LOGISTICS & SUPPLY CHAIN MANAGEMENT LOGISTICS & SUPPLY Martin Christopher is Emeritus Professor This updated fourth edition Effective design and management of supply chain networks can cut costs MARTIN CHRISTOPHER of Marketing and Logistics at Cranfi eld School of the bestselling Logistics & of Mangement, a leading UK business school. and enhance customer value. The supply chain can be a sustainable source He has written numerous books and articles of advantage in today’s turbulent global marketplace, where demand is Supply Chain Management is and is on the editorial advisory board of several diffi cult to predict and supply chains need to be more fl exible as a result. professional journals. Until recently he was co- the practical guide to all the key editor of The International Journal of Logistics In fact, the real competition today is not between companies, but between topics in an integrated approach Management and his latest books have focused supply chains. The winning approach to supply chains is an integrated upon relationship marketing, logistics and supply perspective that takes account of networks of relationships, sustainability LOGISTICS & to supply chains, including: chain management. and product design, as well as the logistics of procurement, distribution, and fulfi lment. Logistics & Supply Chain Management examines the tools, He has held appointments as Visiting Professor core processes and initiatives that ensure businesses can gain and maintain • The link between logistics and at universities around the world. Professor competitive advantage. customer value Christopher is a Fellow of The Chartered Institute of Marketing, The Chartered Institute The fourth edition has been updated and now contains four new chapters covering: SUPPLY CHAIN • Logistics and the bottom line – of Logistics and Transport and The Chartered Institute of Purchasing & Supply. In 1987 he • MANAGING SUPPLY CHAIN RELATIONSHIPS measuring costs and performance was awarded the Sir Robert Lawrence medal • PRODUCT DESIGN IN THE SUPPLY CHAIN of The Chartered Institute of Logistics and • Creating a responsive supply chain • MATCHING SUPPLY AND DEMAND Transport for his contribution to the development MANAGEMENT of logistics education in Britain. In 2005 he was • CREATING A SUSTAINABLE SUPPLY CHAIN • Managing the global pipeline awarded the Distinguished Service Award of the USA Council for Supply Chain Management • Managing supply chain relationships Professionals. In 2007 he was designated ‘For many years now, Martin Christopher’s book has been my default as Foundation Professor by The Chartered recommendation to anyone seeking to acquire a quick yet comprehensive • Managing risk in the supply chain Institute of Purchasing & Supply. Martin has also grasp of supply chain issues and management. Whether you are a recent worked as a consultant for major international entrant to the fi eld or a seasoned practitioner looking for inspiration, this MARTIN CHRISTOPHER • Matching supply and demand companies in North America, Europe, the Far book is for you!’ Bjorn Vang Jensen, Vice President, Global Logistics, Electrolux East and Australasia. • Creating a sustainable supply chain ‘You must read this book for his assessment of the challenges that lie www.martin-christopher.info ahead.’ Dr John Gattorna, supply chain ‘thought leader’ and author of Dynamic • Product design in the supply chain Supply Chains ‘A powerful book for executives and practitioners. It emphasises the “end-to-end” view of supply chains, focusing on both cost effi ciency and value creation. The principles and concepts are illustrated with practical examples and applications. It is a great contribution.’ Professor Hau Lee, Stanford Graduate School of Business, USA MANAGEMENT Visit our website at www.pearson-books.com Visit our website at Design: Dan Mogford www.pearson-books.com FOURTH EDITION Logistics & Supply Chain Management In an increasingly competitive world, we believe it's quality of thinking that gives you the edge – an idea that opens new doors, a technique that solves a problem, or an insight that simply makes sense of it all. The more you know, the smarter and faster you can go. That's why we work with the best minds in business and finance to bring cutting-edge thinking and best learning practice to a global market. Logistics & Supply Under a range of leading imprints, including Financial Times Prentice Hall, we create world-class print publications and Chain Management electronic products, bringing our readers knowledge, skills and understanding, which can be applied whether studying or at work. To find out more about Pearson Education publications, or tell us Fourth Edition about the books you'd like to find, you can visit us at www.pearsoned.co.uk []MARTIN CHRISTOPHER Logistics & Supply Chain Management Fourth Edition PEARSON EDUCATION LIMITED Edinburgh Gate Harlow CM20 2JE Tel: +44 (0)1279 623623 Fax: +44 (0)1279 431059 Website: www.pearsoned.co.uk First published in Great Britain in 1992 Second edition 1998 Third edition 2005 Fourth edition 2011 © Pearson Education Limited 2011 The right of Martin Christopher to be identified as author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published, without the prior consent of the Publishers. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. Pearson Education is not responsible for the content of third party internet sites. ISBN: 978-0-273-73112-2 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Christopher, Martin. Logistics and supply chain management : creating value-adding networks / Martin Christopher. -- 4th ed. p. cm. Includes index. ISBN 978-0-273-73112-2 (pbk.) 1. Business logistics--Cost effectiveness. 2. Delivery of goods--Management. I. Title. HD38.5.C46 2011 658.5--dc22 2010033709 11 10 9 8 7 6 5 4 3 2 1 14 13 12 11 10 Typeset in Swiss Light 9.25 pt/12 pt by 30 Printed and bound in Great Britain by Henry Ling Ltd, Dorchester, Dorset About the author Martin Christopher is Emeritus Professor of Marketing and Logistics at Cranfield School of Management in the United Kingdom. His work in the field of logistics and supply chain management has gained international recognition. He has pub- lished widely and his books have been translated into many languages. Martin Christopher co-founded the International Journal of Logistics Management and was its joint editor for 18 years. He is a regular contributor to conferences and work- shops around the world. In addition to working with many companies in an advisory capacity he is also a Visiting Professor at universities in the UK, Australia, Spain and Sweden. Martin Christopher is an Emeritus Fellow of the Chartered Institute of Logistics and Transport. He is also a Fellow of the Chartered Institute of Purchasing and Supply and a Fellow of the Chartered Institute of Marketing. He is the recipient of the Distinguished Service Award of the USA Council of Supply Chain Management Professionals. v Contents About the author v Preface x Publisher's acknowledgements xi 1 Logistics, the supply chain and competitive strategy 1 Supply chain management is a wider concept than logistics 2 Competitive advantage 4 The supply chain becomes the value chain 9 The mission of logistics management 11 The supply chain and competitive performance 13 The changing competitive environment 15 2 Logistics and customer value 27 The marketing and logistics interface 28 Delivering customer value 29 What is customer service? 31 The impact of out-of-stock 33 Customer service and customer retention 34 Market-driven supply chains 38 Defining customer service objectives 42 Setting customer service priorities 46 Setting service standards 50 3 Measuring logistics costs and performance 57 Logistics and the bottom line 58 Logistics and shareholder value 62 Logistics cost analysis 66 The concept of total cost analysis 67 Principles of logistics costing 70 Customer profitability analysis 72 Direct product profitability 78 Cost drivers and activity-based costing 80 4 Matching supply and demand 83 The lead-time gap 83 Improving the visibility of demand 85 The supply chain fulcrum 87 Forecast for capacity, execute against demand 89 Demand management and planning 89 Collaborative planning, forecasting and replenishment 94 vii 5 creating the responsive supply chain 99 Product 'push' versus demand 'pull' 104 The Japanese philosophy 109 The foundations of agility 112 A routemap to responsiveness 116 6 strategic lead-time management 121 Time-based competition 121 Lead-time concepts 125 Logistics pipeline management 129 7 the synchronous