Logistics and Supply Chain Management, 4th Edition

LOGISTIC S & SUPPLY CHAIN MANAGEMENT

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enterprise’, as it is often called, there can be no boundaries and an ethos of trust

and commitment must prevail. Along with process integration comes joint strategy

determination, buyer/supplier teams, transparency of information and even open-

book accounting.

This idea of the supply chain as a confederation of partners linked together as

a network provides the fourth ingredient of agility. There is a growing recognition

that individual businesses no longer compete as stand-alone entities but rather as

supply chains. Managing networks calls for an entirely difference model than the

conventional ‘arm’s-length’ approach to managing customer and supplier relation-

ships. Clearly a much higher level of collaboration and synchronisation is required

if the network is to be truly agile. It can be argued that, in today’s challenging

global markets, the route to sustainable advantage lies in being able to make best

use of the respective strengths and competencies of network partners to achieve

greater responsiveness to market needs.

Product ‘push’ versus demand ‘pull’

There have been many new ideas and concepts in business management over

the last 30 or so years, some of which have endured and others soon discarded.

However, perhaps one of the most significant principles to become widely adopted

and practised is that of just-in-time. Just-in-time, or JIT, is a philosophy as much as

it is a technique. It is based upon the simple idea that wherever possible no activity

should take place in a system until there is a need for it.

Thus no products should be made, no components ordered, until there is a

downstream requirement. Essentially JIT is a ‘pull’ concept, where demand at the

end of the pipeline pulls products towards the market and behind those products

the flow of components is also determined by that same demand. This contrasts

with the traditional ‘push’ system where products are manufactured or assembled

in batches in anticipation of demand and are positioned in the supply chain as

‘buffers’ between the various functions and entities (see Figure 5.5).

The conventional approach to meeting customer requirements is based upon

some form of statistical inventory control which typically might rely upon reordering

when inventory levels fall to a certain predetermined point – the so-called reorder

point (ROP).

Under this approach a reorder point or reorder level is predetermined based

upon the expected length of the replenishment lead time (see Figure 5.6). The

amount to be ordered may be based upon the economic order quantity (EOQ) for-

mulation which balances the cost of holding inventory against the costs of placing

replenishment orders.

Alternative methods include the regular review of stock levels with fixed intervals

between orders when the amount to be ordered is determined with reference to a

predetermined replenishment level, as in Figure 5.7.

CREATING THE RESPON S I V E SU P P LY CHAIN

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There are numerous variations on these themes and the techniques have been

well documented and practised for many years. However, they all tend to share

one weakness, that is they frequently lead to stock levels being higher or lower

than necessary, particularly in those cases where the rate of demand may change

or occurs in discrete ‘lumps’. This latter situation frequently occurs when demand

for an item is ‘dependent’ upon demand for another item, e.g. demand for a TV

component is dependent upon the demand for TV sets; or where demand is

‘derived’, e.g. the demand for TV sets at the factory is determined by demand from

the retailer, which is derived from ultimate demand in the marketplace.

CustomersDemand

‘pull’

D1 D2 D3 D4

RDC2RDC1

Regional

distribution

centres

Factory

warehouse

Factory

Vendors/suppliers

Product

‘push’

Finished products

(demand forecast

level)

Finished products

Finished products

Work-in-progress

Sub-assemblies

Components

Figure 5.5 ‘Push’ versus ‘pull’ in the logistics chain