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The document provides information about various editions of supply chain management textbooks available for download, including titles by authors such as Joel Wisner and Jay Heizer. It includes links to access these eBooks in multiple formats and outlines the contents of the 'Principles of Supply Chain Management' 6th edition. Additionally, it emphasizes the importance of supply chain management and its various operational, ethical, and strategic components.

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100% found this document useful (1 vote)

419 views51 pages

Principles of Supply Chain Management 6th Edition by Joel Wisner, Keah Choon Tan, Leong ISBN 9780357715604 0357715608 Download

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Principles of Supply Chain Management 6th

Edition by Joel Wisner, Keah Choon Tan, Leong

ISBN 9780357715604 0357715608 download

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Principles of Operations Management: Sustainability and Supply Chain

Management 10th Edition by Jay Heizer, Barry Render, Chuck Munson ISBN
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(Ebook PDF) ISE EBook Online Access for Operations and Supply Chain
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Principles of
Supply Chain
Management
A Balanced Approach | 6e

JOEL D. WISNER, PhD

University of Nevada, Las Vegas

KEAH-CHOON TAN, PhD

University of Nevada, Las Vegas

G. KEONG LEONG, PhD

California State University,
Dominguez Hills

Australia • Brazil • Canada • Mexico • Singapore • United Kingdom • United States

Important Notice: Media content referenced within the product description or the product
text may not be available in the eBook version.

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Printed in the United States of America

Print Number: 01 Print Year: 2022

—Joel Wisner

To Shaw Yun, Wen Hui, Wen Jay, and Kevin.

—Keah-Choon Tan

To Lin and Michelle.

—G. Keong Leong

Part 1 Supply Chain Management: An Overview 1

Chapter 1 Introduction to Supply Chain Management 3

Part 2 Supply Issues in Supply Chain Management 39

Chapter 2 Purchasing Management 41
Chapter 3 Creating and Managing Supplier Relationships 95
Chapter 4 Ethical and Sustainable Sourcing 133

Part 3 Operations Issues in Supply Chain Management 171

Chapter 5 Demand Forecasting 173
Chapter 6 Resource Planning Systems 213
Chapter 7 Inventory Management 271
Chapter 8
Process Management—Lean and Six Sigma
in the Supply Chain 321

Part 4 Distribution Issues in Supply Chain Management 379

Chapter 9 Domestic U.S. and Global Logistics 381
Chapter 10 Customer Relationship Management 437
Chapter 11 Global Location Decisions 467
Chapter 12 Service Response Logistics 507

Part 5 Integration Issues in Supply Chain Management 557

Chapter 13 Supply Chain Process Integration 559
Chapter 14 Performance Measurement Along Supply Chains 601
Appendix 1 Areas Under the Normal Curve 635
Appendix 2 Answers to Selected End-of-Chapter Problems 636

On the Companion Website

Student and Instructor Materials

Part 1 Supply Chain Management: An Overview 1

Chapter 1 Introduction to Supply Chain Management 3
Introduction 5
Supply Chain Management Defined 6
The Importance of Supply Chain Management 10
The Origins of Supply Chain Management in the United States 13
The Foundations of Supply Chain Management 16
Supply Elements 16
Operations Elements 18
Logistics Elements 19
Integration Elements 22
Current Trends in Supply Chain Management 24
Use of Supply Chain Analytics 24
Improving Supply Chain Sustainability 25
Increasing Supply Chain Visibility 26
Summary 27
Key Terms 27
Discussion Questions 27
Essay/Project Questions 29
Cases 29
Appendix 1.1
The Beer Game 31
Additional Resources 35
Endnotes 35

Part 2 Supply Issues in Supply Chain Management 39

Chapter 2 Purchasing Management 41
Introduction 44
A Brief History of Purchasing Terms 44
The Role of Supply Management in an Organization 45

The Financial Significance of Supply Management 47

The Purchasing Process 50
The Manual Purchasing System 50
Electronic Procurement Systems (e-Procurement) 53
Small-Value Purchase Orders 56
Sourcing Decisions: The Make-or-Buy Decision 59
Reasons for Buying or Outsourcing 61
Reasons for Making 62
Make-or-Buy Break-Even Analysis 63
Roles of the Supply Base 64
Supplier Selection 65
Supplier Diversity 66
The Total Cost of Ownership Concept 67
How Many Suppliers to Use 69
Reasons Favoring a Single Supplier 69
Reasons Favoring Multiple Suppliers 70
Purchasing Organization 71
Advantages of Centralization 71
Advantages of Decentralization 72
Global Sourcing 72
Reasons for Global Sourcing 73
Potential Challenges for Global Sourcing 74
International Trade Law and Commercial Terms 75
Procurement in Government and Nonprofit Agencies 79
Characteristics of Public Procurement 79
Summary 81
Key Terms 81
Discussion Questions 82
Essay/Project Questions 83
Spreadsheet Problems 83
Cases 87
Additional Resources 91
Endnotes 92

Chapter 3 Creating and Managing Supplier Relationships 95

Introduction 97
Developing Supplier Relationships 100
Building Trust 101
Shared Vision and Objectives 101
Personal Relationships 102
Mutual Benefits and Needs 102
Commitment and Top Management Support 102

Change Management 102

Information Sharing and Transparent Communications 103
Relationship Capabilities 103
Performance Metrics 104
Continuous Improvement 106
Monitoring Supplier Relationships 107
Key Takeaways 108
Managing Supplier Relationships During the COVID-19
Pandemic 108
Supplier Evaluation and Certification 110
The Weighted Criteria Evaluation System 111
External Certifications 112
ISO 9000 112
ISO 14000 113
Supplier Development 114
Supplier Recognition Programs 115
Supplier Relationship Management 116
Summary 119
Key Terms 119
Discussion Questions 119
Problems 120
Essay/Project Questions 121
Cases 122
Endnotes 128

Chapter 4 Ethical and Sustainable Sourcing 133

Introduction 135
Ethical and Sustainable Sourcing Defined 136
Ethical Sourcing 136
Sustainable Sourcing 141
Developing Ethical and Sustainable Sourcing Strategies 143
Ethical and Sustainable Sourcing Initiatives 147
Ethical and Sustainable Supplier Certification Programs 147
Supply Base Rationalization Programs 148
Outsourcing Products and Services 149
Early Supplier Involvement 149
Vendor Managed Inventories 150
Strategic Alliance Development 151
Negotiating Win–Win Strategic Alliance Agreements 153
Rewarding Supplier Performance 154
Benchmarking Successful Sourcing Practices 156
Assessing and Improving the Firm’s Sourcing Function 158

Summary 159
Key Terms 159
Discussion Questions 159
Essay/Project Questions 161
Cases 161
Additional Resources 166
Endnotes 166

Part 3 Operations Issues in Supply Chain Management 171

Chapter 5 Demand Forecasting 173
Introduction 175
The Importance of Demand Forecasting 176
Demand Forecasting Techniques 178
Qualitative Methods 178
Quantitative Methods 179
Cause-and-Effect Models 186
Forecast Performance 188
Demand Sensing 190
Demand Planning During the COVID-19 Pandemic and
Beyond 192
Useful Forecasting Websites 193
Forecasting Software 194
Artificial Intelligence and Machine Learning in Demand
Forecasting 197
Cloud-Based Forecasting 198
Summary 200
Key Terms 200
Discussion Questions 200
Problems 201
Essay/Project Questions 204
Cases 204
Endnotes 210

Chapter 6 Resource Planning Systems 213

Introduction 216
Operations Planning 216
The Aggregate Production Plan 218
The Chase Production Strategy 219
The Level Production Strategy 221
The Mixed Production Strategy 222

The Master Production Schedule 222

Master Production Schedule Time Fence 223
Available-to-Promise Quantities 224
The Bill of Materials 227
The Material Requirements Plan 230
Terms Used in Material Requirements Planning 231
An Example of MRP Computation without Net Requirements and
Planned Order Receipts 232
An Example of MRP Computation with Net Requirements and
Planned Order Receipts 236
Capacity Planning 238
Capacity Strategies 239
The Distribution Requirements Plan 239
The Legacy Material Requirements Planning Systems 242
Manufacturing Resource Planning 242
The Development of Enterprise Resource Planning Systems 243
The Rapid Growth of Enterprise Resource Planning Systems 245
Implementing Enterprise Resource Planning Systems 246
Advantages and Disadvantages of Enterprise Resource Planning
Systems 250
Enterprise Resource Planning System Advantages 250
Enterprise Resource Planning System Disadvantages 250
Enterprise Resource Planning Software Applications 251
Summary 253
Key Terms 253
Discussion Questions 254
Essay/Project Questions 255
Spreadsheet Problems 256
Cases 264
Additional Resources 269
Endnotes 269

Chapter 7 Inventory Management 271

Introduction 273
Dependent Demand and Independent Demand 275
Concepts and Tools of Inventory Management 275
The Functions and Basic Types of Inventories 276
Inventory Costs 276
Inventory Investment 277
The ABC Inventory Control System 280
Radio Frequency Identification 284
Inventory Models 289
Copyright 2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
x Contents

The Economic Order Quantity Model 289

The Quantity Discount Model 294
The Economic Manufacturing Quantity Model 296
The Statistical Reorder Point 301
The Continuous Review and the Periodic Review Inventory
Systems 304
Summary 307
Key Terms 307
Discussion Questions 307
Essay/Project Questions 308
Computation/Spreadsheet Problems 309
Cases 314
Endnotes 319

Chapter 8
Process Management—Lean and Six Sigma in the Supply
Chain 321
Introduction 323
Lean Production and the Toyota Production System 324
Lean Thinking and Supply Chain Management 327
The Elements of Lean 327
Waste Elimination 328
Lean Supply Chain Relationships 330
Lean Layouts 331
Inventory and Setup Time Reduction 333
Small Batch Production Scheduling 335
Continuous Improvement 338
Workforce Commitment 338
Lean Systems and the Environment 339
The Origins of Six Sigma Quality 340
Comparing Six Sigma and Lean 342
Lean Six Sigma 343
Six Sigma and Supply Chain Management 344
The Elements of Six Sigma 344
Deming’s Contributions 345
Crosby’s Contributions 346
Juran’s Contributions 346
The Malcolm Baldrige National Quality Award 347
The ISO 9000 and 14000 Families of Management Standards 350
The DMAIC Improvement Cycle 351
Six Sigma Training Levels 352
The Statistical Tools of Six Sigma 353
Flow Diagrams 353

