Principles of Supply Chain Management  book cover
2nd Edition

Principles of Supply Chain Management

ISBN 9781482212020
Published December 11, 2014 by CRC Press
718 Pages 66 B/W Illustrations

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Book Description

The second edition of this popular textbook presents a balanced overview of the principles of supply chain management. Going beyond the usual supply chain text, Principles of Supply Chain Management not only details the individual components of the supply chain, but also illustrates how the pieces must come together. To show the logic behind why supply chain management is essential, the text examines how supply chains are evolving, looks ahead to new developments, and provides a balanced look at supply chains with a focus on both the customer side and the supplier side of supply chains.

See What’s New in the Second Edition:

  • Expanded coverage of current topics such as e-commerce, risk management, outsourcing and reshoring, sustainability, project management, and data analytics
  • Increased emphasis on how customers are becoming more influential in steering product design
  • Additional coverage of the use of data analytics to evaluate customer preferences and buying patterns
  • A new chapter devoted to logistics and its increasing importance in supply chains
  • Company profiles of organizations with effective supply chains that illustrate the main theme of each chapter
  • A "Hot Topic" for each chapter, providing a description of a critical management issue to stimulate class discussion
  • A complete set of instructor materials for each chapter, including presentation slides, test banks, class exercises, discussion questions, and more

From the point of distribution to the final customer, all the way back to the point of origin at the mine or farm, the text provides examples and case histories that illustrate a proven approach for achieving effective supply chain integration. This self-contained resource provides readers with a realistic appraisal of the state of the art in supply chain management and the understanding needed to build and manage effective supply chains in a wide range of industries. Most importantly, it emphasizes the need for building and maintaining collaboration among all members of the supply chain.

Table of Contents

Preface to the Second Edition
Preface to the First Edition
Chapter Outline


Evolution of Supply Chains
Learning Outcomes
Company Profile: Procter & Gamble (P&G)
What Is a Supply Chain?
Importance of SCM
Evolution of Supply Chains
Early Supply Chains
Local Supply Chains
Global Supply Chains
Changing Government Orientation
State-Controlled Governments
Market-Driven Governments
Current Trends that Link Supply Chain Participants More Closely
Relationship Building
Electronic Business
Developing Economies
Need for Quality Improvement
Changing Customer Demands
Current Developments in SCM
Power Has Shifted from Manufacturers to Retailers
Consolidation of Small, Local, or Regional Retailers into National Chains
Emergence of "Killer Category" Retailers
From a Make-and-Sell Mentality to a Sense-and-Respond Orientation
Obstacles to Supply Chain Integration
Need for Globalization
Complexity of Arranging Entities with Common Interests
Lack of Effective Interorganizational Systems
Need for Multiple Supply Chains within Companies
Lack of Trust between Participants
Examples of Companies with Successful Supply Chains
Hot Topic: Outsourcing to Low Wage Countries
Discussion Questions

Supply Chains as a System
Learning Outcomes
Company Profile: Zara’s
Supply Chain Systems
Manufacturing versus Services
Characteristics of Supply Chains
Physical Flow
Information Flow
Funds Flow
Relational Flow
Examples of Supply Chains in Different Industries
Internal and External Customers
Open Systems versus Closed Systems
Effect of External Influences on Supply Chains
Obstacles and Enablers of Supply Chain Integration
Performance Measurement
Allocation of Costs, Resources, and Benefits along the Supply Chain
Value Creation as the Ultimate Objective
Hot Topic: How a Natural Disaster Can Cripple a Supply Chain
Discussion Questions


Determining Customer Needs
Learning Outcomes
Company Profile: McDonald’s
Group Customers into Homogeneous Segments
Determine Needs of the Ultimate Consumer
Product Needs
Service Needs
Marketing Mix
Manufacturing and Service Supply Chains
Accurately Determine Customer Needs
Market Research
Open System Scanning
Develop Reliable Demand Forecasts
Quantitative Forecasting Methods
Qualitative Forecasting Methods
Collaborative Forecasting
Determine the Attributes of a Well-Designed Product
Functionality (Product Works to Satisfy Customers’ Needs)
Validity (Product Has Value and Functions at a Reasonable Cost)
Manufacturability (Product Can Be Efficiently Produced)
Reliability (Product Has a Variety of Quality Attributes)
Serviceability (Product Can Be Serviced during Its Effective Life)
Recyclability (Product Can Be Recycled along the Reverse Logistics Supply Chain)
Consider Alternative Product Design Approaches
Quality Function Deployment
Concurrent Engineering
Design for Manufacturability
Design for Sustainability
Determine the Number of Supply Chains Needed by a Company
Align with Customer Segment
Align with Product/Service Bundle
Align with Supplier Category
Align with Common Incentives
Respond to Needs of Internal Customers
Hot Topic: Human Trafficking
Discussion Questions

