1.1 Logistics and Supply Chain 1.

2 Logistics in SCM
• Value chain • Logistics
• Supply Chain Management • Logistics Management
• Integrated Supply Chain • Value Added Roles of Logistics
• Customer Orientation • Logistics Activities
• SCM Conceptual model • Logistics in the Firm
• SC Development Trends • Logistics interfaces with Marketing

Supply Chain Management

• Value Chain - a set of activities that a firm operating in a specific industry performs in order to
deliver a valuable product or service for the market. The concept comes from business management
and was first described and popularized by Michael Porter in his 1985

• The idea of the value chain is based on the process view of organizations, the idea of seeing a
manufacturing (or service) organization as a system, made up of subsystems each with inputs,
transformation processes and outputs

• Inputs, transformation processes, and outputs involve the acquisition and consumption of resources -
money, labour, materials, equipment, buildings, land, administration and management.

Value Chain
Primary activities

• Inbound Logistics: arranging the inbound movement of materials, parts, and/or finished inventory
from suppliers to manufacturing or assembly plants, warehouses, or retail stores.

• Operations: concerned with managing the process that converts inputs (in the forms of raw
materials, labor, and energy) into outputs (in the form of goods and/or services).

• Outbound Logistics: is the process related to the storage and movement of the final product and
the related information flows from the end of the production line to the end user.

• Marketing and Sales: selling a product /service and processes for creating, communicating,
delivering, and exchanging offerings that have value for customers, clients, partners, etc.

• Service: includes all the activities required to keep the product/service working effectively for the
buyer after it is sold and delivered.

Support activities

• Procurement: the acquisition of goods, services or works from an outside external source

• Human Resources Management: consists of all activities involved in recruiting, hiring, training,
developing, compensating and (if necessary) dismissing or laying off personnel.

• Technological Development: pertains to the equipment, hardware, software, procedures and

technical knowledge brought to bear in the firm's transformation of inputs into outputs.

• Infrastructure: consists of activities such as accounting, legal, finance, control, public relations,
quality assurance and general management.
Evolution of Supply Chain Management

Supply Chain Management

• Supply Chain Management (SCM) - a group of inter-connected participating companies that add
value to a stream of transformed in outs from their source of origin to the end products or services
that are demanded by the designed end-consumers.

• Chain – links the participating companies that are inter-connected in the value added process.

• A Supply chain is the product and/or service that are created by the supply chain for the end
consumer in the market place.

• It is not a chain and rather more of a network – usually multiple suppliers and multiple customers
for each participating companies in the chain.
• Material Flow – raw materials flows at the beginning of the supply chain to the finish goods at the
end of the supply chain.

• Commercial Flow – materials flow that run through the SC changes its ownership from one to
another (from supplier to buyer). The transaction commercial flows will only take place in a SC
where more than one companies. If it is with a firm, there will be materials flow but no ownership
change.

• Information Flow – multitude of information flowing towards downstream (forecast, production

scheduling) or towards upstream (feedback/demand from customers)

• Finance Flow – money flow (blood stream). The sharing of “single entity” for supply chain
integration and collaboration. The distribution and sharing of this single financial resource fairly
across a SC (better alignment between companies).

Integrated Supply Chain

SCM is the art and science of integrating the flow of products, information, and financials through
the entire supply pipeline from the supplier’s to the end customer.
Customer Orientation
• Supply chain (SC) extend from raw materials, suppliers to retailers before the end- consumer.

– Every member of SC only supply but consumer demands

– SC existence is based on the demand from consumer.

– SC adds value to the products (transformed input), consumer DON’T. Consumer only
consumes the products and depletes its market value.

– SC is always specialized however, consumer is always general.

• It is more appropriate to separate the consumer away from the concept of SC.

• Everything a SC does is driven by the needs and wants of the end-consumer.

SCM Concept
• Supply chain management (SCM) is simply and ultimately the business management, whatever it
may be in its specific context, which is perceived and enacted from the relevant supply chain
perspective.

SCM Conceptual model

• Supply Chain Configuration (SC architecture) – how a SC is constructed from all its
participating firms. It includes the supply base for OEM, the extend of the vertical integration , how
the downstream distribution channel is designed.

