Module 1 – Logistics Management

What is a Supply Chain

• A supply chain consists of all parties involved,
directly or indirectly, in fulfilling a customer
request

• Includes not only manufacturer and suppliers,

but also transporters warehouses retailers and
even customers themselves
 Objective
• To maximize the overall VALUE generated

• Difference between what the final product is worth to the

customer and the costs the supply chain incurs in filling the
customer’s request

• Effective SCM involves the management of supply chain assets

and product, information and fund flows to maximize total
supply chain profitability
 Supply chain stages
• Customers
• Retailers
• Wholesalers/distributors
• Manufacturers
• Component/raw material suppliers
LOGISTICS- Meaning
Definition
Movement within facility
 Evolution of Logistics
• The word logistic has originated from Greek word ‘Logistikos’
and the Latin word ‘Logisticus’ which means science of
computing & calculating
• In ancient times it was used more in connection with moving
armies, the supplies of food & armaments to the war front.
• During World War I I logistics gained importance in army
operations covering the movement of supplies , men &
equipment across the border
• Today I t has acquired the wider meaning and is used in the
business for the movement of material from suppliers to the
manufacturer and finally then finished goods to the
consumers
Evolution
 Logistics Management : Traditional View
• Logistics has its roots in military activities associated
with the movement of troops to the battle.
• Traditional views on many organizations are
modeled after the military organizations in which
many players are under the command of a leader.
• Many related activities are performed by different
people from different functions.
• Doing this way, the coordination between each
function is not effective because each function is
considering only their own goal.
• Modern logistics is now taking into account
the integrated process under the same unit to
formulate more productive workflow.
Contemporary View:Logistics
 Logistics Vs Supply Chain Management
• The logistics involves planning, implementing and
controlling efficient, effective flow and storage of
goods and services from the beginning point of
external origin to the company and from the
company to the point of consumption for the
purpose of conforming to customer requirements.
Logistics is generally viewed as within one
company, although it manages flow between
company and its suppliers and customers.
• Supply chain management includes logistics
flows, the customer order management and
production processes and information flows
necessary to monitor all activities at the supply
chain nodes.
• The global network used to deliver products
and services from raw materials to end
customers through an engineered flow of
information, physical distribution, and cash".
Logistics Mission
 Objective of Logistics Management
• Inventory Reduction

• Reliable and consistent delivery performance

• Freight economy

• Minimum product damage

• Quick Response
Logistics Management Vs Supply Chain
Management
Functions of Logistics Management
Functions of Logistics Management
Components of Logistics Management
Principles
Logistics Network of Walmart
 Supply Chain Metrics
• Supply Chain Metrics may include
measurements for procurement, production,
transportation, inventory, warehousing,
material handling, packaging and customer
service.
• There are hundreds of metrics that can be
used to score Supply Chain Management
performance. 
Supply Chain metrics/Financial Measures
of performance
Supply Chain metrics/Financial Measures
of performance
 Perfect Order Measurement
• The percentage of orders that are error-free.

((total orders - error orders) / total orders) * 100

This is often broken down by stage:

Procurement99.99% perfect
• Production99.12% perfect
• Transportation99.02% perfect
• Warehousing99.98% perfect
 Cash to Cash Cycle Time
• The number of days between paying for
materials and getting paid for product.

materials payment date - customer order

payment date
• Cash to cash measures the amount of time
operating capital is tied up. During this time cash
is not available for other purposes. A fast cash to
cash indicates a lean and profitable supply chain.
 Customer Order Cycle Time
• Measures how long it takes to deliver a customer
order after the purchase order (PO) is received
= actual delivery date - purchase order creation date

A variant of this is the promised customer order cycle

time:

=requested delivery date - purchase order creation

date
 Fill Rate
• The percentage of a customer's order that is filled
on the first shipment. This can be represented as
the percentage of items, or order value that is
included with the first shipment.
= (1 - ((total items - shipped items) / total items)) *
100

Fill rate can be important to customer satisfaction

and has implications for transportation efficiency.
 Supply Chain Cycle Time
• The time it would take to fill a customer order if inventory
levels were zero.

Sum of the longest lead times for each stage of the cycle

Supply chain cycle time indicates the overall efficiency of

the supply chain.
• Short cycles make for a more efficient and agile supply
chain.
• Analysis of this critical metric can help recognize pain
points or competitive advantages.
 Inventory Days of supply
• The number of days it would take to run out of supply if
it was not replenished.

=inventory on hand / average daily usage

SCM seeks to minimize inventory days of supply in order

to reduce the risks of excess and obsolete inventory.
• There are other financial benefits to minimizing this
metric — excess inventory tends to tie up operational
cash flow.
 Freight Bill Accuracy
• The percentage of freight bills that are error-
free.

