Overview of Logistics and Supply Chain Management

1

Supply Chain Overview
Transportation Warehousing Transportation Customers

Factory

Information flows

Transportation

Vendors/plants/ports Warehousing
CR (2004) Prentice Hall, Inc.

Transportation
Dickson Chiu 2006 1-2 SCM-2

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. CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

SCM-3

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 
Dickson Chiu 2006 SCM-4

Integrated logistics

customer

Physic al distrib ution

Inventory flow

Manufacturing support

Procurem ent

Supplier s

Information flow

5

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 Dickson Chiu 2006 SCM-6

Evolution of Supply Chain Management
Activity fragmentation to 1960 Demand forecasting Purchasing Requirements planning Production planning Manufacturing inventory Warehousing Material handling Packaging Finished goods inventory Distribution planning Order processing Transportation Customer service Strategic planning Information services Marketing/sales Finance Physical Distribution Supply Chain Supply Chain Management Management Logistics Purchasing/ Materials Management Activity Integration 1960 to 2000 2000+

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-7

Supply Chain Schematic

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

1-5 SCM-8

Critical Customer Service Loop

Customer order processing (and transmittal)

Transportation Customers Inventory or supply source

Dickson Chiu 2006

SCM-9

Physical Distribution Costs
Category Transportation Warehousing Order entry Administration Inventory carrying Total Percent of sales 3.34% 2.02 0.43 0.41 1.72 7.65% $/cwt. $26.52 18.06 4.58 2.79 22.25 $67.71
Logistics cost are about 10% of sales w/o purchasing costs
SCM-10

Add one-third for inbound supply costs
Source: Herb Davis & Company
CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

Customer Service Performance
10 9 8 Days 7 6 5 4
19 92 19 9 19 4 9 19 6 9 20 8 00 20 02

96 94 92 88 86 84 82 % 90

Order Cycle Time, Days Product Availability--% orders Product Availability--% line items

Source: Herb Davis & Company

Year
Dickson Chiu 2006 SCM-11

Traditional Scope of the Supply Chain
Business logistics

Physical supply (Materials management) Sources of supply Plants/ operations • Transportation • Inventory maintenance • Order processing • Acquisition • Protective packaging • Warehousing • Materials handling • Information maintenance

Physical distribution

Customers • Transportation • Inventory maintenance • Order processing • Product scheduling • Protective packaging • Warehousing • Materials handling • Information maintenance

CR (2004) Prentice Hall, Inc.

Internal supply chain
Dickson Chiu 2006

1-14 SCM-12

Key Activities/Processes

Primary
   

Setting customer service goals Transportation Inventory management Location Warehousing Materials handling Acquisition (purchasing) Protective packaging Product scheduling Order processing
Dickson Chiu 2006 SCM-13

Secondary, or supporting
     

Logistics Strategy and Planning

The objectives of logistics strategy
  

Minimize cost Minimize investment Maximize customer service Strategic Tactical Operational

Levels of logistical planning
  

Dickson Chiu 2006

SCM-14

The Logistics Strategy Triangle (4 problem areas)
Inventory Strategy • Forecasting Transport Strategy • Storage fundamentals Transport fundamentals • • Inventory decisions Transport decisions • • Purchasing and supply scheduling decisions Customer • Storage decisions service goals • The product • Logistics service • Information sys. Location Strategy Location decisions • The • network planning process
CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-15

Strategic, Tactical, and Operational Decision Making
Decision area Strategic Transportation Mode selection Inventories Order processing Purchasing Warehousing Facility location Tactical Seasonal equipment leasing Operational Dispatching

Location, Control policies Safety stock levels Order filling Order entry, transmittal, and processing system design Development of supplier- Contracting, buyer relations Forward buying Handling equipment selection, Layout design Number, size, and location of warehouses
Dickson Chiu 2006 SCM-16

Processing orders, Filling back orders Expediting Order picking and restocking

Space utilization

CR (2004) Prentice Hall, Inc.