A System to Meet Customer Needs
Learning Outcomes
Company Profile: GE Aviation
Supply Chain Models
Global Supply Chain Forum Model
Customer Relationship Management
Origins of CRM
What Can CRM Do?
CRM Processes
CRM’s Future
Product Life Cycle Management
What Is PLM?
How Did PLM Evolve?
What Does PLM Include?
What Does PLM Not Include?
What Are the Benefits of PLM?
What Are the Obstacles?
What Is the Present Status of PLM?
What Does the Future Hold?
Supply Chain Configuration
Basic (Generic) Supply Chain
Variations for Different Industries
Supply Chain Mapping
Determining Resource Requirements
Information Systems
Designing Processes to Match with Products
Make to Stock
Assemble to Order
Make to Order
Engineer to Order
Determining the Mix of Make and Buy
Core Competency Concept
Total Cost of Ownership
Cost Reduction versus Revenue Increase Considerations
Effect of Outsourcing Movement
Aligning Entities along the Supply Chain
Entities to Be Involved
Allocation of Authority and Responsibility among Entities
Collaboration Process
Implementation Plan
Evaluating the System Design
Will It Accomplish Its Objectives?
Is It Sustainable?
Is It Flexible?
Hot Topic: Sweatshops
Discussion Questions

Demand Management
Learning Outcomes
Company Profile: NextEra
Definition of Demand Management
Importance of Demand Management
Managing Demand
Accept All Demand
Select the Types of Demand to Accept
Solicit External Input in Forming Demand Patterns
Design the Form in Which Demand Will Be Accepted
Impose Constraints on Demand Submission
Managing Supply
Select a Demand Management Strategy
Develop a Demand-Forecasting System
Determine the Resource Requirements to Meet the Demand
Merging Supply and Demand into a Demand Management Process
Sales and Operations Planning to Match Short-Term Supply and Demand
Collaboration among Supply Chain Participants
Demand Management in Manufacturing
Demand Management in Services
Proposed Demand Management Strategies
Factors That Affect Selection of a Demand Management Strategy
Resources’ Value
Type of Demand
Top Management Strategies
Relationship between Factors and Strategies
Model for Integrating Demand and Supply Management
Programs Used to Implement Demand Management Strategies
Provide Strategy Programs
Match Strategy Programs
Influence Strategy Programs
Control Strategy Programs
Demand Management along the Supply Chain
Mining and Agriculture
Hot Topic: The Problem of Cheap
Discussion Questions


Distribution and Retailing
Learning Outcomes
Company Profile: Lowe’s
Retail Function
History of Retailing
Characteristics of the Industry
Customers and Markets
Transformation Process
Impact on Operations Management
Designing the Retail Process
Strategic Orientation
Critical Design Points: Keys to Success
Additional Factors to Consider in Retail Store Design
Managing a Retail Business
Determine the Expected Demand
Plan Capacity to Meet Demand
Implement the Operating Plan
Measure Performance
Replan for the Next Period
Retail and Inventory Management
Response Time
Present Situation in Retailing
Future in Retailing
Role of Wholesalers and Distribution Centers
Loading the Trucks
Transporting to Stores
Unloading and Display at Stores
Critical Success Factors for Distribution
Inventory within Distribution Functions
Inventory Management between Retailer and Distributor
Technology in Distribution Functions
At the Retail Store
Movement of Goods
At the Distribution Center
Distribution Center Design
Positioning Services within the Distribution Functions
Presale Services
Postsale Services
Role of Third-Party Service Providers
Distribution Performance Measurement
Financial Performance Measures
Operating Performance Measures
Collaboration Performance Measures
Retailer–Distributor Relationship
Hot Topic: Contaminated Milk
Discussion Questions

