Business Logistics/Supply

ChainA Vital Subject

The supply chain is simply another way of

saying the whole process of business.

1-1

The Immediate Supply Chain for an Individual Firm

Transportation Transportation Customers

Warehousing

Information
flows
Factory

Transportation

Vendors/plants/ports
Warehousing Transportation

1-2

1
 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
1-3

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
1-4

2
 Supply Chain Schematic

1-5

The Logistics/SC Mission

Getting the right goods or services

to the right place, at the right time,
and in the desired condition at the
lowest cost and highest return on
investment.

1-6

3
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
generationa competitive weapon.

Both views are

now important!
1-7

Critical Customer Service

Loop
Customer order processing (and
transmittal)

Transportation
Customers

Inventory
or supply source

1-8

4
 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
1-9

Customer Service Performance

10 96
Order Cycle Time,
9 94 Days
92
8 Product
Days

90 Availability--%
%

7 orders
88 Product
6 Availability--% line
86 items
5 84
4 82
19 2
19 4
96

20 8
20 0
02
9
9

9
0
19

19

Source: Herb Davis & Company

Year
1-10

5
 Significance of Logistics
Costs are high
About 10.5% of GDP domestically
About 12% of GDP internationally
A range of 4 to 30% of sales for individual firms, avg. about 10%
A high as 70-80% of sales if purchasing and production are
included
Customers are more demanding of the supply chain
Desire for quick response
Desire for mass customization
An integral part of company strategy
Generate revenue
Improve profit
Logistical lines are lengthening
Local vs. long distance supply
Logistics is a key to trade and an increased standard of living
Law of comparative economic advantage applies
Logistics adds value
Time and place utilities 1-11

Costs are lower than K-Mart or

Target Stores
CEO is a former logistician
Wal-Mart is the largest retailer in
the world!
1-12

6
 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
1-13

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 firms internal supply chain 1-14

7
 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
1-15

The Supply Chain is Multi-Enterprise

Scope
in reality

Focus
Company

Suppliers Customers

Suppliers Customers/
suppliers End users

Acquire Convert Distribute

Product and information flow

1-16

8
 Reality of SC Scope

1-17

The Multi-Dimensions of SC
Int
n
tio

ero
na

rga
i
ord

niz
co

ati
l
na

nao
t io

SUPPLY
l
nc

co

CHAIN
u

ord
erf

MANAGEMENT
in
Int

ati
o n

Activity and process

administration
1-18

9
 Study Framework
Inventory Strategy
Forecasting Transport Strategy
Inventory decisions Transport fundamentals

CONTROLLING
ORGANIZING
Purchasing and supply Transport decisions
Customer

PLANNING
scheduling decisions
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
1-19

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

1-20

10
 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
scheduling Materials standards research
Plant Pricing Product
Equipment maint. handling
location Packaging
Capacity planning mix
Purchasing Retail Sales force
Work measurement
location management
& standards

Production-
logistics Marketing-
interface logistics
interface

Internal Supply Chain

1-21

Relationship of Logistics to Marketing

Product
Marketing

Promotion
Price

Place-Customer
service levels
Logistics

Inventory Transport
carrying costs costs

Lot quantity Warehousing

costs Order processing costs
and information
costs
1-22

11
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
1-23

Logistics/SC in Diverse Areas

Manufacturingmost common
Environmentcausing restrictions
Serviceemerging opportunities
Non-profitslittle explored
Militarylong history

1-24

12
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

13