A noted study of the U.S. food industry estimated that poor coordination among supply chain partners was wasting $30 billion annually.1 This study further noted that supply chains in many other industries suffer from an excess of some products and a shortage of others owing to an inability to predict demand accurately and in a timely fashion. In all likelihood, this is a conservative estimate today, given that supply chains have become more complex and global, which exacerbates the costs of poor supply chain coordination.
The supply chain management (SCM) concept emerged in the early 1980s as firms began to realize that coordinated efforts among trading partners may provide a competitive advantage. At the time, it was referred to as just-in-time. SCM refers to the integration of upstream and downstream material and information flows among vendors, producers (manufacturing and services), resellers, and final consumers. In an overly simplistic view, SCM encompasses three principal processes: (1) sourcing and procurement, (2) transformation (e.g., fabrication and assembly activities), and (3) logistical management or the distribution of materials, including inbound, outbound, and reverse logistical flows as well as the supportive and necessary two-way information flows. These processes occur at multiple echelons and nodes across the typical supply chain.
Two prominent stimuli for the emergence of SCM are globalization, which is served by a nearly worldwide distribution network, and the advancement in information technology. Information technology has promoted the ability to integrate upstream and downstream material and information flows. Technology has enabled fast, cost-effective communications. The advent of the Internet has enabled the necessary information access for even small businesses and individuals. The advancement in information technology offers tremendous leverage for customers of all sizes in the form of the global marketplace. Customers are aware and expect that available information be provided with near-real-time speed and details. The global marketplace coupled with global distribution networks have led to greater market access but also fierce global competition in the form of greater product variety, lower product and service costs, higher quality, and shorter delivery times. These stimuli have driven the advent of lean supply chain management (LSCM). This chapter examines current LSCM practices that focus on multiechelon supply chain connections and flows that promote the elimination of non-value-added activities.
Supply Chain Activities: Sourcing and Procurement, Transformation, and Logistics
The typical supply chain is configured with multiple echelons and various components: external suppliers (Tier 1, Tier 2, Tier 3, etc.), original equipment manufacturers, distributors, warehouses, and retailers that work together to create product and service value. A simplified example of these components depicted as nodes and representing a wide variety of potential relationships is shown in Figure 8.1.
Supply chain sourcing and procurement processes focus on a variety of activities. These activities include vendor identification (including requisite material design and vendor performance specifications), vendor capability assessment, proposal or quote evaluation criteria, total cost analyses (including choice of make vs. buy), contract negotiations (contract type, prices, service levels, geographical coverage, payment terms, delivery schedules, etc.), risk assessment, specification of change request processes, vendor solicitation method, and others.
Figure 8.1 Multiechelon supply chain
Note: Dark arrows represent material flows; light arrows represent information flows.
Supply chain transformation activities create value at multiple supply chain nodes. Fabrication and assembly are example activities performed at transformative supply chain nodes. Additional support activities including production scheduling, order processing, and inventory management are also performed. Although not necessarily perceived as value adding, support activities are not avoidable as they plan, staff, direct, and control value-adding fabrication and assembly activities.
Supply chain logistical management, or the physical distribution of materials, includes inbound, outbound, and reverse logistical flows as well as the supportive and necessary two-way information flows for planning, staffing, directing, and controlling a variety of SCM processes. Transportation equipment, labor, and knowledge of regulations (local, state, federal, and international) are resources required to move materials. The logistics function also makes significant contributions to sustainable practices such as recycling, remanufacturing, refurbishing, and reusing of products and materials.
Lean Supply Chain Management
LSCM emphasizes the value-added nature of the activities comprising supply chain network processes with a focus on the elimination of non-value-added activities. Given the independent ownership across supply chains, LSCM emphasizes the connections and flows between supply chain links and their respective resources. Integrative supply chain networks require cooperative trading partner relationships, which are critical for achieving waste reductions.
The elimination of non-value-added SCM activities may be viewed as enriching the customer. This entails a quick understanding of the unique requirements of each individual customer and rapidly providing it. The set of objectives that guide individual facility lean efforts are the same that guide multiechelon LSCM efforts. The goal is to achieve a competitive advantage through lower costs (e.g., higher inventory turnover), enhanced quality (e.g., exacting specifications), faster order response speed (e.g., reductions in manufacturing cycle times and faster delivery times), flexibility (e.g., reliance upon global intermodal transport supporting no-touch processes that can automate and eliminate purchase orders, invoices, and movements between different transport mode containers), and sustainability (e.g., reductions and recycling of packaging materials). LSCM emphasizes strategies built upon the lean principles of earlier chapters. Some of the LSCM strategies are specific to the three principal SCM processes noted earlier: (1) sourcing and procurement, (2) transformation (e.g., fabrication and assembly activities), and (3) logistical management or the distribution of materials, while others are employed across the entire supply chain. A sampling of best practice LSCM strategies are listed in Table 8.1 and more fully explored throughout the remainder of this chapter.
Various strategies, which focus on synchronizing flows across the supply chain, can have a profound impact on trading partners’ ability to promote productivity and eliminate waste. Strategies, which focus on promoting collaborative relationships, enhancing transaction visibility and transparency, aligning trading partner core competencies, fostering innovation, as well as best practice knowledge sharing can better enable trading partners to prioritize work that addresses current customer needs as well as eliminate non-value-adding resources and activities.
LSCM Sourcing and Procurement
In an effort primarily directed toward achieving lower production costs, off-shoring, or international sourcing, increased significantly since the year 2000. More recently, local sources of supply are taking on increasing importance within sourcing and procurement. Companies sourcing overseas face significant supply chain risks, given possible miscommunication regarding specifications such as quality. Local sources promote face-to-face communications and reduce miscommunication risks. They allow for more immediate delivery in the event of a supply shortage. Local sources allow for smaller purchase quantities as more frequent deliveries are easily justified. This allows for the maintenance of smaller buyer inventories.
Table 8.1 Example LSCM strategies
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Lean Sourcing and Procurement
Transformation
Logistical Management
Global Supply Chain Management Strategies
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Increasingly, firms are identifying, selecting, and working with vendors based upon performance on a variety of quantitative as well as qualitative lean performance metrics. Lean metrics used to assess vendor performance reflect more than acquisition costs. Vendors are being identified on the basis of long-term target costing or an agreed-upon process for determining and achieving a life cycle cost at which a proposed product with complete specifications (functionality, performance, quality, etc.) must be produced in order to generate the desired profitability at its anticipated selling price.2 Additional vendor identification and ongoing assessment metrics include delivery lead times, timeliness of delivery (variance from expected delivery time), frequency of delivery, delivery quantities, vendor design and production capabilities, certified process capability and delivery quality, returns policy, payment terms, locality, commitment to improvement, information technology and systems capabilities, vendor financial stability, as well as target costs. Reliance upon metrics beyond a competitive price reflects a trend toward reliance upon numerous procurement metrics for vendor identification and assessment.
