Principles of Supply Chain Management - GBV

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Current Trends That Link Supply Chain Participants More Closely. 12. Relationship Building .... Allocation of Authority and Responsibility among Entities. 134. Collaboration ... Role of Wholesalers and DCs. 209. Ordering. 210 ... From Manual to Automated .•. 254 ..... Analyst—Measure Performance and Identify Needs. 553.
Principles of Supply Chain Management Richard E. Crandall William R. Crandall Charlie C. Chen

Ltfi) CRC Press v' ^*~'^

J Taylor & Francis Group Boca Raton London New York

CRC Press is an imprint of the Taylor & Francis Group, an i n f o r m a business

Contents List of Figures

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List of Tables

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Preface Acknowledgments Authors Introduction

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PART I: OVERVIEW OF SUPPLY CHAIN MANAGEMENT 1

Evolution of Supply Chains Learning Outcomes What Is a Supply Chain? Importance of SCM Evolution of Supply Chains Early Supply Chains 1 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 Customer Relationship Management Supplier Relationship Management Product Lifecycle Management Electronic Business Developing Economies Outsourcing Need for Quality Improvement

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Changing Customer Demands Decreasing Response Time Lean Supply Chains to Reduce Waste '. 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 Focus on Strong Brands Pay Attention to Balance Use Downstream Data and Direct Store Delivery Focus on Building Effective Network Relationships Progress toward an Integrated Supply Chain Supply Chain Models Summary Discussion Questions References Supply Chains as a System Learning Outcomes Introduction Supply Chain Systems Inputs Transformation Outputs Manufacturing vs. Services Types of Supply Chains Physical Flow Information Flow Funds Flow Relational Flow Examples of Supply Chains in Different Industries Internal and External Customers

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Contents • Open Systems vs. Closed Systems Effect of External Influences on Supply Chains Obstacles and Enablers of Supply Chain Integration Obstacles Enablers Performance Measurement Allocation of Costs, Resources, and Benefits along the Supply Chain Value Creation as the Ultimate Objective Summary Discussion Questions References

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PART II: THE CUSTOMER PERSPECTIVE 3

Determining Customer Needs Learning Outcomes Introduction Group Customers into Homogeneous Segments Determine the Needs of the Ultimate Consumer Product Needs Service Needs Marketing Mix Manufacturing and Service Supply Chains How Do You Accurately Determine Needs? Past History Market Research Open System Scanning Competition Technology Economy Government Social Trends Business Environment How Do You Forecast Demand? Quantitative Forecasting Methods Time-Series Methods Causal Method Qualitative Forecasting Methods Survey Method Delphi Method

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Contents 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) Quality (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) Product Design Approaches Quality Function Deployment Concurrent Engineering Design for Manufacturability Design for Sustainability Determine the Number of Supply Chains Needed within a Company Align with Customer Segment Align with Product/Service Bundle Align with Supplier Category Performance Measurement Determine the Needs of Internal Customers Conclusion Discussion Questions References ;

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A System to Meet Customer Needs Learning Outcomes What Is Customer Relationship Management? Global Supply Chain Forum Model How CRM Can Be Used to Design a Supply Chain? Origins of CRM What Can CRM Do? Benefits CRM Processes Problems CRM's Future Product Lifecycle Management What Is PLM? ,?How Did PLM Evolve? What Does PLM Include? What Does PLM Not Include? What Are the Benefits of PLM? What Is the Present Status of PLM?

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Contents • What Are the Obstacles? What Does the Future Hold? Supply Chain Mapping The Basic (Generic) Supply Chain Variations for Different Industries Supply Chain Mapping Determining Resource Requirements Facilities Equipment Employees Inventory 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 vs. 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 i Evaluating the System Design Will It Accomplish Its Objectives? Is It Sustainable?' Is It Flexible? Summary Discussion Questions References 5

Demand Management Learning Outcomes Introduction Definition of Demand Management Importance of Demand Management Managing Demand Accept All Demand Select the Types of Demand to Accept

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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 Develop 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 the 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 Retail Wholesale .' Manufacturer Mining and Agriculture Summary Discussion Questions References

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PART III: THE SUPPLY PERSPECTIVE—DISTRIBUTION, PRODUCTION, AND PROCUREMENT 6

Distribution and Retailing Learning Outcomes Introduction Retail Function History of Retailing Retail Services

