PPT 1

ELECT 03 - LOGISTICS' MANAGEMENT

EDINA O. BOJEADOR, MM

To study logistics must have a basic understanding of supply chain management

Supply chain strategy establishes the operating framework within which logistics is performed.

Logistical systems exists that have the capability to deliver products at precise times .

Logistics management is a subset of larger supply chain management, in business works it across all
industries.

Its aim is to manage the fruition of product lifecycles, supply chains and resultant efficiencies.

(Supply chain) logisticians are people who work on and focus on inventory management, purchasing,
transportation, warehousing, consultation, and the organization and mapping of these processes.

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Logistics management – is the process of strategically managing the procurement, movement, storage
of materials, parts and finished inventory,

and the related information flows) through the organization and the marketing channels in such a way
that current and future profitability are maximized through the cost-effective fulfillment

With logistics management the focus is twofold:

1. Inbound logistics for internal functions, and;
2. Outbound logistics for the external

Logistics
flow from the point of origin to the point of consumption to meet the requirements of customers.

Focused on product storage and flow through the supply chain.

Making sure the correct products are procured and they will arrive when needed.

During the last decade of the 20th century channel structure and strategy began to shift radically.

Traditional distribution channel arrangements move toward more integration and collaboration.

Prior to reviewing the generalized supply chain model, it is important to understand why integration
creates value.

To explain the basic benefits and challenges of integrated management, it is useful to point out that
customers have at least three perspective of value.

Integrative Management Value Proposition

the simultaneous achievement of the following:

economic value,

market value and

relevancy value

- require total integration of overall business process.

Integrative Management Value Proposition

Economic Value

Lowest total cost

Economy-of-scale efficiency

Product service creation

Procurement/Manufacturing Strategy

Market Value

Attractive assortment

Economy-of-scale effectiveness

Product/service presentation

Market/Distribution Strategy

Relevancy Value

Customization

Segments diversity

Product service positioning

Supply Chain Strategy

Information System Functionality

- The overarching enabler of supply chain management is information technology.

- Information flow and accuracy were often overlooked because they were not viewed as being critical
to customers.
- information transfer rates to manual processes.

Four reasons why timely and accurate information has become more critical in supply chain design

Customer perceived information regarding status, product availability, delivery trucking and invoices
necessary dimensions of day-to-day business operations.

Customers demand real-time information

2. With the goal of managing total supply chain assets, managers realizes that information can be used
to reduce inventory and human resource requirements.

- In particular requirements planning based on timely information can reduce inventory by minimizing
demand uncertainty.

3. Information increases flexibility with regard to how, when, and where resources may be utilized to
achieve competitive advantage.

- firm’s competitiveness

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4. Enhanced information transfer and utilizing the internet is facilitating collaboration and redefining
supply chain relationships.

- supply chain relationships

Supply Chain Information System (SCIS) – are the thread logistical activity into an integrated process.

Integration builds into four levels of functionality:

Transaction systems

Order management

Inventory assignment

Shipping

Pricing and Invoicing

Customer inquiry
2. Management control

Financial cost and asset measurement

Customer service measurement

Productivity measurement

Quality measurement

3. Decision analysis

Vehicle routing and scheduling

Inventory levels and management

Network/facility levels and integration

Vertical integration vs. third-party outsourcing

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4. Strategic planning

Strategic alliance formulation

Development and refinement of supply chain capabilities and opportunities

Focused/profit-based customer relationship management

The Logistics of Business is Big and Important

- Implementing 21st century best practices is one of the most exciting and challenging operational areas
of supply chain management.
The combination of resources, skills, and systems required to achieve superior logistics are challenging
to integrate but once achieved, such integrated competency is difficult for competitors to replicate.

Thus far, it has been established that logistics should be managed as an integrated effort to achieve
customer satisfaction at the lowest total cost. Logistics performed in this manner creates value.

Logistics value proposition – the customer commitment, in an exciting cost framework, it is the unique
commitment of a firm to an individual or selected customer group.

Elements of the logistical value proposition

A. Service

Basic logistics service – describes the level of service a firm provides all established customers.