The time needed to assemble all of the information required to create a complete solicitation package including detailed specifications necessary for a request for quotation and then to subsequently vet prospective vendors is of questionable value at best. As a result, best practice suggests maintaining a smaller set of proven, stable vendors. Once proven, long-term contracts are being used to reward and partner with vendors as well as reduce the time to maintain long vendor lists.
Lean procurement also focuses on the total cost of ownership. This consideration takes into account the costs associated with ownership of specialized equipment, necessary labor to operate it, and costs to maintain it over time. Firms realize that over the long term, it may be less expensive to purchase custom as well as standard items if volume does not justify long-term total costs of ownership in make-versus-buy choices. This may enable the firm to avoid dedicated investments that are not justified.
There is a heightened focus on the number of transactions throughout the procurement process. One example of this is the number of paper documents created, signed, and stored. These are often perceived by many as possessing little to no value. Allowing vendors to monitor inventory and authorizing an agreed-upon replenishment quantity once a threshold inventory level has been passed reduces non-value-adding paper-based transactions.
LSCM Transformation
A vigilant focus from a customer perspective on the performance value of all activities may better enable producers within each supply chain node to achieve waste reductions. Each supply chain transformation node must extend the internal lean principles and practices of previous chapters into external initiatives. For example, reliance upon lean tools such as value stream mapping, shared kaizen events, and an A3 problem-solving framework may enable a reduction in the number of supply chain transactions as well as transaction and production cost reductions.
One external initiative, synchronizing flows across supply chain, represents the single largest opportunity for supply chain productivity improvements and waste reductions. Synchronized flows can be achieved with various strategies, which focus on promoting collaborative relationships, enhancing transaction visibility and transparency, aligning trading partner core competencies, fostering innovation, as well as best practices knowledge sharing. These strategies extend the transformation capabilities of a single firm, serve to integrate the transformation capabilities of many companies, and improve performance throughout a supply chain. Many of these external SCM initiatives integrate materials, organizations, and information, often through advances in technology.
More advanced supply chain trading partners have recently begun to engage in the exchange of information and best practices knowledge sharing. An early and accurate exchange of information regarding external demands in order to synchronize internal planning and execution better enables companies to attain the productivity benefits and waste reductions cited in many lean initiatives. The exchange of accurate and timely information between supply chain trading partners can lead to significant economic, social, and environmental benefits.
The timely exchange of accurate information with trading partners, given potentially volatile demands and other market signals, can promote forecast accuracy, the ability to construct production schedules capable of meeting demand when demand occurs, as well as timely and accurate purchase and replenishment plans across an entire global supply chain. This must be an initiative of any world-class lean organization. Global markets and more competitors have moved supply chain systems toward universal participation by all supply chain members in an effort to cut costs.3 The increasingly innovative nature of products or the shortening length of most product life cycles and the duration of retail trends make it imperative to get products to market quickly. Otherwise, lost revenues and markdown prices are experienced. For instance, the life cycle of some garments in the apparel industry is six months or less. Yet, manufacturers of these garments typically require up-front commitments from retailers that may exceed six months, making long-term fashion forecasts risky.
Anecdotal evidence of the benefits of demand visibility for synchronized supply chain efforts are abundant and include increased sales; higher service levels; faster order response times; lower inventories, obsolescence, and deterioration; reduced capacity requirements; direct material flows (reduced number of stocking points); and lower total system expenses.4 A Collaborative Planning, Forecasting, and Replenishment (CPFR) pilot study by Nabisco and Wegman Foods produced a supply chain sales increase of 36 to 50 percent through a more efficient deployment of inventory.5 A survey concerning the frequency and the benefits derived from information exchange noted manufacturers citing significant improvements in cycle time and inventory turns while retailers indicated order response times as short as 6 days for domestic durables and 14 days for nondurables. Four out of 10 survey respondents cited at least at 10 percent improvement in both response times and inventory turns. Forty-two percent of survey respondents indicated at least a 10 percent reduction in total inventory in the past 12 months. Forty-five percent of respondents cited reductions of at least 10 percent in associated costs.6 In supply chain collaboration pilot tests conducted with several vendors, Proctor and Gamble (P&G) experienced cycle time reductions of 12 to 20 percent.7 At the time, P&G estimated that greater supply chain collaboration and integration would result in an annual savings of $1.5 to $2 billion, largely reflecting the reduction in pipeline inventory.8
In 1996, approximately $700 billion of the $2.3 trillion retail supply chain inventory was in safety stock alone.9 Supply chain inventory may be as great as $800 billion of safety stock being held by second- and third-tier suppliers required to provide rapid delivery to their larger customers.10 According to the U.S. Department of Commerce, there is $1 trillion worth of goods in the supply chain at any given time.11 Even a small reduction in supply chain safety stocks is a sizeable dollar figure.
Almost immediately after its initial efforts to collaborate on supply chain forecast development, Heineken’s North American distribution operations experienced a 15 percent reduction in its forecast errors and cut order lead times in half.12 As order lead times are lowered, order response time improves. Anecdotal evidence has noted 15 to 20 percent increases in fill rates and half the number of out-of-stock occurrences.13 Enhanced knowledge of future events (e.g., promotions and pricing actions), past events (e.g., weather-related phenomena), internal events (e.g., point-of-sales [POS] data and warehouse withdrawals), and a larger skillset gained from collaboration may all contribute to enhance forecast accuracy.14
Supply chain collaboration should also result in lower product obsolescence and deterioration. Riverwood International Corporation, a major producer of paperboard and packaging products has worked to establish collaborative relationships with customers in order to make production scheduling and inventory control less risky.15 This company sought to balance the need to stock up on inventory for sudden demand surges against the fact that paperboard starts to break down after 90 days. With a higher degree of collaboration and a timelier sharing of information between retailer and manufacturer, greater stability and accuracy in production schedules resulted, making inventory planning more accurate. Furthermore, as production schedules more accurately reflected the needs of the retailer to satisfy near-term demand, reductions in manufacturer capacity requirements were possible.
The potential supply chain synchronization benefits underscore the importance of sharing accurate and timely information. A framework, which is being used to synchronize planning between trading partners, is developed in the following text.
