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Managing Supply ChainsA Logistics ApproachJohn J. Coyle C. John Langley Jr. Robert A. Novack Brian J. Gibson

Managing Supply Chains

A LOGISTICS APPROACH

J o h n J . C o y l e ^The Pennsylvania State University

C . J o h n L a n g l e y , J r .The Pennsylvania State University

•

R o b e r t A . N o v a c k

The Pennsylvania State Universitym

B r i a n J . G i b s o n

A uburn University

A u s tra lia • B raz il • Japan • Korea • M e x ico • S ingapore • Spain • U n ite d K ingdom • U n ite d States

M anaging Supply Chains: A Lo gistics A pproach, N inth International Edition john J. Coyle, C. John Langley Jr.,Robert A. Novack, Brian J. Gibson

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A very special note o f than ks an d appreciation is due to ou r fam ilies. John Coyle would like to than k his wife B arbara, their children john a n d Susan, an d their grandchildren

Lauren, M atthew, E lizabeth Kate, Emily, Ben, Cathryn, a n d Zachary. John Langley w ould like to than k his wife Anne, their children Sarah an d M ercer, a n d their

grandchildren Bryson an d Molly. Bob N ovack w ould like to than k his wife Judith an d their children Tom, Elizabeth, an d Alex. Brian Gibson w ould like to than k his

wife M arcia an d son Andy.

Brief Contents

Preface xxAbout the Authors xxiv

r^art I

Part II

ChapterChapterChapter

ChapterChapter

Part V

Chapter 6

Part IIIChapterChapter

Chapter 9 Chapter 10

Chapter 11

S u p p ly C ha in M an a g e m en t: An Overview R ole o f L o g is tics in S u p p ly C ha ins 31 G loba l D im e n s ion s o f S u p p ly C ha ins 79

S up p ly C ha in R e la tio n s h ip s 1 0 7 S up p ly C ha in P e rfo rm ance M easurem ent and F in a n c ia l A na lys is 141 S up p ly C ha in T e ch n o lo g y— M anag ing In fo rm a tio n F low s 1 8 7

D em and M ana g e m en t 2 2 5 O rde r M a n a g e m en t and C ustom er S ervice 2 6 3M anag ing Inven to ry in th e S up p ly Chain 3 1 7 T ra n sp o rta tio n — M an a g ing th e F low o f the S up p ly C ha in 3 9 9 D is tr ib u tio n — M an a g ing F u lf i llm e n t O p e ra tion s 4 6 3

Part IVChapter 12 S up p ly C ha in N e tw o rk A na lys is and

Design 5 1 3Chapter 1 3 S ou rc in g M a te ria ls and S erv ices 5 5 3 Chapter 1 4 O p e ra tion s— P ro d u c in g Goods and

Serv ices 5 8 7 Chapter 1 5 S up p ly C ha in S u s ta in a b ility 6 2 3

Chapter 1 6 S tra te g ic C h a llen g e s and C hange fo r S upp ly C ha ins 6 4 9

Subject Index 6 7 7

Name Index 6 8 9

Contents

Preface xx About the Authors xxiv

Part 1Chapter 1 S up p ly C ha in M anagem en t: An Overview 3

SUPPLY CHAIN PROFILE; SAB D is tr ib u tion ; A Sequel 4 In tro d u c tio n 6W ha t Forces Are D riv in g th e Rate o f Change 7

G lo b a liz a tio n 7 Te ch n o lo g y 9O rg a n iza tio n a l C o n so lid a tio n 9 The E m pow ered C o n su m e r 1 0 G o vern m e n t P o lic y a n d R e g u la tio n 11

ON THE LINE; M alt-O -M eal Com pany; G oing N ationa l 1 3

The S u p p ly C ha in C on ce p t 14 D e ve lo p m e n t o f th e C o n ce p t 14

IVIajor S u p p ly C ha in Issues 21 S u p p ly C ha in N e tw o rks 21 C o m p le x ity 2 2 In ve n to ry D e p lo ym e n t 2 2 In fo rm a tio n 2 2