Check Sheets 353

Pareto Charts 354
Cause-and-Effect Diagrams 354
Statistical Process Control 356
Summary 364
Key Terms 364
Discussion Questions 364
Essay/Project Questions 366
Problems 367
Cases 369
Additional Resources 375
Endnotes 375

Part 4 Distribution Issues in Supply Chain Management 379

Chapter 9 Domestic U.S. and Global Logistics 381
Introduction 384
Transportation Fundamentals 385
The Objective of Transportation 385
Legal Forms of Transportation 386
The Five Modes of Transportation 387
Intermodal Transportation 392
Transportation Pricing 393
Transportation Security 395
Transportation Regulation and Deregulation
in the United States 396
Warehousing and Distribution 401
The Importance and Types of Warehouses 401
Risk Pooling and Warehouse Location 404
Lean Warehousing 407
The Impacts of Logistics on Supply Chain Management 408
Third-Party Logistics (3PL) Services 408
Other Transportation Intermediaries 412
Environmental Sustainability in Logistics 413
Logistics Management Software Applications 415
Transportation Management Systems 415
Warehouse Management Systems 417
Global Trade Management Systems 417
Global Logistics 418
Global Freight Security 418
Global Logistics Intermediaries 418
Foreign-Trade Zones 419
The United States–Mexico–Canada Agreement 420
Reverse Logistics 421
Copyright 2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xii Contents

The Impact of Reverse Logistics on the Supply Chain 422

Reverse Logistics and the Environment 422
Summary 422
Key Terms 423
Discussion Questions and Exercises 424
Essay/Project Questions 425
Problems 425
Cases 426
Additional Resources 429
Endnotes 429

Chapter 10 Customer Relationship Management 437

Introduction 439
Customer Relationship Management Defined 440
Key Tools and Components of Crm 443
Segmenting Customers 443
Predicting Customer Behaviors 445
Customer Value Determination 446
Personalizing Customer Communications 447
Automated Sales Force Tools 447
Managing Customer Service Capabilities 449
Designing and Implementing A Successful Crm Program 452
Creating the CRM Plan 453
Involving CRM Users from the Outset 454
Selecting the Right Application and Provider 454
Integrating Existing CRM Applications 455
Establishing Performance Measures 456
Training for CRM Users 457
Trends in Crm 457
The Customer Experience 457
Artificial Intelligence 458
Mobile CRM 458
Use of Social Media 458
Summary 459
Key Terms 459
Discussion Questions and Exercises 459
Essay and Project Questions 461
Problems 461
Cases 461
Additional Resources 465
Endnotes 465

Chapter 11 Global Location Decisions 467

Introduction 469
Copyright 2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Contents xiii

Global Location Strategies 470

Critical Location Factors 471
Regional Trade Agreements and the World Trade Organization 472
Competitiveness of Nations 475
The World Economic Forum’s 12 Pillars of Competitiveness 477
Government Taxes and Incentives 478
Currency Stability 479
Environmental Issues 479
Access and Proximity to Markets 481
Labor Issues 481
Access to Suppliers 482
Logistics Issues 482
Utility Availability and Cost 483
Quality-of-Life Issues 483
Right-to-Work Laws 484
Land Availability and Cost 484
Facility Location Techniques 485
The Weighted-Factor Rating Model 485
The Break-Even Model 486
Business Clusters 487
Sustainable Development and Facility Location 489
Additive Manufacturing and Its Impact on Facility Location 491
COVID-19 and Its Impact on Global Location Strategies 493
Summary 495
Key Terms 495
Discussion Questions 495
Essay/Project Questions 496
Problems 497
Cases 498
Endnotes 502

Chapter 12 Service Response Logistics 507

Introduction 509
An Overview of Service Operations 510
Service Productivity 511
Global Service Issues 513
Service Strategy Development 514
The Service Delivery System 515
Service Location and Layout Strategies 516
Supply Chain Management in Services 520
Service Quality and Customers 522
The Primary Concerns of Service Response Logistics 522
Managing Service Capacity 523
Copyright 2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
xiv Contents

Managing Queue Times 527

Managing Distribution Channels 537
Managing Service Quality 542
Summary 545
Key Terms 545
Discussion Questions 545
Essay/Project Questions 547
Problems 548
Cases 550
Additional Resources 553
Endnotes 554

Part 5 Integration Issues in Supply Chain Management 557

Chapter 13 Supply Chain Process Integration 559
Introduction 561
The Supply Chain Management Integration Model 562
Identify Critical Supply Chain Trading Partners 562
Review and Establish Supply Chain Strategies 564
Align Supply Chain Strategies with Key Supply
Chain Process Objectives 564
Develop Internal Performance Measures
for Key Process Effectiveness 569
Assess and Improve Internal Integration
of Key Supply Chain Processes 570
Develop Supply Chain Performance Measures
for the Key Processes 571
Assess and Improve External Process Integration
and Supply Chain Performance 571
Extend Process Integration to Second-Tier
Supply Chain Partners 572
Reevaluate the Integration Model Annually 574
Obstacles to Process Integration Along the Supply Chain 574
The Silo Mentality 575
Lack of Supply Chain Visibility 576
Lack of Trust 577
Lack of Knowledge 578
Activities Causing the Bullwhip Effect 579
Managing Supply Chain Risk and Security 581
Managing Supply Chain Risk 582
Managing Supply Chain Security 586
Summary 589
Key Terms 589
Discussion Questions 590
Essay/Project Questions 591
Copyright 2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Contents xv

Cases 592
Endnotes 597

Chapter 14 Performance Measurement Along Supply Chains 601

Introduction 603
Viewing Supply Chains as a Competitive Force 605
Understanding End Customers 605
Understanding Supply Chain Partner Requirements 606
Adjusting Supply Chain Member Capabilities 607
Traditional Performance Measures 608
Use of Organization Costs, Revenue, and Profitability
Measures 608
Use of Performance Standards and Variances 609
Productivity and Utilization Measures 610
World-Class Performance Measurement Systems 612
Developing World-Class Performance Measures 612
Supply Chain Performance Measurement Systems 614
Supply Chain Environmental Performance 614
Triple Bottom Line Performance 616
The Balanced Scorecard 618
Web-Based Scorecards 620
The Scor Model 621
Summary 623
Key Terms 624
Discussion Questions 624
Problems 626
Essay/Project Questions 626
Cases 627
Additional Resources 632
Endnotes 632
Appendix 1
Areas Under the Normal Curve 635
Appendix 2
Answers to Selected End-of-Chapter Problems 636
Glossary 644
Author Index 654
Subject Index 655

On the Companion Website

Student and Instructor Materials
Copyright 2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Preface
INTRODUCTION
Welcome to the sixth edition of Principles of Supply Chain Management: A Balanced
Approach. The practice of supply chain management has become widespread in all indus-
tries around the globe today, and the benefits to firms of all sizes are being realized. We
think this text is unique in that it uses a novel and logical approach to present discussions
of this topic from four foundation perspectives: purchasing, operations, logistics, and pro-
cess integration. We think this book is also somewhat different than the other supply chain
management texts available, since we present a more balanced view of the topic—many of
the texts available today concentrate primarily on just one of the three areas of purchasing,
operations, or logistics.
The objective of the book is to make readers think about how supply chain manage-
ment impacts all of the various areas and processes of the firm and its supply chain trad-
ing partners, and to show managers how to improve their firm’s competitive position by
employing the practices we describe throughout the text. Junior- or senior-level business
students, beginning MBA students, as well as practicing managers can benefit from read-
ing and using this text.
As with the fifth edition, the sixth edition has a tie-in to a wonderfully engaging global
supply chain simulation game called SCM Globe. A separate page dedicated to SCM Globe
follows this preface. We are very excited about the simulation and hope instructors will
take it for a test drive and then use it in their classes.
The sixth edition continues to offer MindTap, the leading digital platform from Cen-
gage. MindTap includes an interactive eBook, quizzes, chapter homework assignments,
Excel online activities, and more. New to this edition, the continuing cases from the book
are also available in MindTap as Excel-based assignments for students to apply what they
have learned in computational, decision-making scenarios. For more information about
MindTap and how students can access it with the text, please contact your Cengage
representative.
In the Chapter 1 Appendix, there is a discussion of the Beer Game, with inventory
tracking sheets to allow instructors to actually play the game with their students. There are
also quantitative as well as qualitative problems and questions, essay/project exercises, and
Excel problems spread throughout most of the chapters.

NEW TO THIS EDITION

There are several changes to this sixth edition that we hope you will find interesting
and useful. Perhaps the biggest change are the three continuing cases in Parts 2, 3, and
4. (The continuing case for Part 4 is online only.) The teaching notes for all cases can be
found in the Instructor’s Manual. There is also an emphasis on the pandemic’s impacts
on the supply chain and a greater emphasis on technological advances and quantitative
examples and problems throughout the text. Additionally, each chapter contains a number

xvi

of new SCM Profiles, beginning with a chapter-opening profile, and then other smaller
company profiles throughout the chapters. The chapter references throughout the text have
been updated, with new and interesting storylines, to keep readers engaged and informed.
Additionally, new end-of-chapter discussions, essay and project questions, and exercises
have been added. There are also cases at the end of each chapter and several extended cases
encompassing the chapters in Parts 2, 3, and 4. Other ancillary materials are described
below.