Current technologies offer supply chain partners the ability to develop collaborative plans in a “pull” manner. Advancements in technology allow for the capturing of retail-level demand and the exchange of demand information upstream in real time. This information offers the dual prospect of reducing excess inventories and enabling supply chain partners to plan production and coordinate purchasing of items needed to meet current demands. Web-based communication is faster and is available at a price most trading partners can afford. Although still used by some firms today, it is well known that older communication techniques (e.g., fax technology) are slower, typically require a more error-prone manual entering of identical data by both trading partners, may be unaffordable by some supply chain trading partners, and may be done in batch file transfer mode, which further delays the exchange of information.
The knowledge and information exchange should emanate from the point farthest downstream in the supply chain where consumer demand originates, typically the retail level, in order to effectively achieve a pull approach to production planning within transformation processes across the supply chain. All other points where demand occurs should simply represent purchase orders for inventory replenishment if information sharing is done in a transparent, accurate, and timely manner. In most instances, this suggests a single supply chain forecast is needed and it should originate at the retail level, as depicted in Figure 8.1. Then, working back upstream, demand information may be shared through the supply chain. The process of sharing demand and generating demand forecasts is simply repeated in sequential fashion for each unique pair of upstream trading partners.
The design of a supply chain information-sharing framework has the potential to eliminate enormous wastes. Initially, at the retail-level POS, technology can capture demand as it occurs. Data mining can detect the early onset of demand patterns. CPFR can be used between any two supply chain trading partners for communicating demand information, the creation of an agreed-upon shared forecast, and the creation of a production plan for replenishment planning purposes.16 POS, data mining, and CPFR technologies can better enable supply chain partners to share demand information, agree upon joint forecasts, and to ultimately synchronize production planning, purchasing, and inventory allocation decisions across a supply chain. These technologies offer an enhanced ability for supply chain trading partners to operate in a lean manner.
Since forecasts or expectations of demand form the basis for all planning activities, collaborative efforts should drive all partner planning activities in a highly coordinated, tightly integrated lean supply chain. The importance of timely and accurate forecasts cannot be overemphasized, especially for products with long supplier capacity reservation standards such as clothing, trendy items with short life cycles such as toys, low-margin items such as foodstuffs, or longer lead time items sourced overseas. For all of these items, time to market is critical. Therefore, timely and accurate forecast information is essential to competitive success.
Ideally, a collaborative supply chain forecast would accomplish several objectives. It is imperative that the approach have characteristics of affordability, accuracy, timeliness, flexibility, and simplicity. First, it should integrate all members of the supply chain. The sharing of selected internal information on a secure, shared web server between trading partners can lower implementation costs and increase accessibility. Second, as depicted in the simplified supply chain of Figure 8.1, the origination point of collaboration should be the demand forecast farthest downstream. This can then be used to synchronize order replenishment, production scheduling, purchase plans, and inventory positioning in a sequential fashion upstream for the entire supply chain. This will promote greater accuracy. Third, a web-based exchange of information can increase speed relative to older existing means of communication. Fourth, flexibility can be enhanced if it is able to incorporate a variety of supply chain structures and company-specific forecast procedures. In order to accomplish the noted objectives, a five-step framework is outlined in the following text.
Step One: Creation of a front-end partnership agreement. As a minimum, this agreement should specify objectives (e.g., inventory reductions, lost sale elimination, lower product obsolescence) to be gained through collaboration; resource requirements (e.g., hardware, software, performance metrics) necessary for the collaboration; and expectations of confidentiality concerning the prerequisite trust necessary to share sensitive company information. This trust represents a major implementation obstacle.
Step Two: Joint business planning. Typically, partners identify and coalesce around individual corporate strategies to create partnership strategies; design a joint calendar identifying the sequence of planning activities to follow, which affect product flows; and specify exception criteria for handling planning variances between the demand forecasts of trading partners. Among other things, this calendar must specify the frequency and interval of forecast collaboration. A 1998 pilot study conducted between Wegman Foods and Nabisco to develop weekly collaborative forecasts for 22 Planters peanut products took approximately five months to complete steps one and two.17
Step Three: Development of collaborative forecasts. Forecast development should allow for unique company procedures to be followed affording flexibility. Supply chain trading partners should generate independent forecasts allowing for explicit recognition and inclusion of expert knowledge concerning internal operations and external factors. Given the frequency of forecast generation and the potential for vast numbers of items requiring forecast preparation, simple forecast techniques easily used in conjunction with expert knowledge of promotional, pricing, or other factors to modify forecast values accordingly could be used. Retailers must play a critical role as shared POS data permits the development of accurate and timely expectations for both retailers and vendors.
Hierarchical forecasting (HF) can provide the suggested framework structure for including all supply chain partners in the collaborative pull knowledge and information-sharing process. HF has been shown to have the ability to improve forecast accuracy and support improved decision making.18 To date, several studies have offered practical guidelines concerning system parameters and strategic choices, which allow for custom configurations of HF systems within a single firm.19 Furthermore, HF is able to provide decision support information to many users within a single firm, each representing different management levels and organizational functions.20 Consequently, HF is increasingly being commercially offered as an integral framework of the enterprise planning software.
Initial applications of the HF approach have been used to provide forecast information based upon a strategy of grouping items into product families, similar to the example depicted in Figure 8.2 for a garment retailer.21 The typical firm’s product line possesses a similar arborescent structure shown in this figure. As depicted in Figure 8.3, the typical supply chain also possesses a treelike structure with upstream nodes typically supplying inventory to multiple downstream nodes. Therefore, extending HF to an arborescent supply chain structure in order to provide the pull forecast framework is readily done.
Figure 8.2 Garment retailer product line hierarchical structure
Figure 8.3 Example supply chain arborescent structure
Note: Solid arrows represent material flows; dashed arrows represent demand and forecast information flows; all nodes and links not depicted.
The process begins at the farthest point downstream. Consumer demand is captured and demand information is shared upstream between supply chain partners. This process is successively repeated for each echelon comprising any multiechelon supply chain structure. Web-based technology enables real-time posting of supply chain exchange partner’s demand values on a secure, shared web server to accomplish the demand aggregation process.
After demand aggregation is performed, demand forecast generation takes place. These forecasts are generated independently by each partner allowing for explicit recognition and inclusion of expert knowledge concerning internal operations and external factors. Since the typical supply chain consists of many echelons, this shared two-step process of demand aggregation and forecast generation is repeated for each echelon in sequential fashion upstream through the supply chain.
Step Four: Sharing forecasts. Each pair of downstream customer and upstream vendor would then electronically post their respective, independently generated forecasts on a dedicated server. At this point, consensus forecasts between trading partners are not likely to exist, given the independent forecast development. An exception notice could be issued for any forecast pair where the difference exceeds a preestablished safety margin (e.g., a 5 percent variance). If the safety margin is exceeded, planners from both firms may collaborate or a rules-based system response could be devised to derive a consensus forecast. If the safety margin is not exceeded, a simple agreed-upon rule could be devised to rectify minimal differences.
