Logistics Section 01 Introduction

Source: From Assoc. Prof.
Ho Thanh Phong, IU lecture notes

1
Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes
Course Objectives

Understand the definitions Logistics and Supply Chain
Understand the concept and key points of Supply Chain
Management.
Understand how to manage Supply Chain and Logistics in
real companies.
Apply to a group project.

2
References
Text book: Logistics - An Introduction to Supply
Chain Management, Donald Waters, PALGRAVE MACMILLAN, 2003.
Reference books: Supply Chain Logistics Management, Donald J.
Bowersox, David J. Closs and M. Bixby Cooper, McGraw Hill, 2002.
Lecture Notes: Logistics and Supply Chain Management

Grading
Midterm Exam 30%
Assignment 30%
-Quiz, Home works 25%
-Group Project 75%
Final Exam 40%
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Chapter 1
Fundamentals of Logistics
4

Learning Objectives
DEFINE logistics and associated terms
UNDERSTAND the role and structure of supply chains
LIST different activities of logistics and understand the
relationships between them
DISCUSS the aims of logistics
SHOW how logistics contributes to customer satisfaction
RECOGNISE the importance of logistics to every
organization.
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1. Basics Definition
All organizations move materials.
Manufacturers: raw materials finished goods.
Definition of Logistics: Logistics is the function that is
responsible for the movement of materials (and
information). It is responsible for the transport and
storage of materials between suppliers and customers.
According to the Council of Supply Chain Management
Professionals (CSCMP), a professional organization for
Logistics and SCM professionals, logistics is defined as:
the process of planning, implementing and controlling the
efficient, effective flow and storage of goods, services and
related information from point of origin to point of consumption
for the purpose of conforming to customer requirements
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what is products?

What is products?
Basic Definition (contd.)
Basic Definition (contd.)
Products: Goods (tangible) and Services (intangible)
Operations: Operations include manufacturing, serving,
transporting, selling, training, and so on. The main outputs
are products.
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- People
- Buildings
- Raw materials
- Equipment
- Information
- Investment
etc. . .
INPUT
OUTPUT
OPERATIONS
- Manufacture
- Serve
- Supply
- Transport
- Sell
- Train
etc
- Goods
- Services
- Profit
- Waste
- Wages
etc
Fig. 1.2. Operations of a organization
Basics Definition (contd.)
LOGISTICS is the function responsible for the flow of
materials from suppliers into an organization,
through operations within the organization, and then
out to customers.

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Inbound logistics: activities between external suppliers and the
organization
Outbound logistics: activities between external customers and
the organization
Operations within the organization: activities between internal
suppliers and internal customers
Link:
http://www.youtube.com/watch?v=V4JRH3e4xrg&featur
e=related

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2. THE SUPPLY CHAIN
-Different names for these chains of activities and organizations.
emphasize the operations, refer to the process;
emphasize marketing, call it a logistics channel;
look at the value added, call it a value chain,

see how customer demands are satised, call it a demand chain. --
-Here we are emphasizing the movement of materials and will use
the most general term of supply chain.

A SUPPLY CHAIN consists of the series of activities and
organizations that materials move through on their journey
from initial suppliers to final customers.
2. role and structure of supply
chains
Inbound logistics: activities between external
suppliers and the organisation
Outbound logistics: activities between external
customers and the organisation
Operations within the organisation: activities between
internal suppliers and internal customers
Fig. 1.5. Supply Chain
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Structure of the supply chain
SUPPLY CHAIN = a series of activities and organizations
that move materials from initial suppliers to final
customers
Upstream supply chain activities: involve initial supplier,
third tier supplier, second tier supplier, first tier supplier
Downstream supply chain activities: involve first tier
customer, second tier customer, third tier customer, final
customer

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Do you want to avoid supply chain?

EG: The market of vegetables
the sugar and sugar cane, beet

Well , You can get answer from figure!
Benefit from Supply Chain
3. ACTIVITIES OF LOGISTICS
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Procurement or purchasing.
Inward transport or traffic management
Receiving
Warehousing or stores
Stock control, Order picking and Materials handling.
Outward transport
Physical distribution management
Recycling, returns and waste disposal
Location and Communication
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 point of origin to
point of consumption for the purpose of conforming to customer
requirements (Council of Logistics Management (CLM) -
http://cscmp.org/default.asp)
Summary of logistics activities

Case Study
NIKE logistics center
http://www.youtube.com/watch?v=NkfHVYv5nUo&feature=
related

How UPS Cargo Containers Work
http://www.youtube.com/watch?v=MyeqlieHhi4

Simulation
http://www.youtube.com/watch?v=_0UJ0lKnn_o&feature=r
elated
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Organizing Logistics
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Fig1.8. Organizing Logistics
4. Aims of logistics
When you buy an item, what kind of contents will be take
into your consider?

Aims of Logistics
Logistics is responsible for the ow of materials through a
supply chain. This function is also called supply chain
management.

LOGISTICS is the time-related positioning of resources, or
the strategic management of the total supply chain
The SUPPLY-CHAIN is a sequence of events intended to
satisfy a customer.