Production and Service Processes
Learning Outcomes
Company Profile: Caterpillar
Evolution of the Production Function
From Craft to Mass Production
From Mass Production to Mass Customization
Critical Success Factors for Manufacturers
Cost and Efficiency
Responsiveness: Timing of Delivery
Responsiveness: Product/Service Mix
Information Technology
Manufacturing Strategies
Make to Stock
Locate to Order
Assemble to Order
Make to Order
Engineer to Order
Batch to Lean Operations
Present Batch Flow
Proposed Lean Production Flow
Customer Lead Time
Extra Available Space
Faster Detection of Quality Problems
Ease of Transferring Operators
Reduced Scheduling Requirements
Smaller Lot Sizes
No Buildup of WIP Inventory
Empowered Employees
Reduced Equipment Breakdowns
Reduced Late Material Deliveries
Obstacles to Implementing Lean
Make or Buy Strategies
Vertical Integration
Capacity Planning
How Much Capacity? When? What Kind?
Location and Ownership
Service Production Strategies
Relationships with Downstream Customers
From Transactions to Processes
Transactions versus Processes
Basic Processes of a Business
Benefits of a Process Orientation
Effect of Process Orientation
Organizational Structure
Knowledge Management
Change Management
Trends in Production
From Manual to Automated
From Domestic to Global
From Standard Products to Customized
Sales and Operations Planning
Additive Manufacturing
Performance Measurement
As Measured by Accounting
As Measured by Production
Measures along the Supply Chain
Hot Topic: Clothing Manufacturing
Discussion Questions

Learning Outcomes
Company Profile: Nestlé
Role of Procurement in the Supply Chain
Traditional Purchasing
Contemporary Purchasing
Changing Role of Purchasing
Critical Success Factors for Purchasing
Match Inflow with Outflow
Reduce Variances in Delivery
Increase Supplier Dependability
Reduce the Bullwhip Effect
Become an Intercompany Facilitator
Find Sustainable Suppliers
Purchasing Functions: Participating
Product Design
Product Specifications
New Product Introduction
Target Costing
Strategic Sourcing
Supplier Location
Inventory Management
Supplier Risk Management
Purchasing Functions: Directing
Purchasing Process
Supplier Evaluation
Supplier Relationship Management
Supply Chain Coordination/Collaboration
Purchasing along the Supply Chain
Mining and Agriculture
Offshore Outsourcing
As a Strategic Concept
TCO Considerations
As a Project, with Project Management Needs
Other Considerations: Intangible Costs and Public Acceptance
Supplier Location as a Strategy for Entering an Offshore Market
Performance Measurement
Traditional: Positive Purchase Price Variance
Contemporary: Enhanced Value for the Consumer
Future of Purchasing
Hot Topic: Why Apple Juice Should Be Made from … Apples
Discussion Questions

Logistics: The Glue That Holds the Supply Chain Together
Learning Outcomes
Company Profile: Transportation Insight
Scope of Logistics
Evolution of Integrated Logistics
Truck: Privately Owned or Third-Party Carriers
Rail: For Selected Goods
Transmission Lines
Fiber-Optic Cable Networks
Materials Management
Interim Storage
Exchange Points
Drivers of the Outsourcing Movement
Steps in the Outsourcing Decision
Reshoring Initiative
Rise of 3PLs
Benefits of 3PL Services
Obstacles to Successful Implementation
Trend toward Outsourcing the Distribution Function
Major Companies
Role of 4PL in Building Supply Chain Relationships
High-Tech Industry Issues
Risk Management
Status Report
Hot Topic: Container Shipping and its Risk Points
Discussion Questions

