How goods are transformed through logistics activities in the scope of the supply chain, is denoted as “features of the flow of goods”. This transformation of goods is influenced by supply chain management components and the supply chain network structure (Lambert et al. 1998b).
The structure of the supply chain consists of actors using facilities to carry out logistics activities. How supply chain actors and resources are organised in relation to each other, is influenced by supply chain managerial principles.
We shall use a model to classify the features of the flow of goods.
A model to classify features of the flow of goods
According to Childerhouse et al. (2002) “… modern day marketplaces have diverse requirements for alternative products and services. No one demand chain strategy can best service all these requirements”. Childerhouse et al.
(2002) state therefore that a structured approach to supply chains is required, meaning that the features of the supply chain need to be classified providing the basis for comparing features of different supply chains with each other.
By using the structured and classified attributes of the supply chain we can describe and compare the impact of time, location and form on the transformation of goods in the context for a specific flow of goods. The time, place and form features may then again be used to describe how logistics activities are carried out and thereby why goods are transformed in a specific manner. As discussed in the preceding section 2.1.2, a flow of goods consists of a sequence of different logistics activities. However, there is also a need to classify the entire scope of the flow of goods in a supply chain context in order to distinguish one flow of goods from another.
The attributes of a flow of goods is not the same as the features of goods, rather it describes how goods are transformed in the entire scope of the flow of goods. Christopher and Towill (2000) propose 1) duration of life cycle, 2) time window for delivery, 3) volume, 4) variety and, 5) variability as features distinguishing the supply chain (the “DWV scheme”). Persson (1995) uses the attributes of lead-time, uncertainty, frequency, and seasonality as the distinguishing features of an order-response cycle, involving aspects of the flow of goods and flow of information as a limited part of the supply chain. These classifications of features of the flow of goods are comparable. Both classifications comprise of lead-time as a factor, thus also accounting for communication regarding goods prior to carrying
out logistics activities, such as when purchasing and ordering goods.
However, while the “operational characteristics” (Persson 1995) only encompass features of the order-driven flow of goods, the DWV scheme (Christopher and Towill 2000) encompasses the entire flow in a supply chain. In addition, the DMV scheme encompasses features such as product life cycles, representing features of the goods in a wider time and customer-related perspective. For the purpose of describing the flow of goods attributes from both classification systems are used. “Time”, “variation” and
“frequency” are proposed and have in this study been used as the key distinguishing features to analyse the flow of goods.
Time
Lead-time is limited to the order-driven part of the flow of goods. Therefore
“time” is used to describe this feature. The understanding of time as a feature of the flow of goods is in many ways overlapping in relation to the preceding discussion regarding time as a feature of utility discussed in Section 2.1. Time involves here mainly time intervals, the duration of time in the flows, and when goods are distributed if goods are seasonal.
Variation
Uncertainty and seasonality of goods are grouped into a category called variation, which describes the variation in the volume of the flow of goods per unit time. The degree of uncertainty in flow variation is regarded as an additional attribute of “variation the flow of goods”. According to Thompson (1967:69) the environment of the supply chain may be described in relation to a “stable –shifting” continuum. In the flow of goods variation is mainly related to the volume per unit time of a specific type of goods. In stable environments the supply and demand for goods is relatively constant, while in more shifting environments variation is greater. This involves the role of the environment (including both variations in supply and in demand) on the flow of goods, and how the location and form features of goods may vary in relation to time. Variation is, therefore, regarded as a basic attribute influenced by environmental contingencies and involves variations in time, location, and form (including volume) features of goods.
Frequency
Frequency is used to describe how often an identifiable collection of goods (e.g. a shipment or a batch) is transported, stored, produced, or handled. It is also used to describe how often goods are identified prior to a logistics activity. Frequency is used within Persson’s (1995) framework for the order-response cycle since the timing of logistics activities is not dependent on
whether orders or forecasts represent the basis for this aspect of the transformation of goods.