Resultant forecasts of this process are then used for synchronized planning. These forecasts would be consistent between upstream and downstream supply chain echelons. It is these forecasts that could be used to eliminate significant value stream waste.
Step Five: Inventory replenishment. Once the corresponding forecasts are in agreement, the order forecast becomes an actual order, which commences the replenishment process. Each of these steps is then repeated iteratively in a continuous cycle, at varying times, by individual products and the calendar of events established between trading partners. For example, trading partners may review the front-end partnership agreement annually, evaluate the joint business plans quarterly, develop forecasts weekly to monthly, and replenish daily.
The application of the technology within information exchanges in the framework suggested in the preceding text should go a long way in eliminating the bullwhip effect.22 In a simple explanation, the bullwhip effect refers to a trend of increasingly variable swings in order size, production planning, and consequential inventory as one proceeds upstream in the supply chain. This effect occurs for various reasons. The most notable reasons are: (1) each sequential upstream trading partner acting independently (forecasting demand, planning production, and ordering) from its downstream customer; (2) order batching at any one supply chain node, which amplifies variability; (3) anticipated price fluctuations, which further encourage order batching; and (4) rationing and shortage gaming, which also encourage order batching, further exacerbating variable upstream demands.
No discussion of a supply chain knowledge-sharing framework would be complete without recognition of anticipated barriers to adoption and implementation. As practiced by Taiichi Ohno, obstacles let you know where to begin lean initiatives. As with most initiatives, there will be skepticism and resistance to change. Several of the anticipated obstacles to implementation are noted in Table 8.2 and discussed in the following text.
One of the largest hurdles hindering collaboration is the lack of trust over complete information sharing between supply chain partners.23 The conflicting objective between the profit-maximizing vendor and cost-minimizing customer gives rise to the adversarial supply chain relationship. Sharing sensitive operating data may enable one trading partner to take advantage of the other. Similarly, there is the potential loss of control as a barrier to implementation. Some companies are rightfully concerned about the idea of placing strategic data such as demand forecasts, financial reports, manufacturing schedules, or inventory values online. Companies open themselves to security breaches.24 However, in a survey of 257 U.S. manufacturing and service companies, only 16 percent of respondents who were established participants in a business-to-business trading exchange cited security and trust problems.25 Another study found 96 percent of retailers already sharing information “regularly” with their suppliers, with almost half sharing information with manufacturing partners on a daily basis.26 The front-end partnership agreements, nondisclosure agreements, and limited information access may help overcome these fears. The potential cost savings will also clearly help.
Table 8.2 Expected barriers to supply chain knowledge and information sharing
- Lack of trust and loss of control in sharing sensitive information
- Lack of internal and external forecast collaboration interest
- Availability and cost of technology/expertise
- Fragmented information-sharing standards
- Aggregation concerns (number of forecasts and frequency of generation)
- Fear of collusion
- Inexperience/lack of skills at retail level
A second hurdle hindering collaboration is a cultural stumbling block. An unprecedented level of internal and external cooperation is required in order to attain the benefits offered by collaboration. Each firm has its own traditional practices and procedures. A survey of senior managers identified that the second biggest barrier to innovation is a lack of coordination.27 If multifunctional internal operations can be synchronized, then it may be possible to pursue collaborative efforts between trading partners.
Similarly, there must be a certain degree of compatibility in the abilities between supply chain trading partners. The availability and cost of technology, the lack of technical expertise, and the lack of integration capabilities of current technology across the supply chain present a third potential barrier to implementation.28 The collaborative process design must integrate skills and procedures that cut across business functions, distribution channels, key customers, and geographic locations.
The necessary “bandwidth” and the associated reliability of technology is a fourth potential barrier. Some companies may not have the supporting network infrastructure. If the necessary trust in the relationship can be developed, synchronizing trading partner business processes with consumer demand need not be overly time-consuming or costly. In order for this to be possible, emerging standards need widespread adoption as opposed to numerous, fragmented standards. Widespread sharing and leveraging of existing knowledge and information across functions within an organization and between enterprises comprising the supply chain may be possible. Common emerging standards will be necessary to promote collaborative supply chain efforts. Attaining a “critical mass” of companies willing to adopt these standards will be important in determining the ultimate success of collaborative practices. The cost of establishing and maintaining collaborative processes without common interfaces will limit the number of relationships each participant is willing to invest in. However, as the ability to collaborate is made easier, the number of supply chain trading partners wanting to collaborate will increase.
A fifth potential obstacle to adoption and implementation concerns two aspects of data aggregation: the number of forecasts and the frequency of forecast generation.29 Bar code-scanning technology provides retailers the ability to capture POS data by store, whereas suppliers typically forecast orders at point of shipment such as warehouse. The POS store data is more detailed as it represents daily, shelf-level demands for individual stores. Point of shipment data represents the aggregate of all stores served by one warehouse, typically measured over a longer interval of time, such as a week. In the pilot study by Wegman Foods and Nabisco, 22 weekly forecasts for individual products were developed collaboratively. In a full-blown collaboration for store-level planning, the number of daily collaborative forecasts would increase to 1,250 for Planters peanuts alone.30 It is not uncommon for large retail stores to stock 75,000 or more items, supplied by 2,000 to 3,000 trading partners.31 This obstacle must be coupled with the vast potential of exception reporting, given forecast variances. Given the frequency of forecast variance review and the large number of potential exceptions that may occur, a rules-based approach to automatically resolve trading partner forecast variances will be required. In the development of synchronized plans, these aggregation concerns will need to be resolved. One means to synchronize business processes and overcome these obstacles is reliance upon the HF approach.32
An anticipated sixth obstacle to implementation focuses on the fear of collusion leading to higher prices. It is possible that two or more suppliers or two or more retailers may conspire and share information harmful to the trading partner. Frequently this fear arises when the item being purchased is custom made or possessing a proprietary nature, making it less readily available. Long-term supplier partnerships between mutually trustworthy partners can reduce the potential for collusive activities.
A final potential obstacle to implementation recognizes the important role retailers must play in the process. However, in many industries, the employee turnover rate at the retail level coupled with its consequential impact on the experience and skillsets of retail employees may result in an important barrier to implementation efforts. However, with all initiatives, success encourages adoption. Anecdotal evidence of the potential benefits attributable to collaborative supply chain collaboration will overcome these adoption barriers.
