Total Supply Chain Management

Total Supply Chain Management

This page intentionally left blank

Total Supply Chain Management

Ron Basu and J. Nevan Wright

AMSTERDAM • BOSTON • HEIDELBERG • LONDON • NEW YORK • OXFORD •

PARIS • SAN DIEGO • SAN FRANCISCO • SINGAPORE • SYDNEY • TOKYO

Butterworth-Heinemann is an imprint of Elsevier

Butterworth-Heinemann is an imprint of Elsevier

Linacre House, Jordan Hill, Oxford OX2 8DP, UK

30 Corporate Drive, Suite 400, Burlington, MA 01803, USA

First edition 2008

Copyright © 2008, Ron Basu and J. Nevan Wright. Published by Elsevier 2008.

All rights reserved

The right of Ron Basu and J. Nevan Wright to be identified as the author of this work

has been asserted in accordance with the Copyright, Designs and Patents Act 1988

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 the prior written permission of the publisher

Permissions may be sought directly from Elsevier’s Science & Technology Rights

Department in Oxford, UK: phone (+44) (0) 1865 843830; fax (+44) (0) 1865 853333;

email: [email protected]. Alternatively you can submit your request online by

visiting the Elsevier web site at http://elsevier.com/locate/permissions, and selecting

Obtaining permission to use Elsevier material

Notice

No responsibility is assumed by the publisher for any injury and/or damage to persons

or property as a matter of products liability, negligence or otherwise, or from any use

or operation of any methods, products, instructions or ideas contained in the material

herein

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging-in-Publication Data

A catalog record for this book is available from the Library of Congress

ISBN: 978-0-7506-8426-2

Typeset by Charon Tec Ltd (A Macmillan Company), Chennai, India

Printed and bound in Great Britain

08 09 10 10 9 8 7 6 5 4 3 2 1

For information on all Butterworth-Heinemann publications

visit our web site at http://books.elsevier.com

To Moria, Bonnie and Robi

R.B.

To Joy, Michael, Paul, Bruce, Daralyn and Tim

J.N.W.

This page intentionally left blank

Contents

Preface ix

Acknowledgements xi

List of Figures xiii

List of Tables xvi

Part 1 Introduction 1

1 The role of supply chain as a value driver 3

2 Why total supply chain management? 18

3 Understanding total supply chain management

and its building blocks 30

Part 2 Building Blocks of Supply Chain 47

4 Customer focus and demand 49

5 Resource and capacity management 63

6 Procurement and supplier focus 78

7 Inventory management 96

8 Operations management in the supply chain 109

9 Distribution management 122

Part 3 New Demands and Trends 149

10 Service industries, event operations and

non-profit organizations 151

11 Supply chain in emerging markets 164

12 e-Supply chain 181

13 Lean and agile supply chain 199

Note each chapter is designed to stand on its own. Therefore some duplication of content has

been inevitable and where applicable some cases and examples are re-visited.

14 Retail supply chain 229

15 Green supply chain 245

16 Supply chain for major projects 258

Part 4 Integrating Supply Chain Management 279

17 Systems and procedures 281

18 Sales and operations planning 313

19 Supply chain performance 335

20 Case study examples 358

References 374

Glossary 380

Index 387

viii Contents

Preface

Touring India with my son Robi in April 2006, our plan was to follow the series

of one day international cricket matches between England and India. I took this

opportunity to meet my contacts there, one of whom, Soumen Mukherjee of my

Indian publishers Elsevier, suggested that it might be an idea to have an updated

supply chain management book including an Indian version. His feedback from

academics and practitioners in India suggested that current volumes covering

this topic were primarily centred around Western (US and European) manufac￾turing businesses, as well as being mostly of a rather heavy, academic nature.

I promised him that I would think about his proposal.

After consideration, I realized that supply chain management is now both

global and dynamic as well as facing many challenges of the twenty first century.

These are: the impact of the Internet and e-businesses; globalization and out￾sourcing; environmental and green issues; challenges from emerging economies

such as India and China; challenges of the large service sectors; the pitfalls in sup￾ply chains in major projects and so on.

I prepared a draft proposal and discussed my thoughts with my ‘partner in

crime’ Nevan Wright who supported and enhanced my ideas. The outcome is

this book.

We have tried to develop this project bearing in mind the way we would have

liked a book to meet our requirements. Thus each chapter is supported by appro￾priate case examples. We have made an attempt in the final chapter to put

together most aspects of supply chain building blocks using simple case studies.

This book is aimed at abroad cross-section of readership including:

• Functional managers, participants and practitioners in supply chain man￾agement will find this book will provide them with a comprehensive insight

into the basic building blocks of supply chain management and the new

trends and challenges.

• Senior Executives, both in the manufacturing and service industries (regard￾less of function) and Senior Project Managers will find that this book will

give them a better understanding of the holistic approach of total supply

chain management in the midst of globalization, outsourcing and multiple

levels of suppliers.

• Management schools and academies and research associations will find this

book valuable to fill the visible gap in basics of supply chain management.

This text will provide support to both undergraduate and post-graduate

courses containing supply chain and operational excellence and as a main

textbook for MBA students.

• The readership will be global to cover North America, UK, Continental

Europe, Australia, New Zealand and Asia Pacific countries. The special edi￾tion for the Indian subcontinent will offer easier and more affordable access

to readers in the region.

We hope that the enjoyment we have had in writing this book will be echoed in

the reader’s experience, and trust that they will find it instructive and useful.