• Supply Chain Relationship – the inter-firm relationships across the SC focusing on the level of
relationships. Close partnership – firms exchanges their vision, investment plan, processes and
financial information.

• Supply Chain Coordination – Coordination of continuous material flow throughout the SC which
is operational.

• SCM concept involves managerial decision making across strategic tactic and operational level.
SC Development Trends
• From functional to process perspectives – Function is what seen to be the delivery part of the
business. Today SCM sees problems from the process perspectives.

• From operational to strategic viewpoint – Managers sees that by improving and optimizing their
functions, it can help reduce cost however today, managers realize that effective changes can only
be achieve if operational issues are addressed from the SC wide strategic viewpoint or strategic fit.

• From single enterprise to extended enterprise.

– Long established enterprise centered management thinking on competition between organization

has become obsolete and now changed to supply chain.

• From transactional to relationship base engagement. – Business engagement has moved from
transactional measure (price, volume, delivery terms) now more into working with external firm -
relationship engagement.

• From local to regional, and from regional to global.- Business model change due to demand and
cost has been an issue for a product resulting the connection of SC network to grow from local to
regional to global due to market forces. Lower cost has drives business model to extend to other
part of the world.

Logistics
• Logistics is the management of the flow of things between the point of origin and the point of
consumption in order to meet requirements of customers or corporations.

• The resources managed in logistics can include physical items, such as food, materials, animals,
equipment and liquids, as well as abstract items, such as time, information, particles, and energy.

• The logistics of physical items usually involves the integration of information flow, which is
material handling, production, packaging, inventory, trans portation, warehousing, and often
security.

Logistics Management
Perspective Definition
Inventory Management of materials in motion and at rest
Customer Getting the right product, to the right customer, in the right quantity, in the
right condition, at the right place, at the right time, and at the right cost
(called the "seven Rs of logistics")
Dictionary The branch of military science having to do with procuring,
maintaining and transporting materials, personnel, and facilities.
International The art and science of management, engineering, and technical activities
Science of Logistics concerned with the requirements, design, and supplying and maintaining
resources to support objectives, plans, and operations.
 Utility/Value Providing time and place utility/value of materials and products in
support of organization objectives.
Council of Supply Chain That part of the supply chain process that plans, implements, and controls
Management Professionals the efficient, effective flow and storage of goods, service, and related
information from point of origin to point of consumption in order to
meet customer requirements.
Component support Supply management for the plant (inbound logistics) and distribution
management for the firm's customers (outbound logistics)
Functional management Materials requirements determination, purchasing, transportation,
inventory management, warehousing, materials handling, industrial
packaging, facility location, analysis, distribution, return goods handling,
information management, customer service, and other activities
concerned with supporting the internal customer (manufacturing) with
materials and the external customer (retail stores) with product.
Common culture Handling the details of an activity.

Logistics management subdivisions.

• Business logistics
– Part of supply chain that plans, implements and control goods/services/information

• Military logistics
– Design and integration of support for operational capability of military forces and equipment

• Event logistics
– Network of activities, facilities and personnel required to organize, schedule and deploy
resources for an event

• Service logistics
– Acquisition, scheduling and management of the facilities/assets, personnel and materials to
support/sustain a service operation/business

Logistics

Logistics is the process of anticipating customer needs and wants; acquiring the capital, materials,
people, technologies, and information necessary to meet those needs and wants; optimizing the goods or
service- producing network to fulfil customer requests; and utilizing the network to fulfil customer
requests in a timely manner.
 Value-Added Roles of Logistics

• Form Utility:
– Value added to goods through a manufacturing or assembly process.

• Place Utility:
– Moving goods from production surplus points to points, where demand exist by adding value
to goods through transportation

• Time Utility:
– Availability of goods/services at that point when customer demands them. Value added to
good/services by having at a demand point at a specific time. – Just In time

• Quantity utility:
– Delivering the proper quantities of items to where it is demanded

• Possession utility:
– Create basic market activities related to promotion of product/services.

Logistics Activities
Logistics Activities

Transportation Procurement
Warehousing and storage Customer service
Industrial packaging Facility location
Inventory Return goods handling
Order fulfillment Part and service support
Demand forecasting Salvage and scrap disposal
Production planning/scheduling

• Transportation

– Very important and largest activity in the logistics system.

