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Supply Chain Management A LOGISTICS PERSPECTIVE


9e


JOHN J. COYLE The Pennsylvania State University




C. JOHN LANGLEY, JR. The Pennsylvania State University




ROBERT A. NOVACK The Pennsylvania State University




BRIAN J. GIBSON Auburn University


Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States


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Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).


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Supply Chain Management: A Logistics Perspective, Ninth Edition John J. Coyle, C. John Langley Jr., Robert A. Novack, Brian J. Gibson


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Library of Congress Control Number: 2011943157


ISBN 13: 978-0-538-47918-9


ISBN 10: 0-538-47918-3


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A very special note of thanks and appreciation is due to our families. John Coyle would like to thank his wife Barbara, their children John and Susan, and their grandchildren Lauren, Matthew, Elizabeth Kate, Emily, Ben, Cathryn, and Zachary. John Langley


would like to thank his wife Anne, their children Sarah and Mercer, and their grandchildren Bryson and Molly. Bob Novack would like to thank his wife Judith and their children Tom, Elizabeth, and Alex. Brian Gibson would like to thank his


wife Marcia and son Andy.


Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).


Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.


Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).


Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.


Brief Contents


Preface xxii About the Authors xxvi


Part I Chapter 1 Supply Chain Management: An Overview 3 Chapter 2 Role of Logistics in Supply Chains 33 Chapter 3 Global Dimensions of Supply Chains 75


Part II Chapter 4 Supply Chain Relationships 107 Chapter 5 Supply Chain Performance Measurement


and Financial Analysis 137 Chapter 6 Supply Chain Technology—Managing


Information Flows 179


Part III Chapter 7 Demand Management 215 Chapter 8 Order Management and Customer


Service 255 Chapter 9 Managing Inventory in the Supply Chain 311 Chapter 10 Transportation—Managing the Flow of the


Supply Chain 395 Chapter 11 Distribution—Managing Fulfillment


Operations 459


Part IV Chapter 12 Supply Chain Network Analysis and


Design 509 Chapter 13 Sourcing Materials and Services 549 Chapter 14 Operations—Producing Goods and


Services 583 Chapter 15 Supply Chain Sustainability 619


Part V Chapter 16 Strategic Challenges and Change for Supply


Chains 645


Subject Index 673


Name Index 687 v


Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).


Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.


Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).


Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.


Contents


Preface xxii About the Authors xxvi


Part I Chapter 1 Supply Chain Management: An Overview 3


SUPPLY CHAIN PROFILE: SAB Distribution: Another Sequel 4


Introduction 5 What Forces Are Driving the Rate of Change 7


Globalization 7 Technology 10 Organizational Consolidation and Power Shifts 10 The Empowered Consumer 11 Government Policy and Regulation 12


ON THE LINE: Malt-O-Meal Company: Going National 14


The Supply Chain Concept 15 Development of the Concept 15


Major Supply Chain Issues 24 Supply Chain Networks 24 Complexity 24 Inventory Deployment 25 Information 25 Cost and Value 25


ON THE LINE: Auto Parts Distributor LKQ Discovers the Key to Effective Carrier Management 26


Organizational Relationships 26 Performance Measurement 27 Technology 27 Transportation Management 27


SUPPLY CHAIN TECHNOLOGY: Trends in Retail Distribution 28 Supply Chain Security 28


Summary 29 Study Questions 29 Notes 30 Case 1.1: Central Transport, Inc. 31


Chapter 2 Role of Logistics in Supply Chains 33 SUPPLY CHAIN PROFILE: Jordano Foods: The Sequel 34


Introduction 35 What Is Logistics? 37


vii Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).


Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.


Value-Added Roles of Logistics 39 Form Utility 39 Place Utility 40 Time Utility 40 Quantity Utility 40 Possession Utility 40


ON THE LINE: Building India: Transforming the Nation’s Logistics Infrastructure 41


Logistics Activities 41 Transportation 42 Storage 42 Packaging 43 Materials Handling 43 Inventory Control 43 Order Fulfillment 44 Forecasting 44 Production Planning 44 Procurement 44 Customer Service 45 Facility Location 45 Other Activities 45


Logistics in the Economy: A Macro Perspective 45 ON THE LINE: Ce De Candy’s Sweet Transformation 46


Logistics in the Firm: The Micro Dimension 49 Logistics Interfaces with Manufacturing or Operations 49 Logistics Interfaces with Marketing 50 Logistics Interfaces with Other Areas 52


