SUPPLY CHAIN MANAGEMENT

MBA(MM)III SEM.
INTRODUCTION
LOGISTICS MANAGEMENT
TO
 INTRODUCTION

Efficient logistics is a key factor in ensuring the success of an organization from

ensuring that the organization has all that it requires to produce results to ensuring
that customers are satisfied.
The following presentation has been prepared to give the reader an overview of
logistics management from the very meaning of logistics to the phases in logistics
management.
 What is
Logistics?
This is the management of the flow of goods, resources and information between
the point of origin and the destination (point of consumption).
Logistics is the process of planning and implementing the efficient
transportation and storage of goods from one point to another.
It ensures that all materials and personnel are available on time and in the
right
place to ensure that a business objective is accomplished.
Logistics thus implies having the right type of product or service at the right place,
at the right time, for a right price and in the right condition.
Logistics can be looked at as a subset of supply chain management which ties
into project management by ensuring timely completion of a project
The aim of Logistics Management is to ensure
to the customer
supply
the:

 Right product
 Right cost
 Right quantity
 Right quality
 Right place
 Right time
Components (activities) of
Logistics
1.Transportation
2.Supply.
3.Inventory planning and
management.
4. Warehousing.
5.Packaging.
6.Order processing
Objectives of Logistics
Management
1.To choose the most effective transportation routes
2.To identify the best delivery method
3.To seek continuous quality improvement
4. To minimize the cost of transportation
5.To facilitate quick response to customer
requirements
6.To improve customer service
7.To minimize damage to goods
Major Functions of
Logistics
The major functions in logistics
are: Transportation.
Warehousing.
Material
handling
Inventory
Management
Transportation management focuses on planning, optimizing and executing the
use of vehicles to move goods from one place to another.
Warehouse management includes functions like inventory planning
and management and order fulfillment.
1. Transportation Management
Transportation management involves the movement of people, materials and
equipment from one place to another.
It involves:
Route planning Freight payment
Route optimization Operations execution
Communication Transportation order planning
Cost optimization Resource optimization
Organization of quotes Consolidating requests
Improving accountability Improving delivery capabilities
2. Warehouse Management
Warehouse management involves the control and administration of warehouse
operations where equipment, vehicles and goods are kept.
Warehouse management:
Improves flexibility and responsiveness.
Eases activities like orders and shipments
Secures the expensive equipment
Labor management
Ensures that equipment are kept
in check
3. Inventory Management
This is the process of ordering, storing and using the inventory of the organization
with regard to the type and amount of material in a storage facility.

4. Material Handling
This deals with the loading, offloading and the movement of materials at the point of
origin, in transit and at the point of consumption.
Phases of Logistics
Management
Inbound Logistics
This is the movement of materials from the point of
origin to the point of production.
Outbound logistics
This is the movement of finished goods from the point of production to the point
of consumption.
Reverse Logistics
This is the movement of damaged goods from customers back to the point of
production
 The
Logistician
This is an expert in logistics. The logistician coordinated the organization’s
supply
chain.
Roles of a logistician.
1.Find the cheapest and fastest way to transport goods
2.Make suggestions to customers regarding improvements
3.Keep informed on the latest advancements in logistics technology
4.Strive to determine what customers needs are and ensure that they must
meet them
5.Assess logistics functions and work to improve them
MEASURES FOR LOGISTICS
 MEASURES FOR LOGISTICS

Managers in every organization have to measure the performance of logistics. If they

do not take measures, they have no idea how well they are doing, whether things are
improving or getting worse, whether they meet targets, or how they compare with
competitors. An old maxim says, ‘what you can’t measure, you can’t manage’. The
problem, of course, is finding what to measure and how to measure it.

There are a huge number of possible measures of logistics. Some of these are indirect
measures and often relate to finance, such as the return on assets, payback period, or
contribution to profits. Financial measures are popular, as they are easy to find, sound
convincing, give a broad view and allow comparisons.
However, they also have weaknesses as they concentrate on past rather than current
performance, are slow to respond to changes, rely on accounting conventions, and do
not record important aspects of logistics. Financial performance can show that
something is wrong, but it does not show what is wrong or how to correct it. This is
like a doctor finding that you have a fever – it shows that something is wrong, but
does not show how to get better. In practice, it is much better to use direct measures of
logistics, such as the number of tones delivered, stock turnover or distance travelled.
Again, there are many possible measures. We will start by looking at general ones for
capacity, utilization and productivity.
 Capacity and utilization

The capacity of a supply chain is defined as the maximum amount that can be moved
through it in a specified time. This is a basic measure of supply chain performance.
Each part of a supply chain has a different capacity, and the overall capacity is set by
the bottlenecks.