Many companies have successfully standardized their internal financial and transactional processes. The next step for these companies is engaging supply chain partners using Internet technologies to standardize external financial and transactional processes. Although simplistic, the five-step framework identified in this section addresses interenterprise collaborative efforts.
In a survey of 200 information technology executives using or deploying an enterprise resource planning (ERP) system, 52 percent of the respondents indicated current involvement or future plans to create a business supply chain using ERP software.33 The concept is to enable suppliers, partners, distributors, and consumers real-time system access via an extranet. Whether it is managed within an ERP system or it is a stand-alone approach, significant potential is emerging for advanced decision support and enterprise execution systems to focus on integrating and optimizing cross functional, intraorganizational, and interorganizational planning activities and transactions.
The future evolution of this idealistic five-step framework will permit an automatic, electronic transference of supply chain partner knowledge and information into the development of demand forecasts, production schedules, accounting (accounts receivable and payable), human resource requirements, and supply chain planning applications such as the warehousing and inventory control applications. Benefits to be realized for all participants will include the mitigation of the supply chain bullwhip effect through better collaboration, increased sales, lower operational costs, higher customer service levels, and reduced cycle times, among a host of others.
LSCM Logistical Management
As noted earlier, one lean procurement practice gaining acceptance is reliance upon a greater number of local sources. This promotes smaller purchase quantities as more frequent deliveries are easily justified. One consequence of smaller purchase quantities is smaller buyer inventories. If buyers purchase smaller quantities more often, larger capacity, less fuel-efficient vehicles are no longer required. A current trend in lean transportation is the reliance upon smaller capacity, more fuel-efficient vehicles. This trend is further supported by truck manufacturers offering vehicles designed to operate on potentially more efficient alternative fuels.
In light of off-shoring procurement, intermodal freight transportation capabilities are critical for achieving supply chain transport time, cost, and flexibility objectives. Intermodal transportation relies upon an intermodal container or vehicle capable of being exchanged among multiple modes of transportation (e.g., rail, ship, and truck), without direct handling of the goods themselves when changing modes. The method reduces the extent of cargo handling, and while doing so, improves freight security, reduces loss and damage, and promotes shorter transportation times.
Various postponement strategies (e.g., assembly, mixing, labeling, and packaging), also referred to as delayed differentiation, are commonly used throughout supply chains today. These strategies allow for the last-minute customization of final products. Assembly postponement requires some degree of assembly at the final shipping destination. It promotes costs reductions attributable to greater cube carry capacity utilization of containers or the avoidance of some import taxes, given lower sales price. The return of collapsible containers promotes assembly postponement. The extent of assembly required depends on the customer preferences and technical abilities. One example of mixing postponement is POS paint color mixing. Vendors are able to stock a small quantity of paint tint bases and colorants and mix them to meet exact customer demand. Resultant benefits include the opportunity for customers to select from a large variety of colors mixed within minutes, higher order fulfillment, higher customer satisfaction, lower inventory costs, and decreased floor space requirements. Examples of both labeling and packaging postponement can be found in the food industry’s use of deferred packaging at regional warehouses near the destination markets, given the potential for alternative customers (e.g., Albertsons, Kroger, Walmart, etc.) and its reliance upon packaging postponement, given the potential for alternative package sizes found in destinations such as vending machines, convenience stores, and supermarkets.
Postponement is an adaptive supply chain strategy that enables companies to reduce inventory while improving customer service. Postponement strategies take out the risk and uncertainty associated with having undesirable products, thereby reducing associated inventory costs including investment, obsolescence, deterioration, spoilage, and others. Postponement improves order fill rates.
A recent strategy in lean logistics management is the colocation of trading partners. Sometimes referred to as supplier parks, the auto industry has been an early developer of the concept. This relationship is often one of module or component suppliers locating a facility in the immediate vicinity of the vehicle assembly plant. Ford Motor Company developed an early example in Chicago, Illinois, where nine suppliers initially colocated with Ford. These suppliers provide stampings, suspension components, instrument panels, fuel tanks, engine coolant components, wiring systems, injected and blow-molded plastics, door components, and manufactured items. Numerous anecdotal benefits have been attributed to colocation.34 Included among these benefits are reduced transportation costs, increased delivery reliability, enhanced ability to cope with demand uncertainty, demonstrated partnership commitment, increased face-to-face contact allowing for quicker response to customer preferences, increased organizational and technological supply chain integration, increased availability of public incentives (e.g., tax breaks and shared infrastructure build and operational costs), inventory carrying cost reductions attributable to shorter delivery distances, as well as allowing each partner to focus on its core competencies.
Reliance upon technological innovations is also promoting LSCM objectives. Use of radio frequency identification (RFID) can reduce labor costs, and proactive information-sharing capabilities such as advance shipping notices (ASNs) promote information visibility and supply chain traceability, which customers expect, given the technological capability.
Global SCM Strategies
In additional to the various SCM strategies noted in the preceding sections, there exist a variety of LSCM strategies, which are not specific to the three principal processes of sourcing and procurement, transformation, and logistical management. The six examples identified in Table 8.1 are discussed in the following text.
The success of the supply chain is dependent upon all supply chain trading partners. There must be recognition of long-term win–win relations in all exchanges. This requires collaboration and cooperation. This cooperation includes better intraorganizational functional cooperation as well as interorganizational cooperation such as partnerships with suppliers and newer, emerging virtual relationships. Functional disciplines within firms as well as trading partners across a supply chain must work seamlessly across borders and differing cultures. This should recognize that at times, a firm may partner with firms in one supply chain while competing with the same firms in another supply chain. Supply chain networks are increasingly weblike where supply chain success is dependent upon all trading partners’ contributions.
Most people recognize the most important asset of any firm is the human asset. This recognition of employee importance places greater emphasis on the development of this asset through education, training, and empowerment. Effective leaders recognize the value of leveraging the impact of people. Critical to this practice is providing the human asset access to information, training with technological tools, and the necessary authority so that employees can make decisions to complete their assignments. Data-driven analysis is a significant emerging theme in industry. Correct decisions and subsequent commitments are critical in lean environments. Examples of technology discussed earlier include RFID, POS data collection, data mining for the early detection of emerging demand patterns, CPFR, and proactive information sharing such as ASNs. Many external SCM initiatives integrate materials, organizations, people, and information, often through advances in technology. These technologies enhance information visibility and traceability as well as promote intelligent decision making, therefore providing value to supply chain trading partners. These are largely affordable technologies for most, if not all, supply chain trading partners, which can be used to enhance LSCM efforts.