Availability - is the probability of having inventory to consistently meet customer material or product
requirements.

Operational performance – deals with the time required to deliver a customer’s order. It involves
delivery speed and consistency.

Flexibility – a firm’s operational performance with accommodate unusual and unexpected customer
request.

Malfunction – is concerned with the probability of logistical performance failure, such as damaged
products, incorrect assortment and inaccurate documentation.
Service reliability – involves the quality attributes of logistics. The key to quality is accurate
measurement of availability and operational performance.

B. Cost minimization

Total cost was positioned to include all expenditures necessary to perform logistical requirements.

Managers had traditionally minimizing functional cost such as transportation, with the expectation of
such effort would achieve the lowest combined costs.

Understanding total costs open the door to examining how functional costs interrelate and impact each
other. Such impact classified as costs-to-costs tradeoffs.

The implementation of effective logistical process costing remains a 21st century challenge.

Many long-standing practices of accounting continue to serve as barriers to fully implementing total cost
logistical solutions.

Integrated Logistics

Facility

Network/Location

Integrated Logistics

Order Processing

Warehouse/Materials

Handling/Packaging

Inventory

Transportation
THE WORKS OF LOGISTICS

In the content of supply chain management, logistics exists to move and position inventory to achieve
desired time, place and possession benefits at the lowest total cost.

Inventory has limited value until it is positioned at the right time and the right location to support
ownership transfer or value-added creation.

If a firm does not consistently satisfy time and location requirement, it has nothing to sell.

Order Processing

- is the process of work-flow associated with the picking, packing, and the delivery of the packed items
to a shipping carrier and is a key element of order fulfillment.

Order processing operations or facilities are commonly called “distribution center” or ‘DC’s”.

Order processing system help ensure that all of your customers’ orders are filled on time, since
automated systems can reduce errors in order processing.
Inventory
- the inventory requirements of a firm are directly linked to the facility network and the desired level of
customer service.

The objectives of inventory strategy is to achieve desired customer service with the minimum inventory
commitment excessive inventories may compensate deficiencies in basic design of logistics systems but
will ultimately result in a higher-than-necessary total logistics cost.

- Logistics strategies should be designed to achieve customer service goals while maintaining the lowest
possible financial investment in inventory.
- The goal is to achieve maximum inventory turns.

A sound inventory strategy is based on combination of five aspects of selective deployment.

Core customer segmentation

Product profitability

Transportation integration

Time-based performance and

Competitive performance

Transportation

Is the operational area of logistics that geographically moves and positions inventory.

Because of its fundamental importance and visible cost, transportation has traditionally received
considerable managerial attention.

Transportation requirements can be satisfied in three basic ways:

1. a private fleet of equipment may be operated.
2. contracts may be arranged with dedicated transportation specialists.
3. An enterprise may engage the services of a wide variety of carriers that provide different
transportation services as needed on a paper shipment basis.
From the logistical point of view three factors are fundamental to transportation performance.

Cost – is the payment between two geographical location and the expenses related to maintaining in-
transit inventory.

Speed – is the time requires to complete a specific movement

Consistency – refers to variations in time required to perform a specific movement over a number of
shipments.

Warehousing, Materials Handling, and Packaging

Product must be received, moved, stored, sorted and assembled to meet customer order requirements.

The direct labor and capital invested in materials handling equipment is a significant element of total
logistics costs.

When performed in an inferior manner, material handling can result in substantial product damaged.

An important part of warehousing is the receipts, processing and disposal and damaged inventory.

Typically called reverse logistics, most firms confront the need to process and dispose overstock,
damaged, and or defective inventory.

Facility Network Design

- it is concerned with determining the number, location, and ownership arrangement of all types of
facilities requires to perform logistics work.

The selection of a locational network can provide a significant step toward achieving competitive
advantage.

The mission of logistics management

Is to plan and co-ordinate all those activities necessary to achieved desired levels of delivered service
and quality at the lowest possible cost.
The scope of logistics spans the organization, from the management of raw materials through the
delivery of the final products.