A model of the features flow of goods
Together the time, variation and frequency features of the flow of goods are used to explain how and why logistics activities are carried out in a certain manner. Features of the flow of goods, according to Jimenez et al. (1998), influence how logistics activities are carried out. These features also enable comparison of different flows of goods to each other. Persson (1995) proposes that operational characteristics are influenced by the structural context and managerial principles of a supply chain. Lambert et al. (1998b) propose that supply chain business processes (including logistics activities), supply chain network structure and supply chain management components be regarded on equal terms. Persson (1995), on the other hand, proposes a hierarchical model to relate operations to the managerial level in the supply chain.
In this thesis a flow of goods is viewed in line with Persson’s (1995) framework, as influenced by a combination of managerial principles and the supply chain structure. In addition, a flow of goods is according to Persson (1995) also prone to uncertainty, which causes as previously discussed, variation in the flow of goods. Further, uncertainty may involve other supply chain capacities such as variations in workforce features, changes in government regulations, and unexpected facility breakdowns. This feature is accounted for in figure 2.3 as “environmental contingencies”. The factors influencing the features of the flow of goods are shown in fig. 2.3 below:
Fig. 2.3 The features of the flow of goods and contextual influences consisting of managerial principles, supply chain structure and environmental contingencies.
Arrows represent direction of influence.
The role of supply chain structure
The supply chain may fundamentally be described as a structure consisting of 1) the location, number, capacity and capabilities of facilities, and 2) the volume and form features of the goods (based on Heskett et al. 1973:275-276, Ballou 1976, Lumsden 1998:566-573). An alternative approach to describing the supply chain structure as proposed by Lambert et al. (1998b) is to account for supply chain actors and how these actors are interrelated. In this thesis both features of facilities and actors related to the transformation of goods are used to describe the supply chain structure. In this study both these views are used to describe supply chain structure. Interrelated and different actors are viewed as using different facilities to carry out sequentially organised logistics activities. According to Croxton and Zinn (2005) logistics costs in a supply chain are influenced by its structure, coordination of inventories at warehouses, and adjusting the location and number of warehouses in the network.
Features of the flow of goods:
• Time
• Variation
• Frequency Managerial
principles
Supply chain structure
Environmental contingencies
The role of managerial principles
Managerial policies play, according to the model depicted in figure 2.3, a central role in influencing how goods are transformed through logistics activities. Speculation and postponement principles have recently been revitalised and now play a more prominent role within supply chain management literature (see Bowersox and Closs 1996, Van Hoek, 1998, Pagh and Cooper 1998). This line of approach regarding management principles within a supply chain are applied here since they account for how operating the flow of goods in its entire scope is influenced by different types of information, provided and used by intercommunicating actors in a supply chain. This aspect of the role of information in a supply chain is accounted for more thoroughly in the following Section 2.2.
When actively using inventory as a buffer to supply demand, this is according to Bucklin (1965) is termed speculation strategy. On the other hand when distribution is organised in accordance with a postponement strategy (Alderson 1950, Bucklin 1965), inventories are stored at a minimum level and goods are delivered based on actual orders. More precisely
“postponement” is a principle of delaying production until order information has been received. This represents what is termed “order-based production”.
Alderson (1957) introduced this concept, stating that “…the most general method which can be applied in promoting the efficiency of a marketing system is the postponement of differentiation… postpone changes in form and identity to the latest point in the information flow; postpone change in inventory location to the latest.” The principle of postponement is now widely used in industry practice (Van Hoek 1998). Bowersox and Closs 1996, Mattsson 2000 and Pagh and Cooper (1998) classify different forms of speculation and postponement supply chain principles showing how and why goods are transformed. These may be described as:
• Full speculation: The main part of the flow of goods is based on forecasts. Only the furthest downstream part of the flow of goods may in some cases be based on orders.
• Time postponement: Materials transport based on customer orders.
A standardised product is produced as late as possible.