Centralization of common functions is a strategy commonly pursued in order to avoid redundancies and promote greater efficiencies. One example of this strategy is the recent trend to merge the procurement and logistical functions as one department. Given functional commonalities such as the need to transport purchased materials, these historically separate disciplines are being called upon to promote collaboration. Although some suggest centralization is less customer-friendly, it does offer the ability to achieve lean objectives, in particular lower costs, given higher productivity and waste elimination.
LSCM increasingly encourages placing greater reliance upon outsourcing of nonessential (less value-adding tasks and resources) functions or activities. The point of this strategy is to avoid being a “jack-of-all-trades” and to focus upon being a master of those functions or activities one does perform. Numerous examples of commonly outsourced activities are available, including transportation management functions (e.g., relying upon third-party transportation providers to avoid owning transportation equipment with the associated labor to operate and maintain it as well as keep abreast of local, state, federal, and international regulations), warehousing, procurements, data management, freight forwarding, and reverse logistics to identify a few. Vendors can offer specialized efficiencies in numerous logistical activities. Specific examples include packaging, labeling, assembly, delivery, and manufacturing at a point closer to the consumer. Companies producing foodstuffs often partner with contract packagers or third-party logistics providers to perform that activity off-line. By leveraging the capabilities and processes of logistics service providers, firms can promote LSCM objectives.
Risks have grown dramatically in the increasingly complex, interdependent, global lean supply chain networks that have emerged. Consequently, a premium is now being placed upon managing shared trading partner risks to promote quick response capabilities. Faster response capabilities can be achieved through the flexibility and agility strategies discussed in an earlier chapter. Risk management strategies (e.g., avoidance, mitigation, and transference) refer to proactive, precautionary measures taken to minimize risk, which can ultimately promote faster response capabilities. A host of risk types, including strategic, operational, financial, compliance or regulatory, reputational, and safety are promoting firms to address systematic planning efforts to address risk. These risk-planning efforts address risk identification, both qualitative and quantitative risk analysis (probabilities and impacts), risk response planning (avoidance, mitigation, transference, and acceptance), and finally risk monitoring and control.
Customers and social trends are increasingly demanding the promotion of sustainability initiatives throughout distribution networks. Sustainability is a long-term objective that goes beyond internal improvements and waste reduction by extending Ohno’s seven principles externally across the supply chain. Sustainability reinforces Ohno’s seven principles as an integral element of an organization’s culture. To date, there exist three broad categories of supply chain sustainability initiatives: product and process life cycle considerations; environmental stewardship; and facilities design, construction, environmental control, and maintenance. These categories are discussed in the following text.
Sustainability commonly refers to the characteristic of a process or state, which can be maintained at a certain level indefinitely. The World Commission on Environment and Development articulated what has now become a widely accepted definition of sustainability, “to meet the needs of the present without compromising the ability of future generations to meet their own needs.”35 Sustainability addresses how processes and operations can last longer and have less impact on ecological systems. It is the conservation of resources, natural or otherwise, through sustainable activities and processes across a value chain. In particular, this relates to the societal concern over major global problems of climate change and resource depletion. Global problems and resource depletion can be addressed simultaneously through an examination of supply chain activities aimed at improvement, waste reduction, reduced resource consumption, and a reduction of transformation by various reclamation practices.
To date, most documented lean improvement efforts have looked internally first, going after readily attainable improvements within a single transformation process possibly within a work center or department. Only if internal efforts are successful, have organizations focused on external initiatives. While sustainability promotes internal improvement and waste reduction within a single transformation process, it also encourages external improvement and waste reduction across the value chain. Furthermore, sustainability addresses waste reduction that may lead to improved social conditions on a global basis. Namely, sustainability is an integral cultural characteristic of an organization.
It should be clear that non-value-adding activities that consume resources are wasteful and, over the long run, are not economically sustainable. If an activity does not add value, it should be reduced or eliminated if possible. Processes and operations are less likely to be sustainable without improvement and waste reduction as resources are typically increasingly scarce.
Many organizations, including, for example, Ford, General Electric, Toyota, Walmart, and others, have now included sustainability as part of their corporate objectives. Ford’s “vision for the 21st century is to provide sustainable transportation that is affordable in every sense of the word: socially, environmentally and economically.”* World-class organizations understand that they must continually reinvent themselves in order to maintain a competitive advantage.36 World-class sustainability initiatives must anticipate and preempt customer demands and changing environmental regulations.37 Even when it becomes known that a world-class organization’s capabilities provide it with a competitive advantage, lagging competitors are typically slow to address this performance gap as they are inextricably wed to their existing approaches and processes. Once a firm achieves a competitive advantage based upon particular competencies, it is difficult for competitors to replicate without going through the same long-term learning process.38
Sustainability is a capability that can enhance the value of a company.39 Sustainable companies conduct their businesses so that benefits accrue to all supply chain stakeholders; this includes employees, customers, vending partners, the communities in which they operate, and, of course, shareholders.
Although sustainability may have come about largely due to regulatory compliance requirements, a rising ratio of material-to-labor costs, as well the opportunity to improve corporate image and community and customer relations, it has evolved into a much larger initiative. There are eight economic drivers for sustainability initiatives.40 These drivers, shown in Figure 8.4 may be broadly identified as enhancing image; compliance with regulations; future liability concerns; community relations; employee health and safety concerns; customer relations; cost reduction or avoidance; and quality improvement. These drivers have encouraged firms to enlarge transformation process objectives beyond low cost, quality, speed of delivery, and flexibility to include a focus on social responsibility and employees.
Figure 8.4 Sustainability and the extended supply chain
Given these eight economic drivers, recent literature provides abundant examples of supply chain sustainability initiatives and their associated benefits. These initiatives have focused on three broad categories: (1) product and process life cycle considerations, (2) environmental stewardship, and (3) facilities design, construction, environmental control, and maintenance. Each of these is discussed in the following text with the use of industry examples and benefits achieved.
Product and process life cycle considerations examine ways to achieve sustainability objectives over the entire life cycle of a product. This includes practices affecting the design, development, manufacture, as well as reverse logistical flow of items in a closed-loop value chain. Two points regarding activities within this category need emphasis. First, firms implementing initiatives within this category often have more mature or advanced sustainability programs. Second, it should be emphasized that sustainability initiatives in this category often look externally, beyond the boundaries of a single transformation process for partners across the entire value chain. The external focus of this initiative increases the economic returns capability for any one firm.
Firms are realizing that closing the supply chain loop with various reclamation activities for products at the end of their life cycle offers economic, social, and environmental value, often referred to as the triple bottom line.41 A change from the typical cradle-to-grave manufacturing model to a cradle-to-cradle approach, where new products are designed to help restore nature and eliminate disposal has been proposed.42 The idea is to design products for extended use, reuse, reclamation, refurbishing, remanufacturing, and eventual recycling. Use of these practices has been encouraged in part due to rising energy, commodity, and other material costs.
