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Logistics and Supply Chain Management

Notes by staged inventories, independent and incompatible control systems and procedures, and
functional segregation.
Stage 2: It is the start of internal integration. It begins with a focus on cost reduction rather than
performance improvement. It is characterized by an emphasis on internal trade-offs and reactive
customer service.

Stage 3: The firm attains internal corporate integration. It is characterized by full visibility of
purchasing through distribution, medium-term planning, tactical focus, emphasis on efficiency,
extended use of electronics support for linkages, and a continued reactive approach to customers.
Stage 4: It has a strategic focus. The organization achieves supply chain integration by extending
the scope of integration outside the company to embrace suppliers and customers.

All firms go through these four stages. Ultimately, policy integration is made possible by the
supply chain members trying to create compatible cultures and management techniques.
Collaboration takes place when two or more independent companies work jointly to plan and
execute supply chain operations with greater success than when they are acting in isolation. This
is not easy and requires a sustained effort through cross-functional teams, in-plant supplier
personnel, and third party service providers.
Firms that have reached Stage 4 proceed to build-up a series of partnerships. Successful
partnerships aim to integrate supply chain policy to avoid redundancy and overlap, while
seeking a level of cooperation that allows participants to be more effective at lower cost levels.
The organization should select a small number of partners to facilitate increased cooperation.
You have an effective SCM when these partners build and maintain long-term relationships
where the relationship time horizon extends beyond the life of the contract – perhaps indefinitely.
Supply Chain Management extends the supply chain philosophy across all members of the
chain. By integrating behaviour and processes, sharing information, planning in collaboration
with each other, sharing the risks and rewards, co-operation, goal sharing and partnerships, the
operations in the supply chain can be streamlined and the profitability of all members in the
chain improved.

Example: Dell and Wal-Mart have been the pioneers in this concept of Supply Chain
Management.

They reflect some of the most successful examples of effective supply chain management. What
is interesting is that they have created world-class supply chains by tackling the ‘Forrester
Effect’ from different ends. Dell has been a pioneer in the build-to-order (‘pull’) cycle i.e. reducing
forecasting based demand uncertainty, and Wal-Mart has been a pioneer in the use of information
flow to reduce demand uncertainty.
Dell Computers builds-to-order, i.e. a customer order initiates manufacturing at Dell. Dell does
not have retailers, wholesalers, or distributors in its supply chain. While other computer
companies must stock a month of inventory, Dell carries only a few days worth of stock. It plans
orders and signals suppliers every two hours, which enables it to manufacture and deliver
exactly what its customers want. In fact, many of the components are delivered to Dell within a
few hours of assembly and shipped to the customer.

The success of Wal-Mart is drawn from new technologies combined with new ways of doing
business. It has used the power of information flow to create a global supply chain designed
down to the last atom of efficiency. Automated replenishment and the smooth functioning of
the Wal-Mart supply chain depend on reliable connectivity between the stores, the centralized
database, and the distribution centres. The Wal-Mart network connects more than 2,400 stores,
100 distribution centres worldwide, and 950,000 Wal-Mart associates.

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