ORGANIZATION OF THE TEXT

Part 1 is the overview and introduction to the topic of supply chain management. This
chapter introduces the basic understanding and concepts of supply chain management,
and should help students realize the importance of this topic. Core concepts such as the
bullwhip effect, supplier relationship management, forecasting and demand management,
enterprise resource planning, transportation management, and customer relationship
management are briefly discussed. There is also a closing section on current trends in sup-
ply chain management.
Part 2 presents supply issues in supply chain management. This very important topic
is covered in three chapters, building from an introduction to purchasing management,
to managing supplier relationships, and then finally to ethical and sustainable sourcing.
Within these chapters can be found sections on government purchasing, global sourcing,
e-procurement, software applications, supplier development, ethical purchasing, and green
purchasing.
Part 3 includes four chapters regarding operations issues in supply chain management.
This section progresses from forecasting, resource planning, and inventory management
to lean production and Six Sigma in a supply chain setting. Topics in this section include
the basics of forecasting; collaborative planning, forecasting, and replenishment; material
requirements planning; enterprise resource planning; inventory models; lean thinking; Six
Sigma concepts and tools; and statistical process control techniques.
Part 4 presents distribution issues in supply chain management and consists of four
chapters. This section begins with a review of domestic U.S. and international logistics
with sections on green transportation, international logistics security, and reverse logis-
tics. This is followed by chapters on customer relationship management, global location
decisions, and service response logistics. Content in these chapters includes new software
application discussions, social media and cloud computing in customer relationship man-
agement, sustainability in logistics, new location trends in the global economy, and cloud
computing in services.
The final section is Part 5, which presents discussions of the integration issues in supply
chain management and performance measurements along the supply chain. While coop-
eration and integration are frequently referred to in the text, this section brings the entire
text into focus, tying all of the parts together, first by discussing internal and external pro-
cess integration in detail, followed by a discussion of traditional and world-class perfor-
mance measurement systems. The topics of supply chain risk management and expanded
coverage of performance measurement models are also included.

SCM SCM Globe–Accurate and Easy Supply Chain

Profile Simulations
SCM Globe is a serious supply chain game. Students can design supply chains from scratch
or use the supply chains provided by the case studies to understand how different designs
produce different operating results. And students learn how to manage those results. As they
work with the simulations, students get an intuitive and analytical understanding for how sup-
ply chains work.
SCM Globe is not just a toy or a game about a make-believe company. It enables a wide range
of people to accurately model and simulate real supply chains or design new ones. Users
can model and simulate any supply chain with just four types of entities: Products; Facilities;
Vehicles; and Routes. Users can define supply chain facilities and see their icons pop up on the
screen, then drag-and-drop their icons to place them on a smart map such as Google Maps;
put them where they really are in existing supply chains, or where they could be in new supply
chains; define products used at the facilities, and define vehicles to move the products between
facilities; and finally, specify the routes (road, rail, air, water) to connect the facilities.
This creates a mathematically rigorous model of the supply chain, but students do not have
to deal with the math, the software does it for them. Then SCM Globe simulates the operation
of the supply chain. As the simulation runs it shows vehicles moving on their routes and dis-
plays daily operating and financial data. Simulations identify problem areas—facilities where
too many units of products accumulate or where products run out. Students use what the
simulations show them, to change their supply chain designs to fix problems and improve
their operating results. Students do not need advanced math skills, nor do they need to deal
with abstract network diagrams and flow charts.
SCM Globe is designed to be user friendly and works equally well online or in the classroom.
Students work individually at first to learn the simulations, then they can work in teams or con-
tinue working individually. The simulations produce performance reports that show progress
and provide an objective basis to compare different student supply chain designs. The simula-
tions combined with the performance reports become a real-time strategy game where the
goal is to create supply chains that meet customer demand for products, while also attaining
the lowest operating costs and inventory levels.
A concise online user’s guide and video tutorials are available to walk people through the
basics of designing a supply chain and simulating its performance. The FAQ section and other
in-depth information in the online guide provide additional help for students and instructors.
There is also a library of case studies. There is a beginning case and progressively more chal-
lenging cases that illustrate different supply chain operating principles. Each case study has an
introduction in the online guide to get students started, and there are step by step instructor
study guides for some of the more popular cases.
SCM Globe is engaging for students and teaches real-world supply chain skills. What students
learn in the simulations is directly applicable for use in real supply chains. SCM Globe costs
$64.95 per student per semester and is provided at no charge to instructors, with classes of
five or more students. To learn more about SCM Globe, go to www.scmglobe.com. Click on
the blue “Get Started Now!” button in the middle of the screen to see more about what SCM
Globe can do.
For instructors using the new sixth edition of Principles of Supply Chain Management, a
one-time 15 percent discount is available for schools purchasing semester-length student
subscriptions. Instructors can request this discount by sending an email to Michael Hugos

at: mhugos@scmglobe.com. Tell us your school name. We will schedule a call at your con-
venience to set up your instructor account, and show you how to get started with the sim-
ulations. We’ll also provide you with the number of student subscriptions you need at a 15
percent discount.
If you are an instructor and would like to do a short 2–4 week pilot project, we can train you
and provide free demo accounts for you and your students. At the end of the pilot project, you
will know if you and your students like using the simulations, and if they enhance your sup-
ply chain or logistics class. To inquire about a pilot project, please contact Michael Hugos at:
mhugos@scmglobe.com.

ANCILLARY PACKAGE
Additional instructor resources for this product are available online. Instructor assets
include Instructor’s Manual, PowerPoint lecture slides, case teaching notes, answers to
all of the end-of-chapter questions and problems, and a test bank powered by Cognero.
Sign up or sign in at www.cengage.com to search for and access this product and its online
resources.

ACKNOWLEDGMENTS
We greatly appreciate the efforts of a number of fine and hard-working people at
Cengage Without their feedback and guidance, this text would not have been completed.
The team members are: Aaron Arnsparger, Senior Product Manager; Justin Traister, Con-
tent Manager; and Brandon Foltz, Senior Learning Designer. A number of other people
at Cengage also need to be thanked including Chris Doughman, Conor Allen, and Steven
McMillian. We also would like to thank Sangeetha Vijay and the people at Lumina who put
the manuscript into final copy form.

Additionally, we would like to thank all of the case writers who contributed their cases
to this textbook, particularly Rick Bonsall and Brian Hoyt, who wrote most of the cases.
The other case writers’ names, along with their contact information, are printed following
their cases in the textbook. Finally, we thank CJ Wisner for all her help in preparing the
MindTap quizzes, PowerPoints, and test bank. As with any project of this size and time
span, there are certain to be a number of people who gave their time and effort to this
textbook, and yet their names remain unknown and so were inadvertently left out of these
acknowledgments. We apologize for this and wish to thank you here.

Copyright 2023 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
About the Authors
Joel D. Wisner is Professor of Supply Chain Management in the Lee Business School
at the University of Nevada, Las Vegas. He earned his BS in Mechanical Engineering from
New Mexico State University in 1976 and his MBA from West Texas State University in
1986. During that time, Dr. Wisner worked as an engineer for Union Carbide at its Oak
Ridge, Tennessee facility and then worked in the oil industry in the Louisiana Gulf Coast
and West Texas areas. In 1991, he earned his PhD in Supply Chain Management from Ari-
zona State University.
He is currently keeping busy teaching courses and writing textbooks in supply chain
management and operations management at UNLV. His research and case writing interests
are in process assessment and improvement strategies along the supply chain. His articles
have appeared in numerous journals including Journal of Business Logistics, Journal of
Operations Management, Journal of Supply Chain Management, Journal of Transportation,
Production and Operations Management Journal, and Business Case Journal.
Keah-Choon Tan is Professor of Operations Management in the Lee Business School
at the University of Nevada, Las Vegas. He received a BSc degree and an MBA from the
University of South Alabama, and a PhD in Operations Management from Michigan State
University. Prior to academia, Dr. Tan was a hospital administrator and an account comp-
troller of a manufacturing firm. Dr. Tan has served as the Department Chair of the Mar-
keting Department and Associate Dean for Academic Affairs at the Lee Business School at
UNLV.
Dr. Tan has published articles in the areas of supply chain management, quality, and
operations scheduling, in academic journals and magazines including Decision Sciences,
Decision Support Systems, International Journal of Production Research, International Jour-
nal of Operations & Production Management, International Journal of Logistics Manage-
ment, Journal of Supply Chain Management, and Omega, among others. He has served as
editor, co-guest editor, and on the editorial boards of several academic journals. Dr. Tan
has received numerous research grants and teaching awards, including the UNLV Founda-
tion Distinguished Teaching Award.
G. Keong Leong is an instructional faculty and professor emeritus in the Information
Systems and Operations Management Department, in the College of Business Administra-
tion and Public Policy (CBAPP) at California State University, Dominguez Hills. He served
as Associate Dean previously at CBAPP. He received an undergraduate degree in Mechani-
cal Engineering from the University of Malaya and an MBA and PhD from the University
of South Carolina. He is professor emeritus at the University of Nevada, Las Vegas and fac-
ulty at the Ohio State University, and a clinical faculty member at the Thunderbird School
of Global Management.
His publications appear in academic journals such as Journal of Operations Manage-
ment, Decision Sciences, Interfaces, Journal of Management, European Journal of Opera-
tional Research, and International Journal of Production Research, among others. He has
coauthored three books including Operations Strategy: Focusing Competitive Excellence,
and Cases in International Management: A Focus on Emerging Markets and received
research, teaching, and service awards including an Educator of the Year award from the

Asian Chamber of Commerce in Las Vegas, Dennis E. Grawoig Distinguished Service

award from Decision Sciences Institute, and OM Distinguished Scholar award from
the Operations Management Division, Academy of Management. He has been active in
the Decision Sciences Institute, serving as President, Editor of Decision Line, At-Large
Vice-President, Associate Program Chair, Chair of the Innovative Education Committee,
Chair of the Doctoral Student Affairs Committee, and Manufacturing Management Track
Chair. In addition, he served as President of the Western Decision Sciences Institute
and Chair of the Operations Management Division, Academy of Management.
We think we have compiled a very interesting set of supply chain management topics
that will keep readers engaged and we hope you enjoy it. We welcome your comments and
suggestions for improvement. Please direct all comments and questions to:
Joel D. Wisner: joel.wisner@unlv.edu (primary contact),
Keah-Choon Tan: kctan@unlv.edu, or
G. Keong Leong: gkleong@csudh.edu

Supply Chain Management:

An Overview
Chapter 1 Introduction to Supply Chain
Management

KAMONRAT/Shutterstock.com

Giant Eagle is really committed to increasing the diversity amongst our supply chain. There’s
several reasons for that. The first one, if COVID taught us nothing, it taught us that we
collectively need to build a more resilient supply chain. We need to have access to more and
different kinds of suppliers who are more agile, more nimble.
—Laura Shapira Karet, CEO, Giant Eagle1
Our proprietary logistics network, strong supplier partnerships, and nimble and dedicated
team of more than 16,000 employees enabled Wayfair to consistently serve our customers at
a time they needed us most, both in North America and Europe. The plans that we put in
place in late 2019, combined with these factors, translated to a powerful profitability inflec-
tion, and we generated over $1 billion in free cash flow in the quarter.
—Niraj Shah, CEO, Wayfair2
3

Learning Objectives
After completing this chapter, you should be able to
LO 1 Describe a supply chain and define supply chain management.
LO 2 Describe the objectives and elements of supply chain management.
LO 3 Describe local, regional, and global supply chain management activities.
LO 4 Describe a brief history and current trends in supply chain management.
LO 5 Understand the bullwhip effect and how it impacts the supply chain.