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Contents • Characteristics of the Industry Customers and Markets Outputs Inputs 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 A Multidiscipline Project Continuing Need to Readjust or Redesign E-Commerce Considerations (Direct vs. Indirect Selling) Strategic or Long-Term Considerations 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 Value Availability Variety Presentation Service : Response Time Present Situation in Retailing Future in Retailing Role of Wholesalers and DCs Ordering Receiving Stocking / Picking '. Loading the Trucks Transport 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

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At the Distribution Center Positioning Services within the Distribution Functions Pre-Sale Services Post-Sale Services Role of Third-Party Service Providers Predominant Delivery Methods Truck—Privately Owned or Third-Party Carriers Rail—For Selected Goods Waterways Air Pipeline Parcel Transmission Lines Fiber-Optic Cable Networks Third-Party Service Providers Importance of RDCs Trend toward Outsourcing the Distribution Function Major Companies—UPS, FedEx, Ryder Distribution Performance Measurement Financial Performance Measures Operating Performance Measures Collaboration Performance Measures Retailer—Distributor Relationship Summary Discussion Questions References

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Production and Service Processes Learning Outcomes Introduction Evolution of the Production Function From Craft to Mass Production From Mass Production to Mass Customization Critical Success Factors for Manufacturers Cost and Efficiency Quality Responsiveness—Timing of Delivery Responsiveness—Product/Service Mix Flexibility Agility Information Technology Manufacturing Strategies Make-to-Stock

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Contents • Locate-to-Order Assemble-to-Order Make-to-Order Engineer-to-Order Batch to Lean Operations Present Batch Flow Machine Breakdowns Supplier Failures Worker Flexibility Customer Lead Times Customer Order Size 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 Reduced Write-Off of Inventory Make or Buy Strategies Vertical Integration Outsourcing Capacity Planning... How Much Capacity? When? What Kind? Location and Ownership Service Production Strategies Relationships with Downstream Customers From Transactions to Processes Transactions vs. Processes Basic Processes of a Business Benefits of a Process Orientation Effect of Process Orientation Organizational Structure Strategies Knowledge Management Change Management Trends in Production From Manual to Automated From Domestic to Global

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From Standard Products to Customized Postponement Sales and Operations Planning Performance Measurement As Measured by Accounting As Measured by Production Measures along the Supply Chain Summary Discussion Questions References 8

Procurement/Purchasing Learning Outcomes Introduction Role of Procurement in the Supply Chain Traditional Purchasing Contemporary Purchasing Critical Success Factors for Procurement Functionality Availability Cost Quality Match Inflow with Outflow Reduce Variances in Delivery Increase Supplier Dependability Reduce the Bullwhip Effect >l Become an Intercompany Facilitator Find Sustainable Suppliers Changing Role of Purchasing Purchasing Functions Product Design Product Specifications New Product Introduction Target Costing Supplier Selection Supplier Location Inventory Management Purchasing Process {•Supplier Evaluation Supplier Relationship Management Supply Chain Coordination/Collaboration Purchasing at Different Stages of the Supply Chain Consumer Retail

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Wholesale Manufacturer Mining and Agriculture Services Dealing with 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 from the Supply Chain for the Consumer Future of Purchasing Summary Discussion Questions References

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Reverse Supply Chains Learning Outcomes Introduction 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—The Community Society as a Group Environmental Concerns Resource Scarcity Concerns Business Sector Economic Benefits Possible New Businesses, Even New Industries, Possible Government—At All Levels Activities in Reverse Logistics Service—Assist Customer to Assure Proper Use of Product Returns—Product Is Intact and Needs Repackaging or Relocation

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Restoration—Product Needs Minor Modification or Repair Remanufacturing—Product Needs Overhaul and Major Rebuilding Recycling—Product Components Needs Reconstitution as Part of Another Product Disposal—Product Remains Need to 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 RSC Programs Educated Consumer Supporter of Green Supply Chain Efforts Reverse Logistics Network Continuation of the Forward Supply Chain Operate in an Open System Environment Heavily Outsourced by Major Businesses Support and Service Returns '. Repairs Remanufacture Rework Recycle Need for a Lifecycle System Approach Need for IT Other Considerations in Designing Reverse Supply Chains Future 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

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Contents • Summary Discussion Questions References

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PART IV: INTEGRATED SUPPLY CHAINS 10

The Need to Integrate Expected Outcomes Introduction Setting the Stage Obstacles to Integration Status 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 Drivers of Change Global Competition :•. Global Markets Economic Advantage Lower Costs Higher Revenues Relationships and Trust among Supply Chain Participants Trust between Individuals Formal Contracts or Agreements Common Interests or Projects (Enforced Trlust) Involves Change Management ). Change Is Difficult within a Company Embedded Culture Policies and Procedures Organization Structure Customer Relationships Supplier Relationships Union Relationships Change Is More Difficult for a Community Company-Community Relationship Difficulty in Changing Laws and Regulations Difficulty in Changing Infrastructure Change Is Most Difficult for an Entire Country Political Implications Regional Differences Steps in the Integration Process

