 288–292 Economies of scale fixed costs and, 288–300 pricing and, 69 quantity discounts, 301–311 See also Cycle inventory Efficiency See Supply chain efficiency Electronic data interchange (EDI), 65 English auctions, 454 Enterprise resource planning (ERP), 65 Environmental concerns, 47 Equity, 286 Error analysis See Forecast error Everyday low pricing, 69 Exchange rates, 123, 174–175 Exclusive distribution strategy, 112 Exponential smoothing Holt’s model, 202–203 simple, 201–202 Winter’s model, 204–205 Externalities, positive, 124 Facilities, 53, 56–59 dual, 248 information technology and, 502 online business, 100, 102, 105, 108, 110 Facilities decisions, components of, 57–58 Facility configuration, in supply chain network design, 127 Facility costs, in supply chain network design, 126 Facility life span, 144 Facility location selection of, 120, 121, 128 tariffs and tax incentives, 145 Facility location models, 128 gravity location models, 132–136 network optimization models, 129–132, 136–144 taxes, tariffs, and customer requirements, 144 Facility-related metrics, 58 Facility role, 120 Fast-moving items, 347 Field service, 504 Fill rate, 61 replenishment policy and, 330–334 safety inventory and, 334–336 Financial statements Amazon.com’s data (2008–2010), 51–53 Seven-Eleven Japan Co (2008–2010), 73 Tiffany & Co (2008–2009), 118 Wal-Mart Stores Inc (2008–2009), 79 Firms, supply chain macro processes, 24–25 Fixed costs, economies of scale exploiting, 288–300 Fixed lease option, 170–172 Fixed ordering cost, 285 Fixed price, 69–70 Flexibility aggregate planning and, 240 dual facilities, 248 predictable variability management and, 249 Z01_CHOP5226_05_PIE_INDX.QXD 2/8/12 8:35 PM Page 524 524 Index Flexibility (Continued) risk management, 162–163 supply, 443 time, 227, 247 transportation networks, 436 Trips Logistics example, 167–168 Flexible capacity, 182 Flexible lease option, 172–173 Flow time efficiency, 58 Forecast error, 66 aggregate planning and, 235 measures of, 195, 205–206 Forecast horizon, 65 Forecasting, 67 collaborative, 271 optimal level of product availability and, 384 revenue management, 495 supply chain coordination, 266–267, 271 Forecasting error, measurement, 205–207 mean absolute deviation (MAD) method, 206 mean absolute percentage error (MAPE) method, 206–207 mean squared error (MSE), method, 206 reasons, 205 smoothing constant selection, 207–209 Forward buying, 251, 312–315 Fourth-party logistics (4PLs), 448–451 Fraction of time out of stock, 61 Fraction on-time deliveries, 68 Fraction transported by mode, 63 Free trade zones, 123 Frequency of update, 65 Fulfillment, 504 Functional costs, minimization of, 44 Functions, incentives aligned across, 270 Funds transfer, 99 Globalization competitive changes and, 46–47 global supply chain network and, 155–157 strategic fit and, 48 Global supply chain network design, 155 bibliography, 185 case study, 153–154, 186–189 discussion questions, 183 evaluation of, 164–165 exercises, 183–184 globalization, 155–157 learning objectives summary, 182 offshoring decisions, 157–159 risk management, 159–163 Global supply chain network design decisions decision trees, 165–173 practice, 182 uncertainty, 173–182 Goals, alignment of, 270–271 Gravity location models, 132–136 Grocery industry, online business and, 107–109 Hard infrastructure requirements, 128 High-demand products, inventory of, 249 High-low pricing, 69 Hiring constraints, 231 Hiring costs, 230 Holding cost, 285, 287, 291 Holt’s model, 202–203 Idle time, 58 Implied demand uncertainty, 35–38 Inbound transportation costs, 83, 426–427 Incentive obstacles, to supply chain coordination, 266 Incentives alignment of, 270–271 sales force, 266, 271 Incremental fixed cost per order, 70 Incremental variable cost per unit, 70 Independent demand, 329 Independently ordered and delivered lots, 294–295 India, retailing in, 16 Indirect materials, 469 Information, 54, 63–66 complete, 262 distribution network design and, 86 information technology and, 500–501 online business and, 100, 102, 105, 108 Information accuracy, improvement of, 271–272 Information aggregation, 443–444 Information centralization, 345 Information coordination capability, 451 Information decisions, components of, 64–66 