Chapter Outline
Introduction The Foundations of Supply Chain Management
Supply Chain Management Defined Current Trends in Supply Chain Management
The Importance of Supply Chain Management Summary
The Origins of Supply Chain Management in
the United States

SCM The Top Five Supply Chains of 2020

Profile
Connecticut-based research
company Gartner published its
16th annual ranking of the world’s

Travel mania/Shutterstock.com
leading supply chains in 2020.
During an ongoing global pandemic
and economic uncertainty in 2020,
some countries around the world
were attempting to reopen their
economies, while tremendous
uncertainty remained about the safety involved in such endeavors. Companies were trying
to predict how markets would recover in 2021 and beyond, while designing risk-mitigation
strategies for future waves of the coronavirus and its variants. The top five companies and their
supply chains are described below:
1. High-tech leader Cisco Systems exhibited strengths in revenue growth, and in environ-
mental and social aspects. They were also recognized as a leader in the communities
where they operate. Cisco’s digital supply chain uses security as a foundation, and its
improvements include monitoring and assessing partner IT security capabilities. Cisco
has achieved significant performance in the areas of order lead-time, cost savings and
inventory reduction, while launching many new products.
2. Colgate-Palmolive and its supply chains showed a commitment to reduce its environ-
mental impact with its certification as a “TRUE Zero Waste” company by the U.S. Green

Building Council (USGBC). Since 2017, 15 Colgate-Palmolive manufacturing sites had

achieved TRUE Zero Waste certification, with 10 of the sites achieving the highest level of
recognition. The company also received the 2019 Leadership Award from the USGBC “as
an organization at the forefront of the green building movement.”
3. Johnson & Johnson’s commitment to supply chain innovation is evidenced by its Supply
Chain Innovation Engine, located in New Brunswick, NJ. It creates collaborations among
supply chain team members, key partners and external experts. People who work at
Johnson & Johnson develop and prioritize ideas that improve healthcare. To support the
early coronavirus control efforts, Johnson & Johnson used its 3D printing expertise to
make manifolds for ventilators which allowed two patients to share the same ventilator.
4. Schneider Electric, the French energy management and automation specialist, created
EcoStruxure, a suite of tools and services to help further develop the Internet of Things.
EcoStruxure provides connectivity across a business, providing support for faster deci-
sion making in operations. Schneider Electric also willingly shares what it is doing with its
peers, to promote improvements among all supply chains.
5. Nestlé has a strong focus on customers, emphasizing product availability both on the
shelf and online. To improve its product availability, Nestlé created additional capacity in
several manufacturing facilities. To increase agility, Nestlé is using demand-sensing tech-
nologies and integrating processes with key customers.3

Introduction
Successful organizations today must be heavily involved with their suppliers and cus-
tomers. Creating goods and services that customers want, at a price they are willing to
pay, requires firms to be good at a number of things. Managers must pay closer attention
to where parts and materials come from; how suppliers’ goods are designed, produced,
stored, and transported; how their own products are produced and then distributed to
customers; and finally, what their direct customers and the end-product consumers really
think of the firm’s goods and services. (Note that this textbook uses the term products to
refer to both goods and services).
Thirty years ago, many large firms were vertically integrated, meaning they owned
some of their suppliers and/or customers. Today, this practice is much less common due
to the high cost and difficulty in managing such diverse business units. Instead, firms are
focusing more of their resources on core capabilities, while trying to create alliances with
suppliers, transportation and warehousing companies, and manufacturers. Thus, a collab-
orative approach to buying, making, and distributing goods and services has become the
best way for firms to stay successful—and these are central to the practice of supply chain
management (SCM).
Several factors enable firms to work together more effectively than ever before.
Communication and information exchange using enterprise resource planning (ERP)
system applications (discussed further in Chapter 6) has made global collaboration not
only possible but necessary for firms to compete. Communication technologies continue
to change rapidly, making partnerships and teamwork much easier than ever before.
Competition is also expanding rapidly in all industries and in all markets around the
world, bringing new materials, products, people, and resources together, making it more
difficult for many of the local, individually owned shops to keep customers satisfied.
Additionally, the 2020 global recession made customers more cost-conscious while seeking

higher levels of quality and service, which forces organizations to find even better ways to
compete. Customers are also demanding more socially responsible and environmentally
friendly goods from organizations. Considering all of these changes to the environment,
it is indeed a challenging time for companies to develop new products, find new suppliers
and customers, and compete more successfully. Consequently, many job opportunities are
opening up in the areas of purchasing, operations, logistics, and supply chain management.
As you read this textbook, you will be introduced to the many concepts of supply chain
management and how to use these concepts to become better managers in today’s global
economy. Examples are used throughout the text to illustrate the topics discussed, and
cases at the end of each chapter are provided to enable you to test your problem-solving
and decision-making skills in supply chain management. It is hoped that by the end of the
text you will have gained an appreciation of the value of supply chain management and will
be able to apply what you have learned, both in your profession and in future courses in
supply chain management.
In this chapter, the term supply chain management is defined, including a discussion of
its importance, history, and developments to date. The chapter ends with a look at a few of
the current trends in supply chain management.

Supply Chain Management Defined

To understand supply chain management, one must first begin with a discussion of a sup-
ply chain; a generic one is shown in Figure 1.1. The supply chain shown in the figure starts
with firms extracting raw materials from the earth—such as iron ore, oil, wood, and food

Figure 1.1 A Generic Supply Chain

Product & service flow

Recycling & returns

Raw material
Suppliers/mfgs. Intermediate Retailers
Second-tier suppliers component mfgs. Wholesalers, Second-tier customers
First-tier suppliers distributors
First-tier customers
Transportation &
storage activities

End-product End-product
manufacturer consumers
(focal firm)

Information/planning/activity integration

items—and then selling these to raw material suppliers such as lumber companies, steel mills,
and raw food distributors. These firms, acting on purchase orders and specifications they have
received from component manufacturers, turn the raw materials into materials that are usable
by their customers (materials such as sheet steel, aluminum, copper, lumber, and inspected
foodstuffs). The component manufacturers, responding to orders and specifications from
their customers (the final product manufacturers), make and sell intermediate components
(electrical wire, fabrics, plumbing items, nuts and bolts, molded plastic components, compo-
nent parts and assemblies, and processed foods). The final product manufacturers (companies
such as Boeing, General Motors, and Kraft) assemble the finished products and sell them to
wholesalers or distributors, who then resell these products to retailers as their product orders
are received. Retailers in turn, sell these products to us, the end-product consumers.
Consumers purchase products based on a combination of cost, quality, customer service,
availability, maintainability, and reputation factors, and then hope the purchased items
satisfy their requirements and expectations. Companies, along with their supply chains,
that can provide all of these desired things will ultimately be successful. Along the supply
chain, intermediate and end customers may need to return products or obtain warranty
repairs, or they may just throw products away or recycle them. These reverse logistics
activities are also included in the supply chain and are discussed further in Chapter 9.
Referring again to Figure 1.1, the firm in the middle of the figure is referred to as the
focal firm simply because it is the central firm being discussed; the direct suppliers and
customers of the focal firm are first-tier suppliers and first-tier customers. The first-
tier suppliers’ suppliers are thus the focal firm’s second-tier suppliers, and the first-tier
customers’ customers are the focal firm’s second-tier customers. Not all supply chains
look exactly like the one shown in Figure 1.1. Some raw material and end-product
manufacturers, for example, may sell directly to end consumers. Some supply chains, such
as an automobile supply chain, might have many tiers, while others such as a law office’s
supply chain might have only one tier of suppliers and customers.
Thus, the series of companies eventually making goods and services available to con-
sumers, including all of the functions enabling the purchase, production, delivery, and
recycling of materials, components, end products, and services, is called a supply chain.
Companies with multiple products likely have multiple supply chains. All goods reach
their customers via some type of supply chain—some much larger, longer, and more com-
plex than others. Some may also involve foreign suppliers or markets.
With this idea of a supply chain in mind, there really is only one true source of income
for all supply chain organizations—a supply chain’s end customers. According to Manu
Vora, the founder and president of Business Excellence Inc., a global management consult-
ing services firm, high performing supply chains are not only essential to delivering goods
on time, but global companies also depend on their supply chain processes to manage the
divergent expectations of customers, to stay one step ahead of the competition.4 A process
by the way, can be defined as a set of activities designed to produce a good or service for an
internal or external customer. When companies make business decisions while ignoring the
interests of the end customer and other chain members, these decisions create additional
risks, costs, and waiting time along the supply chain, ultimately leading to higher end-prod-
uct prices, lower supply chain service levels, and eventually lower end-customer demand.
A number of other companies are also indirectly involved in most supply chains, and
they play a very important role in the delivery of goods to customers. These are the many
service providers, such as trucking and airfreight shipping companies, information sys-
tem providers, public warehousing firms, freight forwarders, agents, and supply chain

