Integrated logistics

and the supply

chain
Chapter 2
 • Emphasis on integration of logistics components to form a seamless
and efficient system
• Discusses concept of "total logistics" and importance of recognizing
trade-off opportunities
• Covers key aspects of logistics planning and financial impact on
What we will business

learn? • Examines recent developments in logistics, including:

• Impact of globalization
• Integrated planning systems
• Use of logistics as a competitive advantage
• Evolution of supply chain management.
 Total Logistics Concept

Definition of TLC: Considers Aims to achieve

Treats all elements of interrelationships optimum efficiency in
distribution and between different the entire logistics
logistics as one elements within the system, not just
integrated system broader supply chain individual elements
 Example of Total Logistics Concept (TLC)

Company produces plastic toys packaged in cardboard boxes

Boxes are packed on wooden pallets for warehouse and delivery

Study shows that cardboard box is an unnecessary cost

Box is discarded, reducing unit cost of toy

Unforeseen result: toys without boxes cannot be stacked on wooden pallets

Must be stored and moved in special trays, incurring additional costs

Sub-optimization in logistics system, ignoring TLC leads to higher total costs

Importance of TLC

• Trade-off analysis is important part of planning for logistics

• Four levels of trade-off:
• Within logistics components
• Between logistics components
• Between company functions
• Between company and external organizations
• Trade-off analysis identifies cost trade-offs and achieves net gain to system
Planning for logistics-
Logistics planning
hierarchy
• Planning is divided into three time horizons:
strategic, tactical, and operational
• There is overlap between the different
levels, allowing for consideration of factors
at different stages
• Importance of elements can differ between
companies
• Example: choice of transport mode can be
strategic, tactical, or both for a single
company
Planning and control

• Both planning and control are

essential for effective and efficient
logistics operation
• Planning focuses on setting up the
operation properly, "doing the
right thing"
• Control focuses on managing the
operation correctly, "doing the
thing right"
• Both planning and control are
required for most elements within
a company
 Major
Functions Of
The Different
Planning Time
Horizons
Major elements of
time horizons
Planning and
control Cycle
1. The planning and control cycle:
1. Determining the current
position through regular
feedback or audits
2. Identifying the objectives
of the logistics process
3. Planning process at
strategic and operational
levels
4. Regular monitoring and
control to measure the
effectiveness of the
operation against the plan
 The financial
impact of logistics
 • Increased sales and high, consistent service
levels can enhance profits
The financial • Minimizing costs through efficient logistics
operations (transport, storage, inventory,
impact of labor)
logistics- • Impact of logistics components on capital
employed (inventory, cash and receivables,
profit fixed assets)
increase • Opportunity to reduce fixed assets through
outsourcing of operations
Globalization and integration
• Companies operating in the global marketplace have a broader perspective than companies that
only operate internationally.
• Global companies have a structure and policy that represents a global business, with attributes
such as global branding, global sourcing, global production, centralization of inventories and
information, but with local customization.
• Logistics and supply chain networks have become more complex and require planning and
management as a complete and integrated system.
• Companies servicing global markets may outsource some manufacturing and use of focused
factories.
• The increase in globalization leads to a more complex supply chain management with extended
supply lead times, production postponement, complicated node management, multiple freight
transport options, extended and unreliable transit times, and the need for greater visibility.
• A conflict exists between globalization and just-in-time operations.
Integrated systems
• Developments in logistics and distribution systems have the concept of total logistics as
their basis.
• The realization of the importance and complexity of logistics and the progress in
information technology have led to the development of sophisticated information systems
for logistics planning and management.
• DPP (Direct Product Profitability) is a technique to allocate all appropriate costs and
allowances to a specific product, allowing for the monitoring of actual costs and
identification of areas of inefficiency.
• MRP (Materials Requirements Planning) and DRP (Distribution Requirements Planning)
are computerized planning tools to make materials or inventory available when needed.
• JIT (Just-In-Time) is a new approach to manufacturing that eliminates wasteful elements
in a production process and is linked to distribution and logistics objectives.
Competitive advantage through
logistics
1. Recognize the positive contribution of distribution and logistics to the value of
a product.
2. Compete based on providing a product at the lowest cost or highest value to
the customer.
3. Choose a competitive stance: service leader or cost leader.
4. Achieve a service or value advantage by providing tailored service, multiple
distribution channels, guaranteed service level, regular order status updates.
5. Achieve a cost or productivity advantage through inventory management, high
utilization of assets.
6. Develop a custom logistics structure to cater to different customer
requirements.
7. Ensure the competitive advantage is understood and applied in all markets.
 The logistics
implications of
different
competitive
positions
Logistics and supply chain management

• Supply chain management is an extension of the concept of logistics, including

both the supplier and end user in the process.
• Supply chain management differs from traditional logistics in four ways:
• It views the supply chain as a single entity, including both suppliers and end
users in the planning process.
• It focuses on strategic planning and decision making.
• It aims to use inventory as a last resort to balance product flow through the
pipeline.
• It utilizes integrated information systems to provide visibility of product
demand and stock levels throughout the pipeline.
What we learned?

• There is a growing recognition of the importance of effective planning and control of logistics, leading to the
development of integrated systems.
• The recent advancements in information technology have made the application of new approaches to logistics more
feasible.
• Large multinational companies have adopted more complex logistics concepts such as DPP and DRP, but smaller
companies are slower to adopt due to a lack of organizational integration and insufficient information structures.
• Companies are beginning to realize the importance of logistics and are restructuring their organizational structures and
planning policies to reflect an integrated approach.
• The total logistics concept emphasizes the need to recognize opportunities for trade-offs and the financial impact of
logistics on a business.
• Key aspects of planning for logistics include integrating the various components and running the system optimally.
• Recent developments in logistics thinking include globalization, integrated planning systems, using logistics for
competitive advantage, and supply chain management.
Thank you!