Information leaks, 448 Information-processing obstacles, to supply chain coordination, 266–267 Information-related metrics, 65 Information sharing, 64 lack of, 267 point-of-sale data, 271 Information technology (IT), 500–511 In aggregate planning, 239–240 bibliography, 510–511 in customer relation management (CRM), 503–504 Dell’s investment in, 103 discussion question, 510 forecasting and, 215–216 fourth party logistic providers (4PL), 450 framework, 502–503 future of, 507–508 Information aggregation through, 445 in internal supply, 504–505 in inventory management, 357–358 in practice, 509–510 related expenses, 54 retailer discount and, 316 Risk management, 508–509 role in supply chain, 500–502 supplier relationship management, 506–507 in supply chain performance, 55 transportation performance, 434–436 in value chain, 32 Wal-Mart’s investment in, 56 Infrastructure supply chain network design, 124 transportation, 415–417 In-house sourcing, 67, 442–448 In-house transportation, 436 Integration, of demand planning and forecasting, 194 Intercept coefficient, 198, 203 Intercompany interfunctional scope, 45 Intermediate evaluation, of optimal level of product availability, 403 Intermodal transportation, 411, 414 Internal supply chain management (ISCM), 24, 502, 503, 504–505, 506 Internet, 65, 112 See also E-business; Information technology; Online business Intracompany intrafunctional scope, 44 Intracompany intraoperational scope, 44–45 In-transit merge, manufacturer storage with, 88–89 Inventory, 59–61, 249 cost of, 230 forecasting and, 384 information technology and, 501 level strategy and, 227 management of, 247, 249 online business and, 88, 426–427 postponement and, 390–394 quick response and, 385–390 safety, 235 tailored sourcing, 395–396 vendor-managed, 275 See also Cycle inventory; Optimal level of product availability; Safety inventory Inventory aggregation, 426–430, 443 Inventory balance constraints, 231 Inventory costs, 264, 424–430 Inventory decisions, components of, 60–61 Inventory holding cost, 286–288 Inventory profile, 284 Inventory-related metrics, 61 Inventory turns, 61 Jointly ordered and delivered lots, 295–300 Just-in-time (JIT) manufacturing system, 419 Labor costs, 230, 265 Last-mile delivery, distributor storage with, 91–93 Layoff constraints, 231 Layoff costs, 230 Lead time, 328 replenishment, 60, 264, 268, 272 supplier, 338 uncertainty, 339–340 See Replenishment lead time Level, 193, 197–198 Level strategy, 227 Lever, 227–228 Line haul with cross-decking, shipping via, 422 Linear programming, 228–236 Little’s law, 59 Local costs, minimization of, 44 Local optimization, in supply chain coordination, 266 Local presence, in supply chain network design, 125 Location, of facilities, 57–58 Logistics, in supply chain network design, 126 Logistics providers, third- and fourth-party, 448–451 Long-term bulk contracts, 495 Long-term forecasts, 191 Lost demand, 381 Lot, 283 Lot size minimum, 451 multiple products or customers, 292–300 product, 288–292 production, 292 reduction of, 272–273 supply chain coordination and, 267–268, 270, 274 trade promotions and, 314 Lot size–based discounts, 301, 311, 269, 274 Lumpiness of demand, 358 Macroeconomic factors, in supply chain network design, 122–123 Macro processes, 24–25, 502–503 Maintenance, repair, and operations (MRO) suppliers, 27–28, 344 Management commitment, for supply chain coordination, 279 Management phase of supply chain relationships, 18–19 Managerial levers optimal level of product availability, 382–383 supply chain coordination, 270–275 Manufacturability, design for, 468 Manufacturer-driven one-way substitution, 348 Manufacturer-driven substitution, 348 Z01_CHOP5226_05_PIE_INDX.QXD 2/8/12 8:35 PM Page 525 Index 525 Manufacturer storage customer pickup, 93–95 direct shipping, 85–88 in-transit merge, 88–89 Manufacturing cost, 264 Manufacturing cycles, 20, 23 Marginal cost, 303 Marginal unit quantity discounts, 303–305 Market allocation, 120 Market growth, 251 Marketing, customer relationship management and, 503 Market power, quantity discounts and, 308–311 Markets pricing and revenue management, 478–498 splitting, 125 Market share, stealing, 251 Material cost, 285 Material flow time, 59 Materials cost of, 230–231 