Business Logistics/Supply

Chain—A Vital Subject

The supply chain is simply another way of

saying “the whole process of business.”

Chapter 1
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 Logistics
?

The benefits of trading products

Location DVD Recorder Processing Software Total Location DVD Recorder Processing Software Total

South Korea $250 $500 $750 South Korea $250 $350 $600

United States $400 $300 $700 United States $300 $300 $600

TOTAL $1450 TOTAL $1200

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 Logistics Defined
Logistics is the process of planning, implementing and
controlling the efficient, cost-effective flow and storage
of raw materials, in-process inventory, finished goods
and related information from the point of origin to point
of consumption for the purpose of conforming to
customer requirements.
Council of Logistics Management

Supply Chain Management Defined

SCM is the integration of all activities associated with the
flow and transformation of goods from raw materials
through to end user, as well as information flows, through
improved supply chain relationships, to achieve a
sustainable competitive advantage.
Handfield and Nichols
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 Supply Chain Schematic

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 The Immediate Supply Chain for an Individual Firm

Transportation Transportation Customers

Warehousing

Information
flows
Factory Reverse
logistics
Transportation

Vendors/plants/ports
Warehousing Transportation

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Evolution of Supply Chain Management
Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+

Demand forecasting

Purchasing

Requirements planning
Purchasing/
Production planning Materials
Management
Manufacturing inventory

Warehousing
Logistics
Material handling

Packaging

Finished goods inventory Supply Chain

Physical Supply Chain
Management
Distribution Management
Distribution planning

Order processing

Transportation

Customer service

Strategic planning

Information services

Marketing/sales

Finance
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 The Logistics/SC Mission

Getting
Getting thethe right
right goods
goods oror services
services
to
to the
the right
right place,
place, at
at the
the right
right time,
time,
and
and inin the
the desired
desired condition
condition at at the
the
lowest
lowest cost
cost and
and highest
highest return
return onon
investment.
investment.

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A Revised Strategy is Generating
Great Top Management Interest
Historical perspective of distribution:
“The last frontier of cost economies”
Peter Drucker, 1962
The contemporary view:
Distribution is a new frontier for demand
generation—a competitive weapon.

Both
Bothviews
viewsare
are
now
nowimportant!
important!
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Scope of the Supply Chain for Most Firms
Business logistics

Physical supply Physical distribution

(Materials management)

Sources of Plants/
Customers
supply operations
• Transportation • Transportation
• Inventory maintenance • Inventory maintenance
• Order processing • Order processing
• Acquisition • Product scheduling
• Protective packaging • Protective packaging
• Warehousing • Warehousing
• Materials handling • Materials handling
• Information maintenance • Information maintenance

Focus firm’s internal supply chain 1-14

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 Key Activities/Processes
 Primary
- Setting customer service goals
- Transportation
- Inventory management
- Location

 Secondary, or supporting
- Warehousing
- Materials handling
- Acquisition (purchasing)
- Protective packaging
- Product scheduling
- Order processing
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 Critical Customer Service
Loop
C ustom er o rder processing (an d
tran sm ittal)

T ran spo rtatio n

C ustom e rs

Inventory
or sup ply so urce

Service Level vs Cost Efficiency

Transportation  Place value
Inventory  Time value
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 Physical Distribution Costs
Category Percent of sales $/cwt.
Transportation 3.34% $26.52
Warehousing 2.02 18.06
Order entry 0.43 4.58
Administration 0.41 2.79
Inventory carrying 1.72 22.25
Total 7.65% $67.71
Logistics cost
Add one-third for inbound supply costs are about 10% of
sales w/o
Source: Herb Davis & Company purchasing costs

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 Customer Service Performance
10 96
Order Cycle Time,
9 94 Days
92
8 Product
90 Availability--%
Days

