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Praise forSupply Chain and Logistics Management Made Easy“Paul Myerson’s new book is a refreshing and a welcomed addition to the field, offering thereader a clear and easy-to-understand presentation of the key concepts and methods usedin the field of supply chain management. His work is not only easy to understand but alsocomprehensive in coverage.“I highly recommend it to university professors who want to incorporate it in theirundergraduate and graduate courses in supply chain management. I have become a real fanof Supply Chain and Logistics Management Made Easy. Certainly, nothing in life is easy, butPaul Myerson’s new book has made the field more attractive and popular.”—Richard A. Lancioni, Professor of Marketing and Supply Chain Management,Fox School of Business & Management, Temple University“Is it possible to take a discipline that involves millions of moving things, people, andprocesses and make it easy? Paul has taken the complex subject of supply chain and delivereda thorough and easy-to-understand review of all its elements. For the business student,the book provides a comprehensive view of the supply chain and serves as an effectiveintroduction to the discipline and as an effective teaching tool. For the supply chain expert,this book is an excellent tool for reflection on all things supply chain. Each section bringsback thoughts of the challenges the accomplished supply chain leader has faced. The book isan excellent resource for anyone in business who is looking to work in or currently works insupply chain management.”—Gary MacNew, Regional Vice President, Supply Chain Optimizers“This is an excellent read for both students and professionals who are interested in gaining abetter understanding of what supply chain and logistics is all about. It is an easy-to-understandhandbook for anyone who has a need to better understand supply chain management oris responsible for helping their organization gain an advantage from their supply chain.Myerson’s book should be on every manager’s bookshelf for ready reference.”—Robert J. Trent, Ph.D., Supply Chain Management Program Director,Lehigh University“Paul does a great job compacting supply chain management and logistics into one text. Iwish I would have had this book when I was a logistics student 30 years ago, but it’s a greattext and reference for me now, too. The SCM discipline is very wide and diverse now. Thisbook captures all the elements. A complete professional reference. An easy read that teaches.”—Andy Gillespie, Director, Global Logistics, Ansell“Practical, accessible, up-to-date, and covering today’s best practices, Supply Chainand Logistics Management Made Easy is the ideal introduction to modern supply chainmanagement for every manager, professional, and student.”—Oliver Yao, Associate Professor, Lehigh University
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Supply Chain andLogistics ManagementMade Easy
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Supply Chain andLogistics ManagementMade EasyMethods and Applications forPlanning, Operations, Integration,Control and Improvement, andNetwork DesignPaul A. MyersonProfessor of Practice in Supply Chain ManagementLehigh University
Publisher: Paul BogerEditor-in-Chief: Amy NeidlingerExecutive Editor: Jeanne Glasser LevineOperations Specialist: Jodi KemperCover Designer: Alan ClementsManaging Editor: Kristy HartProject Editor: Andy BeasterCopy Editor: Keith ClineProofreader: Sarah KearnsIndexer: Erika MillenSenior Compositor: Gloria SchurickManufacturing Buyer: Dan Uhrig 2015 by Pearson Education, Inc.Old Tappan, New Jersey 07675For information about buying this title in bulk quantities, or for special sales opportunities (which may includeelectronic versions; custom cover designs; and content particular to your business, training goals, marketingfocus, or branding interests), please contact our corporate sales department at corpsales@pearsoned.com or(800) 382-3419.For government sales inquiries, please contact governmentsales@pearsoned.com.For questions about sales outside the U.S., please contact international@pearsoned.com.Company and product names mentioned herein are the trademarks or registered trademarks of their respectiveowners. Miny – Fotolia.com volha – Fotolia.comAll rights reserved. No part of this book may be reproduced, in any form or by any means, without permission inwriting from the publisher.Printed in the United States of AmericaFirst Printing May 2015ISBN-10: 0-13-399334-5ISBN-13: 978-0-13-399334-9Pearson Education LTD.Pearson Education Australia PTY, Limited.Pearson Education Singapore, Pte. Ltd.Pearson Education Asia, Ltd.Pearson Education Canada, Ltd.Pearson Educación de Mexico, S.A. de C.V.Pearson Education—JapanPearson Education Malaysia, Pte. Ltd.Library of Congress Control Number: 2015932352
This book is dedicated to the memory of my father, Dr. Albert L. Myerson, the smartestperson that I ever knew, who taught me the value of education and research.I also appreciate the support of my wife, Lynne, and son, Andrew, without whosesupport and patience, this book would have taken a whole lot longer to write!