Reverse Supply Chains
Learning Outcomes
Company Profile: GENCO
Description of Reverse Supply Chain Networks
Benefits of Reverse Logistics
Barriers to Reverse Logistics
Continuation of Forward Supply Chains
History of Reverse Logistics
Principal Drivers of the Movement
Individual Consumers
Individual Businesses
Society as a Group
Business Sector
Educational Institutions
Governments: At All Levels
Activities in Reverse Logistics
Service: Assure Proper Use of Product
Returns: Repackaging or Relocation
Restoration: Minor Modification or Repair
Remanufacturing: Overhaul and Major Rebuilding
Recycling: Reconstitution as Part of Another Product
Disposal: Return to Natural State
Hazardous Waste Disposal
Role of Private Industry
New Paradigms in Product Design (Design for Sustainability)
Design and Operate Green Supply Chains
Develop Systems to Manage Reverse Logistics
Participate in Joint Ventures to Seek Social Objectives
Role of Government
Research: To Identify Threats and Opportunities
Legislation: To Standardize Business Requirements
Regulation: To Monitor Performance
Participation: To Encourage and Support Ongoing Programs
Role of Consumer
Participant in Reverse Supply Chain Programs
Educated Consumer
Supporter of Green Supply Chain Efforts
Reverse Logistics Network
Continuation of the Forward Supply Chain
Open System Environment
Heavily Outsourced by Major Businesses
Need for a Life Cycle Systems Approach
Need for IT
Other Considerations in Designing Reverse Supply Chains
Growth in Amount of Materials Recycled
Increase in Number of Companies Performing Reverse Logistics Activities
Joint Ventures between Private Business and Government
Increased Emphasis on Prevention, Not Just Reusing
More Companies Will Design Integrated Reverse Logistics Systems
Hot Topic: Reshoring: Revisiting the Make or Buy Decision
Discussion Questions


The Need to Integrate
Expected Outcomes
Company Profile: Cisco
Setting the Stage
Reasons to Integrate
Research in Support of Integration Efforts
From Mass Production to Mass Customization
From Craft to Mass Production
Prelude to Mass Customization
From Vertical Integration to Virtual Integration
From Homogeneous Cultures to Diverse Cultures
From Bottom Line to Triple Bottom Line
Drivers of Change
Global Competition
Global Markets
Economic Advantage
Relationships and Trust among Supply Chain Participants
Trust between Individuals
Formal Contracts or Agreements
Common Interests or Projects (Enforced Trust)
Involves Change Management
Change Is Difficult within a Company
Change Is More Difficult for a Community
Change Is Most Difficult for an Entire Country
Steps in the Integration Process
Build Interfaces with Customers and Suppliers
Change Interfaces to Interlaces to Make the Relationships Closer
Change Interlaces to Integrated Relationships
Need for Strategic Planning
Categories of Operations
Normal Operations
Improvement Programs
Problem-Solving Programs
Crisis Management
Need for a Multiyear Project Plan
Performance Measurement across the Supply Chain
Integration Requires Sharing
Hot Topic: Atomic Energy Canada Limited Encounters Problems with Its Cancer-Fighting Machine, Part 1
Discussion Questions

Why Integration Is Difficult
Learning Outcomes
Company Profile: Boeing
Determining Strategic Objectives
Evaluating the Potential Return on Investment
Uncertainty of Benefits
Uncertainty of Costs
Uncertainty of Assets Employed
Designing for Participant Differences
Participants Are Not Equal
Technical Differences
Need for Multiple Supply Chains
Different Customer Segments
Different Supplier Segments
Different Logistics Networks
Separating Interwoven Networks
Selecting and Implementing Technology
Product and Service Processes
Incomplete Interorganizational Systems
Financial Funds Flow
Realigning Infrastructure
Internal Organization
Effect of Outsourcing Movement
External Organization
Policies and Procedures
Physical Infrastructure
Transforming Company Cultures
Building Relationships
Lack of Trust Inhibits Collaboration
Measuring Performance
Maintaining the System
During the Implementation Process
During the Operation of the Supply Chain
Extension into Reverse Logistics
Obstacles to International SCM
Hot Topic: Atomic Energy Canada Limited Encounters Problems with Its Cancer Fighting Machine (Part 2)
Discussion Questions

How to Build an Integrated Supply Chain
Learning Outcomes
Company Profile: Interface, Inc.
Who Manages the Supply Chain?
Past and Future of Supply Chain Management
Present Supply Chains
Virtual Supply Chains
Contractual Alliances
Dominant Party Management
Third-Party Direct Management
Third-Party Indirect (Third-Party) Management
World of Lean Production
Purchasing Process
Production Process
Delivery Process
Demand Variation
Moving from Functional Focus to Cross-Enterprise Collaboration
Comprehensive Supply Chain Model
Decisions Needed to Achieve a Lean and Agile Supply Chain
Integrated Supply Chain
Steps in the Change Process
A Look Ahead
Hot Topic: Atomic Energy Canada Limited Encounters Problems with Its Cancer Fighting Machine (Part 3)
Discussion Questions


