Page 270 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 12: Network Integration

Notes

Notes The goals of relationship buying are to eliminate waste, duplication, and unplanned
redundancy.

In an effort to improve overall operating efficiency, life cycle considerations have become
prominent in purchase decisions. This relational dynamic of working with limited suppliers is
based on a cradle-to-grave philosophy. The relationship is positioned to focus on all aspects of
life cycle spanning from new product development to reclamation and disposal of unused
materials and unsold product inventory. Such a life cycle focus is the result of distinct buying
practices that directly impact the nature and functionality of supply faced warehousing. Value-
added services related to procurement are increasingly being debundled from the purchase
price. Such debundling facilitates functional absorption and spin-off between manufacturers
and their suppliers. There is also a trend toward more response-based business strategies which
is redefining expectations concerning supplier support and participation in the value-added
process. The result is new structural relationships, such as tier one suppliers and lead facilitators.
Finally, the seasonality of selected supplies, opportunities to purchase at reduced prices, and the
need to rapidly accommodate manufacturing spikes continue to make selected warehousing of
materials a sound business decision.

As a result, the role of supply facing warehouses continues to change. Warehouses were
traditionally used to stockpile raw materials and component parts. Today such facilities place
greater emphasis on sorting and sequencing materials as they flow into manufacturing. In many
organizations the unbundling of services from the price of materials has facilitated outsourcing
of warehouse requirements. Warehouse services required to most efficiently support
manufacturing are increasingly being provided by lead suppliers or integrated logistics service
providers. The goal is to streamline the flow of materials and components by eliminating
duplicate handling and storage of identical inventories at multiple locations throughout the
material supply network.

12.2.2 Manufacturing Drivers

Warehouses that support manufacturing are used to combine finished product for customer
shipment. The capability to consolidate is in contrast to individual order shipment. A primary
advantage of a manufacturing demand facing warehouse is the ability to offer customers full
line product assortment on a single invoice at truckload transportation rates. In fact, a
manufacturer’s capability to provide such consolidation may be the primary reason for its
selection as a preferred supplier.

Leading examples of demand facing warehouses are the networks used by such firms as General
Mills, Johnson & Johnson, Kraft, Kimberly-Clark, and Nabisco Foods. At Johnson & Johnson,
warehouses are used to support hospital and consumer business sectors by serving as
consolidators for a variety of different business units. As a result, customers are afforded full
assortments of products from different business units on a single invoice for shipment in one
transportation vehicle. Kimberly-Clark produces a wide variety of individual products on specific
manufacturing lines at specialized plants.
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Such products as Kleenex , Scott Tissue , and Huggies disposable diapers are manufactured at
economy-of-scale volume, and then temporarily are positioned in demand facing warehouses.
Customer-specific truckloads of assorted products are assembled at the warehouse. At Nabisco,
branch warehouses are located adjacent to individual bakeries. Inventories of all major products
are maintained at each branch to facilitate full-service shipments to customers.

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