Relationship of Logistics to Marketing and Production

PRODUCTION/ OPERATIONS Sample activities: • Quality control • Detailed production scheduling • Equipment maint. • Capacity planning • Work measurement & standards

Interface activities: • Product scheduling • Plant location • Purchasing

LOGISTICS Sample activities: •Transport • Inventory • Order processing • Materials handling

Interface activities: • Customer service standards • Pricing • Packaging • Retail location

MARKETING Sample activities: • Promotion • Market research • Product mix • Sales force management

Productionlogistics interface

Marketinglogistics interface

Internal Supply Chain
CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-17

Logistic in Marketing Marketing Process is successfully completed only when

18

Arrangements are made to supply the goods through selected distribution channels. 2 Products are produced and priced to satisfy the identified needs of the customers. 3 Goods are physically supplied to the buyers at the price and time selected.
1
Dickson Chiu 2006 SCM-19

4 An awareness is created among the buyers about the availability of the goods through advertisement 5 Other than satisfying the customer’s needs, the marketing process must be profitable to the seller

Dickson Chiu 2006

SCM-20

Trends in marketing
Past expectation •Products •Forms •Time •Quality •Price •Value Added •Services
21

Today's expectation Customized products Often configurated When wanted Exceed Expectation Competitive Complex

Standardized products Predefined Now as available Acceptable Low Minimal

Relationship of Logistics to Marketing
Marketing
Product Price Place-Customer service levels Logistics Transport costs Warehousing costs Promotion

Inventory carrying costs Lot quantity costs

Order processing and information costs
Dickson Chiu 2006

CR (2004) Prentice Hall, Inc.

SCM-22

Elements of the logistics marketing mix
    

Product Price Promotion Place People

Dickson Chiu 2006

SCM-23

Relationship of Logistics to Production

Coordinates through scheduling and strategy
 

make-to-order make-to-stock Affects total response time for customers Shares activities such as inventory planning Production lot quantities affect inventory levels and transportation efficiency Production response affects transportation costs and customer service Production and warehouse location are interrelated

An integral part of the supply chain
 

Costs are in tradeoff

Dickson Chiu 2006

SCM-24

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!
Dickson Chiu 2006 SCM-25

Supply Chain is Multi-Enterprise
Focus Company Suppliers Supplier’s suppliers Customers Customers/ End users

Conventional Scope

Acquire

Convert
Product and information flow

Distribute

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-26

Effect on Logistics Foreign Outsourcing
Domestic sourcing Profit G&A Marketing Logistics Overhead Materials Materials Labor
CR (2004) Prentice Hall, Inc.

Foreign sourcing Profit G&A Marketing Logistics Tariffs Overhead
Increase Increase

Labor
Dickson Chiu 2006

Reduction

SCM-27

Reality of SCM Scope

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-28

The Multi-Dimensions of SCM
ati on rdi n
I nt erorg

l) c oo

iz an on ati

Int (In er-fu tra nct -or ion ga niz al ati o

na

SUPPLY CHAIN MANAGEMENT

c al rd oo ina tio n

Activity and process administration
Dickson Chiu 2006 SCM-29

CR (2004) Prentice Hall, Inc.

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 Desire for quick response Desire for mass customization Generate revenue Improve profit Local vs. long distance supply Globalization of trade Law of comparative economic advantage applies
Dickson Chiu 2006 SCM-30

Customers are more demanding of the supply chain
 

An integral part of company strategy
 

Logistical lines are lengthening
 

Logistics is a key to trade and an increased standard of living

Logistics adds value

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 appropriateSCM-31 IT Dickson Chiu 2006

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.
Dickson Chiu 2006

SCM-32

Logistical sub-systems

Physical supply or management of flow of raw materials , spare parts , consumable stores and machinery and tools from suppliers Physical distribution or mgt of finished goods from the factory to the customers Logistical controls for managing the logistics system; these help in the efficient co-ordination of physical
Dickson Chiu 2006 SCM-33

The aim of an ideal logistic system is to ensure flow of supply to the customer
    

In the right quantity At the required location At the required time In a usable condition At the lowest total cost

Dickson Chiu 2006

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 serviceoriented 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 Dickson Chiu 2006 SCM-35

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