Chapter Summaries

Chapter:  

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• The 1990s was a decade of great change and also a period during which the importance of logistics and supply chain management reached the board rooms of major corporations worldwide.
• The accelerated rate of change in our economy was driven by a number of macro level forces, namely: An empowered consumer; a shift in economic power toward the end of the supply chain; deregulation of key industries; globalization; and technology. All of these forces of change elevated the importance of supply chain management as a strategic weapon for competitive advantage.
• The conceptual basis of the supply chain is not new. In actuality, we have gone through several evolutionary stages starting with physical distribution management in the 1970s, which evolved into logistics management in the 1980s and then supply chain management in the 1990s.
• There are a number of terms being used that may be considered synonymous with how supply chain management is defined in this text, namely, demand chain, demand flow, value networks, and so on.
• Supply chain management is involved with integrating three key flows across the boundaries of the companies in a supply chain--product/materials, information, and financials/cash. Successful integration or coordination of these three flows has produced improved efficiency and effectiveness for companies.
• The key factors of successful supply chain management include inventory, cost, information, customer service, and collaboration relationships. Focusing on the management of these factors is critical to the implementation of a supply chain strategy.

• Understand the development of supply chain management in leading corporations.
• Appreciate the importance and role of supply chain management among private and public organizations.
• Understand the contributions of a supply chain approach to organizational efficiency and effectiveness.
• Analyze the benefits that can accrue from implementing effective supply chain practices.
• Understand the major challenges and issues facing organizations developing and implementing supply chain strategies.
• Discuss the major change drivers in our economy and in the global marketplace.

Chapter 2: Dimensions of Logistics

• Logistics has developed as an important area or function of business since World War II. It has gone through several phases of development in achieving its present status.
• Logistics is a critical part of supply chain management. The coordination and, perhaps, integration of the logistics systems of all the organizations in a supply chain are necessary requirements for successful management of the supply chain.
• Logistics has a number of different definitions because of the broad-based interest in its activities and the recognition of its importance. The definition developed by the Council of Logistics Management is the primary definition used in the text.
• Logistics is an area of management that has four subdisciplines—business, military, service, and event.
• On a macro basis, logistics-related costs have been decreasing on a relative basis, which has helped the U.S. economy regain its competitive position on a global basis.
• Logistics adds place and time value to products and enhances the form and possession value added by manufacturing and marketing.
• Logistics has an important relationship to manufacturing, marketing, finance, and other areas of companies.
• Logistics managers are responsible for a number of important activities, including transportation, inventory, warehousing, materials handling, industrial packaging, customer service, forecasting, and others.
• Logistics systems can be viewed or approached in several different ways for analysis purposes, including materials management versus physical distribution, cost centers, nodes versus links, and channels. All four approaches are viable for different purposes.
• Logistics systems are frequently analyzed from a systems approach, which emphasizes total cost and trade-offs when changes are proposed. Either a short-run or a long-run perspective can be used.
• The cost of logistics systems can be affected by a number of major factors, including competition in the market, the spatial relationship of nodes, and product characteristics.

• Understand the role and importance of logistics in private and public organizations.
• Discuss the impact of logistics on the economy and how effective logistics management contributes to the vitality of the economy.
• Understand the value-added roles of logistics on both a macro and micro level.
• Explain logistics systems from several perspectives.
• Understand the relationship between logistics and other important functional areas in a company, including manufacturing, marketing, and finance.
• Discuss the important management activities in the logistics function.
• Analyze logistics systems from several different perspectives to meet different objectives.
• Determine the total costs and understand the cost trade-offs in a logistics system from a static and dynamic perspective.

