Overview of Logistics and

Supply Chain Management

1
 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-2
Logistics (according to CLM) 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

The mission of logistics is to get the right goods

or services to the right place, at the right time, and
in the desired condition and quantity in relation to
customers order
Main logistics activities and decisions:
 cooperate with marketing to set customer service
levels,
 facility location decisions,

 transportation activities (eg. transportation mode

selection, vehicle scheduling, carrier routing),
 inventory management (inventory short -term
forecasting, planning and control, cooperate with
production to calculate EOQ, sequence and time
production ),
 information collection and flows and order
processing,
 warehousing and materials handling,

 packaging and packing.

Council of Supply Chain Management
Professionals (former Council of Logistics
Management ): “Supply Chain Management is
the systemic, strategic coordination of the
traditional business functions and the tactics
across business functions within a particular
company and across businesses within the
supply chain for the purposes of improving
the long- term performance of the individual
companies and a supply chain as a whole”
(CSCMP 2005).
According to the new definition of
CSCMP
 SCM encompasses the planning and
management of all activities involved in
sourcing and procurement, conversion, and
all logistics management activities (including
coordination and collaboration with channel
partners).
 In essence SCM integrates supply chain and
demand management within and across
companies
GSCMF (Lambert and others)
 SCM is the integration of key business
processes from end user through original
supplier that provides products, services and
information that add value for customers and
other stakeholders.

 GSCMF vs. SCOR model (8 vs 5 key

processes)
  
 
 
 
Supply Chain Operations Reference Model
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Managgement Forum Model
(from 1996)
Customer Relationship Management (key)
Demand Management
Order Fulfillement
Manufacturing Flow Management
Supplier Relationship Management (key)
Product Development
Commercialization
Returun Management
Based on the product – relationship matrix Cooper
and Slagmulder (1999, p.10) distinguished four key
decisions and activities areas in the integrated
supply chains, such as:
- configuration of product and network, which
covers the decisions concerning the main rules of
cooperation,
- formation of the production network, mainly the
choice of production facility and warehousing
locations as well as their capabilities,
- product design with involvement the research
and development abilities of suppliers,
- process optimization in order to reduce cycle
times and inventory level in the cost-effective way.
The traditional role and place of small firms within
integrated supply chains was mostly limited):
- delivering raw- materials, parts or modules for the
final goods producers,
- delivering customer goods to wholesalers or selling
small quantities of this goods to the final customers,
- providing transportation and forwarding services,
- manufacturing goods and providing other services for
market niches which are considered as not enough
profitable for big companies (also as a subcontractor),
- trading under well known brand name of large
distribution networks (franchising)
New vs. Traditional logistics
 Integration (within organizational structures,
computer systems, supply chain and network)
 Strategic approach
 Outsourcing
 Globalization and virtualization
 Customer orientation
 City logistics and non- conventional
applications
 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-13

What Is a Supply Chain?
Flow of products and services from:
 Raw materials manufacturers
 Intermediate products manufacturers
 End product manufacturers
 Wholesalers and distributors and
 Retailers
• Connected by transportation and storage
activities
• Integrated through information, planning,
and integration activities
• Cost and service levels
1.1 What Is Supply Chain
Management?
 Supply chain management is a set of
approaches utilized to efficiently integrate
suppliers, manufacturers, warehouses, and
stores, so that merchandise is produced and
distributed at the right quantities, to the right
locations, and at the right time, in order to
minimize system wide costs while satisfying
service level requirements.
Two Other Formal Definitions
The design and management of seamless, value-
added process across organizational boundaries to
meet the real needs of the end customer
Institute for Supply Management
Managing supply and demand, sourcing raw
materials and parts, manufacturing and assembly,
warehousing and inventory tracking, order entry
and order management, distribution across all
channels, and delivery to the customer
The Supply Chain Council
 PC Industry Supply Chain
Tracing back the screen you stare at for the bulk of your time.
 The SCM Network

FIGURE 1.1: The logistics network

Global Apparel Value Chain
Tracing back the dress you are wearing
PC Value Chain
Performance of Traditional PC Manufacturer
Reduction
Performance of Dell Computers
 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
 Logistics obviously help time and place utility

Dickson Chiu 2006 SCM-22

 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

CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006 SCM-23
 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-24
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-25

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

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006 SCM-26
 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
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006 SCM-27
 The Multi-Dimensions of SCM

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CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006 SCM-28
 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
 Time and place utilities
Dickson Chiu 2006 SCM-29
 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, is a critical success factor and
therefore the focus of this course.
Dickson Chiu 2006 SCM-30