Information Flow along the Supply Chain
Learning Outcomes
Company Profile: SAP
Need for Information Flow
Types of Information Transmitted
Upstream Suppliers
Midstream (Internal)
Downstream Customers
Reverse Supply Chain
Supply Chain Connectivity
Intracompany Technologies Used
Data Capture and Communication
Data Storage and Retrieval
Data Manipulation and Reporting
Supply Chain Direct Links
Customer Relationship Management
Supplier Relationship Management
Linking Technologies
Interorganizational Systems
EDI and Internet EDI
Linking Applications
Sales and Operations Planning
Product Life Cycle Management
Third-Party Services
Service-Oriented Architecture
Software as a Service
Cloud Computing
Benefits of Information Technologies
Tangible Benefits
Intangible Benefits
Barriers to IT Adoption
Technological Obstacles
Managerial Obstacles
Societal Obstacles
Model of an Integrated Supply Chain Information System
Hot Topic: The Boeing 787: A New Supply Chain Model in the Commercial Aircraft Industry—Part 1
Discussion Questions

Funds Flow along the Supply Chain
Learning Outcomes
Company Profile: Wells Fargo
Overview of the Flow of Funds
Need for Cash Flow within a Company
Supply Chain Funds Flow
Flows in a Supply Chain
Benefits of Improved Funds Flow
External Sources of Funds
Banks and Other Lending Institutions
Supply Chain Finance
Performance Measurement
Financial Accounting Measures: Current Ratio
Management Accounting Measures
Need for Finance and Operations to Collaborate
Effect of Production Strategies on Funds Flow
Effect of Outsourcing on Product Costs and Capital Requirements
Interorganizational Systems
Funds Flow in the Reverse Supply Chain
Comprehensive Example
Components of a Financial Statement
Analyzing the Cash Flow Statement
Looking at Alternatives
Hot Topic: The Boeing 787, Problems in the Supply Chain (Part 2)
Discussion Questions

ROI for Supply Chains and Other Issues
Learning Outcomes
Company Profile: Apple
Supply Chain Configurations
Programs Requiring Close Supply Chain Relationships
Need to Evaluate Supply Chain ROI
Tangible Benefits
Tangible Costs
Indirect Costs
Intangible Benefits
Intangible Costs
Obstacles to Equitable Distribution among Members
How to Organize?
How to Distribute?
Supply Chain Governance Models
Prime Mover in the Supply Chain
Select the Team
Monitor Ongoing Operations
Evaluate Performance
Initiate Change
Third-Party Provider
Changes in Supply Chain Composition
Dictated by Prime Mover
Consensus of the Supply Chain Participants
Consultation with an Outside Adviser
Mediation by Third Party
Legal Action
Case Studies
Use of Accounting Records
RFID Implementation
Cost Reductions with Investment Requirements
Supply Chain Finance
Benefits of Supply Chain Collaboration
Hot Topic: The Boeing 787, Pushing the Limits of Outsourcing (Part 3)
Discussion Questions


Trends in Supply Chain Management
Learning Outcomes
Company Profile: Amazon
From the Past to the Present
From the American Revolution to World War II
From World War II until the Present
Evolution of Critical Success Factors in the United States
Beginning (from First Settlements through 1800)
Industrial Revolution (1840s–1890s)
Growth and Recovery (1890s–1930s)
Mass Production (1940s–1950s)
Arisings (1960s–1970s)
Awakening (1980s)
Globalization I (1990s)
Globalization II and Mass Customization (2000 and after)
Major Drivers of Change in Supply Chains
Global Business Perspective
Balanced Approach to Offshore Outsourcing
Total Cost of Ownership
Risk Management
Other Issues
Continuing Advances in Technology
Retail Operations
Demand Forecasting
Transportation and Distribution
Information Systems
From Special-Purpose to General-Purpose Resources
Evolution from Transactions to Processes
Transactions versus Processes
Benefits of a Process Orientation
Vanishing Boundaries between Manufacturing and Services
Infrastructure Refinements
From Vertical to Horizontal Organizations
From Rigid Rules to Flexible Policies and Procedures
From Tacit Knowledge to Implicit Knowledge
From Financial Accounting to Management Accounting
Culture and Employees
From Passive or Obstructing Culture to Engaged and Receptive Culture
Employees: From Specialized to Empowered
Supply Chain Relationships
From Adversarial to Collaborative
Trust and Distrust
Emergence of Third-Party Supply Chain Coordinators
Risk Management
Increased Complexity and Risk
Internal Risks
External (Open System Environment) Influences
Natural Disasters
Triple Bottom Line
Beyond the Triple Bottom Line
Why Should Business Take the Lead?
Need for Alliances
Benefits and Obstacles
Sustainability in the Future
Strategic Employee Plan
Hot Topic: Finding Solutions to the Sweatshop Problem
Discussion Questions