Chapter 3: Demand Management and Customer Service

• Outbound-to-customer logistics systems have received the most attention in many companies; but, even in today’s customer service environment, outbound and inbound logistics systems must be coordinated.
• Demand management may be thought of as focused efforts to estimate and manage customers’ demand, with the intention of using this information to shape operating decisions.
• Supply-demand misalignment may cause severe problems in the outbound-to-customer logistics channel. Causes of these problems should be identified and removed.
• There is growing and persuasive evidence that understanding and managing market demand is a central determinant of business success.
• Although many forecasts are made throughout the supply chain, the forecast of primary demand from the end user or consumer will be the most important. It is essential that this demand information be shared with trading partners throughout the supply chain and be the basis for collaborative decision making.
• There are various approaches to forecasting, each serving different purposes.
• The recent popularity of CPFR has led companies to more meaningful and productive sharing of forecast information on an inter-firm basis.
• The three critical elements of collaborative planning are collaborative demand planning, joint capacity planning, and synchronized order fulfillment.
• Significant attention needs to be directed to individual elements of the order cycle, the length and variability of each, and the overall performance of the order cycle.
• E-commerce fulfillment creates a number of unique challenges for logistics management.
• Customer service is an area of key interest to both marketing and logistics. Effective customer service represents a key way to create value for the customer.
• Customer service may be viewed in three ways—as an activity, as a performance measure, and as a philosophy.
• To be efficient and effective in providing and managing customer service, we have to provide performance standards and measure performance against these standards. Many standards have been used historically, and current priorities are on making sure they focus on the needs of the buyer as well as the seller.
• Having inventory available reduces the likelihood of stockouts. In the event of an out-of-stock situation, there are a number of costs that may be incurred by the manufacturer. These cost types should be identified, and the expected cost of stockouts should be estimated in advance.
• There are a number of distribution channel alternatives that may be considered by companies today. Effective management of the various choices requires coordination and integration of marketing and logistics activities within the firm, as well as coordination of overall channel-wide activities across the firms in the channel.

• Understand the critical importance of outbound-to-customer logistics systems.
• Appreciate the growing need for effective demand management as part of a firm’s overall logistics and supply chain expertise.
• Know the types of forecasts that may be needed, and understand how collaboration among trading partners will help the overall forecasting and demand management process.
• Identify the key steps in the order-fulfillment process, and understand how effective order management can create value for a firm and its customers.
• Realize the meaning of customer service, and understand its importance to logistics and supply chain management.
• Understand the difference between logistics and marketing channels, and understand that goods may reach their intended customer via a number of alternative channels of distribution.

Chapter 4: Procurement and Supply Management

• The supply chain can be viewed as inbound logistics and outbound logistics; the focus of this chapter is on the inbound system. Effective supply chain management requires the careful coordination of inbound and outbound systems.
• Inbound logistics systems can vary in terms of importance, scope, cost, and complexity, depending on where the company is located in the supply chain, the nature of the product, and the market situation in which the product is sold.
• The procurement area plays a major role in materials management, and procurement is an important link in the supply chain.
• The procurement process can be broken down into a set of activities that include identifying a need, defining and evaluating user requirements, deciding whether to make or buy, identifying the type of purchase, performing a market analysis, identifying potential suppliers, prescreening possible vendors, evaluating remaining suppliers, choosing a vendor, receiving delivery of the product or service, and making a postpurchase evaluation.
• Not all purchased items are of equal importance. Using the criteria of risk and value, the quadrant technique classifies items into four importance categories: generics, commodities, distinctives, and criticals. Generics have low risk, low value; commodities have low risk, high value; distinctives have high risk, low value; and criticals have high risk, high value.
• The procurement process activities can be more effectively managed by following a four-step process: (1) determine type of purchase; (2) determine necessary level of investment; (3) perform the procurement process; (4) evaluate the effectiveness of the procurement process.
• In selecting vendors, a number of criteria should be utilized, including quality, reliability, capability, financial viability, and other factors, such as location.
• There are four basic sources of price: commodity markets, price lists, price quotation, and price negotiation.
• The purchase price is a matter of great importance, but it is much more complex than just the base unit price, since it requires the analysis of added value along the supply chain to deliver the highest total value to the ultimate customer.
• In addition to procurement costs, materials management includes warehousing, production planning and control, traffic, receiving, quality control, and salvage and scrap disposal.
• Electronic procurement has become widely used in business because of the publicly available Internet. The advantages include lower operating costs, improved efficiency, and reduced prices, with the primary disadvantage being security. There are four basic types of electronic procurement models: sell-side, electronic marketplace, buy-side, and on-line trading community systems.

• Understand the role and nature of procurement and supply management in a supply chain context.
• Explain the different types of inbound systems.
• Discuss the major materials-management activities.
• Understand the procurement process.
• Explain the risk/value technique for determining purchased item importance.
• Identify the four steps necessary for effective procurement.
• Explain the criteria for evaluating vendors.
• Examine the role of E-commerce in the procurement process.