=(error-free freight bills / total freight bills) *

100

Billing accuracy is key to profitability and

customer satisfaction.
 Freight cost per unit
• Usually measured as the cost of freight per
item .

=total freight cost / number of items

SCM seeks to minimize freight cost per unit.

 Inventory Turnover
• The number of times that a company's
inventory cycles per year.

=cost of goods sold / average inventory

Another metric that indicates how much

inventory is sitting around. A higher inventory
turnover indicates an efficient supply chain.
 Days Sales Outstanding
• A measure of how quickly revenue can be
collected from customers.

(Receivables/Sales) * Days in Period

A low days sales outstanding indicates a more

efficient business.
 Average Payment Period for Production
Materials
• The average time from receipt of materials and
payment for those materials.

=(Materials Payables/Total Cost of Materials) *

Days in Period

It is in a company's best interests to pay its suppliers

slowly. The longer the average payment period the
more efficient the business.
 On Time Shipping Rate
• The percentage of items, or order value that
arrives on or before the requested ship date.

=(Number of On Time Items / Total Items) *

100

The on time shipping rate is key to customer

satisfaction. A high rate indicates an efficient
supply chain.
How to measure strategy performance
Logistics Key Performance Measures
Logistics Key Performance Measures
Logistics Audit
 Qns that arise before logisticians
1. How many distribution centers do you need and
where should they be located?
2. What should be the ratio between the volume of
stocks and the level of service for each center?
3. What types of vehicles should you use and how to
choose routes?
4. Should the distribution centers be equipped with
new technologies for cargo handling?
In order to answer these questions, it is necessary to
conduct a logistics audit of the company
 Audit-Necessity
• An audit is an evaluation of an organization, a specific process
or a system.
• The crucial aspect of an audit is that it is based on an unbiased
examination which will provide an objective point of view.
• In an organization, an audit can be carried out directly either
by the concerned department or by an internal audit group or
by an external specialized company.
• Whether performed in-house or outsourced, there are
numerous benefits for companies conducting audits such as
establishing sustainable quality standards and providing
constant access to reliable information.
• Audits will support strategic and managerial decision making
and help identify areas for improvement and eliminate
inefficiencies.
 Logistics Audit
• A professionally carried out audit and subsequent
implementations will improve efficiency, drive
sustainability and help the corporate image of an
organization in the eyes of internal or external
customers and shareholders.

• The goal of a Logistics Audit is to objectively examine

a company's existing logistics and transportation
operations and flows, assess the efficiency of the
systems and processes in place and to provide the
organization with recommendations and guidelines
on its Supply Chain and freight management.
 Departments involved in a logistics audit

• The main departments collaborating in data

collection and interviews will typically be Logistics
and Transportation as well as Warehousing,
Purchasing, Production, Trade Compliance,
Customer service and IT departments.
• All these departments are involved directly or
indirectly in the supply chain and can provide a
valuable insight on the situation as well as benefit
from the outcomes of the audit.
 Definition: Logistics Audit
• A Logistics audit is an unbiased assessment
by an independent party of all aspects of a
client's supply chain system, including
supplier and customer relations, planning
procedures, document flow, logistics
infrastructure, quality control and
correspondence of logistics costs to local
market conditions.
• In-depth experience and knowledge of best
practices help auditors to identify problem
areas, potential areas for improvement, and
opportunities for the application of advanced
technologies.

• A logistics audit analysis is provided in a

manner consistent with the way CFOs and
other corporate executives make investment
decisions.
 Logistics Audit unlocks hidden logistics
value
• Logistics audit uncovers hidden sources of
logistics value and develops a plan for an
optimal logistics function by improving
operational efficiency through better logistics
system management including integration and
close coordination of the supply chain
components.
• In reality the hidden costs in logistics of many
companies, approach millions of dollars,
which, when unlocked, can bring profit, the
rise of the stock capital and the growth of the
market share.
• Regular logistics audit results in the unlocking
of the costs reduction possibility and
simultaneously logistic system efficiency.
 Logistics Audit Procedure
• As logistics systems differ from company to
company, Logistics Field Audit develops
individual programs of the audit.
• LFA can be concentrated on any type of
distribution and warehouse management,
workforce management, resources and
transportation management, control over supply
chain, logistics function management, logistics
score carding and analytics, or may study whole
operations system within supply chain
Third Party Logistics
Services provided by 3PLs
Services by 3PLs
Buyers of 3PL services
Advantages and Disadvantages
Fourth Party Logistics
Functions provided by a 4PL company
Reasons for 4 PL
Reasons for 4 PL
Benefits of 4PL
Problems of 4PL
Difference between 3PL and 4PL