Logistics and Supply Chain Management, 4th Edition

LOGISTIC S & SUPPLY CHAIN MANAGEMENT

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3 Open communication

One of the most powerful drivers of change in marketing networks has been the

advent of information technology, making the exchange of information between

supply chain partners so easy and so advantageous. The Internet has provided

a ubiquitous platform to enable end-to-end pipeline visibility to become a reality.

With all parties ‘singing from the same song sheet’ a much more rapid response

to marketplace changes is achieved with less inventory and lower risks of obso-

lescence. For network marketing to work to its fullest potential, visibility and

transparency of relevant information throughout the supply chain is essential.

Open-book accounting is another manifestation of this move towards transparency

by which cost data is shared upstream and downstream and hence each partner’s

profit is visible to the others. Building this network-based approach to competitive

advantage clearly requires a number of significant changes to the way in which the

business is run and the ‘mindsets’ of those who manage it. Some of these funda-

mental changes are addressed in the following section.

Seven major business transformations

1 From supplier-centric to customer-centric

Traditionally supply chains have been designed from the ‘factory outwards’ rather

than from the ‘customer backwards’. The emphasis in the past was on how to

ensure that a batch-oriented production process could most efficiently distribute

its output. Thus the goal in supply chain design was often cost minimisation. In

today’s highly competitive marketplace the goal must change to the attainment of

higher levels of customer responsiveness. Thus agility rather than cost becomes

the key driver.

2 From push to pull

Closely linked to the first transformation is the idea of moving from a ‘production

push’ mentality which seeks to optimise operations through level scheduling and

long planning horizons to a ‘demand pull’ philosophy in which, ideally, nothing

is made, sourced or moved until there is a demand for it. This in essence is the

Japanese ‘Kanban’ principle, with the modification that the quantities triggered by

the Kanban should be variable depending on demand. Clearly the success of such

a system requires the highest level of flexibility of all the supply chain’s resources,

including people.

3 From inventory to information

Logistics and supply chain management have conventionally been forecast-driven

rather than demand-driven. In other words, the focus has been to look ahead over

a planning horizon and to predict demand at a point in time and then to build

inventory against that forecast. As markets become more volatile and turbulent