direct and indirect, 469 Mean absolute deviation (MAD), 206 Mean absolute percentage error (MAPE), 206 Mean squared error (MSE), 206 Menu price, 69–70 Metrics facilities-related, 58 information-related, 65 inventory-related, 61 pricing-related, 70 sourcing-related, 67–68 transportation-related, 63 Milk runs, 419, 421, 422 Miscellaneous costs, 287 Mix flexibility, 162 Modular customization, 468 Moving average, 200–201 Multiblock tariffs, 303 Multiechelon cycle inventory, 317–320 Multiechelon supply chains, 356–357 Multifunctional teams, 473 Multimodal transportation, 411, 415 Multiple customer segments, revenue management and, 480–487 Multiple customers, lot sizing for, 293–300 Multiple products aggregation of, 293 capacity constraints and, 396–397 lot sizing for, 293–300 Multiunit Dutch auctions, 455 Multiunit English auctions, 455 Negotiation information technology and, 505 supplier selection, 453–456 Network design See Distribution network design; Global supply chain network design; Supply chain network design Network design decisions, 120 Network optimization models, 129 capacitated plant location model, 130–132, 137–140 plant and warehouse location, 142–144 plant location model with single sourcing, 140–141 production facilities, demand allocation to, 136–137 New product flexibility, 162 Objective function, 230–231 Objectives, in demand forecasting, 193–194 Obsolescence cost, 287 Obsolete inventory, 61 Occupancy cost, 287 Offshoring, 157–159, 441 Offshore decisions, uncertainty, 173–182 decision tree, evaluation, 175 discounted cash flow, evaluation, 174–175 onshore option, 175 period 0, 180–182 period 1, 179–180 period 2, 179 Online business, 80–119 Amazon’s, 28–29 of bricks-and-mortar stores, 348 case study, 114–119 customer substitution, 349 cycle inventory, 60 failure of, 17 information aggregation in, 445 inventory aggregation and, 426–427 liquidators of, 382 network distribution, 98–111 order cycle, 21 package carriers, 412 postponement, orders, 353, 390 procurement process, 470 product availability, 371 retail, 344 Onshore Option, uncertainty period 0, 178 period 1, 177–178 period 2, 175–177 One-time orders, quantity discounts and, 378–380 On-time performance, 413 Operation See Supply chain operation Operational obstacles, to supply chain coordination, 267–270 Operational performance, improvement of, 272–274 Operations, revenue management and, 496 Operations planning, 256 Optimal cycle service level seasonal items, 374–377 unmet demand and, 382 Optimal level of product availability, 370–374, 403 bibliography, 402 discussion questions, 399 exercises, 400–402 factors affecting, 371–381 implementation of, 398 importance of, 370–371 intermediate evaluation, 403 learning objectives summary, 399 multiple products under capacity constraints, 396–397 overstock from orders, 405 profitability, managerial levers for, 382–383 profitability, orders and, 404 spreadsheet simulations, 406–407 understock from orders, 406 Optimization revenue management decisions, 495 supply chain coordination, 266 Order cost, 287, 291–292 Order fill rate, 329, 330 Order management, 504 Orders independent, 294–295 joint, 295–300 multiple products aggregation in, 293 one-time, 378–379 overstock from, 405 pricing and, 274 profitability and, 404 seasonal, 374–378 supply chain coordination and, 266–270 understock from, 406 Order-up-to level (OUL), 354 Order variability, 66 Order visibility, 99 Organizational requirements, for CPFR, 278 Outbound transportation costs, 83 Outsourcing, 66, 436, 440, 441, 442–448 Overbooking, 491–492 Overstock cost of, 371 evaluation of, 377–378 orders and, 405 Overtime labor cost, 230 Overtime limit constraints, 231–232 Ownership, total cost of, 473–474 Ownership structure, of distribution networks, 111 Package carriers, 412, 424 Perfectly negatively correlated demand, 329 Perfectly positively correlated demand, 329 Performance, online business and, 103, 106, 108, 111 See also Strategic fit; Supply chain performance drivers Performance characteristics, of transportation modes, 411–415 Performance improvement, contracts for, 466–467 Performance measures, for demand forecasts, 195 Periodic review policies, 330, 354–356 Perishable assets, 487–492 Personal computer industry, online