consultants. These service providers are extremely useful to the firms in most supply
chains because: they can help to get goods where they need to be in a timely fashion, they
allow buyers and sellers to communicate effectively, they allow firms to serve outlying mar-
kets, they enable firms to save money on domestic and global shipments, and in general
they allow firms to adequately serve their customers at the lowest possible cost.
One form of supply chain that has been featured numerous times during the 2020 pan-
demic on TV and in newsprint is the cold chain. The cold chain refers to an alliance of
companies that can monitor and protect the temperature of perishable products in order
to maintain quality and safety from the point of origin through distribution to the final
consumer. While cold chains have been around for many years to protect the temperatures
of produce, fresh fish, and other foodstuffs as they travel from farm to retailer, cold chains
became a popular news item in 2020 as COVID vaccines began to be distributed globally
by Pfizer and Moderna. The two vaccines must be stored and transported at sub-zero tem-
peratures. Satellite Internet of Things company Orbcomm, for example, offers transpor-
tation companies a cold chain telematics solution, which is used while transporting the
vaccines. Orbcomm supplies hardware that connects to a refrigerated device, which passes
information by satellite to Orbcomm’s application. The application is integrated into cus-
tomers’ systems, and so managers, dispatchers, and drivers can monitor temperatures in
real time and adjust the temperatures if needed.5
Now that a general description of a supply chain has been provided, what is supply
chain management (SCM)? A number of definitions are available in the literature and
among various professional associations. A few of these are provided here from various
organizations connected to the practice of supply chain management:

• The Council of Supply Chain Management Professionals (CSCMP) defines

supply chain management as:
The planning and management of all activities involved in sourcing
and procurement, conversion, and all logistics management activities.
Importantly, it also includes coordination and collaboration with channel
partners, which can be suppliers, intermediaries, third-party service
providers, and customers.6

• The Institute for Supply Management (ISM) describes supply chain management
as:
The design and management of seamless, value-added processes across
organizational boundaries to meet the real needs of the end customer.7

• The Business Dictionary defines supply chain management as:

Management of material and information flow in a supply chain to
provide the highest degree of customer satisfaction at the lowest possible
cost. Supply chain management requires the commitment of supply chain
partners to work closely to coordinate order generation, order taking, and
order fulfillment.8

Consistent across these definitions is the idea of coordinating or integrating a number of

goods-related activities among supply chain participants to improve operating efficiencies,
quality, and customer service. Thus, for supply chain management to be successful, firms
must work together by sharing information on things like demand forecasts, production
plans, capacity changes, new marketing strategies, new product and service developments,
new technologies employed, purchasing plans, delivery dates, and anything else impacting

the other supply chain members’ purchasing, production, and distribution plans. In a supply
chain innovation survey conducted by MHI, a material handling association, and Deloitte,
the top two strategic priorities for supply chain executives are supply chain analytics (tools
that harness data from internal and external sources to produce breakthrough insights that
can help supply chains reduce costs and risk) and multi-channel fulfillment (allowing
consumers to shop for what they want, where they want, and when they want, and then
have their purchases delivered quickly and consistently).9
In theory, companies in a supply chain work as a cohesive, singularly competitive unit,
accomplishing what many large, vertically integrated firms tried and failed to accomplish
in years past. The difference is that independent firms in a supply chain are relatively free
to enter and leave supply chain relationships if these relationships are no longer proving
to be beneficial; it is this free market alliance-building that allows supply chains to operate
more effectively than vertically integrated conglomerates.
For example, when a particular item is in short supply accompanied by rising prices, a
firm might find it beneficial to align itself with one of these suppliers to ensure a contin-
ued supply of the scarce item. This alignment may become beneficial to both parties—new
markets for the supplier leading to new, future product opportunities, and long-term con-
tinuity of supply and stable prices for the buyer. Later, when new competitors start produc-
ing the scarce product or when demand declines, the supplier may no longer be valued by
the buying firm; instead, the firm may see more value in negotiating with other potential
suppliers for its purchase requirements and may then decide to dissolve the original buyer–
supplier alignment. Unforeseen weather events and accidents can also create supply chain
management problems.
For example, Indiana-based Zimmer Biomet, which makes artificial joints and dental
devices, blamed its 2016 declining stock price on supply chain disruption problems. “Our
current supply chain, not being fully integrated, did hamper our ability to respond effec-
tively to this shifting product mix,” said Daniel Florin, Zimmer Biomet’s chief financial
officer.10 In China, in 2015, two blasts tore through a chemical warehouse containing 3,000
tons of hazardous chemicals, including sodium cyanide and explosive ammonium nitrate.
Along with destroying buildings and infrastructure within a 1.2-mile radius, the blasts
incinerated more than 10,000 new cars. Jaguar Land Rover, Volkswagen, Fiat Chrysler,
Hyundai, and Renault all reported significant vehicle losses, which hampered their supply
chain effectiveness.11 As can be seen from these examples, supply chains are often very
dynamic, which can create problems in effectively managing them.
While supply chain management may allow organizations to realize the advantages of
vertical integration, certain conditions must be present for successful supply chain man-
agement to occur. One important prerequisite is a melding of the corporate cultures of
the supply chain participants so all parties are receptive to the requirements of successful
supply chain management, such as sharing process information. More traditional organi-
zational cultures that emphasize short-term, company-focused performance can conflict
with the objectives of supply chain management. Supply chain management focuses on
positioning organizations in such a way that all participants benefit. Successful supply
chain management requires high levels of trust, cooperation, collaboration, and honest,
accurate communications.
The boundaries of supply chains are also dynamic. It has often been said that supply
chain boundaries for the focal firm extend from “the suppliers’ suppliers to the custom-
ers’ customers.” Today, most supply chain collaboration efforts do not extend beyond these
boundaries. In fact, in many cases, firms find it very difficult to extend coordination efforts

beyond a few of their most important first-tier suppliers and customers. However, with
time and successful initial results, many firms are extending the boundaries of their man-
aged supply chains to include their second-tier suppliers, second-tier customers, as well as
their logistics service (transportation and warehousing) providers. Some of the firms con-
sidered to be the best at managing their supply chains have very recognizable names. Each
year, for example, the business advisory company Gartner, Inc., announces the twenty-five
companies that exhibit the best supply chain management business performance and lead-
ership. The chapter-opening SCM Profile summarizes the five best from this list.

The Importance of Supply Chain Management

While all firms are part of a chain of organizations bringing goods and services to cus-
tomers (and most firms operate within a number of supply chains), certainly not all supply
chains are managed in a coordinated fashion. Firms continue to operate independently in
many industries (particularly small firms). It is often easy for managers to be focused solely
on their immediate customers, their daily internal operations, their sales, and their costs.
After all, with customers complaining, employees to train, late supplier deliveries, creditors
to pay, and equipment to repair, who has time for relationship building and other supply
chain coordination efforts? Particularly during times like the economic downturn of 2009
and the global pandemic starting in 2020, firms were struggling to just keep their doors
open, and many supply chain management efforts stalled.
In 2020 and 2021, as companies coped with tremendous changes brought about by
COVID-19, they all faced the need to adapt to remote work, reconfigured physical work-
spaces, and revised supply chain networks. Arvind Krishna, CEO of IBM, says that “resil-
iency is about adaptability in this environment, as well as having a sustainable business
for ourselves and for our clients. That’s why, within 48 hours, we were able to move more
than 95 percent of our employees to work from home. When you’re critically dependent
upon the cyber technologies, you need to up the level of resilience, and design your appli-
cations and your infrastructure in a way that never goes down.” At Walmart, Kathleen
McLaughlin, chief sustainability officer, said the company redoubled its resolve during the
pandemic to bolster the sustainability of its supply chains. Walmart’s Project Gigaton ini-
tiative, launched in 2017, for example, aims to reduce 1 billion metric tons of greenhouse
gas emissions from the company’s supply chains by 2030.12
Aside from the recent trends in supply chain resiliency and sustainability, firms with
large system inventories, many suppliers, complex product assemblies, and highly valued
customers with large purchasing budgets have much to gain from the practice of supply
chain management. For these firms, even moderate supply chain management success can
mean lower purchasing and inventory carrying costs, better product quality, and higher lev-
els of customer service—all leading to more sales and better profits. According to the U.S.
Census Bureau’s Annual Survey of Manufactures, the total cost of all materials purchased
in 2018 exceeded $3.3 trillion among U.S. manufacturers, up $500 billion from 2017. The
total 2018 end-of-year inventory value for all U.S. manufacturers was almost $680 billion,
up from $643 billion in 2017.13 Thus, it can be seen that purchasing and inventory costs can
be quite sizable for firms and represent areas where significant cost savings can be realized
when using effective supply chain management strategies.
Most recently, enVista, a global software and consulting services provider, con-
ducted a 2020 Supply Chain Survey of retailers, and found that 34 percent said that
handling the growth of online business was the top challenge they faced, while demand

planning and forecasting (33 percent), improving efficiencies (30 percent) and reduc-
ing supply chain costs (26 percent), were the next most important supply chain
issues.14 Seven years earlier, a similar survey found that over 70 percent of the respon-
dents said that controlling costs was the number one focus area for supply chains.
Obviously, the recent pandemic events have changed supply chain planning. The nearby
SCM Profile describes Medtronic’s use of a digital supply chain model to respond to supply
disruptions caused by the pandemic.
Supply chain management efforts can start small—for instance, integrating processes
with just one key supplier—and gather momentum over time to include more supply chain
participants such as other important suppliers, key customers, and logistics or third-party
services. Obviously, other behind-the-scenes activities must also be included such as get-
ting stakeholder buy-in and use of an in-house or cloud IT solution. Finally, supply chain
management efforts can include second-tier suppliers and customers. So why are these
integration activities so important? As alluded to earlier, when a firm, its customers, and its

