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MODULE

MODULE -- II
Fundamentals
Fundamentals of
of Logistics
Logistics
and
and Supply
Supply Chain
Chain
Management
Management
OUTLINE
OUTLINE

◆ The Role of Logistics


◆ Integrated Logistics Management
◆ Information Management
◆ Implementing Logistics Strategy
◆ Supply Chain Management
◆ Issues and Challenges

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The
The Role
Role of
of Logistics
Logistics
Logistics
Logistics Management
Management

“That part of supply chain management which


deals with the process of planning,
implementing and controlling the efficient,
effective flow and storage of goods, services,
and related information from point of origin to
point of consumption for the purpose of
conforming to customer requirements.”
-- Council of Logistics Management

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move
MOVE
move
Tangible goods still have to move (and be stocked)
through space and time. . . new strategies and
methods must create new value.

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Logistics Management

Transportation
Management
Management

Management
Management
Forecasting

Distribution

Operations
Purchasing

Production

Customer
Inventory
Demand

Service
Center
Order

logistics Cost Components


Weighted
Weighted Average
Average
Transportation costs
Transportation 44.3%
comprise the single
Warehousing
Warehousing 19.9%
19.9%
largest element in most
Inventory
Inventory Carrying
Carrying Cost
Cost 19.2%
19.2%
Order
physical distribution
Order Processing
Processing 6.5%
6.5%
Other
Other 6.0%
6.0%
systems
Administrative
Administrative 4.1%
4.1%
100%
100%
Source: Herbert W. Davis & Co.

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The
New
New Logistics
Logistics
Excellence in distribution & transportation adds value at all levels.

Asset Inventory Outsourcing


Manageme Deployment/
Reduction Distribution
Strategy

nt Network
Configuration Shared Services
Delivery
Service
Basic Service Customer-Supplier
Revenue Value-Added
Relation/Partnership

Enhanceme Services

nt Distribution
Planning
Warehouse 3rd Party Service
Inter-Facility/ Management
Outbound Transportation Provider Relation/
Operational Management Partnership

Efficiency
Planning/Operational Strategic
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The
New
New Logistics
Logistics
To improve deployment & management of assets . . .

Reduce
capital expenditures by 1. Rationalize distribution networks
improving usage of fixed 2. Outsource select processes
assets 3. Explore shared facilities
4. Understand supply chain tax
implications
5. Consolidate warehouses
6. Replace inventories with information
7. Reduce distribution cycle time

Reduce
working capital by
8. Implement demand-driven planning

minimizing inventories

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Drivers Behind Increase in Transportation
Expenditures

◆ Accelerating trend toward leaner, more flexible logistics


networks
◆ Less inventory in the pipeline
◆ Increasing demand for synchronized service
◆ Increasing requirement for faster more reliable
transportation service over longer distances

Pressure to reduce cost and improve service


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Integrated
Integrated Logistics
Logistics
Management
Management
Integrated
Integrated Logistics
Logistics

PRODUCT FLOW
◆ Physical Supply
◆ Manufacturing Support

◆ Procurement

◆ Physical Distribution

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Integrated
Integrated Logistics
Logistics (cont.)
(cont.)

INFORMATION FLOW
◆ Coordination flows

◆ Strategic objectives

◆ Capacity constraints

◆ Logistical requirements

◆ Forecasting

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Integrated
Integrated Logistics
Logistics (cont.)
(cont.)

INFORMATION FLOW
◆ Operational Flows

◆ Order management

◆ Order processing

◆ Distribution operations

◆ Inventory management

◆ Transportation

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Operating
Operating Objectives
Objectives

◆ Rapid response
◆ Minimum variance
◆ Minimum inventory
◆ Movement consolidation
◆ Quality
◆ Life-cycle support

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Barriers
Barriers to
to Integration
Integration

◆ Organizational structure
◆ Measurement systems
◆ Inventory ownership
◆ Information technology
◆ Knowledge transfer capability

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Measuring
Measuring Performance
Performance

Several different approaches may be used to


measure the functional performance of
logistics:

◆ cost criteria
◆ productivity criteria
◆ service criteria

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Measuring
Measuring Performance
Performance

Firms evaluate logistics managers primarily


on the basis of three factors:

◆ line management ability


◆ problem-solving ability
◆ project management ability

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“Best
“Best of
of the
the Best”
Best” Logistics
Logistics
Firms
Firms
◆ Organizationally positioned to guide
logistics activities at all levels - strategic,
tactical, and operational;

◆ Internal integration has enabled the


development of operational excellence,
and boundary spanning relationships;

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“Best
“Best of
of the
the Best”
Best” Logistics
Logistics
Firms
Firms (cont.)
(cont.)
◆ Demonstrated “agility” in terms of the
firm’s competency with respect to
relevancy, accommodation, and flexibility.