Chapter 5: Global Logistics

• Global business activity and global logistics activity are increasing. Businesses are relying on foreign countries to provide a source of raw materials and markets for finished goods. Logistics ties together these geographically distant sources and markets.
• As global trade barriers fall, global competition increases. This has led to global companies that formulate strategies on a worldwide basis.
• The global company attempts to satisfy common demands worldwide.
• Porter’s “dynamic diamond” theory suggests that a country’s global competitive advantage is related to four elements: factor conditions; demand conditions; related and support industries; and company strategy, structure, and rivalry.
• The critical changes in global logistics are a result of deregulation of the U.S. ocean liner industry, intermodalism, shipment control, trade policies, and currency fluctuations.
• The largest U.S. trading partners are Canada, Mexico, Japan, China, and Germany.
• The European Union (EU) has unified fifteen countries into a single trading block of 320 million consumers. The logistics impact of the EU is reduced documentation, simplified customs formalities, and common border posts.
• Eastern Europe, especially those countries that were once part of the USSR, represents a high-growth market potential for global companies.
• The North American Free Trade Agreement (NAFTA) joined the United States, Canada, and Mexico into the world’s richest trading block. The logistics of moving products into and out of Canada poses minimal problems. But the logistics of trade with Mexico faces challenges in the areas of documentation, customs, transportation infrastructure, and labeling.
• A Maquiladora operation involves a U.S.-based company establishing a production or assembly facility in Mexico along the U.S.-Mexican border. The Maquiladora offers lower production (labor) costs, and U.S. import duties are limited to the value-added portion of the goods returning from Mexico.
• Asian and South American countries present sizable markets for goods and sources of raw materials and component parts.
• The primary global transportation system consists of ocean and air. For moves to bordering countries, rail and motor are used.
• The global logistics system relies heavily on intermediaries. The primary intermediaries are foreign freight forwarders, airfreight forwarders, non-vessel-operating common carriers, customs house brokers, and export management companies.
• The port used to exit and enter a country directly affects total logistics costs and service. Port authorities are governmental authorities that own, operate, or provide port facilities. Equipment availability is the most important port selection criterion.
• A bonded warehouse permits storage of an imported shipment without payment of duties on the goods until they are removed for sale or consumption.
• Packaging for global shipments is more stringent than for domestic.
• Customs regulations are designed to provide revenue to an importing country and to protect the country’s industries.
• A foreign trade zone permits an importer to land, store, and process goods within the zone without incurring any import duties or domestic taxes.

• Describe the major similarities and differences between domestic and global logistics.
• Discuss the reasons for the increase in global business activity.
• Define a global company.
• Explain Porter’s dynamic diamond theory of global competitive advantage.
• Describe the critical changes affecting global logistics.
• Explain the effect of the changing legal and political environment in Europe, Asia, North America, and South America.
• Discuss the North American Free Trade Agreement and its effect on logistics.
• Define the nature and benefit of a Maquiladora.
• Explain the major transportation systems available for global logistics.
• Distinguish among the global logistics intermediaries: freight forwarders, customs house brokers, nonvessel-operating common carriers, and export management companies.
• Explain the criteria used to select a port for global logistics

Chapter 6: Managing Inventory Flows in the Supply Chain

• Inventory as a percent of overall business activity continues to decline. Explanatory factors include: greater expertise in managing inventory, innovations in information and communications technology, greater competitiveness in markets for transportation services, and emphasis upon reducing cost through the elimination of non-value-added activities.
• As product lines proliferate and the number of SKUs increase, the cost of carrying inventory becomes a significant expense of doing business.
• There are a number of principal reasons for carrying inventories. Types of inventory include: cycle stock, goods in process or goods in transit, safety stock, seasonal stock, anticipatory stock, and dead stock.
• Principal types of inventory cost are inventory carrying cost, order/setup cost, expected stockout cost, and in-transit inventory carrying cost.
• Inventory carrying cost is composed of capital cost, storage space cost, inventory service cost, and inventory risk cost. There are precise ways to calculate each of these costs.
• ABC analysis is a useful tool to improve the effectiveness of inventory management. Other tools include critical value analysis and supply segmentation.
• There are a number of key questions and issues that may be raised to evaluate the effectiveness of a company’s approach to inventory management.
• Inventory visibility can result in significant benefits to companies including reduced costs, reduced stockouts, and so on.

