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Overview of Logistics and

Supply Chain Management

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Supply Chain Overview

Transportation Transportation Customers


Warehousing

Information
flows
Factory

Transportation

Vendors/plants/ports
Warehousing Transportation

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

Physic Inventory flow


al
distrib
customer ution Supplier
Manufacturing Procurem s
support ent

Information flow

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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 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
Management
Distribution planning Distribution

Order processing

Transportation

Customer service

Strategic planning

Information services

Marketing/sales

Finance
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Dickson Chiu 2006 SCM-7
Supply Chain Schematic

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Critical Customer Service Loop

Customer order processing (and


transmittal)

Transportation
Customers

Inventory
or supply source

Dickson Chiu 2006 SCM-9


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

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

7 orders

%
88 Product
6 Availability--%
86 line items
5 84
4 82
Source: Herb Davis & Company
19 4
19 6

02
20 8
92

00
9

9
9
19

20
19

Year
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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


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Dickson Chiu 2006 SCM-12
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
Dickson Chiu 2006 SCM-13
Logistics Strategy and Planning
 The objectives of logistics strategy
 Minimize cost
 Minimize investment
 Maximize customer service
 Levels of logistical planning
 Strategic
 Tactical
 Operational

Dickson Chiu 2006 SCM-14


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

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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
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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 • Materials standards research
scheduling • Plant • Pricing
• Equipment maint. handling • Product
location • Packaging
• Capacity planning mix
• Purchasing • Retail • Sales force
• Work measurement
location management
& standards

Production-
logistics Marketing-
interface logistics
interface

Internal Supply Chain


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Dickson Chiu 2006 SCM-17
Logistic in Marketing

Marketing Process is
successfully completed
only when

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1Arrangements 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.
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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

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Trends in marketing
Past expectation Today's expectation

•Products Standardized Customized


products products
•Forms Predefined Often configurated
•Time Now as available When wanted
•Quality Acceptable Exceed Expectation

•Price Low Competitive


•Value Added Minimal Complex
•Services
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Relationship of Logistics to
Marketing
Product
Marketing

Promotion
Price

Place-Customer
service levels

Transport
Logistics

Inventory
carrying costs costs

Lot quantity Warehousing


costs Order processing costs
and information
costs
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006 SCM-22
Elements of the logistics marketing
mix
 Product
 Price
 Promotion
 Place
 People

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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

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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
Conventional
Focus Scope
Company

Suppliers Customers

Supplier’s Customers/
suppliers End users

Acquire Convert Distribute

Product and information flow

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Dickson Chiu 2006 SCM-26
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
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Reality of SCM Scope

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The Multi-Dimensions of SCM

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Activity and process
administration
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006 SCM-29
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 Dickson Chiu 2006 SCM-30
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
Dickson Chiu 2006
IT
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.
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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
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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

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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,
Dickson Chiu 2006 is a critical SCM-35