Logistics in the Firm: Factors Affecting the Cost and Importance of Logistics 53 Competitive Relationships 53 Product Relationships 56 Spatial Relationships 59


Techniques of Logistics System Analysis 60 Short-Run/Static Analysis 60 Long-Run/Dynamic Analysis 61


Approaches to Analyzing Logistics Systems 63 Materials Management versus Physical Distribution 63 Cost Centers 64 Nodes Versus Links 65 Logistics Channels 65


SUPPLY CHAIN TECHNOLOGY: Mission Foods’ Wireless Evolution 68 Logistics and Systems Analysis 68


viii Contents


Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).


Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.


Summary 70 Study Questions 70 Notes 71 Case 2.1: Senco Electronics Company: A Sequel 72 Case 2.2: Pete’s 74


Chapter 3 Global Dimensions of Supply Chains 75 SUPPLY CHAIN PROFILE: Red Fish–Blue Fish, LLP: A Sequel 76


Introduction 77 Supply Chains in a Global Economy 79 ON THE LINE: More Deliveries, Same Cost 80


The Scope and Magnitude of Global Business 81 Global Markets and Strategy 83 ON THE LINE: Serving Emerging Markets: A Survival Guide 84 ON THE LINE: Asia’s Widening Middle 86


Supply Chain Security: A Balancing Act 87 SUPPLY CHAIN TECHNOLOGY: Tracing through the Supply Chain 88


Ports 89 North American Free Trade Agreement 90 Maquiladora Operations 91 Asian Emergence 92 New Directions 93 Global Transportation Options 93


Ocean 93 Air 95 Motor 96 Rail 96


Global Intermediaries 96 Foreign Freight Forwarders 96 Airfreight Forwarders 97 Non-Vessel-Operating Common Carriers 97 Export Management Companies 97 Export Trading Companies 98 Customs House Brokers 98


Storage Facilities and Packaging 99 Storage Facilities 99 Packaging 99


Summary 100 Study Questions 100 Notes 101 Case 3.1: Red Fish–Blue Fish, LLP: Another Sequel 103


Contents ix


Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).


Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.


Part II Chapter 4 Supply Chain Relationships 107


SUPPLY CHAIN PROFILE: Client Intimacy: A New Mission for Supply Chain Managers? 108


Introduction 108 Logistics Relationships 109


Types of Relationships 109 Intensity of Involvement 109 Model for Developing and Implementing Successful


Supply Chain Relationships 111 Need for Collaborative Relationships 115


Third-Party Logistics—Industry Overview 117 ON THE LINE: Collaborative Distribution Can Show You the Path to Lower Supply Chain Costs and Carbon Emissions 117 Definition of Third-Party Logistics 119 Types of 3PL Providers 119 3PL Market Size and Scope 121


Third-Party Logistics Research Study—Industry Details 123 Profile of Logistics Outsourcing Activities 123 Strategic Role of Information Technology 124


SUPPLY CHAIN TECHNOLOGY: Technology a Key Driver of 3PL Competitiveness 125


Management and Relationship Issues 127 Customer Value Framework 129 A Strategic View of Logistics and the Role of 3PLs 130


Summary 132 Study Questions 132 Notes 133 Case 4.1: CoLinx, LLC 134 Case 4.2: Ocean Spray Cranberries, Inc. 136


Chapter 5 Supply Chain Performance Measurement and Financial Analysis 137 SUPPLY CHAIN PROFILE: CLGN Book Distributors.com 138


Introduction 140 Dimensions of Supply Chain Performance Metrics 140 Developing Supply Chain Performance Metrics 145 Performance Categories 146 The Supply Chain–Finance Connection 151 ON THE LINE: Profit-Focused Supply Chain Planning 152


The Revenue–Cost Savings Connection 153 The Supply Chain Financial Impact 154


x Contents


Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).


Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.


