SUPPLY CHAIN STRATEGY The Logistics of Supply Chain Management Edward Frazelle McGraw-Hill New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Manufactured in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be repro- duced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior writ- ten permission of the publisher. 0-07-141817-2 The material in this eBook also appears in the print version of this title: 0-07-137599-6. All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occur- rence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark. 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This page intentionally left blank. Preface UPPLY CHAIN STRATEGY: The Logistics of Supply Chain Manage- ment teaches the best practices and basics in logistics and supply chain management. The book is richly illustrated with 238 fig- ures featuring logistics principles in action at the world’s best logistics organizations. In a conversational style, the book presents Sbest-practice, common-sense, high-tech, high-touch, and analytical solutions for logistics challenges spanning the entire supply chain. From customer ser- vice to inventory planning to supply to transportation to warehousing, Supply Chain Strategy puts the logic back in logistics! The book is organized according to Dr. Edward Frazelle’s Logistics Master Planning methodology for developing supply chain strategy. Three major sections address the investigation, innovation, and implementation of logistics solutions to supply chain problems. In so doing, the book presents simultaneously a methodology for planning and managing logistics activi- ties while illustrating world-class practices and systems in use by logistics organizations around the globe. In addition, each chapter stands alone in addressing the major issues in logistics data mining, logistics performance measurement, customer response, inventory planning and management, supply management, transportation, warehousing, logistics information sys- tems, and logistics organization design and development. ix Copyright 2002 by The McGraw-Hill Companies, Inc. Click here for Terms of use. For more information about this book, click here. Contents Preface ix Acknowledgments x Chapter 1 The Definition, Evolution, and Role of Logistics in Business 1 1.1 The Definition of Logistics 5 1.2 The Evolution of Logistics and Supply Chain Management 5 1.3 Logistics Activities 12 1.4 Logistics Optimization 15 1.5 Logistics Master Planning 17 1.6 Logistics Around the World: Necessity Is the Mother of Invention 21 Section I Investigating Logistics Performance and Practices 23 Chapter 2 Logistics Activity Profiling and Data Mining 24 2.1 Profiling Motivations and Minefields 26 2.2 Logistics Activity Profiles 27 2.3 Logistics Data Mining 31 Chapter 3 Logistics Performance, Cost, and Value Measures 38 3.1 Financial Measures of Logistics Performance 40 3.2 Productivity Measures of Logistics Performance 48 3.3 Quality Measures of Logistics Performance 54 v Copyright 2002 by The McGraw-Hill Companies, Inc. Click here for Terms of use. vi CONTENTS 3.4 Cycle Time Measures of Logistics Performance 62 3.5 Logistics Performance Gap Analysis 63 Section II Innovating Logistics Practices and Systems 69 Chapter 4 Customer Response Principles and Systems 70 4.1 Customer Response Fundamentals and Notations 71 4.2 Customer Activity Profiling 73 4.3 Customer Response Performance Measures 76 4.4 Customer Service Policy Design 78 4.5 Customer Satisfaction Monitoring 82 4.6 Order Capture and Entry 83 4.7 Order Processing 84 4.8 Documentation, Invoicing, and Collections 88 4.9 Customer Response Systems 88 4.10 Customer Response Organization Design and Development 89 Chapter 5 Inventory Planning and Management 91 5.1 Inventory Fundamentals 96 5.2 Inventory Activity Profiling 106 5.3 Inventory Performance Measurement 109 5.4 Forecasting 113 5.5 Order Quantity Engineering 121 5.6 Fill Rate Planning 124 5.7 Inventory Control Policy and Replenishment Design 127 5.8 Inventory Deployment 137 5.9 Inventory Management Systems 142 5.10 Inventory Organization Design and Development 143 Chapter 6 Supply Management 145 6.1 Fundamentals of Supply 146 6.2 Supply Activity Profiling 146 6.3 Supply Performance Measurement 149 6.4 Supplier Service Policy (SSP) 152 6.5 Sourcing 155 6.6 Supplier Integration and Relationship Management 159 6.7 Purchase Order Processing 164 6.8 Buying and Payment 166 CONTENTS vii 6.9 Supply Management Systems 167 6.10 Supply Organization Design and Development 168 Chapter 7 Transportation and Distribution Management 169 7.1 Transportation Optimization 171 7.2 Transportation Fundamentals 174 7.3 Transportation Activity Profiling and Data Mining 175 7.4 Transportation Performance Measures 180 7.5 Logistics Network Design 188 7.6 Shipment Planning and Management 195 7.7 Fleet, Container, and Yard Management 209 7.8 Carrier Management 217 7.9 Freight and Document Management 218 7.10 Transportation Management Systems (TMSs) 220 7.11 Transportation Organization Design and Development 221 Chapter 8 Warehouse Operations 224 8.1 Warehousing Fundamentals 225 8.2 Warehouse Activity Profiling 231 8.3 Warehouse Performance Measures 241 8.4 Receiving Principles 243 8.5 Putaway 248 8.6 Storage Operations 252 8.7 Order Picking Operations 259 8.8 Shipping Principles 267 8.9 Warehouse Management Systems 270 8.10 Warehouse Workforce Design and Development 272 Section III Implementing Logistics Systems 275 Chapter 9 Logistics and Supply Chain Information Systems 276 9.1 Logistics Information System (LIS) Functionality and Architectures 278 9.2 Logistics Data Warehousing, Data Mining and Decision Support Systems 282 9.3 Web-Based Logistics 287 9.4 Paperless and Wireless Logistics Systems 295 9.5 LIS Justification, Selection, and Implementation 308 viii CONTENTS Chapter 10 Logistics Organization Design and Development 311 10.1 Supply Chain Organization Management 312 10.2 Corporate Logistics Organization Alignment 319 10.3 Logistics Strategic Planning and Project Management 328 10.4 Logistics Process and Activity Management 333 10.5 Logistics Professional Development 343 10.6 Human-Friendly Logistics 343 10.7 Community-Friendly Logistics 345 Acronyms and Abbreviations 347 Index 353 Acknowledgments N THE LAST TEN YEARS, God has led me through a series of consulting and research projects literally spanning the globe to work with the world’s best logistics organizations in all areas of logistics manage- ment. During that time, He taught me a framework for logistics man- agement and problem solving that is the essence of this book. He also Ishowed me examples of the world’s best logistics practices. Those illustra- tions are sprinkled throughout the book. I have been blessed with a career overflowing with support and encour- agement from family, mentors, business partners, staff, consulting clients, and students of all ages.