SCM and Logistics

Business Logistics Management

1
 Objectives
 To familiarize with basic concepts of logistics
and supply chain management
 To understand recent evolvement of logistics
 To understand the reasons for its recent growth
in importance
 To understand the importance of IT in logistics

SCM-2
Overview of Logistics and
Supply Chain Management – Basics

3
 Supply Chain Overview

Transportation Transportation Customers

Warehousing

Information
flows
Factory

Transportation

Vendors/plants/ports
Warehousing Transportation

1-2
SCM-4
 Logistics vs Supply Chain Management
Council of Logistics Management
 “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.”
Handfield and Nichols
 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.

SCM-5
 Common 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

=> IT people have to deal with any related automation

anyway 

SCM-6
 The Logistics/SCM 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.

 Product / Service Utility

 Possession Utility - the value or usefulness that comes from a
customer being able to take possession of a product
 Form Utility - in a form that can be used by the customer and is
of value to the customer
 Place Utility - available where they are needed by customers
 Time Utility - available when they are needed by customers
 Logistics obviously help time and place utility

SCM-7
 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

SCM-8
Supply Chain Schematic

1-5
SCM-9
A Revised Strategy is Generating Great
Top Management Interest

 Historical perspective of distribution

(Peter Drucker, 1962):
“The last frontier of cost economies”

 The contemporary view:

Distribution is a new frontier for demand
generation—a competitive weapon.

 Both views are important!

SCM-10
Critical Customer Service Loop

Customer order processing (and

transmittal)

Transportation
Customers

Inventory
or supply source

SCM-11
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

SCM-12
 Customer Service Performance
10 96
Order Cycle Time,
9 94 Days
92
8 Product
Availability--%
Days

90

%
7 orders
88 Product
6 Availability--%
86 line items
5 84
4 82
Source: Herb Davis & Company
19 2
19 4
19 6
20 8
20 0
02
9
9
9
9
0
19

Year
SCM-13
 Traditional Scope of the Supply Chain

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

Internal supply chain 1-14

SCM-14
 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

SCM-15
Logistics Strategy and Planning
 The objectives of logistics strategy
 Minimize cost
 Minimize investment
 Maximize customer service
 Levels of logistical planning
 Strategic
 Tactical
 Operational

SCM-16
The Logistics Strategy Triangle
(4 problem areas)

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

SCM-17
 Strategic, Tactical, and Operational
Decision Making
Decision area Strategic Tactical Operational

Transportation Mode selection Seasonal equip- Dispatching

ment leasing

Inventories Location, Control policies Safety stock levels Order filling

Order Order entry, transmittal, Processing

processing and processing system orders, Filling
design back orders

Purchasing Development of supplier- Contracting, Expediting

buyer relations Forward buying

Warehousing Handling equipment Space utilization Order picking

selection, Layout design and restocking

Facility Number, size, and

location location of warehouses

SCM-18
 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

SCM-19
 Relationship of Logistics to Marketing
Product

Promotion
Price

Place-Customer
service levels
Logistics

Inventory Transport
carrying costs costs

Lot quantity Warehousing

costs Order processing costs
and information
costs
SCM-20
Relationship of Logistics to Production
 Coordinates through scheduling and strategy
 make-to-order
 make-to-stock
 An integral part of 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

SCM-21
Contemporary IT and Logistics

22
Wal-Mart Wins with Logistics before 2017

 Costs are lower than K-Mart or Target Stores

 CEO is a former logistician
 Wal-Mart is the largest retailer in the world!

SCM-23
Alibaba Wins with Logistics in 2018

SCM-24
India is a key battleground of E-commerce

SCM-25
SCM-26
Logistics/SCM in Diverse Areas
 Manufacturing - most common
 Service - emerging opportunities
 Environment - causing restrictions
 Non-profits / Government - little explored
 Military - long history

Note the global evolvement into a

service-oriented economy!

SCM-27
Supply Chain is Multi-Enterprise
Conventional
Focus Scope
Company

Suppliers Customers

Supplier’s Customers/
suppliers End users

Acquire Convert Distribute

Product and information flow

SCM-28
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

SCM-29
Reality of SCM Scope

SCM-30
The Multi-Dimensions of SCM

SUPPLY
CHAIN
MANAGEMENT

Activity and process

administration

SCM-31
 Increasing 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
 Globalization of trade
 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
SCM-32
 Contemporary IT Applications in Logistics
– Focus of this Course
 Tremendous technological advances in past decades
 Logistics management relies on analysis over massive
information from heterogeneous sources
 Disparate business functions in service-oriented economy
 Internet and mobile technologies has further improved
logistical effectiveness and efficiency
 Enabled logisticians and management to make timely, informed,
and accurate decisions
 but create new dimensions of complexity
 IT people work closely with logistician and management
 Understand complex requirements
 Choose the right technology and design appropriate IT
infrastructures, architectures, and systems
 Explain how contemporary IT can help to others

SCM-33
 Some Useful Contemporary IT in Logistics
 eXtended Markup Language (XML)
 Service-oriented architecture
 Process integration and interaction management
 Exceptions, alerts, and relationship management in logistics
 Information integration
 Facilitating decision support
 Mobile technologies
 Radio Frequency Identification (RFID)

=> The key is to achieve information and process

integration for efficient and effective decision support.

SCM-34
 Summary
 The logistic process plans, implements, controls the flow
and storage of goods, services, and related information
between the point of origin and the point of
consumption to satisfy customer requirements
 Logistics addresses the time utility & place utility out of
the four economic utilities
 Logistics becomes more important and complex because
of new requirements of the service-oriented economy,
disparate business functions, and the impact of various
contemporary IT
 Logistics involves the interaction with multiple
departments within a company as well as now also
across business partner organizations and customers
 Application of contemporary IT, especially information
and process integration for efficient and effective
decision support, is a critical success factor and
therefore the focus of this course.
SCM-35