7 orders

%
88 Product
6 Availability--% line
86 items
5 84
4 82
92 94 96 98 00 02
19 19 19 19 20 20
Source: Herb Davis & Company
Year
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Effect on Logistics Foreign Outsourcing
Domestic sourcing Foreign sourcing
Profit Profit Increase
G&A G&A
Marketing Marketing

Logistics Increase
Logistics

Overhead Tariffs
Overhead
Materials
Materials

Labor Reduction
Labor
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•Costs are lower than K-Mart or
Target Stores
•CEO is a former logistician
•Wal-Mart is the largest retailer in
the world!
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 Logistics/SC in Diverse Areas
Manufacturing—most common
Environment—causing restrictions
Service—emerging opportunities
Non-profits—little explored
Military—long history

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The Supply Chain is Multi-Enterprise
Scope
in reality

Focus
Company

Suppliers Customers

Supplier’s Customers/
suppliers End users

Acquire Convert Distribute

Product and information flow

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 The Multi-Dimensions of SC

Int
n
t io

e
ror
na

ga
rdi

niz
oo
lc

ati
na

on
ctio
SUPPLY

al
co
CHAIN
un

ord
erf

MANAGEMENT

in
Int

ati
on
Activity and process
administration
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 Relationship of Logistics to
Marketing and Production
LOGISTICS
Sample
activities: MARKETING
PRODUCTION/ Transport Interface Sample
OPERATIONS  Inventory
Interface activities: activities:
Sample activities:  Order  Customer
 Quality control activities:  Promotion
 Product processing service  Market
 Detailed production
scheduling  Materials standards research
scheduling  Plant  Pricing
 Equipment maint. handling  Product
location  Packaging
 Capacity planning mix
 Purchasing  Retail  Sales force
 Work measurement
location management
& standards

Production-
logistics Marketing-
interface logistics
interface

Internal Supply Chain

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Relationship of Logistics to Production
Coordinates through scheduling and strategy—
make-to-order or make-to-stock
An integral part of the the supply chain
Affects total response time for customers
Shares activities such as inventory planning
Costs are in tradeoff
Production lot quantities affect inventory
levels and transportation efficiency
Production response affects transportation
costs and customer service
Production and warehouse location are
interrelated
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 Relationship of Logistics to Marketing
Product
Marketing

Promotion
Price

Place-Customer
service levels

Transport
Logistics

Inventory
carrying costs costs

Lot quantity Warehousing

costs Order processing costs
and information
costs
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The objective of Business Logistics

Operating cost & Revenue

Capital requirement contribution

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 The Logistics Strategy Triangle
Inventory Strategy
 Forecasting
 Storage fundamentals Transport Strategy
 Inventory decisions  Transport fundamentals
 Purchasing and supply  Transport decisions
scheduling decisions
Customer
 Storage decisions
service goals
 The product
 Logistics service
 Information sys.

Location Strategy
 Location decisions
 The network planning process

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 Study Framework
Inventory Strategy
• Forecasting Transport Strategy
• Inventory decisions • Transport fundamentals

CONTROLLING
• Purchasing and supply

ORGANIZING
• Transport decisions
scheduling decisions Customer

PLANNING
• Storage fundamentals service goals
• Storage decisions • The product
• Logistics service
• Ord. proc. & info. sys.

Location Strategy
• Location decisions
• The network planning process

The focus is
here
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Contemporary Logistics Terms
Value stream/logistics process
Quick response and flexible
manufacturing
Mass customization
Supply chain management/
collaborative logistics
Reverse logistics
Service logistics
Continuous replenishment
Lean logistics
Integrated logistics 1-25
 Quick Summary

• Logististics, SCM definition. The importance of both

• Logististics, SCM activities, scope, and goals
• Physical distribution vs. Material management
• Primary and secondary activities on Logistics/SC
• Service level vs. cost efficiency
• Added value of transportation and inventory
• Lengthening supply and distribution
• SC in inter-functional and inter-organizational
function
• Intersection of logistics in marketing and production
field of activities
• Return on Logistics Asset
• The logistics strategy triangle
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