It might seem strange to describe capacity as a measure of performance, rather than a

fixed value or constraint on the throughput. There are two answers to this. First, we
can say that the capacity depends on the way that resources are used.
Two organizations can use identical resources ,We will start by looking at general ones
for capacity, utilization and productivity. different ways, and get different throughputs.
Then the capacity gives a direct measure of performance and management skills.
Second, we can point out that capacity is not fixed, but varies over time. At the start of
the day a team of people might be able to move 500 cases an hour; at the end of the
day the same team are tired and can only move 400 cases an hour. The operations seem
to be exactly the same, but the capacity has declined.
To allow for these effects, we define difference types of capacity. Designed capacity is
the maximum possible throughput in ideal conditions; effective capacity is what we
can actually achieve over the long term; actual throughput shows what we actually
achieved. The designed capacity of Ellison’s call centre is 1000 telephone calls an
hour. They can achieve this for a short period, but after taking into account different
types of calls, staff schedules, holidays, faults with equipment and other factors the
effective capacity is 850 calls an hour. In one typical hour Ellison actually handled
710 calls. This shows that they were working below capacity and have not fully used
their resources.
Utilization shows the proportion of designed capacity that is actually
used. Suppose you have a vehicle fleet that is designed to deliver 100
tonnes of materials a week. This is its designed capacity. If the fleet
only delivers 60 tonnes in one week:
 Productivity

Productivity is one of the most widely used measures of performance. Unfortunately,

people often confuse its meaning, assuming that it is the amount of work done by each
person. There are really several kinds of productivity. The broadest picture comes
from total productivity, which relates throughput of a supply chain to the amount of
resources used.
Unfortunately, this definition has a number of drawbacks. Throughput and resources
must use consistent units, so they are normally translated into units of currency. This
depends on the accounting conventions used – so we no longer have an objective
measure. Another problem is finding values for all the inputs and outputs. This is
particularly difficult for intangible inputs (such as sunlight, the environment and
reliability) and outputs (such as pollution, waste products and reputation). We could
say that we are only interested in the important factors – but then someone has to
decide which these are, and we have again lost our objectivity.
Because of these practical difficulties, hardly any organizations measure total
productivity, preferring to use partial productivity, or single factor productivity.
This relates the throughput of a supply chain to a single type of resource.
There are four types of partial productivity relating the throughput to different types of
resource:
●equipment productivity – such as the number of customer visits per van, weight
moved per forklift, or miles flown per aeroplane.
●labour productivity – such as the number of deliveries per person, tonnes moved per
shift, or orders shipped per hour worked.

●capital productivity – such as the amount stored for each pound of investment,
deliveries per unit of capital, or throughput per dollar invested in equipment
●energy productivity – such as the number of deliveries per litre of fuel, amount
stored per
kilowatt–hour of electricity, or the value added for each pound spent on energy.

Productivity can be a very useful measure of performance. But when an

organisation simply reports its ‘productivity’ you have to look very carefully at
what they mean. If an automated warehouse increases its labour productivity,
this might be much less important than changes to its equipment or capital
productivities.
 Other measures

Capacity, productivity and utilization give general measures of logistics

performance, but we can use many more specific ones. For example, some
common measures of transport performance include:
 Reliability of delivery
 Total travel time and distance
 Delivery cost
 Customer satisfaction
 Frequency of service
 Loss and damage
 Availability of special equipment
 Helpfulness of drivers
 Time to load and unload
 Total weight moved
 Number of errors in deliveries
 Errors in processing and administration
 Size and capacity of vehicles
 Skills of drivers
 Utilization of vehicles.
 Benchmarking Overview:

Supply chain operations within an organization should be constantly reviewed to

identify where improvements can be made or deficiencies eliminated. One method to
help do this is to perform a series of benchmarking tests on their supply chain
processes. Benchmarking or goal setting allows a company to assess the opportunities
they may have for improving a number of areas in their supply chain including
productivity, inventory accuracy, shipping accuracy, storage density and bin-to-bin
time. The benchmarking process can provide a company some estimate of the benefits
achieved by the implementation of any improvements.
 What is benchmarking?