◆ Measured performance both internally and


externally.

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Information
Information Management
Management
Electronic
Electronic Commerce
Commerce

◆ Examples:
◆ Electronic data interchange (EDI)

◆ e-mail

◆ Electronic funds transfer

◆ Electronic publishing

◆ Shared databases

◆ Internet / Web sites

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A. The sender assembles the data using its own business application
system

B. This data is translated into an EDI standard format (i.e., transaction


set)

C. The transaction set is transmitted either through a value added


network (VAN) or directly to the receiver's EDI translation system

D. The transaction set, in EDI standard format, is translated into files that
are usable by the receiver's business application system

E. The files are processed using the receiver's business application


system

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Electronic
Electronic Commerce
Commerce Levels
Levels

◆ LEVEL 1
One-way communication
◆ LEVEL 2

Database access
◆ LEVEL 3

Data exchange
◆ LEVEL 4

Sharing processes

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The
The Internet
Internet Changes
Changes
Everything!
Everything!
◆ The Internet is ubiquitous.

◆ The Internet is user friendly.

◆ The Internet is inexpensive.

◆ The Internet is global.

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How
How Long
Long Until
Until Your
Your
Company…...
Company…...
◆ Receives over 64% of its $8.5 billion in
sales over the Internet
◆ 70% of all technical support questions are
asked over the Internet
◆ 55% of its employee resumes come over
the Internet

Cisco Systems, USA Today, Sept. 23, 1998

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Implementing Logistics Strategy
IfIf logistics
logistics managers
managers do do not
not understand
understand
corporate
corporate strategy,
strategy, they
they will
will not
not bebe able
able
to
to make
make decisions
decisions that
that are
are inin the
the best
best
interest
interest of
of the
the organization.
organization.
The
The Hierarchy
Hierarchy of
of Planning
Planning

Strategic Tactical Operational


____________________________________
What is the organization’s overall customer service
strategy and what should it be?
What are the best opportunities for cost reduction in
the organization’s logistics system?
What are the core competencies of the logistics
function, I.e. which activities should be
outsourced?

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The
The Strategic
Strategic Issues
Issues and
and
Challenges
Challenges

◆ How to help the firm and its customers deal with big
changes -- globalization, restructuring, competition
◆ How to improve profitability (growth) and value creation
- for the firm and its customers
◆ How to raise the performance of all services to
competitive advantage levels
◆ How to integrate/leverage logistics within the firm and
the supply chain

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Supply
Supply Chain
Chain Management
Management
The
The supply
supply chain
chain encompasses
encompasses
all
all activities
activities associated
associated with
with the
the
flow
flow and
and transformation
transformation of of goods
goods
from
from the
the raw
raw materials
materials stage,
stage,
through
through to to the
the end
end user,
user, as
as well
well
as
as the
the associated
associated information
information
flows.
flows.
How
How to
to Achieve
Achieve Profitable
Profitable Growth
Growth
and
and Value
Value Creation*
Creation*
Cost Minimization

Profitable Tax
Growth Minimization

i
Value

Working
Fixed Capital
Capital Time Efficiency
Efficiency

* Based on “Supercharging Supply Chains,” a new book by E&Y/J. Wiley, Inc.

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Stages
Stages of
of Supply
Supply Chain
Chain
Development
Development
◆ STAGE 1 - Fundamentals
Focus on quality
◆ STAGE 2 - Cross Functional Teams
Serve our customers
◆ STAGE 3 - Integrated Enterprise
Drive business efficiency

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Stages
Stages of
of Supply
Supply Chain
Chain
Development
Development (cont.)
(cont.)
◆ STAGE 4 - Extended Supply Chain
Create market value
◆ STAGE 5 - Supply Chain Communities
Be a market leader!