SCM Medtronic’s Digital Supply Chain Model

Profile
Medtronic, a large U.S. medical device
manufacturer, created a digital model
of its supply chain to assist in faster
and better decision-making. Medtron-
ic’s supply chain includes hundreds of
manufacturing and contract manu-

chrisdorney/Shutterstock.com
facturing sites, dozens of sterilization
sites, over a thousand suppliers, and
over 250,000 products. These products
are distributed to hospitals, other dis-
tributors, and government health care
programs. Over 60,000 daily shipments flow through a network of distribution centers, using
various modes of transportation, to over 150 countries.
Medtronic’s focus has been on analyzing how its products flow through its distribution net-
work to customers. For example, using a slower mode of transportation means holding more
inventory to attain desired service levels. Faster transportation means higher costs but requires
less inventory. The company can also see the cost and service impacts of adding or subtract-
ing a warehouse.
In a global pandemic environment, the supply chain impacts have been tremendous. Medtron-
ic’s supply chain has been heavily impacted by unexpected demand surges and crashes and
countries shutting down their ports. As airlines stopped flying, air capacity vanished. When
COVID-19 truly became a global problem, Medtronic was able to respond by placing invento-
ries in countries before inbound shipments became impossible.
While demand has dropped off for many of its products, at some point demand will return.
The company can place inventory in warehouses, it can slow down manufacturing, it can
change where some products are manufactured, or it can slow down shipments by using
ocean carriers. The total costs of all these options can be analyzed. Medtronic’s digital model
will always be on and constantly updated, improving the company’s daily operations and
business continuity capabilities.15

suppliers all know each other’s future plans, and are willing to work together, the planning
process is easier and much more productive in terms of decision-making, cost savings,
quality improvements, and service enhancements.
On the other hand, lack of effective supply chain management can cause problems for
organizations. Using a fictitious setting, Example 1.1 illustrates some of the costs asso-
ciated with independent planning and lack of supply chain information sharing and
coordination.

Example 1.1 Grebson Manufacturing’s Supply Chain

The Pearson Bearings Co. makes roller bearings for Grebson Manufacturing on an as-needed basis. For the upcoming quarter, Pearson has
forecasted Grebson’s roller bearing demand to be 25,000 units. Since Grebson’s demand for bearings from Pearson has been somewhat erratic
in the past due to the number of bearing companies competing with Pearson and also the fluctuation of demand from Grebson’s customers,
Pearson’s roller bearing forecast Includes 5,000 units of safety stock. The steel used in Pearson Bearings’ manufacturing process is usually
purchased from CJ Steels, Inc. CJ Steels has, in turn, forecasted Pearson’s quarterly demand for the high-carbon steel it typically purchases
for roller bearings. Their forecast also includes safety stock of about 20 percent over what CJ Steels actually expects Pearson to buy over the
next three months.
Since Pearson Bearings does not know with full confidence what Grebson’s roller bearing demand will be for the upcoming quarter
(it could be zero or it could exceed 25,000 units), Pearson will incur the extra costs of producing and holding 5,000 units of safety stock.
Additionally, Pearson Bearings risks having to either scrap, sell, or hold onto any units not sold to Grebson, as well as losing current and future
sales to Grebson if their demand exceeds 30,000 units over the next quarter. CJ Steels faces the same dilemma—extra materials, labor costs,
and warehouse space for safety stock along with the potential stockout costs of lost present and future sales. Additionally, Grebson’s historic
demand pattern for roller bearings from its suppliers already includes some safety stock, since it uses roller bearings in other products it
makes for a primary customer.

Grebson’s safety stock, which they have built into their roller bearing purchase
orders, has resulted in still additional safety stock production levels at the Pearson plant.
In fact, some of the erratic purchasing patterns of Grebson are probably due to their
leftover safety stocks causing lower purchase quantities during subsequent production
cycles. This, in turn, creates greater demand variability, leading to a decision at Pearson
to produce even higher levels of safety stock. This same scenario plays out between
Pearson and CJ Steels, with erratic buying patterns by Pearson and further safety stock
production by CJ. This magnification of safety stock, based on erratic demand patterns
and forecasts derived from demand already containing safety stock, and from a lack of
sharing information, continues to grow as orders pass to more distant suppliers up the
supply chain.
The continuing cycle of erratic demand, causing forecasts to include safety stock which
in turn magnify supplier forecasts and cause production planning problems is known as
the bullwhip effect. If Grebson Manufacturing knew its customers’ purchase plans for
the coming quarter along with how their purchase plans were derived, it would be much
more confident about what the upcoming demand was going to be, resulting in little, if
any, safety stock requirement, and consequently it would be able to communicate its own
purchase plans for roller bearings to Pearson. If Grebson purchased its roller bearings
from only Pearson and, further, told Pearson what its quarterly purchase plans were, and
if Pearson did likewise with CJ Steels, safety stocks throughout the supply chain would be
reduced considerably, driving down the costs of purchasing, producing, and carrying roller
bearings at each stage. Trade estimates suggest that the bullwhip effect results in excess
costs on the order of 12 to 25 percent for each firm in a supply chain, which can be a tre-
mendous competitive disadvantage. This discussion also sets the stage for a supply chain
management concept called collaborative planning, forecasting, and replenishment, dis-
cussed further in Chapter 5.

As working relationships throughout the supply chain mature, key trading partners will
feel more comfortable investing capital in better facilities, better products, and better ser-
vices for their customers. With time, customers will share more information with suppli-
ers, and suppliers will be more likely to participate in their key customers’ new product
design efforts, for instance. These, then, become some of the more important benefits of a
well-integrated supply chain. In the following chapters of the text, other associated benefits
will also become apparent.

The Origins of Supply Chain Management in the

United States
During the 1950s and 1960s, U.S. manufacturers were employing mass production tech-
niques to reduce costs and improve productivity, while little attention was typically paid to
creating supplier partnerships, improving process design and flexibility, or improving prod-
uct quality (see Figure 1.2). New product design and development was slow and relied exclu-
sively on in-house resources, technologies, and capacity. Sharing technology and expertise
through strategic buyer–supplier partnerships was essentially unheard of back then. Processes
on the factory floor were cushioned with work-in-process inventories to keep machines run-
ning and maintain balanced material flows, products moving through the facility even when
equipment broke down, resulting in large inventory carrying cost investments.
In the 1960s and 70s, computer technologies began to flourish and material require-
ments planning (MRP) and manufacturing resource planning (MRPII) software

Figure 1.2 Historic Supply Chain Management Events in the United States

Increased supply chain

capabilities

Supply chain relationship

formation, sustainability, social
responsibility

JIT, TQM, BPR, supplier

and customer alliances

Inventory management, MRP,

MRPII and cost containment

Traditional mass manufacturing

1950s 1960s 1970s 1980s 1990s 2000s Future

Note: MRP = material requirements planning, MRPII = manufacturing resource planning, JIT = just-in-time, TQM = total quality management, BPR = business process reengineering.

applications were developed. These systems allowed companies to see the importance of
effective materials management—they could now recognize and quantify the impact of
high levels of inventories on manufacturing, storage, and transportation costs. As com-
puter capabilities grew, the sophistication of inventory tracking software also grew, making
it possible to further reduce inventory costs while improving internal communication of
the need for purchased parts and supplies.
The 1980s were the breakout years for supply chain management. One of the first widely
recorded uses of the term supply chain management came about in a paper published in
1982.17 Intense global competition beginning in the 1980s (and continuing today) provided
an incentive for U.S. manufacturers to make low-cost, high-quality products while offering
high levels of customer service. Manufacturers utilized just-in-time (JIT) and total quality
management (TQM) strategies to improve quality, manufacturing efficiencies, and deliv-
ery times. In a JIT manufacturing environment with little inventory to cushion scheduling
and/or production problems, firms began to realize the potential benefits and importance
of strategic and cooperative supplier–buyer–customer relationships, which are the foun-
dations of SCM. The concept of these partnerships or alliances emerged as manufacturers
experimented with JIT and TQM.
As competition in the United States intensified further in the 1990s accompanied by
increasing logistics costs and the trend toward market globalization, the challenges associ-
ated with improving quality, cost, customer service, and product design also increased. To
deal with these challenges, manufacturers began purchasing from a select number of certi-
fied, high-quality suppliers with excellent service reputations and involved these suppliers
in their new product design activities as well as in cost, quality, and service improvement
initiatives. In other words, companies realized that if they started giving only their best
suppliers most of their business, then they, in return, could expect these suppliers to pro-
vide continued benefits in the form of on-time deliveries; high-quality, low-cost products;
and help with new product design efforts.
Interestingly, the general idea of supply chain management had been discussed for
many years prior to the chain of events shown in Figure 1.2. In 1915, Arch W. Shaw of
the Harvard Business School wrote the textbook Some Problems in Market Distribution,
considered by many to be the first on the topic of what we now refer to as supply chain
management (Shaw never used this term). The text included discussions of how best to
purchase raw materials, transport products, locate facilities, and analyze productivity and
waste. He recommended a “laboratory point of view” or what could now be termed a sys-
tematic study of supply chain issues.18
Business process reengineering (BPR), or just reengineering, described as the radical
rethinking and redesigning of business processes to reduce waste and increase perfor-
mance, was introduced in the early 1990s and was the result of a growing interest during
this time in the need for cost reductions and a return to an emphasis on the key com-
petencies of the firm to enhance long-term competitive advantage. Michael Hammer
and James Champy’s very popular book, Reengineering the Corporation: A Manifesto for
Business Revolution combined with the many statements from notable business experts
like Peter Drucker along the lines of “Reengineering is vital to success and it has to be
done,” created a fervor at the time among managers seeking some sort of magic pill or
easy method for making their businesses successful.19 As this fad died down in the late
1990s (reengineering became synonymous with downsizing and thus fell out of favor),
the practice of supply chain management rapidly increased in popularity as a source of
competitive advantage.