– Major role for the movement of goods/products.

– Logistics management to select the most suitable mode/s of transportation and carrier

• Packaging

– Industrial packaging protect the products during transportation

– Type of transportation mode may require different packaging requirement.

– Tradeoff between cost and damage to be considered.

• Storage

– Involve two separate activities; inventory management and warehousing

– Management should pay attention when making decision relating to storage activities

• Materials Handling

– Important to warehouse design and efficient operations to handle the goods/materials

– Placement of goods in a warehouse between storage, order-picking and docks.

– Concerns the usage of the right equipment for most efficient handling of goods in the
warehouse

• Inventory Control - has two dimensions;

– Assuring adequate level : to ensure sufficient level of inventory by monitoring the current
inventory (replenish if needed)

– Certifying inventory accuracy : As inventory deplete to fill customer order, the facility
information system can track the status. An annual physical count is done to ensure
accuracy.

• Order Fulfilment

– Activities involve with filling and shipping of customer orders.

– An important factor to consider is Lead time (time when a customer order is made till the
goods is receive by the customer)
• Forecast

– A process to anticipate the required inventory level especially to ensure efficient control of
material/components for manufacturing

– Must have a plan in conjunction with the marketing forecasts of demand to ensure proper
inventory level are kept

• Production Planning

– Planning relates to the forecasting in term of effective inventory control

– Managers can calculate the number of units to manufacture to ensure adequate market
coverage

• Procurement

– as a part of logistics as transportation cost relate to the distance when purchased of materials

– In terms of transportation and inventory cost, the quantities purchased would affect total
logistics cost

– To purchase from suitable and reliable supplier so that the supply is being replenish timely
and no operational issues encounter

• Customer Service

– The process of interacting directly with customer to influence or take orders. Including
coordinating among inventory control, manufacturing, warehousing and transportation to
guarantee promises being kept

– Level of service an organization offers/promise to its customers. Include order fill rates and
on-time delivery rates.

• Facility location

– Site location can impact an organization’s business

– A location would alter time and place relationships between facilities and markets or
between supply points and facilities. It does affects transportation cost.

• Other activities

– Other activities includes parts and service support, return goods handling, and salvage and
scrap disposal.

– Require the development of a reverse logistics system that allows used, broken or obsolete
products to be returned to supplier for disposition.
Logistics in the Firm
Logistics Interfaces with Manufacturing/Operators

• Interface between logistics relates to the length of the production run

• Manager weight the advantage or disadvantages of a long versus short production runs and their
impacts on inventories

• Organizations today tend toward shorter production run and to reduce the time and expense with
changing production – “JIT” or “LEAN” , trend moving towards “pull” system compared to “push”
system.

• Production manager keen to minimize seasonal demand for production – possible to produce well
ahead of time to meet demand.

• Packaging might be a factor in influencing sales

• Marketing manager placed great concern over the packaging of the product appearance, information
and related aspect.

• Consumer package has to fit into the package or external package; size, shape and other dimension
of the consumer package affect the use of industrial package

• The physical dimensions and the protection aspect of consumer package affect the logistics system
in the area for transportation, materials handling and warehousing

Logistics interfaces with Marketing

Price Product
 Adjust price to meet transportation weight • Physical dimensions affects the
E.g., Different weight break offers different transportation e.g., packaging requirements
pricing. • New products often refurbish old products in
 Discount schedule for the purchase of larger the market – improve/maintain sales
quantities • Consumer packaging influence sales for
e.g., Higher volume gets better rates. many products and affects the logistics
 Volume sold under different schedules system.

Promotion Place
– Marketing area that receives much – Marketing are more involve in the
attention through advertising. decision making on transactions-
– Distribution of products to wholesale or direct deal
consumer/customer – Wholesale- larger quantity
– “Push and pull” strategy of products – Small retail- less quantity
through distribution channel – Suppliers need to purchase transportation
– Predicting consumer behavior difficult to service meet delivery needs
accommodate.
1.3 Logistics in Supply Chain Management
• Logistics in the Firm
• Technology of Logistics system Analysis
• Approach to Analyzing Logistics System
• Logistics and System Analysis
1.4 Global Supply Chain Operations
• Supply Chain Management
• Global Supply Chain Operations
• Strategic Challenges
• How Global Supply Chains Responded
• Current Trends in Global SCM

Logistics in the Firm

• Micro perspective in the logistics examines the relationships between logistics and other functional
areas in an organization

• Marketing

• manufacturing/operations

• Finance

• Accounting

• Others

• The impact that logistics can have upon return on assets (ROA) or return on investment (ROI) is very
significant.