CUSTOMER REALTIONSHIP MANAGEMENT

Elect 03 – Logistics Management

OBJECTIVES

After reading this module, you will be able to:

Define the term customer relationship management (CRM) used by many firms.

Explain the differences between transactional and relationship marketing.

3. Describe the basic principles of customer-focused marketing as fundamental aspect of the marketing
concept.

4. Determine the type of customers intends to serve by a certain firm.

5. Develop customer relationship management strategy using framework for strategy choice and
customer relationship management technology.

From the perspective of the total supply chain, the ultimate customer is the end user of the product or
service.

It is important to establish initially that logistics contributes to an organization’s success by fulfilling

customers’:

delivery and inventory,

availability,

expectations and requirements.

For a logistician, a customer is any delivery location.

In some cases, the customer is a different organization or individual who is taking ownership of the
product or service being delivered.

In many other situations the customer is a different facility of the same firm or a business partner at
some location in the supply chain.

This section describes how supply chain outputs impact end users and how such outputs must be
structured to meet their requirements.

These levels range from traditional notions of logistics customer service to satisfaction of customers by
meeting their expectations to the ultimate goal of helping customers be successful.

Customer-Focused Marketing
The marketing concept builds on four fundamental ideas:

1. Customer needs and requirements are more basic than products or services.
2. Different customers have different needs and requirements.

3. Products and services become meaningful only when available and positioned for the customers’
perspective, which is the focus of logistics strategy.
4. Sales volume is secondary to profit.

Successful marketing begins with in-depth customer’s segment to identify products and services
requirements.

All markets are composed of different segments of which has somewhat different requirements.

Effective market segmentation requires that firms clearly requires that firms clearly identify segments
and select specific targets.
Four economic utilities add value to customers:

1. Form
2. Possession
3. Time
4. Place

Marketing creates possession by informing potential customers of product/service availability, and

enabling ownership exchange.

Logistics must ensure that the product is available when and where desired by desired by customers.

An important dimension of success is the degree of profitability resulting from relationships with
customers, not the volume of sold.

Transactional vs. Relationship Marketing

Transactional Marketing - traditional marketing strategies focus on obtaining successful exchanges, or

transaction with customers to drive increases in revenue and profit.

- The traditional marketing emphasizes accommodating customer’s needs and requirements, something
few business organizations would argue with.

Relationship marketing – focuses on the development of long-term relations with key supply chain
participants such as customers, intermediate customers, and suppliers in an effort to develop and retain
long-term preference and loyalty.

Relationship marketing is based on the realization that in many industries it is as an important to retain
current customers and gain a large share of their purchases as it is to attract new customers.
Micromarketing or to-one-one marketing – an approach in which market segmentation and relationship
marketing is focus on the individual marketing.
- The best way to ensure long-term organizational success is to intensely research and then meet the
requirements of individual customers.

To do so effectively and efficiently firms must overcome three problems known as:

Discrepancy in space – it refers to the fact that the location of production activities and the location of
consumption are seldom the same.

Discrepancy in time – refers to the difference in timing between the production and consumption.

Discrepancy in quantity and assortment – refers to the fact that manufacturing firms typically specialize
producing large quantities of a limited variety of items

To eliminate these discrepancies, Bucklin developed a long-standing theory that specifies four generic
service outputs necessary to satisfy customer requirements:

1. Spatial convenience – refers to the amount of shopping time and effort that will be required on the
part of the customer.

- Higher levels of spatial convenience can be achieved in a supply chain by providing customers with
access to its product in a larger of places, thus reducing shopping effort.

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2. Lot size - refers to the number of units to be purchased in each transaction.

When customers are required to purchase in large quantities, they must incur costs of product storage
and maintenance.
3. Waiting or delivery time – is defined as the amount of time the customer must wait between ordering
and receiving products: the lower the waiting time, the higher the level of supply chain service.

Alternative supply chains offer customers and end users choices in terms of the amount of waiting time
required.

4. Product variety and assortment – different supply chains offering different levels of variety and
assortment to consumers and end users.