• Understand the importance of coordinated flows of inventory through supply chains.
• Appreciate the role and importance of inventory in the economy.
• Understand the major reasons for carrying inventory.
• Discuss the major types of inventory-related costs and their relationships to inventory decisions.
• Understand how inventory items (stock-keeping units) can be classified.
• Understand how companies can evaluate the effectiveness of their inventory management techniques.

Chapter 7: Inventory Decision Making

After reading this chapter, you should be able to do the following:

• Understand the fundamental differences among approaches to managing inventory.
• Appreciate the rationale and logic behind the economic order quantity (EOQ) approach to inventory decision making, and be able to solve some problems of a relatively straightforward nature.
• Understand alternative approaches to managing inventory—JIT, MRP, and DRP.
• Realize how variability in demand and order cycle length affects inventory decision making.
• Know how inventory will vary as the number of stocking points decreases or increases.
• Recognize the contemporary interest in and relevance of time-based approaches to inventory management.
• Make needed adjustments to the basic EOQ approach to respond to several special types of applications.

Chapter 8: Warehousing Decisions

• Warehousing plays a strategic role in attaining overall logistics cost and service goals.
• The value-adding roles of warehousing include transportation consolidation, product mixing, service, contingency protection, and smoothing.
• The basic warehousing decisions involve ownership, centralization versus decentralization, number, size, location, interior layout, and items stocked.
• Movement and storage are the primary warehouse operations.
• The decision to use private or public warehousing examines total cost and is affected by throughput volume, demand variability, market density, special physical control requirement, customer service needs, security, and multiple-use needs.
• Public warehousing is a variable component in the logistics system; provides a wide array of services; and is reguated as to rates, liability, and receipts.
• The greater the number of warehouses in a logistics system, the lower the transportation and lost sales cost, but the higher the warehousing and inventory cost.
• The space requirements of a warehouse include space for receiving, shipping, order picking, order assembly, storage, offices, and miscellaneous activities.
• The major principles of warehouse layout design are: use one-story facilities, move goods in a straight line, use efficient materials-handling equipment, use an effective storage plan, minimize aisle space, and use the maximum height of the building.
• Materials handling is the short-distance movement of goods that takes place within the confines of a building such as a plant or warehouse and between a building and a transportation vehicle.
• Materials handling has four dimensions: movement, time, quantity, and space.
• The objectives of materials handling are to increase the effective capacity of facilities, improve operating efficiency, develop effective working conditions, improve logistics service, and reduce cost.
• The logistics concern with packaging involves product identification, ease of handling, efficient use of storage facilities and transportation vehicles, the environment, and product protection.
• Packaging affects marketing, production, warehousing, and transportation.
• New packaging materials offer greater protection with lesser weight.
• Bar coding is an electronic method of identifying the package and its contents, and it enhances the efficiency of product storage and retrieval.

• Discuss the strategic value-adding role warehousing plays in the logistics system.
• Develop an analytical framework for basic warehousing decisions.
• Discuss the major principles of warehouse layout design.
• Compare the use of private versus public warehousing.
• Explain public warehousing services, regulations, and pricing.
• Describe the decision-making approach used to determine the number of warehouses in the logistics system.
• Discuss the different types of materials-handling equipment and the criteria used to select this equipment.
• Explain the cross-functional role of packaging in a company.

Chapter 9: The Transportation System

• The transportation system available to the logistics manager consists of the basic modes, intermodal, and indirect and special carriers.
• The carrier selection is twofold: selection of the mode and selection of the specific carrier.
• Factors determining carrier selection include transportation rate, transit time, reliability, capability, accessibility, and security.
• Railroads offer low cost for long hauls of large volumes, but they have accessibility limitations and long transit time.
• Motor carriers are very accessible and move products in small quantities with low, consistent transit times. However, their costs are higher than the other modes, except air.
• Water transportation is relatively low cost and is desirable for moving large volumes over long distances. The prime disadvantage is long transit times and service disruptions caused by weather.
• Air carriers have very low transit times but very high rates.
• Pipelines offer very low rates for the movement of liquids but are not a viable option for manufactured goods.
• There are five legal classes of carriers: common, contract, regulated, exempt, and private.
• Intermodal transportation is the combination of two or more basic modes to provide through movement. The dominant form is rail-truck, or piggyback.
• Containerization is the shipping of freight in a large box, or container, that is subsequently transferred from one carrier to another. It reduces freight handling and damage while improving transit time.
• The transportation system includes a number of indirect and special carriers, such as small package carriers, consolidators, freight forwarders, shippers associations, brokers, and intermodal marketing companies.

