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368 SUPPLYCHAINMANAGEMENTand qualitative factors related to quality, quantity, deliv-
ery, and price. Although the supplier’s price may be the
most important criteria for generic or commodity-type
goods, other dimensions incorporated in these models are
probably more or equally important for innovative prod-
ucts. Thus, supplier selection is not simply a matter of
satisfying capacity and price requirements, but also needs
to integrate supplier capabilities in terms of quality and
delivery. It should be obvious that it is the collective sup-
pliers’ capabilities that can enable or limit supply chain
performance at its inception.
Once an appropriate set of suppliers has been iden-
tified, the firm must determine a suitable order quan-
tity for each vendor. Because the overall demand for the
firm’s goods are typically uncertain, newsboy-type models
can be successfully used in this context. Essentially, these
models take into account the cost of inventory (overage
cost) and the cost of unsatisfied demand (underage cost)
to determine an appropriate order quantity. Ultimately,
decisions regarding the number of suppliers from which
to purchase, supplier selection, and order quantity allo-
cation among selected suppliers should support the sup-
ply chain strategy’s focal purpose of being efficiently
responsive or responsively efficient. Sourcing decisions
are one of the primary drivers of transportation and
logistics-related issues discussed in the following section.Transportation and Logistics
Transportation decisions affect product flow not only be-
tween supply chain members but also to the market place.
In most supply networks, transportation costs account
for a significant portion of total supply chain cost. Trans-
portation decisions are mainly tactical, however. In de-
termining the mode(s) and route(s) to employ through
the supply chain, transportation decisions seek to strike
a balance between efficiency and responsiveness so as to
reinforce the strategic position of the supply chain. For
example, an innovative product’s typically short life cycle
may warrant expensive air freight speed for a portion or all
of its movement through the chain, whereas a commodity
is generally transported by slow but relatively economical
water or rail freight. Shipping via truck also is used fre-
quently. Trucking is more responsive and more expensive
than rail and less responsive and less expensive than air.
Most supply chains employ an intermodal strategy (e.g.,
raw materials are transported by rail or ship, components
by truck, and finished goods by air).
A supply chain’s transportation network decisions are
inextricably linked to its network design decisions. Trans-
portation network design choices drive routing decisions
in the supply network. The major decisions are whether
to ship directly to buyers or to a distribution center and
whether a routing scheme is needed. A direct shipping net-
work ships products directly from each supplier to each
buyer. A “milk run” routed direct shipping network em-
ploys a vehicle to ship either from multiple suppliers to a
single buyer or from a single supplier to multiple buyers.
A network with distribution centers ships from suppliers
to a warehouse or distribution facility. From this facility,
buyers’ orders are picked from the distribution center’s
inventory and shipped to the buyers. This design can alsoemploy milk runs from suppliers to the distribution center
and from the distribution center to the buyers. Through
the supply network, combinations and variants of these
designs that best suit the nature of the product provide
locomotion from supplier to buyer.
B2C transactions enable end consumers to demand
home delivery, creating a larger number of smaller or-
ders. This trend has enhanced the role of package carriers
such as FedEx, United Parcel Service, and the U.S. Postal
Service in transporting consumer goods. Additionally, bar
coding and global positioning systems (GPS) provide ac-
curate and timely information of shipments enabling both
buyers and suppliers to make better decisions related
to goods in transit. Technological advancements of the
past decade enable consumers to demand better respon-
siveness from retailers. The resulting loss of some scale
economies in shipping, have been offset by shipping cost
decreases due to information-technology-enabled third-
party shippers that more efficiently aggregate small ship-
ping orders from several suppliers. As consumers’ expec-
tations regarding merchandise availability and delivery
become more instantaneous, the role of a supply chain’s
transportation network in overall performance expands.
This provides the link to operations and manufacturing
issues because the role of information technology has
forced these processes in a supply chain to be more re-
sponsive.Operations and Manufacturing
“A transformation network links production facilities con-
ducting work-in-process inventories through the supply
chain” (Erenguc, Simpson, & Vakharia, 1999, p. 224).
Suppliers linked to manufacturers linked to distribution
systems can be viewed as a transformation network hing-
ing on the manufacturer. Transforming supplies begins
at the receiving stations of manufacturers. The configu-
ration of manufacturing facilities and locations of trans-
formation processes are determined by plant-level design
decisions. The manufacturing process employed at a spe-
cific plant largely drives the decisions. An assemble-to-
order plant may have little investment in production but
a great deal of investment in storage. A make-to-stock fa-
cility may have little or no investment in component in-
ventory but a great deal of investment in holding finished
goods inventory. A make-to-order factory may have signif-
icant investment in components and production facilities,
and no finished goods investment. A product’s final form
can also take shape closer to the end consumer. To keep
finished goods inventory costs as low as possible and to
better match end demand, a supply chain may employ
postponement to delay customizing end products.
Major design decisions such as facility configuration
and transformation processes are considered long-term
decisions, which constrain the short- to mid-term de-
cisions addressed in a plant’s aggregate plan, a general
production plan that encompasses a specific planning
horizon. Information required to develop an effective ag-
gregate plan include accurate demand forecasts, reliable
supply delivery schedules, and the cost trade-offs between
production and inventory. Each supply chain member de-
velops an aggregate plan to guide short-term operational