ROA is defined as follows:

ROA = Revenue - Expenses/Assets Or

ROA = Gross Profit/Assets

• Order Cycle – the time lapses from when a customer places an order until the order is received.
Includes activities e.g., order transmission, order receipt, order processing, order preparation(pick &
pack).

• Longer order cycle times usually require higher customer inventories

• Substitutability

– If a product is similar to other products, consumers may substitute to another competitive

product if a stock out occurs

– Customer service is more important for highly substitutability products

– Substitutability product varies by industry.

– Logistics managers can either spend more on inventory or spend more on transportation.

• Inventory Effect

– Organization can reduce cost of sales by increasing inventory cost.

– Organization usually willing to increase inventory cost only until total cost starts to increase.

– Marginal savings from reducing lost sales cost equal the marginal cost of carrying additional
inventory.

Cost of lost sales to Inventory cost

• Product Relationship – some factors affecting the cost and logistics;

• Dollar Value, Density, risk to damage and need for special handling

• Dollar Value

– Products dollar value affects warehousing cost, inventory costs, transportation costs, packaging
costs and material costs.

– Product dollar costs increases, the cost in each individual area also increases.

– Transportation reflects the prices of the risk associated with the movement of goods

– Warehousing and inventory with higher value means more capital investment

– Packaging cost increases when the use of protective materials to minimize damage or lost for
product of high value.
 Product dollar value to Various Logistics cost

• Density - The space ratio of the product = light weight compared to the space it occupies.

– Density affects transportation and warehouse cost. As density increases, the transportation
and warehouse cost tend to decrease.

– Warehouse and Transportation provider charge lower for higher density items due space
required is less.

Product Weight Density to Logistics Costs

 • Risk to Damage

– The greater the risk of damage to the product the higher the transportation and warehousing
cost.

– Higher degree of risk and liability associated with more fragile goods, the higher the prices
charged by both transportation and warehousing provider.

– Preventive measured are required to ensure product is handled to avoid being damaged.

Product Risk to Loss and Damage to Logistics cost

Logistics and Spatial Relations

• Spatial Relationship – the location of fix point in the logistics system with respect to demand and
supply points. They are very important to transportation costs, since these costs tend to increase with
distance.

Important to adopt total cost perspective. Lower $7.00 production cost at B is offset by higher inbound and
outbound transportation cost
Technology of Logistics system Analysis
• Logistics analysis has been viewed as an important element in the corporate strategy of many
organizations. Logistics refers to a process that is associated with flow of information, goods, and
services offered to suppliers and customers from the point of origin to the point of destination.

• An effective and efficient logistics system is created to meet the requirements of the customers for
timely responsiveness, quality and creating value for products and services.

Steps of Logistics system Analysis

Techniques of Logistics System Analysis

• Short-Run/Static Analysis

a specific point in time, or level of output/production, is chosen and costs are developed for the various
logistics cost centers.

• Long-Run/Dynamic Analysis

Examines a logistics system over a long time period (range/output)

Approach to Analyzing Logistics System
The analysis of logistics is based on many types of activities can be describe through four approaches.

• Balanced System

– Some organization has balanced inbound and outbound flow

– Raw materials are used to produce many types of finished products for consumer. E.g.,
Kraft, Unilever – Fast Moving Consumer Goods

• Heavy Inbound

– Some organization has very heavy inbound flow of materials but very low on finished
products. E.g., Boeing

– Very complex system to produce such a high tech production

• Heavy Outbound

– Companies with heavy outbound tends to be more complex on their physical distribution
network.

– Exxon/mobile is an example of a heavy outbound system whereby crude oil is being

transported though water, pipeline, trucks.

• Reverse System

– Some organization has a reverse flow of their outbound system. The product comes with
warrantee

– Customer may return the goods for repair/service

– E.g., Dell laptops, Apple Products etc

Nodes versus Links

– Nodes- fixed spatial points where goods stop for storage or processing

– Links- transportation network and connect the nodes in the logistics system. Network can be
compound of individual modes of transportation and of combination and variation.