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Contents 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 Multi-Year Project Plan Supply Chain Integration Is a Long-Term Program Requires a Coordinated Multi-Team, Multi-Entity Effort Performance Measurement across the Supply Chain Integration Requires Sharing Responsibilities Resources Sharing Requires Measurement Summary Discussion Questions References

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Why Integration Is Difficult Learning Outcomes Introduction Determining Strategic Objectives Evaluating the Potential Return on Investment Uncertainty of Benefits Tangible, or Direct Intangible, or Indirect Uncertainty of Costs Product Costs Support (Overhead) Costs Uncertainty of Assets Employed Designing for Participant Differences Participants Are Not Equal Commitment Contribution Different Roles—Drivers and Followers Technical Differences Size Proximity Type of Operation

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Contents • Attitudinal Differences Culture Mission and Strategy Need for Multiple Supply Chains Different Customer Segments Different Supplier Segments Separating Interwoven Networks Selecting and Implementing Technology Product and Service Processes Remove Barriers Eliminate Redundancy Develop Compatible Processes Strive for Effectiveness and Efficiency Interorganizational Systems Lack of Systems Compatibility Lack of Information Lack of a System Financial Funds Flow Realigning Infrastructure Internal Organization Effect of Outsourcing Movement External Organization Policies and Procedures Physical Infrastructure Transforming Company Cultures Internal External Building Relationships Communicate Coordinate Cooperate Collaborate Why Do Companies Not Collaborate? Lack of Trust Measuring Performance Maintaining the System During the Implementation Process During the Operation of the Supply Chain Extension into Reverse Logistics Obstacles to International SCM Summary Discussion Questions References

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How to Build an Integrated Supply Chain Learning Outcomes Introduction Who Manages the Supply Chain? Past and Future of Supply Chain Management Present Supply Chains The World of Lean Production Product Purchasing Process Production Process Delivery Process Demand Variation Stages in Moving from Functional-Focus to Cross-Enterprise Collaboration A Comprehensive Supply Chain Model Decisions Needed to Achieve a Lean and Agile Supply Chain Commitment Concept Configuration Top Management Marketing Purchasing Manufacturing Distribution Finance and Accounting Communication Culture ,; Customization Integrated Supply Chain Coordination Cooperation Collaboration Steps in the Change Process Investigate Involve Include Initiate Invigorate Implement Integrate Institutionalize Innovate

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Contents • A Look Ahead Complexity Clairvoyance Summary Discussion Questions References

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PART V: THE FINANCIAL AND INFORMATION TECHNOLOGY PERSPECTIVES 13

Information Flow along the Supply Chain Learning Outcomes Introduction Need for Information Flow Types of Information Transmitted Upstream Suppliers Midstream Supply Chains Downstream Customers Reverse Supply Chain Supply Chain Connectivity Intracompany Technologies Used Data Capture Computer-Aided Design Point-of-Sale Terminals Automatic Identification Systems Groupware Data Storage and Retrieval Data Manipulation and Reporting—ERP Systems Supply Chain Direct Links Customer Relationship Management Supplier Relationship Management Linking Technologies Interorganizational Systems EDI and Internet EDI Automatic Identification Systems Linking Applications Video Conferencing Sales and Operations Planning Product Lifecycle Management Third-Party Services Service-Oriented Architecture Software as a Service

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Cloud Computing Benefits of Information Technologies Tangible Benefits Increase Revenues Reduce Product Costs Reduce Transaction Costs Reduce Product Development Lead Time Reduce Capital Investment Costs Intangible Benefits Improve Customer Relations Improve Decision Making Streamline Administrative Processes Integrate Company Planning and Execution Barriers to IT Adoption Technological Obstacles Standards Interoperability Back-End Interoperability Scope of Applications Security Managerial Obstacles Power Structure Trust Economic Issues Employee Acceptance Societal Obstacles Model of an Integrated Supply Chain Information System Summary ... Discussion Questions '. References

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Funds Flow along the Supply Chain Learning Outcomes Overview of the Flow of Funds Need for Electronic Funds Flow Cash Is King Domestic Supply Chains Require EFT International Supply Chains Require EFT Benefits and Obstacles of Funds Flow in Supply Chains Flows in a Supply Chain Benefits of Improved Funds Flow Obstacles