• Explain the economic role transportation plays in the economy.
• Discuss the economic and service characteristics of the basic modes.
• Discuss the economic effect of rates, transit time, reliability, capability, accessibility, and security in the carrier selection decision.
• Compare the advantages and disadvantages of using common, regulated, contract, exempt, and private carriers--the five legal classes of carriers.
• Discuss the economic and service characteristics of intermodal transportation and explain the dominance of rail-truck (piggyback) intermodal service.
• Discuss the economic and service characteristics of indirect and special carriers.

Chapter 10: Transportation Management

• Transportation management embraces a proactive philosophy to identify and solve transportation problems.
• To increase negotiating power and facilitate partnerships, shippers are using a limited number of carriers.
• Carrier negotiating and contracting are a natural outgrowth of carrier deregulation. Both activities result in lower freight costs and improved services.
• Shipment consolidation is a strategy that combines smaller shipments into a larger shipment to realize lower freight rates inherent in carrier pricing.
• Economic regulation of transportation placed controls over carrier entry, prices, and services. Today, economic deregulation of transportation emphasizes the marketplace, not government, as the mechanism for control.
• Carrier performance quality is measured with a carrier evaluation technique that uses a rating scale to rate carrier performance.
• Domestic documentation includes the bill of lading, freight bill, and freight claim. The bill of lading is the contract of carriage and a receipt for the goods tendered to the carrier. The freight bill is the carrier’s invoice, and the freight claim is a shipper request for reimbursement for freight loss and damage.
• Common carriers are liable for all loss and damage, with limited exceptions.
• International documentation consists of financial, customs, and transportation documents.
• For domestic trade there are basically two terms of sale, whereas for international trade there are thirteen.
• Transportation rates are based on either cost of service or value of service. Cost of service reflects the carrier’s cost, while value of service considers how much the shipper is willing to pay.
• Freight rates vary with distance and weight. Rates increase with distance and weight shipped.
• In addition to basic movement service, carriers offer terminal and line-haul services. Terminal services include the terminal functions, loading and unloading, and shipment monitoring. Reconsignment and diversion, pooling, stopping in transit, and transit privilege are line-haul services.

• Define proactive transportation management.
• Discuss the five transportation management strategies: reducing the number of carriers, negotiating with carriers, contracting with carriers, consolidating shipments, and monitoring service quality.
• Explain the current economic regulation (deregulation) of transportation.
• Distinguish among the transportation documents: bill of lading, freight bill, and freight claims.
• Compare the domestic terms of sale with international Incoterms.
• Explain cost of service and value of service ratemaking and the effect of shipment weight and distance on freight rates.
• Discuss terminal and line-haul services offered by carriers.

Chapter 11: Logistics Relationships and Third-Party Logistics

• The two most basic types of supply chain relationships are “vertical” (e.g., buyer-seller) and "horizontal" (e.g., parallel or cooperating).
• In terms of intensity of involvement, interfirm relationships may span from transactional to relational and may take the form of vendor, partner, and strategic alliances.
• There are six steps in the development and implementation of successful relationships. These six steps are critical to the formation and success of supply chain relationships.
• Third-party logistics may be thought of as an "external supplier that performs all or part of a company’s logistics functions." It is desirable that these suppliers provide multiple services and that these services are integrated in the way they are managed and delivered.
• The several types of 3PLs are transportation-based, warehouse/distribution-based, forwarder-based, financial-based, and information-based suppliers.
• Based on the results of a comprehensive study of users of 3PL services in the United States, over 70 percent of the firms studied are, to some extent, users of 3PL services.
• User experience suggests a broad range of 3PL services utilized; and the most prevalent are warehousing, outbound transportation, and freight bill payment and auditing.
• While nonusers of 3PL services have their reasons to justify their decision, these same reasons are sometimes cited by users as justification for using a 3PL.
• Customers have significant IT-based requirements of their 3PL providers, and they feel that the 3PLs are attaching a priority to respond to these requirements.
• Approximately two-thirds of the customers suggest 3PL involvement in their global supply chain activities.
• Although most customers indicate satisfaction with existing 3PL services, there is no shortage of suggestions for improvement.
• Customers generally have high aspirations for their strategic use of 3PLs and consider their 3PLs as keys to their supply chain success.
• There is a growing need for fourth-party-logistics 18 relationship that provide a wide range of integrative supply chain services.
• Collaborative relationships have been identified as highly useful to the achievement of long-term supply chain objectives.
• The "Seven Immutable Laws of Collaborative Logistics" provide a framework for the development of effective supply chain relationships.