Transformation of form features of individual products.
• Place postponement: Location of inventory moved upstream in centralised manufacturing or distribution operations to postpone the forward or downstream movement of goods. Transformation of form features of goods by the manufacturing company.
• Form postponement: Final production or component assembly based on customer orders. Transformation of form features of goods by distributors
The use of postponement or speculation principles specifies the grounds for how a particular logistics activity in a supply chain is based on an order or on a forecast. These principals show how different types of order or forecast information direct the flow of goods. In addition, postponement and speculation principles influence when certain logistics activities are carried out, and how they are sequenced with each other.
Conflicting objectives
The supply chain is not only an arena for developing harmony and actor integration. In an unruly volatile market context (Christopher and Peck 2004), environmental contingencies challenge the supply chain structure and the use of managerial policies. The supply chain may also be an arena of conflict between competing business objectives. Heskett et al. (1973:43-44) and Ellram et al. (1999) discuss how correct and timely delivery may be problematic since marketing objectives aiming to provide customer satisfaction in order to create a foundation for sales, may conflict with logistics aims of economising the use of logistics resources. For instance, Heskett et al. (1973:43) discuss how marketing may aim for presence of products in an abundance of retail locations in order to secure availability of goods. This may then be in conflict with logistics calculations regarding an optimal distribution of goods. Ellram et al. (1999) show how marketing objectives desiring high customer service and product variety may conflict with manufacturing efficiency of stable production runs of a single product.
Retailed products also have differing characteristics regarding the importance of their availability. Items that show a strong relationship between retail stock availability and sales should “…be pushed forward in the distribution channel where it can be used to maintain display stock levels” (Larson and DeMarais 1999). The effectiveness of logistics activities in supplying goods is also related to marketing goals. Therefore, the balancing of the “income” or marketing perspective with the “cost” side of logistics activities will always involve a certain degree of compromise.
Coordination of logistics activities, therefore, must take into consideration not only logistics aims to efficiently provide goods to an end user, but also how end user needs are satisfied which influences product sales. This is related to a marketing perspective regarding the transformation of goods.
Coordination in a supply chain
A supply chain is a complex structure involving multiple elements that must be coordinated with each to achieve an efficient flow of goods. This structure may be designed in various ways in accordance with different principles of postponement and speculation. Within this flow different types
of goods need to be combined in relation to sequentially organised logistics activities.
The issue of coordination places focus on how well different resource elements in a supply chain are interrelated in relation to the activities. The degree of supply chain integration reflects how well logistics activities are coordinated with each other in order to transform the features of goods (Lambert et al. 1998b). According to Holmberg (2000) coordinating activities in a supply chain is, difficult due to “…the complexity induced by a large number of related and interdependent activities in the supply chain.”
A fundamental challenge of logistics as a component of supply chain management is coordinating the multiplicity of actors, resources, and activities used to transform utility in the flow of goods. Supply chain actors need to coordinate the various logistics facility capacities with the goods flowing through the supply chain and transform these goods through a sequence of logistics activities often performed by different actors. These actors must be linked to each other in order to be able to coordinate the different logistics activities. Furthermore, according to Gadde (2000) the level of coordination is influenced by the use of speculation or postponement to manage the flow of goods. The use of principles of postponement increases the need to coordinate the supply chain actors since this principle increases the importance of orders in directing the flow of goods, and orders are prone to uncertainty. Therefore, an order-driven flow of goods may be regarded as demanding a higher degree of coordination of logistics capacities with variations in the flow of goods than a forecast driven flow of goods.
Accounting for different operational and managerial perspectives regarding how goods are transformed in a supply chain structure, represents the foundation of this framework. We shall now look at the role of information as a resource facilitating the coordination of logistics resources, in essence, the variations in the flow of goods and frequencies at facilities. Information is accordingly regarded as a vital tool used to secure the provision of time, place, and form utility of goods by binding supply chain actors together in achieving logistics goals.