– Small market area, one simple nodes system is used to link from supplier to a combine warehouse,
plant and to end customer

– Complex transportation network may include 3 or 4 different modes including private hire

– Allow analysis for logistics improvements

 Nodes and Links in a Logistics System

Approach to Analyzing Logistics System

Logistics Channels – network of intermediaries engaged in transfer , storage , handling , communication,
and other functions that contribute to the efficient flow of goods.
Logistics and System Analysis
• System is a set of interacting elements , variables, parts, or objects that are fully functionally related
to one another and form a coherent group.

– The overall performance is more important than the performance of one part.

• Cost Perspective

– Efficiency measured by cost for a business system.

– Organization to optimize their transportation effectively with the other activities to consider
using cost as a guide.

– General tenet of the system concept is the focus on variables on how it interact as a whole
and operate the system effectively and not in parts.
• Level Of Optimality – exist within an organization

• Optimality Level I (optimizing the organization)

– Logistics is a subsystem of an organization and should not optimize at the expense of other
functions

– Organization must work out some compromise after analyzing the situation

– Marketing must consider product, finance and other areas

– The goal is to identify the trade-offs that exist within the organization and optimize the
organization as a whole.

• Optimality Level II (Supply Chain)

– Organization faced with constrain outside its own operations imposed by other supply chain

– When organization makes decisions at level I, it must also consider the impact at level II

– The trade-off decision must be made after taking into consideration of the costs of the
manufacturing versus of the wholesaler

– The trade-offs decision must optimize the operation of the supply chain

• Optimality Level III (External Environment)

– Involves the various constrain imposed by society

– Decision must be made that optimize the organization and the supply chain though society
requirements

• Logistics decision are made considering multiple level of optimality and may results in the expense
of other levels.

• Critical decision is the ability to understand the constituencies affected then optimize at the level
that is appropriate.
Global Supply Chain Operations
• Global Business environment

– trend to global market convergence-the tendency that indigenous markets start converge on a
set of similar product services across the world

• Global growth through media/Internet

– internet, TVs, Radios, news papers and movies – world become small

• Emerging economic power by BRIC

– Brazil, Russia, India and China (improve living condition)

• Logic of Global - seeking growth opportunities

– Expanding to more potential profit making

– Cheaper resource to reduce costs

– Collaboration in technology

• Growth of global supply chain is stronger than a local supply chain – advantage of international
labor, able to yield higher economic value and drives for more specialized activities.

• Shift of economic and political powers worldwide become dynamic and increases participation into
global supply chain network.

• Bringing in the influence from many emerging economies worldwide to a changed competitive
landscape.

• Some key characteristic that global supply chains must recognize;

• Borderless – Countries no longer limit to their own boundaries. A strong development such
as brands, services, technological collaboration and financing from trade agreement e.g.,
WTO, WB, GATT, OECD etc.

• Cyber-connected – businesses are now inter- connected through technology allowing large
data to be transferred quickly and reliable.

• Deregulated- Trade barrier around the world has been simplified to remove the rules to
encourage trade and stimulate economic growth e.g., NAFTA, EU, ASEAN, etc.

• Environmental Consciousness- Global movement towards green and eco system drives
corporation to see that the supply chain development helps in sustaining the environment.
Lawmakers and NGO e.g., Environment Protection Agency (EPA), green peace promotes
and formalize more legislation upon firms.

• Social Responsibility- Fair trade and business ethics are increasingly measured as are key
element for firms. Ethical standard and social responsibility are more likely to influence a
firms brand in the eyes of the consumer.
Strategic Challenges
• Market dimension

– Demand fluctuate from consumer in the market in time.

– The unpredictable global market as dictates by Geo- political instability globally contributes
to the market volatility.

– Technological development and product innovation constantly often moves faster than
supply chain.

– Emerging economies globally always churning out product and services that rival the
incumbent supply chain in terms of quality, price which lead to change of market sentiment.

– The development of internet base distribution has made it easier for consumers enabling to
shop for the lowest price.