Ron Basu

Gerrards Cross, England

May 2007

x Preface

Acknowledgements

As always it has been my pleasure to work with my co-author Nevan Wright.

I acknowledge the help and support from my colleagues and students at

Henley Management College in England and ESC Lille in France. I am also

grateful to Professor Manab Pal and his colleagues in the Indian Institute of

Management in India for their valuable contributions.

My sincere thanks go to the staff of our publishers, Elsevier, especially to

Maggie Smith in the UK and Soumen Mukherjee in India.

Finally, the project could not be completed without the encouragement of

my wife Moira and daughter Bonnie.

Ron Basu

Once again I have enjoyed working with Ron. Although we split the number of

chapters fairly evenly, and edited each other’s work, for this book Ron has

been the lead author and driving force. As always I acknowledge the support of

Joy, my best friend (and wife).

Nevan Wright (Auckland, NZ)

About the authors

Ron Basu is Director of Performance Excellence Limited and also a visiting

Executive Fellow at Henley Management College. He is also a visiting Tutor of

Lille Graduate School of Management and Essex University. Previously he held

senior management roles in blue-chip companies like GSK, GlaxoWellcome

and Unilever and worked as a Management Consultant with A.T. Kearney.

Dr. Nevan Wright is a member of the professoriate of Auckland University

of Technology (New Zealand), a visiting Academic Fellow of Henley

Management College (UK) and a Fellow of the New Zealand Institute of

Management. Prior to joining academia Nevan was a Director/General Manager

of several large manufacturing companies in New Zealand. Earlier he had served

9 years as a commissioned officer in the New Zealand Air Force.

Ron and Nevan are the authors of

Total Manufacturing Solutions

Quality Beyond Six Sigma

Total Operations Solutions

La Calidad Mas Alla Del Six Sigma

Ron is also the author of

Implementing Quality

Nevan is the author/co-author of

The Management of Service Operations

Management of Event Operations

xii Acknowledgements

List of figures

1.1 Supply chain management 6

1.2 In-bound logistics: foods supply 10

1.3 Out-bound logistics: foods supply 10

1.4 e-Supply chain or e-web 11

1.5 The balance of objectives: mail order company 13

1.6 RU/CS conflicts: mail order company 13

1.7 Porter’s value chain 15

2.1 The bullwhip effect 23

2.2 Collaborative forecasting model 24

2.3 Value stream for cola cans 27

3.1 Simplified process cycles in supply chain 31

3.2 Push process in supply chain 32

3.3 Pull process in supply chain 32

3.4 Total supply chain building blocks 42

3.5 Total supply chain building blocks composition 43

3.6 Agile or lean supply chain 44

5.1 The product life cycle 66

5.2 Manufacturing resource planning 69

5.3 Order flow in MRPII 70

5.4 Operations resource planning 73

6.1 Basu’s outsourcing model 93

7.1 A basic ROL/ROQ model for a ‘pull’ system 98

7.2 A basic fixed interval model for a ‘push’ system 99

7.3 Inventory measurements 105

7.4 Stock profile: percentage of total stock 106

7.5 Pipeline map of an FMCG product 107

7.6 Cycle lead times 108

8.1 The IPO model 109

8.2 Customer does not wait 112

8.3 Customer queue 112

8.4 Idle key resource and customer queue 112

8.5 From stock to stock 114

8.6 Input stock, nil output stock 115

8.7 Nil input stock; stock of finished goods 115

8.8 Just-in-time model 115

8.9 Overall operation freight forwarder 116

8.10 Backroom activity 116

8.11 Combined structures; freight forwarder 116

8.12 Combined structures; small builder 116

8.13 Preparation in advance of demand 117

9.1 Channels of distribution 124

9.2 Warehouse operations 128

9.3 Distribution routes 134

9.4 ABC analysis of customers 140

9.5 Customer profitability 141

10.1 Event supply chain 156

11.1 Rural supply chain model at Hindustan Lever Ltd. 171

11.2 The four-tiered structure of emerging markets 179

12.1 A framework of e-supply chain processes 185

12.2 e-Supply chain in a pharmaceutical company 185

12.3 Customer centricity 188

12.4 e-Supply chain of Hermes Abrasives 195

13.1 Set-up time reduction 206

13.2 Kanban system 210

13.3 TPM organization 213

13.4 Equipment time analysis 216

13.5 Lean and agile characteristics 228

14.1 Integrated POS system 232

14.2 Non-value adding activities 233

14.3 Cross docking system 234

15.1 Green supply chain concept 247

16.1 A simplified organization structure of a major project 261

16.2 A conceptual representation of a project supply chain 261

16.3 Project supply chain and project life cycle 262

16.4 A stakeholder management model 269

16.5 Project supply chain in a community network 270

16.6 DMAIC life cycle and project life cycle 274

17.1 Three dimensions of quality 284

17.2 Total cost of quality 290

17.3 The wedge 291

17.4 Company profitability: tree of improvement 296

17.5 Capital assets productivity 297

17.6 An example of cost structure 299

17.7 IT strategy 301

17.8 Application software modules 303

17.9 Software development strategy 304

17.10 e-Business building blocks 307

18.1 Manufacturing resource planning 317

18.2 Five steps of S&OP process 319

18.3 Span of S&OP 323

18.4 S&OP processes and meetings 324

18.5 S&OP planning cycles and meetings 324

18.6 Operations resource planning 327

xiv List of figures