Developments in Logistics and Supply Chain Management

Over the last couple of decades, the whole domain and discipline of logistics and supply chain has developed quite significantly. If one reflects back to the early 1990s, logistics had its roots firmly within the context of inbound and outbound transport and warehousing. The whole sector was fragmented, unorganised and run by a number of small operators, and the concept of third party logistics did not exist. In fact, the term “logistics” was often labelled as “sheds and lorries”. On the other hand, there was a realisation of the importance of getting the right goods to the right place at the right time and at the right quality.

Today’s business environment and harsh competitiveness force companies and entire supply chains to increase their efficiency as much as possible. As a consequence, supply chains have become highly sensitive to disruptions and less tolerant to deviations in operations, that is, supply chains have become more vulnerable (see Kleindorfer and Saad, 2005). Vulnerability of supply chains may result in less consistent supply chain performances, and consequently, their competitive power in the market may diminish. In order to maintain stability of supply chain performances, it is necessary to design robust supply chains. Robust supply chains should be able to continue to function well in the event of a disruption as well as in the normal business environment (see Dong, 2006; Tang, 2006; Waters, 2007). Generally, robustness of the supply chain depends on its capability to respond adequately to different kinds of risks of disturbances. Recently, supply chain vulnerability and robustness has become a hot research topic, and as such, it is still in its infancy. With this paper, we aim to contribute to the existing knowledge in these areas.

Over the past decade, one of the main themes in the supply chain management literature has been integration as a key factor in achieving improvements (e.g., Tan et al., 1999; Romano, 2003). Many authors agree that integrative practices and a high level of integration have a positive impact on corporate and supply chain performance.

Ever since the pioneering work of Jay Forrester in the late 1950s, academics, consultants and practitioners have been searching for methods to improve supply chains by controlling the dynamics of the information and material flows within.

Despite the fact that many firms are instituting risk assessment programs to systematically uncover and estimate supply chain risks, very few firms are making concomitant investments to reduce risk. While the exact reasons for this are not known, Rice and Caniato (2004), Zsidisin et al. (2001, 2004) suspected that the lack of precise cost/benefit or return on investment (ROI) analyses can be one of the key reasons. To garner support for implementing certain risk reduction programs without exact analyses of certain risk reduction programs, Tang (2006) argued that risk reduction programs must provide strategic value to the firms regardless of the occurrence of major disruptions that rarely occur. Indeed, in addition to disruption risks, firms should be concerned about routine risks: frequently occurring problems that cause mismatches in supply and demand or higher than expected procurement costs. Specifically, Tang (2006) highlighted the strategic value of nine different supply chain risk reduction programs that would enable a firm to reduce these routine risks and those rare but severe supply disruption risks.

Supply chain risk has recently gained considerable attention. This is mainly due to the fact that the more complex the relationships among the nodes of the supply network, the more prone modern global supply chains are to disruptions. Although it is not a brand new problem, these days, due to higher competitiveness levels in the economic context and increased interconnections between businesses, companies are affected by a wider exposure to risk sources than before (Sheffi, 2005). Despite increasing awareness of this topic among both academics and practitioners, most of the existing research has addressed the sources of risk in the supply chain from a general perspective (Blackhurst et al., 2005) while few systematic approaches for their evaluation are actually available.

The first element of a firm’s “value added” chain is logistics. “Logistics management” is concerned with the supply, storage and movement of materials, personnel, equipment and finished goods within the organisation and between the organisation and its environment. Broadly, functions such as purchasing, materials management, distribution and maintenance fall within the logistics management area. An important element of “strategic logistic management” is “purchasing”. This paper is primarily concerned with “purchasing”, with a particular focus on “vendor rating”.

This research program involved the benchmarking, verification visit, semi-structured interview and modelling of a group of 8 first tier and 13 second tier Toyota suppliers in Japan together with a similar grouping in the UK. The benchmarking questionnaires were sent to the participating companies approximately one month before a visit was made. The firms were requested to return the completed questionnaires before the visit date. This was the case in all but one company. Each questionnaire was then individually interrogated to ensure that errors had not occurred during completion. This was primarily achieved by entry onto a comprehensive spreadsheet with predetermined check questions and calculations. This is believed to have identified over 90% of any suspect or missing data at this pre-visit stage.

