Logistics and Supply Chain Management

Module 1

Definition Of Logistics

What is Logistics Logical thinking + Statistics

"Logistics means having the right thing, at the right place, at the right time in the right quantity at the right price.

Relating marketing channels, logistics management, and supply chain management

Logistics & Supply Chain

Logistics involves managing the flow of items,
information, cash and ideas through the coordination of supply chain processes and through the strategic addition of place, period and pattern values.
MIT Center for Transportation and Logistics

Supply Chain deals with the management of materials, information, and financial flows in a network consisting of suppliers, manufacturers, distributors and customers.
Stanford Supply Chain Forum

What is a Supply Chain?

A Supply Chain may be considered as a group of organisations, connected by a series of trading relationships

" Is the strategic management of activities involved in the acquisition and conversion of materials to finished products delivered to the customer"

Supply Chain Management

Supplier Maagement

Material Flow Information Flow

Customer Management

Schedule / Resources

Conversion

Stock Deployment

Delivery

Leads to Business Process Integration

Supply Chain Structure

SUPPLIER FACTORY DC RDC RETAILER

Raw Materials

Finished Goods Information Flow

Supply Chain for Denim Jeans

Illustration of SCM

Supply Chain for Denim Jeans

10-9 Copyright 2006 John Wiley & Sons, Inc.

Stages in Supply Chain

Stages in Supply Chain
Supplier Manufacturer Distributor Retailer Customer

Supplier

Manufacturer

Distributor

Retailer

Customer

Supplier

Manufacturer

Distributor

Retailer

Customer

Objectives of Supply Chain

Maximize overall value created Supply Chain Value: Difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customers request Value is correlated to supply chain profitability (difference between revenue generated from the customer and the overall cost across the supply chain)

Objectives of Supply Chain

Supply chain incurs costs (information, storage, transportation, components, assembly, etc.) Supply chain profitability is total profit to be shared across all stages of the supply chain Supply chain success should be measured by total supply chain profitability, not profits at an individual stage

Objectives of Supply Chain

Sources of supply chain revenue: The customer Sources of supply chain cost: Flows of information, products, or funds between stages of the supply chain Supply chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability

Why is SCM Important?

Strategic Advantage It Can Drive Strategy * Manufacturing is becoming more efficient * SCM offers opportunity for differentiation (Dell) or cost reduction (Wal-Mart or Big Bazaar) Globalization It Covers The World * Requires greater coordination of production and distribution * Increased risk of supply chain interruption * Increases need for robust and flexible supply chains

Why is SCM Important?

At the company level, supply chain management impacts * Cost For many products, 20% to 40% of total product costs are controllable logistics costs. *Service For many products, performance factors such as inventory availability and speed of delivery are critical to customer satisfaction.

Decision Phases in a Supply Chain

Supply chain strategy or design (Year)

Location, capacities, warehousing, mode of transportation & type of information

Supply chain planning (Quarterly)

Markets, subcontracting manufacturing, inventory policies, period and marketing position.

Supply chain operation (Weekly)

Replenishment of orders

Process view of a supply chain

Cycle view
Push/pull view

Cycle View of Supply Chains

Customer

Customer Order Cycle

Retailer

Replenishment Cycle
Distributor

Manufacturing Cycle
Manufacturer

Procurement Cycle
Supplier

Customer order cycle

Customer arrival Customer order entry Customer order fulfillment Customer order receiving

Replenishment cycle

Retail order trigger Retail order entry Retail order fulfillment Retail order receiving

Manufacturing cycle

Order arrival from the distributor, retailer, or customer Production scheduling Manufacturing and shipping Receiving at the distributor, retailer, or customer

Push/Pull View of Supply Chains

Push processes: Execution is initiated in anticipation of customer orders Pull processes: Execution is initiated in response to a customer order

Push/Pull View of Supply Chains

Procurement, Manufacturing and

Customer Order Cycle

Replenishment cycles

PUSH PROCESSES

PULL PROCESSES

Customer Order Arrives

Competitive and supply chain strategies

Competitive strategy-relative to its competitors, the set of customer needs that it seeks to satisfy through its products and services.
Wal-Mart aims to provide high availability of a variety of products of reasonable quality at low prices.

Supply Chain and Competitive Performance

Porter Value Chain

Company Infrastructure

Support Activity

Organisation and People

System and technology

Procurement
Inbound Logistics Outbound Logistics Marketing & Sales

Operation

Service

Primary Activity

Achieving Strategic Fit

Competitive strategy & all functional strategies must fit together to form a coordinated overall strategy. Help a firm to reach its competitive strategy goal. The different functions in a company must appropriately structure their processes and resources to be able to execute these strategies successfully. The design of the overall supply chain and the role of each stage must be aligned to support the supply chain strategy.

How is strategic fit achieved?

Understanding the customer and supply chain uncertainty Understanding the supply chain capabilities
Achieving strategic fit

Customer and Supply Chain Uncertainty

The quantity of the product needed in each lot The response time that customers are willing to tolerate The variety of products needed The service level required The price of the product The desired rate of innovation in the product

The Supply Chain Capabilities

Respond to wide ranges of quantities demanded Meet short lead times Handle a large variety of products Build highly innovative products Meet a high service level Handle supply uncertainty

Achieving Strategic Fit

Final step is to ensure that the degree of supply chain responsiveness is consistent with the implied uncertainty. The goal is to target high responsiveness for a supply chain facing high implied uncertainty and efficiency for a supply chain facing low implied uncertainty.

The Zone of Strategic Fit

Responsive Supply chain

Responsiveness

Spectrum

Efficient Supply Chain Certain Demand Implied Uncertainty Spectrum Uncertain Demand

Supply chain drivers and metrics

Facilities Inventory Transportation Information Sourcing pricing

Supply Chain Decision-Making Framework

Competitive strategy

Supply Chain Strategy

Efficiency

Supply chain structure

Responsiveness

Logistical Drivers

Facilities

Inventory

Transportation

Information

Sourcing

Pricing

Cross-Functional Drivers

Facility

Capacity Utilization Theoretical flow/cycle time of production Actual average flow/cycle time Flow time efficiency Product variety Volume contribution Processing / setup/ Idle time Average production batch size Production service level

Inventory

Avg. inventory Products with more than a specified number of days of inventory Avg. replenishment batch size Avg. safety inventory Seasonal inventory Fill rate Fraction of time out of stock

Transportation

Average inbound transportation cost Average incoming shipment size Average inbound transportation cost per shipment Average outbound transportation cost Average outbound shipment size Average outbound transportation cost per shipment Fraction transported by mode

Information

Forecast horizon Frequency of update Forecast error Seasonal factors Variance from plan Ratio of demand variability to order variability.

Sourcing

Days payable outstanding Average purchase price Range of purchase price Average purchase quantity Fraction on-time deliveries Supply quality Supply lead time

Pricing

Profit margin Days sales outstanding Incremental fixed cost per order Incremental variable cost per unit Average sale price Average order size Range of sale price Range of periodic sales

Obstacles to Achieving Strategic Fit

Increasing variety of products Decreasing product life cycles Increasingly demanding customers Fragmentation of supply chain ownership Globalization Difficulty executing new strategies Simultaneous pursuit of responsiveness and efficiency