Supply Chain Management

A reader for supply chain managers

Ernst Kurzmann, Johannes-Paul Fladerer

• Publisher: Books on Demand
• Year: 2020
• Print ISBN: 9783751995221
• eBook ISBN: 9783752651904
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Products and services are the result of the complex interaction of many individual value creators. Every enterprise has business connections with other participants of the supply chain suppliers, service providers, end customers. Supply chain management is the radical orientation of all activities along the value-added chain towards customer benefit. The individual links of the supply chain typically are legally independent entities looking for the respective optimum for their companies. It is a fact, however, that the total of many individual optima does not guarantee an overall optimum output. This is precisely where Supply Chain Management sets in: coordination along the whole supply chain to improve the overall performance and the overall costs to the benefit of everyone involved.

Chapter 1

What Supply Chain
Management is all about in the
first place

Products and services are the result of the complex interaction of many individual value creators. Every enterprise has business connections with other participants of the supply chain – suppliers, service providers, end customers. Supply chain management is the radical orientation of all activities along the value-added chain towards customer benefit.

The individual links of the supply chain typically are legally independent entities looking for the respective optimum for their companies. It is a fact, however, that the total of many individual optima does not guarantee an overall optimum output.

This is precisely where Supply Chain Management sets in: coordination along the whole supply chain to improve the overall performance and the overall costs to the benefit of everyone involved.

The king of the value-added chain

It is not only individual enterprises that compete. Whole supply chains the world over also compete for a place in the sun. The one with the more efficient supply chain will come out ahead. All the participants have to find their new roles in this global transition phase. The ones unable to do so will find things difficult, very difficult.

The new tools of supply chain management (SCM) create transparency along the whole supply and performance chains and value-added networks in their entrepreneurial orientation. The individual company with its real or supposed contributions is radically exposed. Those who do not want to take any risk in such networks have to redefine themselves. Because one thing is already obvious:

Entrepreneurial profit is always the result of affirming risks and insecurities. The introduction of innovative products, the set-up of more efficient organisations, the absorption of mighty management concepts, the implementation of trailblazing production methods or the conquest of new and unknown markets can be uncertain. The entrepreneurial profit shows you unequivocally to what an extent you (yet) fulfil your role as businessman. The ones who do not understand this will be punished severely in the rough competitive environment.

Supply chain management has a share in making transparent these newly-to-be-found roles. And in showing where each individual company can find and provide new value-adding contributions within the network. But who conducts these complex supply chains? Who pulls the ropes of the nets? Are these again the bad big corporations? Are these conspiracies contrived somewhere in America?

To our big surprise it is the probably smallest at the end of the value-added chain. He looks for new supply chains a value-added networks, if we as businessmen are not willing or capable to creatively and courageously generate competitive advantages together with our partners in the supply chain. It is he who is the king, it is he who directs what has to be done. The global consumer is the one to decide. He is the king of the value-added chain.

Metamorphoses of logistics

One can rightly assert that the past decades will go down in economic history as the age of logistics. Industry and trade, crafts and services have consistently improved their own entrepreneurial supply environment, together with their employees and managers, often falling back on external research or consulting achievements. The logistic core performances of transportation, transshipment and storage (TTS) have been perceptibly pushed both on the cost and performance side. Terms like logistics, just-in-time (JIT) or track & trace have become generic words.

The first metamorphosis of logistics: logistics of coordination

From a scientific point of view, the first metamorphosis of logistics already occurred in the 1980s. The classic TTS logistics with their transfer performances of space and time developed into a broad spectrum of insights and tools, which entered specialist literature under the term of coordination logistics. The essence of the first adaptive development of logistics, however, far surpassed the classical term of TSS. In the USA, the term “supply chain management” (SCM) is created for this.

The centre point of the so-called intra-functional SCM is the consistent coordination of measures and activities along the supply chain, from product and performance development of the supplier to the distribution of the retailer to the end customer. Typical examples for approaches of intra-functional SCM are tangible improvement measures within the material and parts provision of the production area or optimised methods of providing internal sites with material, goods or information by improved forecasts. From a business point of view, therefore, SCM not necessarily has to comprise several companies. In operational practice, the term logistics is generally still used in the sense of coordination logistics. In this book, we will not focus much on the “intra-functional SCM”.

The second metamorphosis of logistics: corporate SCM

One strategic emphasis of “intra-functional SCM” aims at the continual improvement of processes (CIP). The search for potential hidden therein leads to the emergence of “corporate SCM”.

The focal point of “corporate SCM” is the coordination of material and information within the corporation across several functions. The emphasis is on removing inefficiencies, thus unnecessary waste, caused by conflicts of goals between the operational areas and departments. Optimisation is typically aimed at corporate strategies. Often, considerable friction losses occur between production and procurement or between sales and logistics. Such losses can only be lessened by overarching SCM. Slowly, realisation dawns in theory and practice that time and money lies in the interfaces – money that does not (yet) belong to anybody and that nobody had consciously missed so far.

The second metamorphosis of logistics, also known in specialist literature as “extended coordination logistics” and, in a more mature form, as “flow logistics”, describes an extensive bundle of activities. This bundle of measurement is aligned on the corporate goal of cost minimisation and performance maximisation. The focus is on the configuration, planning, regulation and monitoring of material and information flows. Typical tangible measures in operational practice are reduction of material stock, shortening of product processing time or the inter-divisional speeding up of processes, thus of internal procedures and sequences.

We will enlarge on “corporate SCM” later on. Look forward to the new approaches on organisational alignment of the value-added process of postponement, on the use of non-variable parts or on the reduction of process fluctuations (process risks).