Financial Statements 158 ON THE LINE: Leased Assets to Go Back on Your Books? 159


Financial Impact of Supply Chain Decisions 160 Supply Chain Service Financial Implications 164 Summary 172 Study Questions 172 Notes 174 Case 5.1: CPDW 175 Case 5.2: Paper2Go.com 176


Appendix 5A Financial Terms 177


Chapter 6 Supply Chain Technology—Managing Information Flows 179 SUPPLY CHAIN PROFILE: The Precision Imperative 180


Introduction 181 The Role of Information in the Supply Chain 182


Information Requirements 183 Information Technology Capabilities 184 Information Technology Challenges 185


A Framework for Managing Supply Chain Information 186 Foundation Elements 186 Key Requirements 188 Differentiating Capabilities 189


SCM Software 190 Planning 191 Execution 192 Event Management 193 Business Intelligence 193 Related Tools 194 Enterprise Resource Planning 195


Supply Chain Technology Implementation 195 Needs Assessment 196 Software Selection 196


ON THE LINE: SaaS Capabilities Boost Transportation Software Sales 199 Technical Issues 199 Asking the Right Questions 201


Supply Chain Technology Innovations 202 Radio-Frequency Identification (RFID) 202 Cloud Computing 203 Mobile Computing 204


SUPPLY CHAIN TECHNOLOGY: Smartphones and SCM 204 3PLs as Technology Providers 205


Contents xi


Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).


Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.


Summary 207 Study Questions 207 Notes 208 Case 6.1: Bazinga Licensing Ltd. 210 Case 6.2: Catnap Pet Products 211


Part III Chapter 7 Demand Management 215


SUPPLY CHAIN PROFILE: LuAnn’s Chocolates 216


Introduction 217 Demand Management 217 Balancing Supply and Demand 220 Traditional Forecasting 221


Factors Affecting Demand 221 Simple Moving Average 222 Weighted Moving Average 223 Exponential Smoothing 225 Adjusting Exponential Smoothing for Trend 225 Seasonal Influences on Forecasts 228


Forecast Errors 229 SUPPLY CHAIN TECHNOLOGY: Delivering APS Value in Six Months 231


Sales and Operations Planning 234 ON THE LINE: BASF Credits S&OP as a Cornerstone of Success 236


Collaborative Planning, Forecasting, and Replenishment 237


Fulfillment Models 240 Channels of Distribution 240 Direct-to-Customer (DTC) Fulfillment 242


Summary 249 Study Questions 249 Notes 250 Case 7.1: Tires for You, Inc. 251 Case 7.2: ChipSupreme 253


Chapter 8 Order Management and Customer Service 255 SUPPLY CHAIN PROFILE: Tom’s Food Wholesalers 256


Introduction 256 Influencing the Order—Customer Relationship


Management 258 Step 1: Segment the Customer Base by Profitability 258 Step 2: Identify the Product/Service Package for Each


Customer Segment 259


xii Contents


Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).


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Step 3: Develop and Execute the Best Processes 259 Step 4: Measure Performance and Continuously


Improve 260 Activity-Based Costing and Customer Profitability 261


Executing the Order—Order Management and Order Fulfillment 267 Order-to-Cash (OTC) and Replenishment Cycles 268 Length and Variability of the Order-to-Cash Cycle 272


E-Commerce Order Fulfillment Strategies 273 SUPPLY CHAIN TECHNOLOGY: Get Ready to go Mobile 274


Customer Service 275 The Logistics/Marketing Interface 275 Defining Customer Service 277 Elements of Customer Service 277 Performance Measures for Customer Service 281


Expected Cost of Stockouts 283 Back Orders 284 Lost Sales 284 Lost Customer 285 Determining the Expected Cost of Stockouts 285


Order Management Influences on Customer Service 286 Product Availability 286


ON THE LINE: Plus-Sized Customer Service 288 Financial Impact 290 Order Cycle Time 292 Logistics Operations Responsiveness 295 Logistics System Information 298 Postsale Logistics Support 300


SUPPLY CHAIN TECHNOLOGY: Connecting with Big Customers 302


Service Recovery 303 Summary 305 Study Questions 305 Notes 306 Case 8.1: Telco Corporation 307 Case 8.2: The Bullpen 309


Chapter 9 Managing Inventory in the Supply Chain 311 SUPPLY CHAIN PROFILE: Micros and More 312


Introduction 313 Inventory in the U.S. Economy 314 Inventory in the Firm: Rationale for Inventory 315


Batching Economies or Cycle Stocks 317 Uncertainty and Safety Stocks 318 Time/In-Transit and Work-in-Process Stocks 318


Contents xiii


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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.