• Understand the types of logistics relationships and their importance.
• Be knowledgeable of a process model that will facilitate the development and implementation of successful supply chain relationships.
• Define what is meant by third-party logistics (3PL), and know what types of firms provide 3PL services.
• Know what types of 3PL services are used by client/customer firms, and know what types of 3PL providers are used.
• Appreciate the role and relevance of information technology–based services to 3PLs and their clients/customers.
• Know the extent to which customers are satisfied with 3PL services, and understand where improvement may be needed.
• Recognize the importance of “collaborative” supply chain relationships.

Chapter 12: Logistics and Supply Chain Information Systems

• The effectiveness of information management is central and critical to the successful execution of logistics and supply chain responsibilities and processes.
• The most important information need relates to customers.
• Based on the results of a current study, the most critical information systems issue is "connecting to customers, suppliers, and partners electronically."
• Quality of information depends on three factors: availability of information, accuracy of information, and effectiveness of communication.
• There are identifiable steps in the process of building an effective information system, and there are a number of key types of people and processes that are involved.
• The emergence of new, dynamic customer requirements has been largely responsible for the emergence of innovative, contemporary logistics networks.
• Effective use of available information technologies may result in supply chain "disintermediation," which may lead to improved supply chain operations.
• Changes and advances in available information technologies have had significant impacts on logistics and supply chain management. In addition to a number of new and innovative logistics information technologies, significant benefits have been derived from Web sites, exchanges, trading communities, and intelligent marketplaces.
• The logistics information system consists of four modules or systems: planning, execution, research and intelligence, and reports and outputs.
• There are a number of considerations that can facilitate the adaptation of new information technologies. Critical among these is for all involved to have a sound understanding of both information technologies and relevant logistics and supply chain processes.

• Understand the overall importance of information systems to logistics and supply chain management.
• Recognize key issues in information systems.
• Know what is meant by the quality of information, and know what to measure to assure that this quality exists.
• Understand the architecture and objectives of information systems in general, and the structural components of the logistics information system.
• Appreciate the role of logistics in the “connected” economy, and appreciate how evolving technologies are impacting logistics and logistics processes.

Chapter 13: Supply Chain Performance Measurement

• Performance measurement for logistics systems and, especially, for supply chains is necessary but challenging because of their complexity and scope.
• Performance metrics are needed to effectively manage organizations over time and to drive expected outcomes and behavior.
• Performance metrics need to be adjusted over time to reflect both internal and external changes. In some instances, the metrics have to be significantly modified or replaced if they become obsolete.
• Performance measurement is not a new interest or focus of logistics and supply chain managers. The development of the physical distribution concept in the 1960s and 1970s was based on measures of efficiency with its emphasis on total system cost. In each decade since the 1960s, there have been different change drivers impacting logistics and supply chain metrics.
• Certain characteristics should be incorporated into good metrics—quantitative, visible, easy to understand, involve employee input, multi-dimensional and the benefits outweigh the costs.
• Important guidelines for metric development for logistics and supply chains include: consistency with overall corporate strategy; focus on customer needs and expectations; careful selection and prioritization of metrics; focus on processes; use of a balanced approach; emphasis on accuracy in developing metrics; and use of technology to improve measurement effectiveness.
• Typically, organizations go through several phases on the path to developing effective metrics: awareness; metric delineation and development; performance improvement; and internal and external integration.
• There are four principal categories for performance metrics: time, quality, cost, and miscellaneous or support. Another classification for logistics and supply chains suggests the following categories for metrics: operations cost, service, revenue or value, and channel satisfaction.
• The SCOR model is being utilized by a growing number of organizations to develop their supply chain metrics, benchmark their performance, and to make appropriate changes to improve performance.

• Understand the scope and importance of performance measurement.
• Explain the characteristics of good performance measures.
• Discuss cost and service performance measurement and quantification.
• Understand transaction and revenue measurement and quantification.
• Explain supply chain channel measurement.
• Discuss overall supply chain metrics.