business and, 102–104 Pilot programs, 358 Pipeline transportation, 411, 414 Planning collaborative, 271 collaborative assortment, 278 CPFR, 276 internal supply chain management, 504–505 sourcing decisions, 441, 442 supply, 497 See also Aggregate planning; Cycle inventory; Demand forecasting; Optimal level of product availability; Predictable variability management; Safety inventory; Supply chain planning Planning horizon, 225 Plant and warehouse location model, 142–144 Plant location model with single sourcing, 140–141 Point-of-sale data, 271 Political factors, in supply chain network design, 124 Positive externalities, 124 Postponement, 351–352, 383, 390–393 benefits, 390–393 see also Tailored postponement Predictable-demand products, inventory of, 249 Predictable variability management, 249, 246 bibliography, 260 case study, 260–261 demand, management of, 249–256 discussion questions, 257 exercises, 258–259 learning objectives questions, 257 responses, 246–247 sales and operations planning, 256 supply, management of, 247–249 Preset levels, of product availability, 398 Price discrimination, 311 Price fluctuations, 269 Pricing, 54, 68–70, 478 assets, perishable, 487–492 bibliography, 499 contracts, bulk and spot, 493–495 Z01_CHOP5226_05_PIE_INDX.QXD 2/8/12 8:35 PM Page 526 526 Index Pricing (Continued) customer segments, multiple, 480–487 demand, seasonal, 493 discussion questions, 497 distribution networks and, 112 dynamic, 487–491 exercises, 498 information technology, 501 learning objectives summary, 497 online business and, 99 practice of, 495–496 role of, 478–480 supply chain coordination and, 269, 270–271, 274 Pricing decisions, components of, 69–70 Pricing-related metrics, 70 Processing time, 58 Process views of supply chains, 20–25 Procurement, 67 Procurement aggregation, 444 Procurement cycles, 20, 21, 22, 23 Procurement process, 469–471 Product availability, 98 contracts for, 456–464 level of, 61 measurement of, 329–330 safety inventory and, 337–338 supply chain coordination and, 265 See also Optimal level of product availability Product-based tailored sourcing, 395–396 Product components, 249 Product demand, tailored transportation by, 433–434 Product development, 32 Product fill rate, 329, 330 Product flexibility, in production processes, 248 Production, lot sizing for, 292 Production capacity See Capacity Production cost per unit, 58 Production facilities, demand allocation to, 136–137 Production processes, product flexibility in, 248 Production service levels, 58 Product launches (time to market) distribution network design, 87 online business, 99 Product life cycle, 45–46 Product lifestyles, decrease in, 45 Product portfolio, 99 Product pricing See Pricing Products aggregation of, 293 capacity constraints and, 396–398 demand forecasts and, 194 lot sizing for, 288–292 multiple, 42 quantity discounts for, 306–311 seasonal, 374–377 Product subsets, jointly ordered and delivered lots for, 298–300 Product substitution, 348–349 Product variety distribution network design and, 87 facilities and, 58 increase in, 49 online business and, 98 Profitability forecasting and, 383–384 increasing, 70 managerial levers for, 382–396 optimal level of product availability and, 398 orders and, 404 postponement and, 390–394 price discrimination and, 311 quantity discounts and, 305–311 quick response and, 385–390 supply chain, 16 tailored sourcing, 395–396 Profit margin, 70 Profit maximization, 48 Promotions, 99, 312–316 Pull systems, 64 Push/pull boundary, 22 Push/pull view of supply chain processes, 22–24 Push systems, 64 Qualitative forecasting methods, 192 Quality sourcing and, 445 supply, 68 Quality losses, 58 Quality-of-life issues, in supply chain network designs, 145 Quantification bullwhip effect, 279–281 revenue management benefits, 495 Quantity, dynamic pricing and, 489 Quantity discounts economies of scale exploiting, 301–311 lot size–based, 269, 474 one-time orders and, 378–379 Quick response, 383, 385–390 Radio frequency identification (RFID), 65 Rail transportation, 411, 413, 424 Random component measures, 217 Range of periodic sales, 70 Range of purchase price, 67 Range of sale price, 70 Rationing, 268–269, 274 Ratio of demand variability to order variability, 66 