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Contents • Participants Other Than Members of the Supply Chain Banks Value-Added Networks Performance Measurement Financial Accounting Measures—Current Ratio Management Accounting Measures—Days of Receivables, Inventory, Payables Contemporary Measures—Cash-to-Cash Cycle Time Effect of Production Strategies on Funds Flow Effect of Outsourcing on Product Costs and Capital Requirements Compare Companies—Retailers vs. Manufacturers Financial Institutions' Cash Supply Chain Technologies Used Interorganizational Systems Components of an IOS Benefits Obstacles Evolution Future Electronic Data Interchange Benefits Obstacles Internet EDI Future New Concepts in Funds Flow Funds Flow in the Reverse Supply Chain A Comprehensive Example Components of a Financial Statement Analyzing the Cash Flow Statement Looking at Alternatives Summary Discussion Questions References 15

ROI for Supply Chains and Other Issues Learning Outcomes Supply Chain Configurations Programs Requiring Close Supply Chain Relationships Need to Evaluate Supply Chain ROI Tangible Benefits Reduced Inventory

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Reduced Cycle Times Improved Customer Service Improved Quality Tangible Costs Communications Retraining Internal Employees Restructure Supplier Network Design Customer Network Capital Investment Indirect Costs Meetings Required to Organize Customer and Supplier Relationships Programs to Change Internal Culture Changes in Organization Structure Realignment of Roles of Supply Chain Participants Cash Flow and Time Value of Money Considerations Intangible Benefits Integrated Flow of Goods and Services Faster Resolution of Problems Match Customer Wants with Products Provided Reduced Excess Capacity along the Supply Chain Increased Knowledge Intangible Costs Loss of Confidential Information Increased Awareness of Inequitable Treatment among Participants ' Discrepancy between Contribution and Payoff among Participants Legal Actions Plan for Equitable Distribution among Members How to Organize? How to Distribute? Role of Prime Mover in the Supply Chain Organize Select the Team Monitor Ongoing Operations Evaluate Performance Initiate Change Changes in Supply Chain Composition Dictated by Prime Mover Consensus of the Supply Chain Participants Consultation with an Outside Adviser Mediation by Third Party

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Contents • Legal Action Case Studies Use of Accounting Records RFID Implementation Cost Reductions with Investment Requirements Supply Chain Finance Benefits of Supply Chain Collaboration Summary Discussion Questions References

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PART VI: THE FUTURE 16

Trends in Supply Chain Development and Management Learning Outcomes 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 Competition Outsourcing Increased Complexity and Risk Changes Needed in the Future Global Business Perspective Balanced Approach to Offshore Outsourcing Total Cost of Ownership Risk Management Other Issues Continuing Changes in Technology Retail Operations Demand Forecasting Transportation and Distribution Information Systems From Special-Purpose to General-Purpose Resources

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Vanishing Boundaries between Manufacturing and Services Process Evolution from Transactions to Integrated Transactions vs. Processes Benefits of a Process Orientation 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 Summary Discussion Questions References

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Preparation for the Future Learning Outcomes Recognize the Need to Adapt to Changing Conditions Open System Environment Globalization : Competition Economy Technology Customers Employees New Measure of Success—Sustainability Financial Success Social Responsibility Environment Integrating Financial Results, Society Equity, and Sustainability Identify What Needs to Be Done 7 ISM Study IBM and IW Study APICS E&R Foundation Inc Summary of Challenges Role of Government

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Environment Business Ethics Product Safety Social Equity Infrastructure Role of Third Parties Direct Support—Outsourcing Indirect Support—Financing and Insurance Advisory—Consulting and Training Analyst—Measure Performance and Identify Needs Manager—Virtual Holding Company Future Technology—Information Technology Oriented ERP Extension Service-Oriented Architecture Internet Processes Interorganizational Systems Process Technology Non-IT 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 Purchasing Integrate All Functions Educate the Work Force Marketing Overcome Inertia Modify the Culture to Accept Change Drive for Sustainability Sustainability Triple Bottom Line Beyond the Triple Bottom Line Why Should Business Take the Lead? Need for Alliances Benefits and Obstacles Sustainability in the Future Wisdom—Education and Training Definitions From Data to Information



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From Information to Knowledge From Knowledge to Wisdom Some Ways to Learn Obstacles to Knowledge Transfer Will Knowledge Replace "Things"? Vanishing Boundaries between Manufacturing and Services Application of Chaos Theory to Business Summary Discussion Questions References Index

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