As an example, Ford has applied the triple bottom line concept in parts applications. Annually, Ford has reclaimed and reused 10.6 million pounds of crumb rubber in parts such as air dams, floor mats, trunk mats, and sound absorbers. This saved Ford $4.8 million in parts costs alone in just one year.43
The eco-design concept was introduced in 2001.44 Eco-design views sustainable solutions as products, services, hybrids, or system changes that minimize negative and maximize positive sustainability impacts, including economic, environmental, social, and ethical impacts throughout and beyond the life cycle of existing products or solutions, while fulfilling acceptable societal demands or needs. Eco-efficiency can be said to encompass the concepts of dematerialization, increased resource productivity, reduced toxicity, increased recyclability, and extended product life spans.
Examples of eco-efficiency are numerous. One simple example of dematerialization is the use of less packaging in shipping. A second example is reliance upon engineered returnable packaging and dunnage solutions. A third example is Toyota’s belief that hybrid technologies will play a central role in achieving “sustainable mobility.” Partnering with many value chain participants, Toyota has made considerable efforts to promote the use of hybrid vehicles. By November 2007, Toyota achieved global cumulative sales of 1.25 million hybrid vehicles. The estimated resulting reduction in carbon dioxide emissions was five million tons. A fourth example is Toyota’s efforts toward the development and production of lithium-ion batteries. These batteries offer the advantages of greater energy and output densities than nickel-metal hydride batteries in current hybrid vehicles.
Caterpillar has accrued financial benefits from recycling and remanufacturing tractor components like engines and gears. Its tractor components remanufacturing division, which has become its fastest-growing unit in the recent decade, has annual revenues, which top $1 billion. Furthermore, this division is estimated to grow 20 percent a year while reclaiming components that might otherwise be discarded.45
Sustainability initiatives include eliminating the production of process by-products or finding uses for process by-products. Tracking waste generation is a first step to by-product elimination. Knowledge of the source and the reason for the generation of waste will assist its elimination. Eliminating by-products can be achieved through a variety of strategies, including material substitution, alternatives disposition such as the creation of a commodity possessing value (e.g., reworking, composting, converting), or possible inclusion of a third party to assist solution identification.
From these examples, it should be understood that reclaiming value from end-of-lease, end-of-use, and end-of-life product returns is achievable through closed-loop value chains. Reuse, reclamation, recycling, refurbishing, and remanufacturing eliminate waste by reducing the number of times various transformation tasks are performed again. These practices reuse considerable portions of a product in a number of successive product generations leading to waste elimination and enhanced environmental performance.
The second category of supply chain sustainability initiatives increasingly being pursued in industry is environmental stewardship. One significant change in the corporate practices over recent years is due to increasing demand for social responsibility as the result of environmental concerns including global warming, resource depletion, energy and water shortages, solid waste disposal, and others. These concerns are increasingly attracting worldwide attention and, as a result, corporate stewardship of the environment is becoming a more important issue.
A growing awareness is emerging for the environmental stewardship role that business must assume. One industry example is provided by Toyota, which is emphasizing the role of nature in creating production sites that are in harmony with their natural surroundings. Toyota is increasingly using renewable energy, including biomass and natural energy sources (solar and wind power), and contributing to the local community and conserving the environment by planting trees in and around manufacturing plants.
Enhanced environmental performance has reduced waste and improved processes, products, and profitability at several companies.46 Enhanced environmental performance may lead to superior quality and ultimately improved profitability through higher customer satisfaction and loyalty.47 Simply put, there is a clear link between environmental management systems (EMSs), practices, and operational performance.48
Various practices have emerged, which emphasize this environmental stewardship role. Examples include industry-specific voluntary programs such as the Environmental Protection Agency’s 33/50 Program and the International Organization for Standardization (ISO) 14000 EMS standards program. Formerly adopted in 1996, ISO 14000 represents a framework to lead organizations to improved environmental performance. Results of a large-scale survey of manufacturers provide evidence that ISO 14000 can positively impact both the performance of a firm’s EMS as well as overall corporate performance.49 The survey results suggest plants can be both more environmentally responsible and more efficient with ISO 14000 certification.
Given the relative newness of this category of sustainability, it should not be surprising that the EMSs in many firms have not been proactive but rather reactive in nature. Findings suggest that the EMS is typically driven by changes in environmental regulations and that EMSs typically identify neither qualitative nor quantitative costs associated with environmental performance. Furthermore, environmental stewardship issues are typically internal initiatives, confined to a single facility and are seldom extended to the value chain for activities such as supplier selection, retention, and evaluation.50
Increasingly, the activities of facility design, construction, operation, and maintenance are being conducted with an eye toward waste reduction and greater sustainability. One significant example of this third category of sustainability initiatives is the Bank of America’s One Bryant Park, the first skyscraper designed to attain a Platinum Leadership in Energy and Environmental Design certification. The design of the building was environmentally friendly.51 It used technologies such as floor-to-ceiling insulated glass to reduce thermal loss and maximize natural light, thereby lowering energy consumption. A gray water system, which captures rainwater runoff and nonindustrial wastewater, provided water for the building’s cooling tower and toilets. Waterless urinals are estimated to save millions of gallons of water annually. The building was made largely of recycled and recyclable materials with construction using a 55 percent concrete, 45 percent slag mixture (a recycled blast furnace by-product), which lowers greenhouse gas emissions through a reduced concrete production requirement. The air temperature cooling system produced and stored ice during off-peak hours, and then used this ice to help cool the building during peak load. The building even included on-site power generation, thereby reducing significant electrical transmission losses that are typical of centralized power station production plants.
Walmart is incorporating various sustainable concepts in its retail building design, construction, environmental control, and maintenance. It is reducing the height of stores as well as tenant space, which reduces facility energy consumption. As a substitute for portland cement, the concrete used in the construction of the floors of its buildings incorporates 15 to 20 percent fly ash, a byproduct of coal combustion produced by utility companies. It is specifying the use of the recycled fly ash, which makes the concrete stronger, reduces landfill waste, reduces the demand for virgin materials, and substitutes materials that may be energy-intensive to create. Walmart is utilizing various environmental control systems such as natural daylight–dimming controls and electricity-generating photovoltaic cells in clerestories and skylights to sense and automatically regulate indoor lighting, heating, and cooling. At one retail installation, the skylights alone allowed lights to be turned off in the lawn and garden center for up to 10 hours per day contributing to a $30,000 savings.52 Increasingly Walmart requires its vendors to have a proactive sustainability management plan.