Reactive processes, 22 Receivables aggregation, 445 Receiving, labor cost for, 265 Receiving costs, 288 Reciprocal interdependence, 454–455 Regional facility configuration, 127 Regular-time labor cost, 230 Relationship aggregation, 445 Relationship-oriented levers, 274–275 Replenishment continuous, 275 single-stage control of, 271–272 Replenishment cycles, 20, 21, 22, 23, 329 Replenishment lead time, 53, 264, 268, 272 Replenishment policies, 330–334, 353–356 Resources, for supply chain coordination, 280 Response time, 98, 125 Responsiveness See Supply chain responsiveness Retail event collaboration, 477–478 Retail storage, with customer pickup, 95–96 Retail store supply chain networks books, 106 PCs, 103–104 Returnability, 99 Revenue management, 478–497 assets, perishable, 487–493 bibliography, 499 contracts, bulk and spot, 493–495 customer segments, multiple, 480–487 demand, seasonal, 493 discussion questions, 497 exercises, 498 information technology, 500–502 learning objectives summary, 497 practice of, 495–497 role of, 478–480 See also Pricing Review interval, 354 Risk management demand forecasting, 215–216 global supply chains, 160–163 information technology, 507–508 sourcing, 472 transportation, 435 Risks CPFR, 278–279 third parties, 447–448 Risk sharing, 456–467 Role, of facilities, 57 Safety capacity, 235 Safety inventory, 60, 235, 284, 326 aggregation and, 341–353 bibliography, 363 case study, 363–366 discussion questions, 360 estimation and management of, 358–359 exercises, 360–363 information technology and, 357–358 learning objectives summary, 359 level of, 328–339 multiechelon supply chains and, 356–358 packing cost, case study, 365–366 replenishment policies and, 353–356 role of, 359–360 supply uncertainty and, 339–341 Sales customer relationship management and, 502–503 demand forecasting and, 217 revenue management and, 495 Sales force incentives, 266, 271 Sales planning, 256 S&OP process, 257 Scale, supply chain surplus and, 446 Scoring, of suppliers, 451–453 Sealed-bid first-price auctions, 454 Seasonal demand, 358, 493 Seasonal factors, 66 Seasonal inventory, 60–61 Seasonality, 193, 198–199 Seasonality-corrected exponential smoothing, 204–205 Seasonal products, optimal cycle service level for, 374–377 Seasonal workforce, use of, 248 Second-price auctions, 454 Sell-in, 316, 271 Sell-through, 317, 271 Service centers, 504 Setup time, 58 Shared-savings contract, 466 Shareholder’s perspectives on financial performance, 50–53 Shipments central DC, 420–421, 423 DC using milk runs, 421–423 direct, 418–419, 423 Shippers, 410 Shipping, labor cost for, 265 See also Direct shipping Shortage gaming, 268–269 Short-term discounting, 312–316 Simple exponential smoothing, 201–202 Simulation inventory policies and, 358 spreadsheet, 406–407 Simulation forecasting methods, 193 Single sourcing, plant location model with, 140–141 Slow-moving items, 346 Soft infrastructure requirements, 128 Software evolution, macro processes and, 502–504 Z01_CHOP5226_05_PIE_INDX.QXD 2/8/12 8:35 PM Page 527 Index 527 Sophistication, of information technology, 509 Sourcing, 54, 66–68 information technology and, 501 tailored, 383, 395–396 Sourcing decisions, 67–68, 440 bibliography, 476–477 components of, 67–68 contracts, risk sharing, and performance, 456–467 decision making, 472–473 design collaboration, 467–468 discussion questions, 475 exercises, 475–476 information technology, 449–450 in-house sourcing or outsourcing, 442–448 learning objectives summary, 474–475 logistics providers, third- and fourth-party, 448–451 planning and analysis, 442 procurement process, 469–471 risk management, 472 role of, 474–476 supplier scoring and assessment, 441–442 supplier selection, 453–456 Sourcing-related metrics, 67–68 Sourcing software, 505 Specialization, 345–347 Specialized facilities, 248 Speculative processes, 22 Spill, 485 Spoilage, 485 Spoilage cost, 287 Spot contracts, 493–495 Spot market, 494–495 Spot market option, 168–170, 173 Spreadsheet simulations, 406–407 Square-root law, 344 Static forecasting methods, 195–198 Stealing share, 251 Stockouts, 329, 359 cost of, 230, 380–381, 398 demand and, 380–381 Storage See Distributor storage; Manufacturer storage; Retail storage Storage intermediaries, transportation