Ongoing process of measuring products, services, practices and processes against the
best that can be identified in order to:
 Learn about & improve best practice.
 Achieve realistic targets.
 Integrate improvements into your strategy.
 Use best practice as inspiration for innovation.
 Be externally focused.
 Be purposeful about improvement.
 Measure improvement.
LOGISTICS INTERFACE WITH
PRODUCTION & MARKETING
 Production System

• Production is related to the production system, operational planning, control, and research &
development.
• The operations system structure is concerned with manufacturing / service, supply / delivery system,
and operations system objectives, which are related to customer service and effective resource
utilization, both of which determine how operation plan and policies are set.
• Production system and strategy formulation is concerned with capacity location, layout, product,
service design, work systems, degree of automation, extent of vertical integration etc.
• Production strategy implementation is concerned with decisions which are
long term in nature and affects operations capability of the organization.
• Absorption of technology, indigenization, and adaption to customer needs is key.
Operations Strategies

• MANUFACTURING LOCATION
• Internal Production v. Outsourcing
• Domestic Plants v. International Locations
• SYSTEM LAYOUT
• Product v. Process Layouts
• Job Shops v. Mass Production
• Job shop/small batch production fits well with a differentiation strategy
• Continuous production / dedicated transfer lines helps achieve cost leadership
• Use of robots and CAD/CAM v. Labor intense manufacturing
• Modular Manufacturing and just-in-time delivery of sub-assemblies
• Continuous improvement systems lower costs and increase quality
 Operations Planning and Control

• Operations planning and control strategies are related with aggregate production planning, materials
supply, inventory, cost, quality management, and maintenance of plant and equipment. The aim is to
have effective resource utilization and meeting long term objectives of the firm.
• OPC is aimed at translating the objectives in to reality.

• Quality of output is treated as strategic tool. It is not only looked in at

inspection stage but also built into the design itself.
 Logistics Strategy

• Logistics management involves integration of flow of supplies in, through, and out of organization to
achieve level of service which ensures that the right material are available at right place, at right cost, in
right time, and in right quantity.
• Safe and Reliable delivery of materials at lowest possible transportation
cost. Effective logistics strategy is key to success.
 Logistics Strategy

• The questions needs to be addressed are:

• Which source of raw materials and components are available?
• How many manufacturing locations are there and what products are being made at each location?
• What mode of transportation should be used for various products?
• What is nature of distribution facility, material handling equipment possessed. Is it ideal?
• Method fro deploying inventory in logistics network?
• Should business organization use own transport vehicles?

• Improvement in logistics can result in saving cost and doing business (profits for company). Eg: Cost
Savings, Reduced inventory, Improved delivery time, Customer satisfaction, Competitive advantage.
 Logistics Strategies

Do we have goods that must be transported or delivered?

• Type of materials transported (bulky or compact?)

• Raw materials, supplies, & components, finished goods

• Best mode of transportation

• Air / rail / truck / barge
Do we want dependability, low cost, or high quality service?

• Outsource transportation or do it yourself?

• Contract with others
• Use multiple shippers v. Just one (UPS)?
• Consider batch deliveries v. Just-in-time arrangements?
• Ownership in distribution chain
• Quasi / tapered / full
 Supply Chain Management

• Changes in business environment have contributed to development of supply chain networks and
technology had made a great impact on all business activities.
• Improved Organizations systems, infrastructure, reduction in information communication costs have
resulted in effective coordination among supply chain members.
• Creation of innovative products with shorter product life cycles is key today.
• Traditional systems have been replaced by more efficient systems delivering customized products made
according to need, at low costs, and delivers value to customer are in vogue.
• Marketing and branding have become essential for success.
 What is Supply Chain Management

• SCM is linkage between Supplier, Manufacturer, and Customer and involves process of planning,
implementing, and controlling of supply chain operations..
• SCM involves activities like sourcing and procurement of materials, conversion, and logistics.

• Management of Supply Chains includes closely working with channel partners

like suppliers, intermediaries, other service providers and customers.
• SCM involves movement and storage of raw materials, work I progress inventory, and finished goods from
point of origin to point of consumption.
• Modern organizations are outsourcing SCM activities to organizations that specialize in this activity thus
reducing cost. Just in time concept of inventory has helped in reduction of cost for all organizations.
Is Logistics Mgmt. Same As Supply Chain Mgmt.

• SCM is extension of Logistics Management.

• Logistic activity typically include management of inbound and outbound goods, transportation,
warehousing, handling of materials, fulfillment of orders, inventory management, and supply / demand
planning. Thus logistics is one part related to planning, implementation, and controlling the movement
and storage of goods, services and related information between point of origin and point of
consumption.
• SCM is a tool of business transformation and involves delivering of right product at the right time to the
right place at the right prices.
• SCM reduces the cost to organizations and enhances customer service.
 Implementing SCM Systems

• Successful SCM implementation involves integrating key activities in SCM process.