Also during this time, managers, consultants, and academics began developing an
understanding of the differences between logistics and supply chain management. Up until
then, supply chain management was simply viewed as logistics outside the firm. As compa-
nies began implementing supply chain management initiatives, they began to understand
the need to integrate key business processes among the supply chain participants, enabling
the supply chain to act and react as one entity. Today, logistics is viewed as one important
element of the much broader supply chain management concept.
At the same time, companies also saw benefits in the creation of alliances or partner-
ships with their customers. Developing these long-term, close relationships with customers
(referred to as customer relationship management or CRM) meant the need for less fin-
ished product safety stock (as discussed earlier in the bullwhip effect example) and allowed
firms to focus their resources on providing better goods and services to their best custom-
ers. In time, when market share improved for its customers’ products, the result was more
business for the firm.
Thus, supply chain management has evolved along two parallel paths: (1) the inbound
purchasing and supply management emphasis from industrial buyers at the focal firm,
and (2) the outbound logistics and customer service emphasis from logistics personnel at
the focal firm. The increasing popularity of alliances with suppliers and customers (and
eventually suppliers’ suppliers and customers’ customers) has also meant a greater reliance
on the inbound and outbound shipping, warehousing, and logistics services that provide
transportation, storage, documentation, and customs clearing services to trading partners
within a typical supply chain. Relationship building has also occurred increasingly with
many of these third-party logistics providers (3PLs) to ensure a continuous, uninter-
rupted supply of goods. The need to periodically assess the performance of these relation-
ships has also accompanied the growth of supply chain management. One of the challenges
faced today by many firms involved in supply chain management is how to adequately
assess overall end-to-end performance in often extremely complex, global supply chains.
This idea of evaluating supply chain performance from numerous perspectives including
financial, sustainability, speed, and risk is explored in Chapter 14.
For the wholesaling and retailing industries, the supply chain management focus is on
location, logistics, and customer service issues more often compared to manufacturing.
Supply chain management in these industries has often been referred to as quick response,
service response logistics, or integrated logistics. The advancement of electronic data inter-
change (EDI) systems, bar coding, Internet systems, logistics software applications, and
radio frequency identification (RFID) technologies over the past two decades has greatly
aided the evolution of the integrated supply chain concept. Retailers utilize supply chain
management to help quickly meet changing demands in the marketplace and to reduce
inventories throughout their supply chains.
Most recently, the rapid development of client/server supply chain management software
that typically includes integrated supply chain management and e-commerce components
has aided in the evolution and adoption of supply chain management. These software appli-
cations are commonly referred to as enterprise resource planning (ERP) systems, and for
years, the top two ERP providers worldwide have been SAP and Oracle. Total worldwide
ERP product sales in 2019 were over $38 billion, and sales growth was expected to average
about 8.2 percent per year for the following five years.20 Sharing information with supply
chain partners through the Internet using compatible ERP systems has enabled firms to
integrate stocking, logistics, materials acquisition, shipping, and other functions to create
a more proactive and effective style of business management and customer responsiveness.

Today, an emphasis is being placed on the resilience and the environmental and social
impacts of supply chains. Customers are demanding that companies and their supply
chains make buying easy in a pandemic environment, and also act in an ethically and
socially responsible manner. This includes an attention on how suppliers utilize the Inter-
net, hire and train employees, how they grow and harvest plants, how they manufacture
parts, how their activities impact the environment, and what sorts of sustainability policies
are being utilized. The term sustainability as applied to supply chains is a broad term that
includes protecting the environment, some aspects of social responsibility, as well as finan-
cial performance (hence the linking of sustainability to what is termed the triple bottom
line, or people, planet, and profits). Sustainability can be defined as the ability to meet the
needs of current supply chain members without hindering the ability to meet the needs of
future generations in terms of economic, environmental, and social challenges. Simply put,
sustainability is doing the right things in ways that make economic sense. These topics are
discussed further in Chapter 4. With these practices in mind, supply chain managers today
must also cope with maintaining the most flexible supply chain possible to serve customers
in chaotic marketplaces, and to take advantage of new markets, new sources of supply, and
new customer demands.

The Foundations of Supply Chain Management

The foundation elements of supply chain management are introduced in this section.
These elements essentially make up the table of contents for this textbook and are shown in
Table 1.1 along with the chapters where they are discussed.

Supply Elements
Traditional purchasing strategies typically emphasized the use of many suppliers, hard
bargaining, competitive bidding, and short-term contracts. This typically created adver-
sarial buyer–supplier relationships with a focus primarily on the product’s purchase price
instead of the capabilities of the suppliers and how they could contribute to the long-term
competitiveness of the buying organization. In many cases, purchasing was performed by
a clerk, with little training. Over the past thirty years, there has been a shift toward a more
strategic approach to purchasing, and this broader approach is more commonly referred to
as supply management. Supply management professionals holding business degrees now
most often perform the purchasing function. Effective supply management has resulted

Table 1.1 The Foundations of Supply Chain Management

Foundation Elements Important Issues Chapters
Supply Supplier base reduction, supplier alliances, SRM, global 2, 3, 4
sourcing, ethical and sustainable sourcing

Operations Demand management, CPFR, inventory management, MRP, 5, 6, 7, 8

ERP, lean systems, Six Sigma quality

Logistics Logistics management, CRM, network design, RFID, global 9, 10, 11, 12
supply chains, sustainability, service response logistics

Integration Barriers to integration, risk and security management, 13, 14

performance measurement, green supply chains

generally in smaller supplier bases and the development of more long-term, trusting,
mutually beneficial supplier relationships (termed supplier relationship management or
SRM) to achieve the competitive benefits described earlier.
Purchasing and the strategic concepts of supply management are one of the foundations
of supply chain management, since incoming material quality, delivery timing, purchase
price, product safety, and the impact of purchasing on the environment are all affected
by the buyer–supplier relationship and the capabilities of suppliers. A recent survey
conducted by the American Productivity and Quality Center (APQC) and Supply Chain
Management Review revealed that most organizations are familiar with the principles of
SRM, and that nearly 40% of organizations are using SRM with their suppliers to some
degree. Many organizations that do not use SRM intend to implement it in the near
future. Clearly organizations consider this way of managing suppliers worth adopting. For
suppliers that are more integral to an organization’s success, or have potential to develop
innovations that can benefit both parties, APQC recommends the development of a more
strategic and collaborative relationship business model.21 Chapters 2 through 4 cover the
topics associated with supply management.
The global pandemic beginning in 2020 added another problem to the supply side of
businesses, namely how the focal firm can continue producing successfully, when several
key suppliers go out of business or are unable to export product when ports close down.
Supply chain managers today must build better visibility and security into their supply
chains using software applications and frequent communications to spot these problems
before they become unmanageable.
One of the more crucial issues within the topic of supply management is supplier
management. Simply put, this means encouraging or helping the firm’s suppliers to
perform in some desired fashion, and there are a number of ways this is done. It involves
assessing the suppliers’ current capabilities and then deciding if and how they need to
improve. Thus, one of the key activities in supplier management is supplier evaluation, or
determining the current capabilities of suppliers. This occurs both when potential suppliers
are being evaluated for a future purchase and when existing suppliers are periodically
evaluated for ongoing performance purposes. A closely related activity is supplier
certification. Supplier certification allows buyers to assume the supplier will meet certain
product quality and service requirements covered by the certification, thus reducing
duplicate testing and inspections and the need for extensive supplier evaluations. Farm
implement manufacturer Deere & Company, for example, has its Achieving Excellence
Program wherein suppliers are evaluated annually across several performance categories.
The idea is to reward high performers and provide feedback to promote continuous
improvement. EgeTrans Internationale earned recognition as a Partner-level supplier for
fiscal year 2019 in the John Deere Achieving Excellence Program. The Partner-level status
is Deere & Company’s highest supplier rating. Due to the dedication in providing logistics
services of outstanding quality as well as the commitment to continuous improvement,
EgeTrans was selected for this recognition. EgeTrans holds the record for receiving thirteen
consecutive Partner-level awards.22
Over time, supplier management efforts allow firms to selectively screen out poor-
performing suppliers and build successful, long-term, trusting relationships with top-
performing suppliers. These suppliers can provide tremendous benefits to the buying firm
and the entire supply chain. As discussed in greater detail in Chapter 2, greater purchase
volumes, using fewer suppliers, typically means lower per-unit purchase costs (causing a
much greater impact on profits than a corresponding increase in sales) and in many cases
higher quality and better delivery service. These characteristics are viewed as strategically

important to the firm because of their impact on the firm’s competitiveness. “Our suppliers
play a key role in delivering the products, services and experiences our customers deserve,
and these award-winning suppliers went above and beyond our expectations,” said Shilpan
Amin, GM’s vice president, Global Purchasing and Supply Chain, when speaking of their top-
performing suppliers. “We also believe it’s important at this point in time to thank our entire
supply base for their efforts the last few months to mitigate the impacts of COVID-19.”23
Suppliers also see significant benefits from the creation of closer working relationships
with customers in terms of long-term, higher-volume sales. These trading partner
relationships have come to be termed strategic partnerships and are emphasized
throughout this text as one of the more important aspects of supply chain management.
Diageo, a U.K.-based beverage leader with one of the world’s best supply chains, has made
a considerable investment in transforming its procurement organization with a focus on
supplier partnerships. A robust supplier relationship management framework is enabling
end-to-end supply chain engagement on sustainability and collaboration across the
business for long-term, strategic-value creation.24 Chapter 3 explores strategic partnerships
and other topics associated with supplier relationship management.
Recently, the supply management discipline has come to include a closer emphasis on
ethical and sustainable sourcing, or purchasing from suppliers that are governed by envi-
ronmental sustainability and social and ethical practices. Companies are realizing that sup-
pliers can have a significant impact on a firm’s reputation and carbon footprint, as well as
their costs and profits. Supply chain managers must therefore learn how to develop socially
responsible and environmentally friendly sourcing strategies that also create a competitive
advantage for the company. Delaware-based Ashland Global Holdings for example, has
required all suppliers to sign a Supplier Code of Conduct since 2014. The code holds sup-
pliers to the same high standards as Ashland with respect to labor and employment rights,
environmental health and safety, business ethics and social responsibility, and global trade
practices. Additionally, Ashland partners with farmers in Mexico to ensure Ashland’s aloe
is harvested in an ecologically sustainable way and to maintain the Fair for Life certifica-
tion. Funds are used as directed by the local farmers to also improve conditions within the
communities where Ashland’s aloe is grown.25 These topics along with other supply man-
agement topics are discussed in detail in Chapter 4.