aggregation by, 444 Store replenishment collaboration, 278 Strategic decision making, predictable variability and, 257 Strategic factors, in supply chain network design, 121–123 Strategic fit, 31 achieving, 33–46 bibliography, 49 competitive and supply chain strategies, 31–33 discussion questions, 48 learning objectives summary, 48 obstacles to, 46–48 optimal level of product availability and, 398 scope of, 44–46 Strategic partnerships, 274–275 Strategic planning, 504 Strategic scope, 44–48 Subcontracting, 230–231, 248 Substitution, 348–349 Success factors, information technology and, 509 Supplier lead time, 338 Supplier profitability, price discrimination and, 311–312 Supplier relationship management (SRM), 24, 502, 503, 505–506 Supplier reliability, 68 Suppliers long-term relationships with, 473 scoring and assessment, 441, 441–442 supply chain surplus and, 448 total cost and, 452–453 Supplier selection, 67, 441, 453–456 Supplier viability, 510 Supply demand forecasts and, 194 management of, 247–249 Supply allocation, 120 Supply chain aggregate planning See Aggregate planning Supply chain capabilities, 34, 37–39 Supply chain coordination, 37–264, 306–311, 262 bibliography, 282 bullwhip effect, 262–264 Collaborative Planning, Forecasting, and Replenishment (CPFR), 276–279 continuous replenishment and vendormanaged inventories, 276 costs of, 447 discussion questions, 281 information technology, 280 lack of, 262–264 learning objectives summary, 281 managerial levers for, 270–275 obstacles to, 266–270 performance and, 264–265 practice of, 279–281 strategic partnerships and trust, 274–275 Supply chain costs, contracts for, 464–465 Supply chain decisions facilities, 57–58 importance of, 16–18 information, 64–66 inventory, 60–61 phases of, 18–19 pricing, 69–70 sourcing, 67–68 transportation, 62–63 See also Global supply chain network design decisions Supply chain demand forecasting See Demand forecasting Supply chain design, 18, 126 Supply chain efficiency, 38, 58–59, 61, 63 Supply chain inventory management See Cycle inventory; Optimal level of product availability; Safety inventory Supply chain macro processes, 24–25, 502–503 Supply chain management (SCM), 18, 65, 502, 503, 504–505, 506 See also Predictable variability management Supply chain metrics See Metrics Supply chain network design, 79, 120, 145 bibliography, 151 case study, 151–154 coordination in, 279–281 cultural implications, 145 discussion questions, 146 exercises, 146–150 facility life span, 144 facility location and capacity allocation models, 128–144 factors influencing, 121–126 framework for, 126–128 globalization and, 155–157 information technology, 157 learning objectives summary, 145–146 quality-of-life issues, 145 role of, 120–121 tariffs and tax incentives, 145 See also Distribution network design; Global supply chain network design Supply chain operation, 19 Supply chain ownership, fragmentation of, 47 Supply chain performance See Strategic fit; Supply chain performance drivers Supply chain performance drivers, 53–55 case study, 72–79 discussion questions and bibliography, 71–72 facilities, 56–59 information, 63–66 inventory, 59–61 learning objectives summary, 70–71 pricing, 68–70 sourcing, 66–68 structural framework, 55–56 transportation, 61–63 See also Information technology; Pricing; Revenue management; Sourcing decisions; Supply chain coordination Supply chain planning, 19–20 Supply chain processes, 20–25 cycle view, 20–22 macro processes, 24–25 push/pull view, 22–24 Supply chain profitability, 16 Supply chain relationship management, 502 Supply chain responsiveness facilities decisions and, 58–59 inventory decisions and, 61 strategic fit and, 37, 41, 43 transportation decisions and, 62–63 Supply chains, 13, 14 defined, 14–16 discussion questions and bibliography, 29 examples of, 25–29 facilities and, 57 information, 63–66 inventory and, 59 learning objectives summary, 29 objective of, 15–16 pricing, 68 sourcing, 66 transportation, 62 See also Information technology; Pricing; Revenue management; Sourcing decisions; Transportation Supply chain strategy, 18, 31–33, 47, 126–127 Supply chain strategy modules, 126–127 Supply chain surplus, 15 increasing, 68 maximization of, 45 third parties and, 