The third metamorphosis of logistics: trans-corporate SCM

Trans-corporate SCM currently is the last step of logistics. It entered specialist literature under the term network logistics. Here, consistent coordination between a number of enterprises along a supply chain is the focus of attention for research and corporate practice.

It is from network logistics that modern, trans-corporate SCM is hatched. Starting with the third metamorphosis of corporate logistics, we want to talk of trans-corporate SCM and leave behind the term “logistics” for this radical new step.

Because for the first time, it is no longer individual enterprises that face each other as competitors in the market. Now, whole supply chains vie for the customer. That’s what is new! Of course, the old ways contain a lot of best practice. There cannot be new ways without old ones. But the new ways take their leave of the old ways in order to be receptive for the new challenges of the (global) supply chains.

This book not only introduces contributions to the tools, methods, procedures, management strategies and management philosophies. We also give tangible practical examples to give you food for thought for your own company. At best, you can achieve tangible improvements along your own supply chain and increase your profit. In any case, after reading this book, you will know which task to tackle.

Therefore, we want to accept the new challenges of the new world of SCM with the words the British Prime Minister Winston Churchill uttered on 9 November 1942, “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

What, for Heaven’s sake, is logistics?

In one of my introductions for a newly devised logistics seminar I saw myself facing a numerous audience of interested people. Before the start, I overheard the following question one participant put to his colleague, “What, for Heaven’s sake, is logistics?” I was amused. But the question is worth being answered seriously.

The term “logistics” appears in very different contexts, for example in production, in the military, power supply, traffic. A layperson cannot recognise the common denominator of logistic problems. Not infrequently, logistics is curtailed and paraphrased as “transport” to make it conceivable. This explanation does indeed include one important function of logistics, but it reduces the comprehensive term of logistics so much that the explanation is essentially wrong already. Certainly, the term logistics – even after more than 25 years firmly embedded in companies - is still under development.

Hereafter, by logistics we will understand the design, planning, controlling and monitoring of the flow of material and goods and the associated information, from the development of a product starting with the supplier to distribution to the end consumer and customer returns. This process chain must run with minimal costs and minimal investment and with the goal of best possible satisfaction of customer needs. A “customer” is the respective downstream point that needs to be supplied. Logistics thus can be defined – across all conceivable areas of application - as “economic supply” in the broadest sense.

The famous “6 R”

The tasks of logistics can be memorably depicted by the by now famous “6 R”. The “6 R” are the so-called “six rights”:

• the right products
• in the right quality
• in the right quantity
• to the right place
• at the right time
• for the right cost

Thus, the core task of logistics and of the logisticians is put in a nutshell. The tasks of logistics and of the logistician consist of the provision of goods in the broadest sense.

Goals of logistics

The goals of logistics are just as easy and comprehensible. A company has to provide a certain service (output). This service has to be maximised according to the economic maximum principle, the costs deployed for the provision of this service (input) have to be minimised according to the minimum principle. Logistics services consist of, for instance, reduction of delivery time, increase of readiness for delivery or increase of adherence to delivery dates. In order to achieve this, however, certain means must be employed. Those means induce expenses, and it is exactly those costs that have to be minimised. (In practice, this often is the biggest challenge). Such costs can be transportation costs, costs for storage, cost of capital lockup in the inventory or costs for process monitoring. Consistently thought through to the end, this is what causes the conflicts of objectives of classical logistics.

With a conflict of objectives, there is a fundamentally conflicting connection between maximum performance and minimal expenses. In efficient companies, improvement of performance is only attainable by increasing the costs, and vice versa. Also, the individual performance goals hamper each other. Thus, for example, short delivery times with simultaneous high adherence to delivery dates are typically conflicting constellations. Conflicts of objectives also exist between individual cost objectives. Low storage costs typically go hand in hand with higher costs for transportation and turnover.

From systematic thinking to SCM

It has to be emphasised at this point that the modern concept of logistics has to be viewed holistically. In the interest of the company, the optimisation of individual subareas of the company (like purchasing, production, marketing) is subordinate to the holistic view. If we regard logistics in practice and theory as a systematic function, thus a cross-divisional function spanning all operational areas, and if we try to think and act cross-functionally, then the essential basis for future success and competitive advantage has been laid. This then also sustains the building called Supply Chain Management (SCM).

SCM – Change of paradigm in management

Talking to managers, they sometimes ask me what is actually new about supply chain management (SCM). However, the question is often put in a way the managers themselves have the corresponding – prepared - reply at the ready. “It is not possible without coordination between business partners,” often is the tenor. And with suppliers and customers, coordination has been taking place sine a long time anyway. Therefore, SCM is seen as “nothing new”. This opinion is firmly anchored in the heads of our corporate leaders.

It is an opinion, however, which shows plain ignorance about the nature of SCM and about the change of paradigm in management.

It has to be admitted, though, that the SCM protagonists are in part to be blamed themselves for this unfortunate situation. They themselves were hardly willing to convey to employees, managers and businessmen the quintessence of what’s new in SCM in a far-reaching manner. Often, supply chain managemen...

Table of contents

• Table of Contents
• Chapter 1
• What Supply Chain Management is all about in the first place
• Chapter 2
• Thinking and acting in extended systems
• Chapter 3
• Realignment and strategies
• Chapter 4
• Performances of supply chains – optimising and balancing
• Chapter 5
• A look into the tool box – tools of supply chain management
• Chapter 6
• New markets and market opportunities
• Chapter 7
• Managing risks and sustainability in supply chains
• Chapter 8
• An excursion to nature
• Outlook
• Appendix
• Glossary
• Bibliography
• The authors
• Other books of Ernst Kurzmann and Johannes-Paul Fladerer
• Copyright