The efforts among automotive companies in China to find suitable domestic suppliers have to be seen as a response to local content requirements promulgated by the Chinese central government but also as part of the global sourcing strategy among the producers. Therefore, automotive companies, both original equipment manufacturers (OEMs) and their Western suppliers, are currently trying to integrate more domestic suppliers in their supply chains in China (Holweg et al., 2005). The automotive industry is suitable for further research of complex buyer-supplier interactions because it can also be considered a networked industry implying that it is virtually impossible for any firm alone to possess all the technical expertise and capabilities needed to develop and produce a complex product (Binder et al., 2007; Holweg and Pil, 2007).

Internal and external business process collaboration is vital for effective supply chain (SC) management. Building relationships between companies can lead to their competitive advantage, resulting in organisational performance improvement than when working individually (Cao and Zhang, 2011). The earlier phase in our research empirically tested the interrelationships between business process management (BPM), supply chain collaboration (SCC), collaborative advantage and organisational performance. This study is a step further and aims to illuminate the findings from the large-scale survey data analyses. This was achieved by gathering practitioners’ opinions to provide an in-depth and detailed understanding of the meanings, actions and experiences of practitioners in their specific contextual situations.

In shifting market conditions, the choice of supply chain strategies is critical when competing to serve customers (Gattorna, 2010). It is accepted in theory that the “one size fits all” approach to supply chain design is no longer valid (Christopher et al., 2006; Gattorna, 2010; Ericsson, 2011; Godsell et al., 2011). Still organisations, even in the highly competitive e-commerce market, utilise a “one size fits all” strategy to create and deliver value to their consumers, thereby implicitly assuming that consumers’ demands and buying behaviour are homogeneous, and therefore, there is no profitable reason to differentiate delivery in terms of service.

Increase in competition is witnessing the twin trends of product price erosion and product proliferation. Retailers cater to the price sensitive customer by providing standard low-priced products. They also cater to the customer segments that are willing to pay a premium for customisation by offering customised extensions of the standard product. While the profit margin for a standard product is generally low and the profit depends on volumes, its customised extensions carry higher profit margins. However, the standard product typically has longer shelf life while its customised extensions are promoted as flavours of the season and have short shelf lives. Examples of this are (i) breakfast cereal (standard product) with flavours for different climatic seasons, (ii) chocolate (standard product) with extensions for different occasions like vacation and festivals and (iii) sportswear (standard product) with flavours for different game seasons/occasions like basketball season, cricket World-Cup and Olympic Games. Increase in customised extensions results in increase in demand uncertainty and higher inaccuracy in forecasting demand for individual stock-keeping units (SKUs). This in turn implies higher possibility of stock-outs or oversupply.

Despite the concept of supply chain management having existed since the early 1980s (Oliver and Webber, 1982; Houlihan, 1984, 1985), there is still significant confusion as to the meaning of the concept and particularly as to how to implement it (Kearney, 1994; Neuman and Samuels, 1996). Such confusion is further enhanced by the multitude of terminology and definitions (New, 1996; McGuffog, 1997) arising from the academic and practitioner literature.

Much attention is now being paid to traceability systems which provide information on the production and distribution history of a product, especially in the food industry. Since the purpose of the system is focused on consumer service, the system is generally independent of a main management system, and therefore, the obtained traceability information is not applicable to the solution of production and distribution management problems. For example, dispatching the order information of parts, which is necessary to the traceability system, has generally been managed in MRP modules. Furthermore, sharing rigid inventory information of an individual product, which is easily obtained from the traceability system, can enlarge and extend the performance of supply chain management (SCM) systems. Horikawa et al. (2005) proposed a traceability information system which cooperates with ERP. The system comprises three-layered modules, namely physical logistics layer, ERP layer and independent data management layer. Traceability is realised with an information exchange among the three layers. This structure has the advantage over other applications at practical level as it replaces some modules to more suitable components such as more commonly available ERP package.

Since the last decade, the consideration of customer demands is of increasing importance for manufacturing enterprises. This situation provides a great opportunity to small and medium-sized enterprises (SME) to improve their competitiveness within the global economy. Due to their proximity to the customer, flat management structures and the resulting flexibility, SMEs are able to implement an efficient consumer response (ECR). However, modern industrial products are often characterised by a high complexity of design, functionality, necessary manufacturing and assembly processes. The complexity of modern products may overextend the available skills, knowledge and capacities of a single SME, or it may force this SME to spend great efforts in research and development activities to meet the customer’s requirements.