443–446 Supply chain uncertainty, 34–37, 46 Supply collaboration, information technology and, 505 Supply flexibility, 162–163 Supply lead time, 68 Supply management, CPFR, 276 Supply network, 14 Supply planning internal supply chain management, 505 revenue management and, 496 Supply quality, 68, 466 Supply uncertainty, 339–341 Supply web, 14 Surplus See Supply chain surplus Sustainability bibliography, 521 closed-loop supply chains, 520 discussion questions, 521 facilities, 517–518 inventory, 518 key metrics, 516–517 pricing, 519–520 role in supply chain, 512–514 sourcing, 519 summary, 520–521 Z01_CHOP5226_05_PIE_INDX.QXD 2/8/12 8:35 PM Page 528 528 Index Sustainability (Continued) tragedy of the commons and, 514–516 transportation, 518–519 Systematic component measures, 193 Tailored postponement, 393–394 Tailored sourcing, 383, 395–396 Tailored transportation, 421–423, 432–434 Tariffs, 122–123, 144, 145 multiblock, 303 two-part, 309 Taxes, 144, 158 Tax incentives, 122–123, 145 Teams, multifunctional, 473 Technology CPFR, 278 information decisions and, 64–65 supply chain coordination, 281 supply chain network design and, 122 transportation and, 436 Technology See also Information technology Temporal aggregation, 430 Theoretical flow/cycle time of production, 58 Third parties risks of, 447–448 supply chain surplus, 443–446 Third-party logistics (3PLs), 448–451 Throughput, 59 Time flexibility, 227, 247–248 Time-series forecasting methods, 192, 195–205 Time to market See Product launches Top management commitment, for supply chain coordination, 279 Total cost global supply chain design, 155–157 ownership, 473 suppliers and, 452–453 Tracking signal (TS), 207 Trade agreements, 122 Trade-offs design, 423–430 inventory aggregation, 427–430 transportation costs and customer responsiveness, 431 transportation modes, 424 Trade promotions, 312–315 Transaction management foundation (TMF), 502, 503, 506–507 Transportation, 53, 61–63, 346, 409 bibliography, 438 case study, 438–439 decision making, 436 design options, 418–423 design trade-offs, 423–432 discussion questions, 437 exercises, 437–438 information technology and, 436, 502 infrastructure and policies, 415–417 learning objectives summary, 409–410 modes and performance characteristics, 411–415, 424–426 online business and, 95, 102, 412 risk management in, 435 role of, 409–410 tailored, 432–434 Transportation aggregation, 443–444 Transportation costs, 287–288 customer responsiveness and, 430–432 inbound, 419 inventory costs and, 424–430 supply chain coordination and, 265 Transportation decisions, components of, 62–63 Transportation intermediaries, transportation aggregation by, 443 Transportation mode, selection of, 62 Transportation network, design of, 62 Transportation-related metrics, 62–63 Trend, 193, 197–198 Trend-corrected exponential smoothing Holt’s model, 202–203 Winter’s model, 204–205 Truck transportation, 411, 412, 425 Trust-based relationships, 473 Turn-and-earn, 274 Two-part tariff, 309 Uncertainty customers and supply chains, 34, 35–38 demand, 338 global supply chain design decisions under, 173–182 lead time, 339–341 representations of, 167 revenue management, 485–487 safety inventory and, 337–339 supply, 339–341 supply chain surplus and, 447 See also Safety inventory Understock cost of, 371 evaluation of, 377 orders and, 405–406 Uniform-price auction, 455 Unmet demand, 382 Utilization, 58, 227 Value, 15 aggregation, 347 component commonality, 350 demand forecast data, 217 information decisions and, 65–66 information technology and, 510 online business, 100 tailored transportation by, 433 trust-based relationships, 473 Variability See Predictable variability management Variance from plan, 66 Vendor-managed inventories, 275 Vickrey auctions, 454 Volume-based discounts, 310 Volume-based quantity discounts, 310–311, 274 Volume-based tailored sourcing, 395 Volume contribution of top 20 percent SKUs and customers, 58 Volume flexibility, 162 Warehouse and plant location model, 142–144 Warehousing aggregation, 444 Water transportation, 413–414 Weighted-average cost of capital (WACC), 286–287 Winter’s model, 204–205 Workforce, seasonal, 247–248 Workforce constraints, 231 Workforce time flexibility, 247 X variable coefficient, 198