SUPPLY CHAIN TECHNOLOGY: Logistics Provider Prescribes Inventory Management 319 Seasonal Stocks 321 Anticipatory Stocks 322 Summary of Inventory Accumulation 322 The Importance of Inventory in Other Functional


Areas 322 Inventory Costs 323


Inventory Carrying Cost 323 Ordering and Setup Cost 328 Carrying Cost Versus Ordering Cost 330 Expected Stockout Cost 331 In-Transit Inventory Carrying Cost 335


Fundamental Approaches to Managing Inventory 336 Key Differences Among Approaches to Managing


Inventory 337 Principal Approaches and Techniques for Inventory


Management 339 Fixed Order Quantity Approach (Condition of Certainty)


339 Fixed Order Quantity Approach (Condition of


Uncertainty) 348 Fixed Order Interval Approach 356 Summary and Evaluation of EOQ Approaches to Inventory


Management 357 Additional Approaches to Inventory Management 357


Just-in-Time Approach 357 ON THE LINE: Inventory Optimization: Show Me the Money 358 Materials Requirements Planning 361 Distribution Requirements Planning 366 Vendor-Managed Inventory 369


Classifying Inventory 370 ABC Analysis 371 Quadrant Model 373 Inventory at Multiple Locations—The Square-Root


Rule 374 Summary 377 Study Questions 378 Notes 378 Case 9.1: MAQ Corporation 380 Case 9.2: Baseball Card Emporium 381


Appendix 9A Special Applications of the EOQ Approach 382 Adjusting the Simple EOQ Model for Modal Choice


Decisions—The Cost of Inventory in Transit 382 Adjusting the Simple EOQ Model for Volume


Transportation Rates 385


xiv Contents


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Adjusting the Simple EOQ Model for Private Carriage 388 Adjusting the Simple EOQ Model for the Establishment and


Application of In-Excess Rates 389 Summary 393


Chapter 10 Transportation—Managing the Flow of the Supply Chain 395 SUPPLY CHAIN PROFILE: Economic Recovery and Transportation Demand 396


Introduction 397 The Role of Transportation in Supply Chain Management


(SCM) 397 Challenges to Carrying out This Role 398 Modes of Transportation 401


Motor Carriers 401 Railroads 404 Air Carriers 405 Water Carriers 407


ON THE LINE: Piracy: A Modern Day Problem 409 Pipelines 409 Intermodal Transportation 411


Transportation Planning and Strategy 413 Functional Control of Transportation 414 Terms of Sale 415 Decision to Outsource Transportation 416 Modal Selection 418 Carrier Selection 423 Rate Negotiations 424


Transportation Execution and Control 424 Shipment Preparation 425 Freight Documentation 426 Maintain In-Transit Visibility 428 Monitor Service Quality 429 Transportation Metrics 429


Transportation Technology 432 SUPPLY CHAIN SUSTAINABILITY: Reducing Empty Miles 433


Transportation Management Systems 433 SUPPLY CHAIN TECHNOLOGY: TMS Shines Light on Inbound Supply Chain 435


Summary 438 Study Questions 438 Notes 439 Case 10.1: Supreme Sound Explosion 442 Case 10.2: Bob’s Custom BBQs 444


Contents xv


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Appendix 10A Federal Regulation of the Transportation Industry 446 Economic Regulation 446 Safety Regulation 449 Summary 451 Notes 451


Appendix 10B Basis of Transportation Rates 452 Cost of Service 452 Value of Service 453 Distance 454 Weight of Shipment 455 Commodity Characteristics 455 Level of Service 456 Summary 457 Notes 457


Chapter 11 Distribution—Managing Fulfillment Operations 459 SUPPLY CHAIN PROFILE: Kroger: Grocery Giant Changes the Game 460


Introduction 461 The Role of Distribution Operations in SCM 462


Distribution Facility Functionality 462 Distribution Tradeoffs 464 Distribution Challenges 467


Distribution Planning and Strategy 467 Capability Requirements 468 Network Design Issues 470 Facility Considerations 474


SUPPLY CHAIN TECHNOLOGY: Walmart’s Environmentally Friendly DCs 475


Distribution Execution 478 Product-Handling Functions 478


ON THE LINE: Goods-to-Person Puts a Different Spin on Order Picking 480 Support Functions 483


Distribution Metrics 484 Customer-Facing Measures 484 Internal Measures 485


Distribution Technology 486 Warehouse Management Systems 487


SUPPLY CHAIN TECHNOLOGY: Moving Coca-Cola by Voice 488 Automatic Identification Tools 490


Summary 492 Study Questions 493 Notes 493


xvi Contents


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