Logistics & Supply Chain Management

Objectives and Agenda:

1. Basics of logistics and its role in the modern economy
2. Relation of logistics with Supply Chain Management (SCM)
3. The role of inventory management in SCM
4. Deterministic inventory models
5. Stochastic inventory models: the newsvendor problem

Logistics
The process that plans, implements, and controls the
efficient, effective flow and storage of goods, services,
and related information from point-of-origin to the pointof-consumption in order to meet customers requirements.
Council of Logistics Management (1998)

Supplier

Manufacturer

Distributor

Retailer

Customers

Logistics overview

Logistics management
Effective and efficient management of the flow and
storage of

Goods
Information
Money
People

along a supply chain (both forward and reverse)

Supplier

Manufacturer

Distributor

Retailer

Customers

Players in the Logistics industry

Shipper

Forwarder

Terminal
Handler

Carrier

Terminal
Handler

Forwarder

Consignee

Integrator

Shipper: sends goods for shipment

Forwarder (travel agents for cargo): hires carriers to move goods
Terminal handler: provides temporary
storage/retrieval/reorganization of goods in containers
Carrier: transports goods
Consignee: the person to whom the goods are sent
Integrator: a company that does multiple tasks, e.g., trucking,
forwarding, transport

Players in the Logistics Industry: examples

Shipper: Wal-Mart, Apple etc.
Forwarder: Kerry Logistics, Panalpina etc.
Terminal handler: Hactl (HK Air Cargo Terminal),
HIT (Hong Kong International Terminal) etc.
Carrier: Maersk, OOCL, Cathay Pacific Cargo etc.
Integrator: UPS, DHL, FedEx, SF Express etc.

Freight Forwarders business model

Freight forwarders work like wholesalers
They contract shipping space in large quantity and
sells to shippers in small quantity
Their profit comes from
Price differences (between bulk shipping and unit shipping)
Consolidation of shipments

Terminal operators
Over 50% of all ocean shipments are managed by a
small number (~15) of terminal operators
The five largest terminal operators

Port of Singapore Authority (PSA)

Hutchison Port Holdings (PHP)
Dubai Ports World (DPW)
APM Terminals
COSCO (China Ocean Shipping)

Importance of logistics in HK
Employs over 200,000 people
International airport
Large-capacity container port

#1 Cargo handler in world

3rd largest port in world by volume

HK Port

HK Container Terminals..

CT5

CT1
CT2

CT3
CT4
CT9

CT6
CT7

CT8

Container Terminals
Goods waiting to be shipped

Warehouses
In previous slides, we saw several examples of places where
goods were stored, waiting to be shipped
Places for storing goods Warehouses
Other examples:
Amazon

Why do we need warehouses?

Logistics: Consolidate product
Fixed cost of transportation
Multiple vendors, multiple customers

Manufacturing: Realize economies of scale

In shipping
In purchasing

Retail: Reduce response time

Fluctuate demand
Unreliable transportation

Definition: All goods held by a company that will be used for production, or
shall be sold at a later date are called the inventory.

A product flow model of inventory

The fluid model of product flow

If two pipes have the same rates of flow, the narrower pipe
holds less fluid.
Volume of fluid == inventory
Less inventory less inventory costs.

Product flow in a warehouse

Products flow through warehouse

Some guidelines for warehouse design and operation:
Keep products moving smoothly, avoid starts and stops,
which mean extra handling and space requirements
Avoid layouts that impede smooth flow
Identify and resolve bottlenecks to flow

An example to speed up the flow: cross docking

Cross Docking
Store
Supplier
Store

Cross Dock

Supplier

Store

Store

Supplier

Supplier

Cross Dock

Store

Full truck loads

from suppliers to cross dock
from cross dock to stores
Very little time in storage at
warehouse, <12 hours
Requires good Information Tech.
Requires fast, reliable
transportation
Wal-Mart uses cross-docking for
85% goods
SF Express uses cross-docking
in its Hong Kong operation

Supply Chain Management

A supply chain is a system of organizations, people,
activities, information, and resources involved in
moving a product or service from supplier to customer.
Supply chain management
includes all movement and
storage of raw materials,
work-in-process inventory
and finished goods from
point-of-origin to point-ofconsumption.

Why is SCM important?

Globalization: the process of international integration arising
from the interchange of products, ideas,

Globalization example: iPhone

The plastics

Globalization example: iPhone..

The glass

The metals

Globalization example: iPhone..

Transporting, Assembly,

Key elements in SCM

Supply-chain management emphasizes on the
interfaces between different companies or different
departments in a vertically integrated company
Key elements in the interface
Inventory
Delivery (i.e., logistics),

Inventory..
In every stage of the SCM, inventory management plays a
critical role in making the process efficient
We shall spend the next few weeks looking at inventory
management

References/Credits

Credits: a large part of this ppt came from the lecture notes (for IELM
2010) of Prof L. Jeff Hong

next topic: deterministic inventory models