Hub and spoke model in supply chain

New Approaches to Supply Chain Management Concept. Logistics Integration of "Hub and Spoke" Model

Gheorghe MINCULETE

Polixenia OLAR “Carol I” National Defense University, Romania

minculetegh@yahoo.com

Abstract In the current modern trade, the integration of economic affairs from design to

completion is an important priority, which determines all economic options of companies to focus on satisfying the needs of consumers and users to their loyalty.

A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer’s request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves.

Within each organization, such as a manufacturer, the supply chain includes all functions involved in receiving and filling a customer’s request. These functions include, but are not limited to, new product development, marketing, operations, distribution, finance, and customer service.

This article stresses the essential aspects of supply chain management in modern economics affairs, which are integrating under the functional aspect of the "hub and spoke" model.

Keywords: supply chain management, hub and spoke model, hub and spoke

system, hub and spoke network, e-commerce JEL Classification: L11, L22 1. Introduction The management of the supply-delivery chain aims to intensify the processes that

take place from the level of the suppliers of raw materials to that of the end customers. The aim is to increase the added value and to improve the use of resources and the efficiency of costs by bringing the required product at the indicated time and place with minimum manipulations and without delays.

A supply chain means a flow of goods, services, money and information through different situations (Tan, 2001). These units are legally independent companies, factories or offices far from each other, geographically speaking, or organizational entities that have the autonomy to take decisions regarding the information systems.

The concept of management of the supply-delivery chain is closely connected to Michael Porter's idea (1985), which expresses it as a chain of values based on the processual vision on organizations. According to this idea, an organization can be seen as a

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subsystem composed of sub-systems, each of them with inputs, transformation (conversion) processes and outputs.

Having in mind the logistic field, the management of the supply-delivery chain is very important, because it covers the aspects that study the flows of materials and information, the acquisitions and sales from an operative point of view, such as the transports, orders and packing, but also aspects of a strategic nature, such as the competition. Although there is a large number of definitions on the management of the supply chain, this concept is more comprehensive than the concept of logistics. Thus, the management of the supply-delivery chain emphasizes in essence the mechanism of planning and control of the various economic flows from the suppliers of raw materials to the end customers (Nurmilaakso, 2003).

More concretely, the concept of management of the supply-delivery chain is problematic because the supply corresponding to the demand implies specific managerial operations such as inventories or checks of the supply and delivery of goods and services. Comparatively speaking, the management of the demand chain reflects operations like orders or customer care. Thus, in these circumstances the management of operations is not independent of the general economic situation. During times of recession, the management of the demand is often used due to more intense competition. From another view point, low competition leads in times of economic boom to a management specific to the demand. It results that the management of the supply-delivery chain can be associated both to the concept of management adequate to the supply and also to the one specific to the demand.

Experts think that the especially important role of the management of the supply- demand chain is emphasized by the arguments presented below.

Internationalization of companies: globalization brought us to the situation where the companies, even the medium sized ones, have branches in many countries. Because operations are carried out over an extended geographical area, emerging needs require for the rationalization of storage spaces and transports.

Complex products: products have become complex and a single company does not own the necessary resources to achieve them. Because the development of resources from zero requires time and efforts, it could be an option to use the existing resources of other companies. Although a product is not complex, it often needs adjustment.

Changes in the conditions of the market: the rapid technological development had as a result the shortening of production cycles. Because opportunities to make profit come and go very quickly, the market is rapidly flooded and new products have to be brought on the market frequently. For this reason, the needs and abilities of various commercial partners must be rapidly identified. In these circumstances, the management of the supply- delivery chain has an impact at least on the following essential objectives:

• the response time is the time lapsed from the moment when the customer places the order until the moment when he receives it. Because a short response time increases the degree of satisfaction of the customer, this objective increases competitiveness;

• the level of stockpiles has an important effect on profitability because a small stockpile reduces costs. It also reduces the risk of products ending their shelf time.

• the total time is the sum between the time of conversion of raw materials into end products and the waiting time. In principle, competitiveness and profitability should not exclude one another. In practice, the growths of safety stockpiles may reduce the response time. Similarly, a longer response time leads to reduced stockpiles. Because a shorter total time produces more rapid reactions, this opens the way toward the improvement both of competitiveness and profitability.