Operations Elements
Once materials, components, and other purchased items are delivered to the buying
organization, a number of internal operations elements become important in assembling
or processing the items into finished products, ensuring that the right amount of product is
produced and that finished goods and services meet specific quality, cost, and customer service
requirements. Along with supply management, operations management is also considered a
foundation of supply chain management and is covered in Chapters 5 through 8.
During a calendar year, seasonal demand variations commonly occur. Firms can
predict when these variations will occur based on historic demand patterns, through use of
forecasting techniques that guide weekly or monthly production plans. If demand does not
occur as forecasted, then the focal firm is left with either too much or too little inventory
(or service capacity). Both situations are cost burdens to the firm (inventory carrying costs
and stockout costs). As a matter of fact, in one survey, 63 percent of Americans admitted
they would be somewhat to highly likely to look for an alternative brand if a product
shortage affected their favorite electronics brand. Only 14 percent said they would stay
loyal to their favorite brand in the event of a shortage.26 To minimize lost sales and other

costs, firms often rely on demand management strategies and systems, with the objective
of matching available capacity to demand, either by improving production scheduling,
curtailing demand, using a back-order system, or increasing capacity.
Managing inventories is one of the most important aspects of operations and is certainly
value enhancing for the firm. Firms typically have some sort of material requirements
planning (MRP) software system for managing their inventories, purchases, and
production schedules. These systems can be linked throughout the organization and its
supply chain partners using enterprise resource planning (ERP) systems, providing real-
time purchase and sales data, inventory, and production information to all business units
and to key supply chain participants. These system configurations vary considerably, based
on the number and complexity of products, size of the firm, and design of the supply chain.
Retailers like Walmart, for example, scan the bar codes of items when consumers make
purchases, causing the local store’s MRP system to deduct units from inventory until a
preset reorder point is reached. When this occurs, the local computer system automatically
contacts Walmart’s regional distribution center’s MRP system and generates an order. At
the distribution center, the order is filled and sent along with other orders to that particular
Walmart. Eventually, the inventory at the distribution center needs replenishing, and at
that time, the distribution center’s MRP system automatically generates an order to the
manufacturer which sells and then delivers the product to the Walmart distribution
center. This type of order communication creates inventory visibility to the supply chain
members and may also extend farther up the supply chain, reducing the likelihood of
stockouts, excess inventories, and long lead times. Third-party logistics providers (3PLs)
play a critical role in helping shippers with inventory visibility and real-time order
monitoring. For example, a 3PL can help identify ports that are congested or even closed
due to the pandemic or other natural disaster and quickly help shippers divert trade to
different ports. Additionally, U.S. retailers can have in-store inventory visibility through the
use of MRP and radio frequency identification (RFID) systems, which can scan incoming
cartons and pallets for RFID tags, which describe the contents of the packages to the MRP.
Another common form of inventory management is through use of a lean production
system (lean production may also be referred to as just-in-time or the Toyota production
system). Lean within a production system refers to operating with low inventory levels.
Implementing a lean system takes time but usually results in faster delivery times, lower
system inventory levels, fewer stockouts, and better quality. An important aspect of a lean
production system is the quality of the incoming purchased items and the quality of the
assemblies as they move through the various production processes. Higher quality means
less need for safety stock.
Firms employing lean production concepts usually have a Six Sigma quality
management strategy in place to ensure continued quality compliance among suppliers
and with internal production facilities. Six Sigma was originally created at Motorola in the
1980s, and Motorola proved the program’s value when it won the Baldrige Quality Award
in 1988. Many organizations have reported large savings with use of Six Sigma including
$1.7 billion at Ford, $17 billion at Motorola, $1.2 billion at 3M, and $8 billion at General
Electric.27 Lean and Six Sigma are discussed in detail in Chapter 8.

Logistics Elements
When goods are produced, they can be delivered to customers through a number of
different modes of transportation. Delivering products to customers at the right time,
right quality, and right volume requires a high level of planning and cooperation between

the firm, its customers, and the various logistics elements or services employed (such as
transportation, warehousing, and break-bulk or repackaging services). In contrast, services
are produced and delivered to the customer simultaneously in most cases, so services are
extremely dependent upon server capacity and successful service delivery to meet cus-
tomer requirements. Logistics is the third foundation of supply chain management, and
these topics are presented in Chapters 9 through 12.
Logistics decisions typically involve trade-offs between cost and delivery timing or cus-
tomer service. Considering the five modes of transportation, motor carriers (trucks) are
more expensive to use than rail carriers but offer more flexibility and speed, particularly for
short routes. Air carriers are even more expensive but much faster than any other transpor-
tation mode. Water carriers are the slowest but are also the least expensive. Finally, pipelines
are used to transport oil, water, natural gas, and coal slurry. Many transportation services
offer various modal combinations, as well as warehousing and customs-clearing services.
In a typical integrated supply chain environment where JIT deliveries are the norm,
third-party logistics services or 3PLs are critical to the overall success of supply chains.
In many cases, these services are considered supply chain partners and are viewed as key
value enhancers for supply chains. From pandemics to earthquakes, to tornadoes, floods,
and other risk-prone environments, companies are teaming up with 3PLs to improve
visibility, flexibility, and delivery performance while reducing risk in their supply chains.
“Globally, manufacturers and retailers are taking a renewed interest in redesigning and
reengineering their supply chains in the wake of these events,” says Jim McAdam, president
of 3PL provider APL Logistics.28
The desired goal of logistics is an appropriate level of customer service at a reason-
able price. In order to provide the desired level of customer service, firms must identify
customer requirements and then provide the right combination of transportation, ware-
housing, packaging, and information services to successfully satisfy those requirements.
Through frequent contact with customers, firms develop customer relationship man-
agement strategies for meeting delivery due dates, resolving customer complaints, com-
municating with customers, and determining other logistics services required. From a
supply chain management perspective, these customer activities take on added importance
because second-tier, third-tier, and end-product customers are ultimately dependent on
the logistics performance at each stage within a supply chain.
Today, supply chains are facing continuing disruption on a global scale. The pandemic
shifted consumer demand to e-commerce and faster delivery options, adding to the pres-
sure on shippers and logistics providers. A recent survey by Accenture and GEODIS of
200 large retailers found that companies expect the shift to online sales to continue. How-
ever, 52 percent thought their logistics capabilities were not scaled to absorb the quickly
growing e-commerce volumes. Shippers need to build greater levels of agility, resiliency
and sustainability, while managing costs. New innovative capabilities for delivery, product
returns, and warehousing will be increasingly important. Thus, investing in new capabil-
ities and finding the right 3PL providers is more essential than ever.29 The nearby SCM
Profile describes the impact the pandemic had on Whirlpool’s global supply chain.
Designing and building an effective distribution network is one method of ensuring
successful product delivery. Again, there is typically a trade-off between the cost of the
distribution network and the level of customer service provided. For example, a firm may
utilize a large number of regional or local warehouses in order to deliver products quickly
to customers. In this case, the transportation cost from factory to warehouse, the inventory
holding cost, and the cost to build and operate multiple warehouses would be quite

SCM Whirlpool’s Global Supply Chain Produces

Profile PPE and Ventilators

Andy Dean Photography/Shutterstock.com

Whirlpool Corp., the world’s larg-
est home appliance company,
has $20 billion in annual sales and
59 manufacturing centers around
the world. Its brands are sold in
nearly every country on earth.
When the COVID pandemic hit
their Benton Harbor, MI headquar-
ters hard in March, 2020, Whirlpool quickly focused on meeting the demand for supplies at Spec-
trum Health Lakeland, a health system in St. Joseph that serves the greater southwest Michigan
and northern Indiana region. Over the following month, using its global supply chain and its
China manufacturing unit, the company delivered at no cost many thousands of masks, gloves,
thermometers and hospital gowns.
By May, as it became clear there would be a shortage of ventilators, Whirlpool partnered with
Dow and Reynolds Consumer Products to make and distribute ventilators. Whirlpool built and
distributed them through WIN Health Labs LLC, a subsidiary Whirlpool formed to make supplies
needed to fight the pandemic. Dow provided the clear plastic face shields for the ventilators
and Reynolds Consumer Products designed and made the units’ disposable hoods. Over 4,000
ventilators were distributed free of charge to hospitals across Michigan, Texas, and Louisiana.
Whirlpool also experienced disruptions as their global supply chains experienced parts short-
ages, and social distancing slowed down manufacturing lines worldwide. Consumers trying
to replace their overworked dishwashers and washing machines sometimes faced weeks of
shipping delays. According to a Whirlpool statement: “Our 15,000 plant employees in our nine
plants across the UNITED STATES have been working tirelessly as we have managed through
COVID-19 and our factories are doing everything they can to meet consumer needs. Our
plants have experienced a few brief interruptions in production related to the pandemic,
including component shortages, but as a whole have remained up and running throughout
this challenging time.”30

high, but the payoff would be excellent customer service. On the other hand, a firm may
choose to operate only a few large centralized warehouses, saving money on the inbound
transportation costs from factories (since they would be delivering larger quantities to
fewer locations) and the warehouse construction and operating costs, but then have to be
content with limited customer service capabilities since the warehouses would be located
farther from most customers. Today, the use of massive, efficient warehouses to serve large
market areas is growing. For example, the Browning Investments/Duke Realty partnership
constructed a 900,000-square-foot warehouse at All Points Midwest industrial park in
Plainfield, Indiana, and Missouri-based North Point Development built a 741,000-square-
foot warehouse near Lebanon Business Park in Indiana. Much of this building surge is
driven by retailers opening e-commerce facilities at a dizzying pace as online shopping
becomes more prevalent.31
When firms operate globally, their supply chains are more complex, making
global location decisions (the topic of Chapter 11) a necessary aspect of supply chain

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