ON THE LINE; How S upp ly Chain Varia tion Im pacts S hareho lder Value 2 3

C ostA /a lue 2 3O rg a n iza tio n a l R e la tio n s h ip s 2 4 P erfo rm a n ce M e a s u re m e n t 2 4 T echno logy 2 4T ra n sp o rta tion M a n a g e m e n t 2 4

SUPPLY CHAIN TECHNOLOGY; T rans fo rm ing Supply Chain IT into ■'Business Technology” 2 5

S u p p ly C ha in S e c u r ity 2 6 S um m a ry 2 7 S tu d y Q uestions 2 7 N otes 2 8Case 1 .1 : C e n tra l T ransport, In c . 2 9

C hapter 2 Role o f L o g is tics in S u p p ly C ha ins 31 SUPPLY CHAIN PROFILE: Jordano Foods 3 2In tro d u c tio n 3 3 W hat Is Log is tics? 3 5

V alue-A dded R o les o f L o g is tics 3 7 ON THE LINE: U.S. Providers Say Logistics in China Is on the R ight Track 3 9L o g is tics A c tiv it ie s 4 0

S cope o f A c t iv it ie s 4 0 ON THE LINE; In d ia 's Log istics Challenges in a N utshe ll 4 4 L o g is tics in th e E conom y: A M acro

P erspective 4 5 L o g is tics in th e F irm : The M icro D im ension 4 8

L o g is tics In te rfa ce s w ith M a n u fa c tu r in g / O p era tions 4 8

L o g is tics In te rfa ce s w ith M a rk e tin g 4 9 Log is tics In te rfa ce s w ith O ther Areas 53 L o g is tics in th e F irm : Factors A ffe c tin g th e Cost and

Im po rta n ce o f L o g is tics 54 C o m p e titive R e la tio n s h ip s 5 4 P ro d u c t R e la tio n s h ip s 5 7 S p a tia l R e la tio n s h ip s 5 9

T e ch n iqu e s o f L o g is tics System A na lys is 61 S h o rt-R u n /S ta tic A n a lys is 61 L o n g-R u n /D yn a m ic A na lys is 6 2

A pp roaches to A na lyz in g L o g is tics S ystem s 6 4 M ate ria ls M a n a g e m e n t versus P hys ica l

D is tr ib u tio n 6 4 C ost C enters 6 5 N odes versus L in k s 6 6 L o g is tics C hanne ls 6 7

SUPPLY CHAIN TECHNOLOGY: Data S crubb ing; It 's the Next B ig Thing 7 0L o g is tics and S ystem s A na lys is 7 0

Cost P erspective 71 Levels o f O p tim a lity 71

S um m ary 7 4 S tudy Q ue stio n s 7 4 N otes 7 5Case 2 .1 : S enco E le c tro n ics C om pany 7 6 Case 2 .2 : P e a n u t P la n ta tio n 7 8

Chapter 3 G lobal D im e n s ion s o f S u p p ly C ha ins 7 9SUPPLY CHAIN PROFILE: Red Fish. B lue Fish, LLP 8 0 In tro d u c tio n 81S u p p ly C ha ins in a G loba l E conom y 8 2ON THE LINE; A dap ting to O pera ting in Low-Cost Regions 8 3

The S cope and M a g n itu d e o f G loba l B us iness 8 5G loba l M arke ts and S tra tegy 8 6ON THE LINE; M anaging the Risk Inheren t in G lobalO utsourcing 8 7

S u p p ly C ha in S ec u rity : A B a la n c in g A c t 8 9 SUPPLY CHAIN TECHNOLOGY: Zara Shows How 9 0

P orts 91N o rth A m e rica n Free Trade A g re e m e n t 91 M aq u ila d o ra O p e ra tion s 9 2 A sia n E m ergence 9 4 N e w D ire c tio n s 9 4