Preparation for the Future
Learning Outcomes
Company Profile: Google
Recognize the Need to Adapt
Develop New Measures of Success
Financial Success
Social Responsibility
Integrating Financial Results, Society Equity, and Sustainability
Identify What Needs to Be Done
APICS E&R Foundation Inc
McKinsey Study
University of Tennessee
Adapt to Government Actions
Business Ethics
Product Safety
Social Equity
Capitalize on Third-Party Skills
Direct Support: Outsourcing
Indirect Support: Financing and Insurance
Advisory: Consulting and Training
Analyst: Measure Performance and Identify Needs
Manager: Virtual Holding Company
Utilize Information Technology
Enterprise Resource Planning Extension
Service-Oriented Architecture
Internet Processes
Interorganizational Systems
Take Advantage of Other Technologies
Organization and Teams
Project Management
Process Technology
Build Strategic and Operational Plans
Continue the Drive for Collaboration
Develop Performance Measures for Supply Chain Management
Integrate Delivery Effectiveness Measures
Integrate Cost and Quality Measures
Supplier Profitability
Effectiveness of Supply Chain Integration
Structure the Organization to Manage Change
Integrate All Functions
Educate the Work Force
Increase Marketing Influence
Overcome Inertia
Expand Knowledge Management
From Data to Information
From Information to Knowledge
From Knowledge to Wisdom
Some Ways to Learn
Obstacles to Knowledge Transfer
Will Knowledge Replace "Things"?
Acquire Data Analytics Capabilities
Integrate Manufacturing and Services
Apply Chaos Theory to Business
Hot Topic: How Social Media Knocked Down the Lean Finely Textured Beef Industry
Discussion Questions


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Richard E. "Dick" Crandall is a professor in the College of Business at Appalachian State University (ASU), Boone, North Carolina. He is certified in production and inventory management (CFPIM) and as a supply chain professional (CSCP) by APICS-The Association for Operations Management. He earned his PhD in production/operations management from the University of South Carolina, Columbia, and is a registered professional engineer and a certified public accountant. Prior to joining ASU, Dick worked as an industrial engineer and in management positions for manufacturing and service companies. He was a consultant with a major consulting firm, installing systems for both operations and financial applications. With Rick Crandall, he coauthored the book Vanishing Boundaries, How Integrating Manufacturing and Services Creates Customer Value, by CRC Press, Taylor & Francis Group.

William "Rick" Crandall currently serves as a professor of management in the School of Business at the University of North Carolina at Pembroke. He received his PhD in business administration with a focus on organizational behavior and human resource management from the University of Memphis, Tennessee. His primary research interest is in the area of crisis management, helping organizations cope with catastrophic events. He is the author of the book, Crisis Management in the New Strategy Landscape (coauthored with John Parnell and John Spillan, also of the University of North Carolina at Pembroke), released by Sage Publications. He is also active in researching issues related to supply chain management. Prior to entering higher education, Dr. Crandall worked in management for ARA Services (now ARAMARK), a service management firm based in Philadelphia.

Dr. Charlie C. Chen was educated at Claremont Graduate University, California, and earned his PhD in management information systems. He is a professor in the Department of Computer Information Systems at Appalachian State University, Boone, North Carolina. His research interests include project management and supply chain management. He is a member of the Association for Information Systems and Decision Sciences Institute and is certified by the Project Management Institute as a project management professional (PMP). Dr. Chen has published in journals such as Communications of Association for Information Systems, Behaviour and Information Technology, Journal of Knowledge Management Research & Practice, and the Journal of Information Systems Education. Dr. Chen is a dedicated transnational scholar and a trip leader for study-abroad programs in Asia (Japan and Taiwan).