ContentsPart I Supply Chain and Logistics Management:Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Chapter 1Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Supply Chain Defined. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4SCOR Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5An Integrated, Value-Added Supply Chain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7The Value Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Leveraging the Supply Chain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Supply Chain Strategy for a Competitive Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . .9Segmenting the Supply Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10The Global Supply Chain and Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Chapter 2Understanding the Supply Chain. . . . . . . . . . . . . . . . . . . . . . . . . . . .13Historical Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Value as a Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14Organizational and Supply Chain Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15Mission Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15SWOT Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16Strategic Choices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Supply Chain Strategy Elements and Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Supply Chain Strategy Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19Supply Chain Opportunities and Challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23Supply Chain Talent Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26Career Opportunities in Supply Chain and Logistics Management . . . . . . . . . .27Growing Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27Part II Planning for the Supply Chain . . . . . . . . . . . . . . . . . . . 31Chapter 3Demand Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33Forecasting Used to Be Strictly Like “Driving Ahead,Looking in the Rearview Mirror” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34Forecasting Realities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35Types of Forecasts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36Demand Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Forecasting Process Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37Quantitative Versus Qualitative Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38Qualitative Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38Quantitative Models. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39Product Lifecycles and Forecasting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41Decline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41Time Series Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42Time Series Models. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43Associative Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44Correlation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45Seasonality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45Multiple Regression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46Forecasting Metrics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46Forecast Error Measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47Demand Forecasting Technology and Best Practices. . . . . . . . . . . . . . . . . . . . . . . . . . .48Chapter 4Inventory Planning and Control . . . . . . . . . . . . . . . . . . . . . . . . . . . .51Independent Versus Dependent Demand Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . .51Types of Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53Costs of Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53Carrying or Holding Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54Ordering Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54Setup Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54Total Cost Minimized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55Economic Order Quantity Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56Basic EOQ Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57Reorder Point (ROP) Models. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57Fixed-Quantity Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57Fixed-Period Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60Single-Period Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61ABC Method of Inventory Planning and Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61Realities of ABC Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62Other Uses for ABC Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63Inventory Control and Accuracy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63Cycle Counting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63Key Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64Contentsix
Inventory Planning and Control Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65Hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67Careers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67Chapter 5Aggregate Planning and Scheduling . . . . . . . . . . . . . . . . . . . . . . . . .69The Process Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70Goods and Service Processes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70Planning and Scheduling Process Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72Aggregate Planning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74S&OP Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74Demand and Supply Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76Aggregate Planning Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78Master Production Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78Production Strategies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79System Nervousness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80Material Requirements Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80Bill of Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80MRP Mechanics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81Short-Term Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83Types of Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84Sequencing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84Finite Capacity Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85Service Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86Part III Supply Chain Operations . . . . . . . . . . . . . . . . . . . . . . . 87Chapter 6Procurement in the Supply Chain . . . . . . . . . . . . . . . . . . . . . . . . . . .89Make or Buy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90Outsourcing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90Other Supply Chain Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91The Procurement Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93Identify and Review Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93Establish Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94Identify and Select Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95Determine the Right Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97Issue Purchase Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98xContents
Follow Up to Ensure Correct Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99Receive and Accept Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100Approve Invoice for Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100Key Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101Chapter 7Transportation Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103Brief History of Transportation Systems in America. . . . . . . . . . . . . . . . . . . . . . . . . .103Transportation Cost Structure and Modes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105Transportation Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105Modes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105Legal Types of Carriage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110For Hire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110Private . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110Transportation Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111Transportation Cost Factors and Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111Rates Charged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114Effects of Deregulation on Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115Pricing Specifics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116Domestic Transportation Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116International Transportation Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119Key Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122Technology. . . . . . .
—Gary MacNew, Regional Vice President, Supply Chain Optimizers “This is an excellent read for both students and professionals who are interested in gaining a better understanding of what supply chai