Chapter 14: Network Design and Facility Location

• The logistics network design decision is of great strategic importance to logistics, the firm as a whole, and the supply chain.
• There are a number of factors that may suggest the need to redesign the logistics network.
• A formal, structured process for logistics network design is preferable; the potential impacts on cost and service justify a significant effort toward following a sound process.
• Numerous factors may affect the design of a logistics network and the location of specific facilities within the context of the network.
• Principal modeling approaches to gain insight into the topic of logistics network design include optimization, simulation, and heuristic models.
• The "grid" method represents a useful way to obtain a good, but not necessarily optimal, solution to a logistics facility location problem.
• The availability and cost of transportation affect the location decision in a number of significant and unique ways.

• Identify factors that may suggest a need to redesign a logistics network.
• Structure an effective process for logistics network design.
• Be aware of key locational determinants and the impact they may have on prospective locational alternatives.
• Understand the different types of modeling approaches that may be used to gain insight into logistics network design and facility location.
• Apply the simple “grid” or center-of-gravity approach to facility location.
• Have knowledge of certain ways in which transportation and transportation costs affect the location decision.

Chapter 15: Supply Chain Finance

• The supply chain influences the flow of products from vendor to final point of consumption, and the resources utilized in the process impact the cost of making the product available to the consumer.
• The equivalent sales increase for supply chain cost saving is found by dividing the cost saving by the company’s profit margin.
• The lower the profit margin, the greater the sales equivalent of a given supply chain cost saving.
• Supply chain management impacts return on assets via decisions regarding channel structure management, inventory management, order management, and transportation management.
• The income statement shows the company sales, costs, taxes, and net income for a given time period.
• Alternative supply chain decisions should be made in light of the financial implications to net income, return on assets, and return on equity.
• The strategic profit model shows the relationship of sales, costs, assets, and equity; and it can trace the financial impact of a change in any one of these financial elements.
• Supply chain service failures result in lost sales and rehandling costs. The financial impact of modifications to supply chain service can be analyzed.

• Convert cost savings into equivalent sales increase.
• Understand a company’s income statement and balance sheet.
• Demonstrate the impact of supply chain strategies on the income statement, balance sheet, profitability, and return on assets.
• Understand and use the strategic profit model.
• Analyze the financial impact of supply chain service failures.
• Utilize the spreadsheet computer software program to analyze financial implications of supply chain decisions.

Chapter 16: Logistics and Supply Chain Challenges for the Future

• Today’s competitive global environment, with the rapid changes that it engenders, has necessitated that companies utilize strategic planning to survive.
• Strategic planning has gone through several stages of development. Today, the planning process taken by many companies focuses on a team-oriented approach to gain competitive advantage in the marketplace.
• Strategic planning also involves understanding the difference between strategy and tactics. Strategy focuses on how a given goal is going to be achieved over the longer run, whereas tactics emphasize the short-run, operational aspects necessary to drive the strategy.
• There are three basic, generic strategies: cost, differentiation, and focus. Competency in logistics and supply chain management can help to achieve these objectives.
• One of the major strategies being implemented in today’s environment is to reduce or compress order cycle time, which has the advantage of reducing inventory cost and improving customer service.
• There are numerous logistics-related initiatives that can help to improve cycle time, including cross-docking, just in time, vendor-managed inventory, continuous replenishment, efficient consumer response, and other technology-related time improvements.
• Another major focus of logistics-related strategies is the improvement of asset productivity. For logistics, the major focus has been on improving the utilization of inventory, facilities, and equipment. Third-party or contract logistics service companies have also become a factor in logistics strategy because of the opportunities to reduce cost, improve asset productivity, and improve customer service if used appropriately.
• The emergence of new and innovative technology-based strategies will result in dramatic changes to the ways we manage logistics and supply chain activities. Also, the move to strategic sourcing and the availability of E-procurement and electronic marketplace capabilities will have significant impacts.
• A final area of great strategic interest will be that of relationship-based strategies. Overall, the business environment will be characterized by a move to collaboration among business partners and more of a "network"-based approach to management of logistics and supply chain activities.
• Key characteristics of future change will include: a move from vertical to virtual integration, further development of collaborative capabilities, knowledge of core competencies, technology and connectivity, and a move to a comprehensive supply chain perspective.

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