Increasing globalisation and lowering ocean freight help each nation focus on producing commodities of its specialty. With high quality but low paid labour, Asian nations have manufactured delicate industrial products and sold them to the EU and the US. North America has large arable lands that are suitable for planting agriculture (e.g., grains) with large farming machinery. The harvest grains can then be exported to the Asian nations. The major grains trade in the cross Pacific Ocean route could include soya bean, corn and wheat. The rapid increase of dry bulker freight between 2002 and 2008 forced the grain importers and shippers to ship their grain cargo by dry containers. It is estimated the containerisation ratio was around 80% in 2008. The grain containers could be used to control the freight cost for grain importers, and the grain cargoes can be transported on a door-to-door basis. It increases the importers’ competitiveness because of its door-to-door service ability, its low ocean freight and small parcel size, reducing grain silo storage time and avoiding high inventory cost occurred by lengthy in-transit time. In short, the total logistics cost of imported grain cargoes can be reduced by using the container shipping service. Historical data reveal that only around 50% of containers exported from Asia to North America can find backhaul cargoes because many empty containers were trapped in North America in the 1990s.

Over the past 30 years, the grocery supply chain has evolved considerably in the drive to reduce costs and improve the service level provided to customers. The 1970s and 1980s saw the development of distribution centres (DC) for ambient products, with retailers taking over responsibility for deliveries to their stores. The 1990s brought the introduction of consolidation centres to reduce the level of transport demand required to deliver products to the DCs (Finegan, 2002). The latest development is for retailers to take control of the delivery of goods into their DCs. This movement has gained momentum recently and is known as factory gate pricing (FGP). The evolution of grocery distribution is shown in Figure 7.2.1.

Progress of the supply chain management and the current trend towards deregulation of the Japanese trucking industry places the freight motor carriers in a highly competitive environment. As a result of that, the carriers need to consider strategies and tactics that satisfy both cost minimisation and a definite level of service quality. In general, a less-than-truckload motor carrier hauls shipments in the range of 50–5000 kg. Since a standard trailer can hold 10-ton to 30-ton of shipment, it is necessary for the less-than-truckload (LTL) motor carriers to consolidate the freight to make the best use of trailers. The freight originating at an end-of-line is loaded onto a line-haul truck, which carries it to a break-bulk terminal. At this terminal, the freight is unloaded, sorted and reloaded onto a trailer, which carries it to another terminal. One of the main problems faced by LTL motor carriers is to determine how freight should be routed over the network. This problem is called the load planning problem for LTL motor carriers. It can be formulated as a huge mixed integer optimisation problem.

According to Carter and Rogers (2008), sustainable supply chain management (SCM) is “the strategic, transparent integration and achievement of an organisation’s social, environmental, and economic goals in the systemic coordination of key interorganisational business processes for improving the long term economic performance of the individual company and its supply chains”. They posit that a deliberate long-term strategy combining environmental and social aspects of sustainability, which extend beyond a firm’s boundary with economic objectives, helps firms to mobilise those supply chain activities that directly support sustainability. Similarly, performance measurement systems that include sustainability considerations can be a driver for sustainability performance improvement (Angell and Klassen, 1999). Small and medium-sized enterprises (SMEs) are not immune from these pressures, particularly given that their total (cumulative) impact on sustainability is high (Gadenne et al., 2008). Moreover, many SMEs have not progressed in the adoption and development of sustainable supply chain practices due to the upfront cost of greening and although the literature is rich on supply chain performance measurement in general (e.g., Gunasekaran et al., 2004), and there is a dearth when more specific contexts are considered.

Scientific evidence of a pronounced global warming effect continues to accumulate, while more governments around the world are developing carbon reduction policies for their economies. Although binding international commitments to reduce greenhouse gas (GHG) are taking much longer than expected to agree, consensus is building in government and business circles that dramatic reductions in GHG emissions will have to be made over the next few decades to avert climatic and ecological disaster. It is against this background that companies are examining ways of reducing their carbon footprints.

For still more companies, it is or will become important to pay attention to the possibilities for reusing the products they produce and the items, like pallets and package materials, that they use for distributing their products or which are used by others for supplying their products to them. One important reason for the above is the growing concern for the natural environment, among others resulting in environmental laws which not only force companies to take back their products from their customers and the items used for the distribution of these products when these products or distribution items (DIs) are no longer desired by these customers, but also to take care of the environmentally friendly disposal of these products and Dis. However, due to the same reason, this disposal is becoming still more difficult and expensive (see e.g., Cairncross, 1990). Apart from being forced by law, companies feel forced to do the above because of competition and public opinion. But there are more reasons why it may be worthwhile for companies to consider reuse: there are products, components, materials and DIs that can be obtained cheaper or more quickly via reuse than via purchasing or producing anew.