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Functional and Process Perspective

SUPPLY CHAIN PROCESS

ORDER - TO - DELIVERY PROCESS

Procuremen Manufacturing Distribution Logistics


t
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Supply
Supply Chain
Chain Process
Process
Integrated , coordinated network of value
delivering business processes that procure raw
materials, transform them into final products,
services and delivers the product to the customers

◆ Procurement
◆ Manufacturing/assembly
◆ Inbound logistics
◆ Warehousing
◆ Distribution
◆ Outbound logistics

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Why
Why study
study Supply
Supply Chains
Chains ??
◆ Supply chains are ubiquitous: you
could consider every product or
service to have its own supply chain.
◆ Companies world-wide are spending
trillions of rupees on SCM
◆ Backbone of E-business
◆ Wholesome mix of industrial
engineering, mathematics, computer
science, and management

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Examples
Examples of
of Supply
Supply Chains
Chains
in
in India
India
Automotive - Telco, ALL, Mahindra, Maruti
Aerospace - ADA, HAL
Chemicals - Asian Paints, Apollo tyres, Reliance
Apparel - Madura Coats, Reliance
Food - Cadbury, Parle, Amul Products, HLL/ UIL
Consumer durables – HLL/UIL, P & G
Forest Products - Papermills
Construction - L & T
Pharmaceutical - Ranbaxy, Glaxo
Electromechanical – Kirloskar, L & T
Tooling - HMT, Widia, Mico
PC/ Computer - IBM, WIPRO, HCL, Intel

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Supply
Supply Chain
Chain Building
Building
Blocks
Blocks

Structural Logical IT / ITEC


Informational

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Structural
Structural Building
Building Blocks
Blocks

◆ Suppliers
◆ Manufacturing / Assembly Plants
◆ Warehouses
◆ Distribution Centers
◆ Retailers / Customers
◆ Logistics Network
◆ Inbound

◆ Outbound

◆ Customers Orders

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Example of a Typical Supply Chain: IBM Europe PC Supply Chain

Warehouse

Port
PC Assembly
Plant Retailers

Suppliers 1.2 Million PC/Yr. 13 Transshipment Country-wide


(International) Glasgow U.K. Points (TPs) in Europe Distribution
Centers (DCs)

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Logical Building Blocks

STRATEGIC

TACTICAL

OPERATIONAL

Procurement Logistics Manufacturing Distribution Logistics


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Order/ Product Flow through Supply Chain Functions

Products
Orders
Order Management Channel A
Orders

Channel B Customer
Orders

Orders
Products Product Products
Manufacturing Channel C
Distribution Products
Production
Parts Plans
Demand
Forecast
Part Supply Supply Planning Demand Planning
Component
Requirement

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Examples
Examples of
of Decisions
Decisions
◆ Supplier Selection (Tactical)
◆ Plant Location (Strategic)
◆ Product Line Selection (Strat.)
◆ Inventory Control (Tactical)
◆ Production Scheduling (Ops)
◆ Dynamic routing (Ops)
◆ MTO vs MTS vs BTO (Strat.)

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Mathematical
Mathematical Models
Models

◆ Optimization Models (LP, ILP, MILP, CO, DP)


◆ Stochastic Models (Markov chains, Queuing

networks, etc.)
◆ Statistical Models

◆ Game Theory

◆ Simulation

◆ Machine learning

◆ Auctions and Mechanism Design

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Information
Information Building
Building Blocks
Blocks

◆ IT : MRP, ERP, EDI


◆ Internet Technologies
◆ Sensor Networks
◆ E-Commerce, E-Markets
◆ E-CRM
◆ Decision Support Software
◆ Standards

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Key
Key Problem
Problem in
in SCM
SCM
Design a supply chain network
that delivers high quality
products to the right customers
at the right time at minimum cost

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Supply
Supply Chain
Chain Cost
Cost Categories
Categories

◆ Manufacturing
◆ Purchased materials, labor, equipment charge,

and supplier’s margin


◆ Movement
◆ Transportation, inventory in the pipeline

(cycle), safety stock, and duty


◆ Incentives and subsidies

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Supply
Supply Chain
Chain Cost
Cost Categories
Categories
(cont.)
(cont.)
◆ Intangibles
◆ Quality, product adaptation or performance,

coordination
◆ Overhead
◆ Total current landed costs

◆ Long-term
◆ Productivity and wage changes, exchange rates,

product design, and core competencies

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“Sluggish”
“Sluggish” Supply
Supply Chains
Chains

◆ Lack of synchronization in materials


management
◆ Ambiguous goals and objectives
◆ Poorly designed procedures and forms
◆ Outdated technology
◆ Lack of information

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“Sluggish”
“Sluggish” Supply
Supply Chains
Chains

◆ Poor communication
◆ Limited coordination
◆ Limited cooperation
◆ Lack of / ineffective training

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The
The Strategic
Strategic Issues
Issues and
and
Challenges
Challenges

◆ How to help the firm and its customers deal with big
changes -- globalization, restructuring, competition
◆ How to improve profitability (growth) and value creation -
for the firm and its customers
◆ How to raise the performance of all services to
competitive advantage levels
◆ How to integrate/leverage logistics within the firm and the
supply chain

University of Tennessee