• Technology dimension

– Applying technology for competitive advantage in the supply chain at global stage

– Development of lead-time innovative ideas shortened the time from testing to manufacturing

– Consumer may not find new technology product attractive hence firm may loose money
from their investment

– Supply chain network involving contractor may have issues with implementing their own
ideas or technology to the whole supply chain network. The cost and profit structure in the
value network may limit the attractiveness of an innovation.

– The development of new technology takes over other products and those products no longer
attractive to the market e.g., smart phones takes over many other gadgets prior to its
existence.

• Resource dimension (financial, workforce, intellectual, natural materials, infrastructure, assets

etc.,)

– Global supply chain development is constantly looking for new resource and make better use
of existing resource to yield economic outputs.

– Stretching supply chain worldwide enables internal resource be used in much wider/bigger
market in term of volume, variety, quality and functions.

– Internal based advantages can evaporate anytime when global business environment subjects
fundamental changes

– Stretching resourcing globally to acquire scarce resource at a much lowered cost. MNC
source for much reduced operating cost to stay competitive.
 • Time dimension

– The difference on time could make or break a supply chain where everything else is equal

– Competitions in the electronic environment is critical for new electronic product into the
market

– Internally, cost and core competence usually measured against time. If materials does not
move quickly, supply chain responsiveness is influenced by the lead-time and throughput-
time

– Developing and implementing an agile supply chain strategy to “balance” the cost to
service.

– A supply chain strategist must have a sound understanding the intricate relationship in all
factors of the whole supply chain.

How Global Supply Chains Responded

There is no “one size fits all” solution for supply chain management to survive the challenges.

– Collaboration: define a working together to achieve a common goal.

• Sharing resources: to avoid duplicate resources e.g., equipments, maintenance facilities,

networks, knowledge etc.,

• Achieve synergy: creating additional business value that neither achieve individually

• Risk sharing: Through investment and marketing, the negative impact of supply chain risk
is shared by parties concerned.

• Innovation: sharing technology (R&D) is the most effective way to advance as competitive
advantage.

– Supply Chain Integration

• Close internal and external coordination across the supply chain operations and processes
under shared vision and value amongst participating members.

• Exhibits high visibility, low inventory, high capacity utilization, short lead-time, and high
product quality(low defects)

• There is no supply chain which is 100% integrated or otherwise. It is about how much the
supply chain is integrated from a focal company’s point of view.

• A wider arc represents a higher degree of integration which covers larger extend of the
supply chain
• Divergent product portfolio

– In the global market, supply chain has two characteristics : volatility and diversity

– Divergent demand for wider rage of product or business sector to cater for the market needs

– Mitigate the market risk that brought by nature of global market volatility.

– Supply chain can still be stabilized by other product if one of which is not doing well

– Divergent portfolio works like a shock absorber and risk mitigating tool.

• Develop the “blue ocean strategy”

– Much more effective approach is to create a new market place which makes the market place
irrelevant.

– Firm competes in “red ocean” unlikely to create profitable growth in the future.

– Study shows of 150 strategic moves globally active in supply chain the last 30 years already
proved as an effective response to the global change

– In the future, supply chains will not battle competition but by creating uncontested market
place that has potential growth.

• Pursing world class excellences

– World class excellence: The highest business performance at a global level that stand the test
of time

– Very few firm deserve the title but it is the fitness status that determine the winner over
losers

– To be a winner, firm need to excel in 4 dimensions of excellence.

• Operational excellence

• Strategic fit
 • Capability to adapt

• The unique voice (unique practice)

Current Trends in Global SCM

1. Supply Chain Digitization

2. Supply Chain Solutions Will Continue to Move to the Cloud

3. Omnichannel Supply Chains Become the Norm

4. Sustainability Is Becoming Essential

5. Growth in Circular Supply Chains

6. Agile Supply Chains - supply chains need to be flexible and agile, as well as able to respond to
changes on short notice.

7. Internet of Things - the number of businesses using IoT devices grew from 13% in 2014 to 25% in
2019. The IDC forecasts 13.6% annual growth through to 2022.

8. Big Data Analytics and Supply Chain Logistics Coming Together

9. Artificial Intelligence (AI) and Machine Learning

10. Using Prescriptive Analytics to Move Beyond the Limitations of Predictive Supply