G loba l T ra n sp o rta tio n O p tion s 9 4 O cean 9 4 A ir 9 6 M o to r 9 7 R a il 9 7

S tra te g ic C hanne l In te rm e d ia r ie s 9 7 Fore ign F re ig h t Forw arders 9 8 N o n -V e sse l-O p e ra tin g C om m on C arriers 9 8 E xp o rt M a n a g e m e n t C o m pan ies 9 9 E xp o rt T ra d ing C om pan ies 9 9 C ustom s H ouse B roke rs 1 0 0

S to rage F a c ilit ie s and P acka g in g 1 0 0 S torage F a c ilit ie s 1 0 0 P a c ka g in g 101

S um m a ry 1 0 2 S tu d y Q u e stio n s 1 0 2 N otes 1 0 3Case 3 .1 : R ed F ish, B lu e F ish. LLP : A S e q u e l 1 0 4

Part II

Chapter 4 S u p p ly C ha in R e la tio n s h ip s 1 0 7SUPPLY CHAIN PROFILE; S upp ly Chain R e la tion sh ip s- There Is No “ M agic B u lle t" 1 0 8In tro d u c tio n 1 0 9 L o g is tics R e la tio n s h ip s 1 0 9

Types o f R e la tio n s h ip s 1 0 9 In te n s ity o f In vo lve m e n t 1 1 0

M od e l fo r D eve lop ing a n d Im p le m e n tin g S u cce ss fu l S u p p ly C hain R e la tio n sh ip s 111

N eed fo r C o llabo ra tive R e la tio n sh ip s 1 1 5 Th ird -P a rty Log is tics— In d us try Overview 1 1 8

D e fin itio n o f T h ird -P a rty L o g is tics 1 1 8 ON THE LINE: D on't U nderestim ate the Im portance o f Guanxi 1 1 9

Types o f 3 P L P roviders 1 1 9 3P L M arke t S ize a n d S cope 121

T h ird -P a rty Log is tics Research S tudy—Indus try D eta ils 1 2 3P ro file o f L o g is tics O u tsou rc in g A c tiv it ie s 1 2 4 S tra te g ic R ole o f In fo rm a tio n Technology 1 2 7 M anagem en t a n d R e la tio n sh ip Issues 1 2 8

SUPPLY CHAIN TECHNOLOGY: 3PLs Need to F ill an Expanded Role in Today's Supply Chains 1 2 9

C ustom er Value F ram ew ork 131 L o g is tics S tra te g ic View a n d the R ole o f 3P Ls 1 3 2

S um m ary 1 3 5 S tu d y Q uestions 1 3 5 Notes 1 3 6Case 4 .1 : CoLinx, LLC 1 3 8Case 4 .2 : O cean Spray Cranberries, Inc. 1 4 0

Chapter 5 S up p ly Chain P erform ance M easurem ent and F ina n c ia l A na lys is 141 SUPPLY CHAIN PROFILE; CLGN Book D is tributors .com 142 In tro d u c tio n 1 4 4D im ensions o f S upp ly C hain P erform ance

M etrics 1 4 4 ON THE LINE; Measuring Supply Chain Success 1 4 7 D eve lop ing S up p ly Chain P erform ance M etrics 151 P erform ance C ategories 1 5 2 The S upp ly C ha in -F inance C onnection 1 5 7 The R evenue-Cost Savings C onnection 1 5 8 The S up p ly Chain F ina n c ia l Im pa c t 1 6 0 ON THE LINE; W hat Drives CEOs? 1 6 2 F ina n c ia l S ta tem ents 1 6 4 F ina n c ia l Im pa c t o f S up p ly C hain D ecis ions 1 6 5 S up p ly C hain Service F ina n c ia l Im p lic a tio n s 1 7 0 SUPPLY CHAIN TECHNOLOGY: M etrics for M easuring Your Software's Success 1 7 5 S um m ary 179 S tudy Q uestions 1 7 9 N otes 181