The overall AIM OF LOGISTICS is to achieve high
customer satisfaction. It must provide a high quality
service with low or acceptable costs.
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profits earne
Assets
asse
d
Re
ts
turn on =
employed
Stocks,
money etc.
Property,
Equipment,
Plant, etc.
Current Assets
Fixed Assets

Assets
Importance of Logistics
27
profits earne
Assets
asse
d
Re
ts
turn on =
employed
Customer
Satisfaction
Operating
Costs
Product
Features
Sales
Profit
Margin
Price
Profit
Importance of Logistics (cont.)
Example:
ABC currently has sales of $ 20 mil. a year, with a stock level of 35% of
sales. Annual holding cost for the stock is 20% of value. Operating
costs are $8 mil./ year and other assets are valued at $15 mil. What is
the current return on assets? How does this change if stock levels are
reduced to 25% of sales?

Solution: Taking costs over a year, the current position is:
Cost of stock = stock holding cost = (20 0.35) 0.2 = 1.4 mil./year
Total costs = operating cost + cost of stock = 8 + 1.4 = 9.4 mil./year
Profit = sales total costs = 20 9.4 = 10.6 mil. /year
Total assets = other assets + stock = 15 + (20 0.35) = 22 mil.

Return on assets = profit / total assets = 10.6 / 22 = 0.4818 (48.18%)
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The new position with stock reduced to 25% of sales has: ???
Cost of stocks = 20 0.25 0.2 = 1 mil. /year
Total costs = 8 + 1 = 9 mil. /year
Profit = 20 9 = 11 mil./year
Total assets = 15 + (20 0.25) = 20 mil.
Return on assets = 11 / 20 = 0.55 or 55%

Reducing stocks gives lower operating costs, higher profit
and a significant increase in Return on Asset (ROA).

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Example (cont.):
Development of logistics
pressures to the use of logistics
Changes of Customers.
Changes of Competition
Other changes in retail markets
International trade continues to grow.
Organizations become to outsource peripheral activities and
concentrate on their core operations.
Current trends
Improving communication
Electronic data interchange (EDI)
Electronic point-of-sales data (EPOS)
e-purchasing of e-procurement

Support of EDI:
Item coding (often bar-coding)
Electronic Fund Transfer (EFT)

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Current trends
Improving customer service
Lower lead-times
synchronized material movement
mass customization
Other significant tendencies
Globalization
Reduced number of suppliers
Concentration of ownership
Outsourcing.
Make or Buy.
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Current trends
Other significant tendencies
Cross-docking
Direct delivery
Stock reduction methods
Increasing environmental concerns
More collaboration along the supply chain

Three important themes for logistics consider
LEANNESS, AGILITY and INTEGRATION. Ideally,
logistics should aim for all three of these
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Current themes
LEAN Logistics
faster deliveries, reduce stock levels, reduce handling, lower
costs, reduce waste etc.
AGILE Logistics
flexible and responsive, customized service, respond quickly
to a changing demand.
INTEGRATION Logistics
co-operate with other organizations
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Summary
Every organization creates products to satisfy customer demand.
The operations that create these products need an effective and
efficient flow of materials. In this sense, materials are all the goods
and services needed to create products.
Logistics is the function that is responsible for the flow of materials
into, through and out of an organization.
Materials move through a series of related activities and
organizations between initial suppliers and final customers. These
form a supply chain. Each product has its own supply chain.
There are many possible structures for supply chains, but the
simplest view has materials converging on an organization through
tiers of suppliers, and products diverging through tiers of
customers.
Logistics consists of a series of related activities. These range from
procurement at the beginning of operations, through to physical
distribution at the end.
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Summary (cont.)
An overall aim for logistics is to achieve high customer
satisfaction or perceived product value. This must be achieved
with acceptable costs.
Every organization depends on the movement of materials, and
the way this is done affects costs, profits, relations with suppliers
and customers, customer service, and virtually every other
measure of performance.
There are a lot of pressures for improving logistics. Current
trends are: Improving communication, Improving customer service,
some other significant tendencies.
Current themes:
LEAN logistics, AGILE logistics, INTEGRATION logistics.
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Quiz 01
Prob.01
ABC currently has sales of $ 20 mil. a year, with a stock
level of 35% of sales. Annual holding cost for the stock is
20% of value. Operating costs are $8 mil./ year and
other assets are valued at $15 mil. What is the current
return on assets? How does this change if stock levels are
reduced to 25% of sales?

Prob.02
Draw a Supply Chain for Bottle of water
Homework 01
(Due: next class)
5. The cost of logistics varies widely from organization to
organization. What factors affect these costs? Are the costs
fixed or can they be controlled?

6. How could you find the best balance between service level
and costs?

Production
Inventory &
Warehousing
Transportation
Customers
Manufacturers
Suppliers
Material
Transportation
Fig. 1.3. Logistics Network
Transportation
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In practice, most organizations get materials from many
different suppliers, and sell products to many different
customers.
The supply chain converges as raw materials move in
through the tiers of suppliers, and diverges as products
move out through tiers of customers.
A manufacturer might see sub-assembly providers as rst
tier suppliers, component makers as second tier suppliers,
materials suppliers as third tier suppliers, and so on. It
might see wholesalers as rst tier customers, retailers as
second tier customers, and end users as third tier
customers .

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Source: From Assoc. Prof.

Ho Thanh Phong, IU lecture notes

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