Ford provides a third example of a company utilizing various sustainable concepts in building design, construction, environmental control, and maintenance. Ford’s River Rouge plant has a 10-acre green roof that uses sedum, a succulent plant, to soak up four million gallons of storm water a year and to release it into a nearby wetland. It is estimated that this will double the length of the roof life, provide insulation, and will save Ford millions of dollars it would have had to invest in a water treatment facility.53
One should question why sustainability is not progressing at a faster rate among corporations today, given the wealth of benefits cited in the preceding text and in the literature. Keep in mind that peoples’ behavior toward adopting innovation occurs at varying rates. Innovations often require a lengthy period, sometimes years before they are widely adopted.54 Consumers largely drive the economic behavior of firms. Although the concept of recycling has been practiced for centuries, to date, there are apparently still relatively few “innovators” and “early adopters” of this practice. Seemingly, the importance of this practice has yet to be fully understood by the majority of consumers. However, as the price of resources and the cost of proper disposal continue to rise, sustainable supply chain practices will naturally gain greater acceptance.
A second reason why sustainability initiatives are not as visible is that many initiatives are still only internal and have not included widespread value chain participation. The development of a world-class sustainable program typically proceeds in a stepwise manner.55 First, process-based capabilities are instilled internally in a single set (vertically) of transformation activities. Second, once mastered, the firm will seek to integrate and coordinate these capabilities across several activities (horizontally) or systems within the firm. Embedding these capabilities within the routines and knowledge of the firm making them multifunctional, organizational-based capabilities follows as the third phase. Finally, world-class firms will seek to make these network-based capabilities that reach outside the limits of the transformation process in order to encompass the value chain network. Increasingly, firms must reach outside their transformation process and include value chain partners in sustainability initiatives.
An interesting summary offering a staged taxonomy of sustainability initiatives has been proposed.56 The years 1970 to 1985 have been identified as the “resistant adaptation” years where organizations found the least expensive means to minimally comply with environmental legislation. The second stage, the mid-1980s, has been identified as companies “embracing environmental issues without innovating.” The third stage of the late 1980s consisted of “reactive” organizations using “end-of-pipe” solutions for treating waste but with little effort to prevent waste production. In the “receptive” stage, the early 1990s, organizations began to see environmental considerations as a source of competitive advantage. Organizational “policy entrepreneurs” focused company efforts on being more socially responsible. Due to continuing environmental pressures, the mid- 1990s, witnessed the “constructive” stage when organizations began to adopt a “resource-productivity framework to maximize benefits attained from environmental initiatives.” In this stage, companies began to look at product and process design to achieve sustainability objectives.
As firms matured and learned more about lean, it evolved. The emergence of sustainable supply chain initiatives is the emerging evolutionary stage of lean. Sustainability is an extension of lean principles. World-class companies such as Ford are acting in a proactive manner, creating a new vision for the whole system that includes all organizational personnel as well as value chain suppliers and customers. These firms are using value chain partnerships to look externally in order to apply lean principles in a sustainable manner to generate increasing economic value. Once consumers signal they are ready to adopt sustainable purchasing behaviors, world-class firms understand they must have sustainable practices already developed and in place.
Although there has been debate on whether synergies exist between profits and sustainable practices, the industry data in the examples cited earlier illustrate that sustainable practices offer the ability to reduce costs. Non-value-adding activities consume resources and therefore over the long run are not economically sustainable. If an activity does not add value, it should be reduced or eliminated if possible. Without waste reduction and elimination, processes and operations are less likely to be sustainable as resources are typically increasingly scarce.
To date, most lean initiatives have looked internally and have not had an objective to reduce, lessen, or eliminate ecological impacts. Environmental performance gains or savings are typically not included in an assessment for undertaking lean improvement activities. These gains or savings are typically not quantified in the financial justification. This is especially true when considering the entire value chain. As world-class firms mature, they begin to understand lean practices can be extended externally to the value chain. Consequently, strategic practices utilizing closed-loop value chains to achieve both waste elimination and enhanced environmental performance are beginning to emerge. These points demonstrate that sustainability is a significant lean objective.
Lean and sustainability initiatives promote the ability to reduce resource or capacity requirements through conservation and reclamation activities and the ability to capture resources for a cost that is less than the value recovered. There is no doubt that cost reduction has enhanced bottom-line performance through lean and sustainability initiatives. Also, firms have improved their image through socially beneficial practices.
In the future, lean and sustainability initiatives must increasingly reflect shared value chain objectives that simultaneously lessen environmental impacts, achieve cost savings, enhance corporate image, and also drive additional revenues. Opportunities exist to simultaneously reduce cost as well as drive additional revenues. For example, some retailers sell canvas shopping bags, which are reusable from shopping trip to shopping trip. The sale reduces the expense of plastic and paper bags while providing a revenue stream of canvas bag sales.
In the future, lean and sustainable practices must enhance the bottom line from both cost reduction as well as profit generation. Firms must look for opportunities to reclaim or capture resources for a cost that is less than the value recovered as well as drive future revenues. Once firms learn to capture the value of reclaimed products, future revenues will increase as the cost savings may be passed along to consumers providing a significant competitive advantage and further driving future revenues. Sustainability looks beyond the boundaries of a single transformation process. Now world-class firms must view sustainability over the entire value chain for opportunities to reduce costs as well as drive future revenue streams.
Summary: The Future of Collaborative Supply Chain Knowledge and Information
Poor coordination among supply chain partners reduces productivity and results in waste. Coordinated efforts to integrate upstream and downstream material and information flows among vendors, producers (manufacturing and services), resellers, and final consumers can provide a competitive advantage. This chapter has identified a host of strategies focused on the three principal SCM processes: (1) sourcing and procurement, (2) transformation (e.g., fabrication and assembly activities), and (3) logistical management or the distribution of materials, including inbound, outbound, and reverse logistical flows as well as the supportive and necessary two-way information flows.
Globalization and the advancement in information technology place a premium on firms’ LSCM efforts to achieve this competitive advantage. Demonstrable evidence exists that technology offers the ability for trading partner efforts to integrate upstream and downstream material and information flows. The advancement in information technology and the information revolution offers fast, cost-effective communications as well as leverage for customer of all sizes in the form of the global marketplace. Customers are aware and expect available information be provided with near-real-time speed and details. The global marketplace, distribution networks, and competition have led to customer expectations of greater product variety, lower product and service costs, higher quality, and shorter delivery times. This has driven the advent of LSCM. This chapter identifies numerous current LSCM strategies and practices, which focus on multiechelon supply chain connections and flows that promote the elimination of non-value-added activities.
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