• It involves collaborative work between buyers and suppliers, joint product development, common
systems and shared information (through electronic data interchange) among network members and
its management in time.
• Implementing and Running SCM involves:
• Product Development
• Procurement
• Manufacturing
• Physical Distribution
• Outsourcing
• Customer Service
• Performance Measurement
 Implementing SCM Systems

• Product Development
• Customers and Suppliers must work together in product development process. Partners should work towards
shortening Product Life Cycles and product launched in shorter time helps organization to remain competitive.

• Procurement
• It requires careful resource planning, quality issues, identifying sources, negotiation, order placement, inbound
transportation and storage. Suppliers are involved in planning and manufacturing process.

• Manufacturing
• Flexible manufacturing processes which are adaptive to accommodate customization, just in time inventory and
minimum lot size is key. Changes in manufacturing process be made to reduce manufacturing cycle.
 Implementing SCM Systems

• Performance Measurement
• There is strong relationship between the supplier, customer and organization. Suppliers capability, and customers
relationship can be correlated with a firms performance.
• Performance is measured in different parameters such as cost, customer service, productivity, and quality.
 Which Functions Can We Outsource?

• GLOBAL OUTSOURCING – INCREASES EFFICIENCY & QUALITY

• Averages 9% reduction in costs and 15% increase in capacity and quality
• Up to 70% of Boeing planes are outsourced..built in just 4 months v. 1 year

• AMA SURVEY -- 94% OUTSOURCE AT LEAST ONE ACTIVITY

• 78% General & Administrative activities
• 77% Human Resources
• 66% Transportation & Distribution
• 63% Information Systems
• 56% Manufacturing
• 51% Marketing
• 18% Finance & Accounting

25% were disappointed in their outsourcing results

51% brought the outsourced activity back “in-house”

• MOST LIKELY ACTIVITIES TO OUTSOURCE

• Customer Service
• Bookkeeping/Financial/Clerical
• Sales/Telemarketing
• Software Programming
 Successful Outsourcing

KEY TO SUCCESS:
Only outsource activities that are not related to the firm’s distinctive competencies

TOTAL VALUE-ADDED to Firm’s

PRODUCTS & SERVICES
LOW HIGH
HIGH ---------------------------------------------
TAPERED FULL VERTICAL
INTEGRATION INTEGRATION
ACTIVITY’S Produce Some Produce All
POTENTIAL FOR Internally Internally
COMPETITIVE ---------------------------------------------
ADVANTAGE OUTSOURCE OUTSOURCE
COMPLETELY COMPLETELY
LOW Buy on Open Market Use Long-Term Contracts
---------------------------------------------
 Outsourcing Disadvantages

• Customer Complaints & Unexpected Delays

• Locked Into Long-term Contracts That Aren’t Competitive
• The Firm Doesn’t Learn New Skills & Develop Core Competencies
A Survey Of 129 Outsourcing Firms
Half Of The Projects Undertaken Failed To Achieve The Anticipated Savings Software Produced In
India Had 10% More Bugs Than Comparable US Projects
Seven Major Outsourcing Errors
• Outsourcing Activities That Shouldn’t Be Outsourced
• Failed To Keep Core Activities “In-house”
• Selecting The Wrong Vendor
• Picked A Vendor That Wasn’t Trustworthy, Or Who Lacks State-of-the Art Processes
• Writing A Poor Contract
• Balance Of Power Favors The Vendor…locked In Over A Long Period Of Time
• Overlooking Personnel Issues…my Area Of Expertise Was Outsourced!
• Losing Control Over The Outsourced Activity…we’re At Their Mercy!
• Overlooking The Hidden Costs Of Outsourcing…transaction Fees?
• Failing To Plan An Exit Strategy…how Can We Reverse Out Of This Deal?
 Purchasing Strategies

• Sourcing Components And Supplies

Where Can The Highest Quality Components Be Found?

• Outsourcing (Our Firm Buys Everything)

• Buying On The Open Market (Spot) (Prices Fluctuate)
• Long-term Contracts With Multiple Suppliers (Low Bid)
• Sole Sourcing (Only One Supplier) Improves Quality
• Parallel Sourcing (Two Suppliers) Provides Protection

• Backward Integration (Our Firm Has An Ownership Stake In The Suppliers We Use)
• Quasi-integration (Minority Ownership Position In A Supplier)
• Tapered (Produce Some Of What We Need, But Not All)
• Full (Produce All Of Our Own Needs)

• Use Of Component Inventories V. Just-in-time Supply Delivery

 SUPPLY CHAIN OVERVIEW

Transportation Transportation Customers

Warehousing

Information
flows
Factory

Transportation

Vendors/plants/ports
Warehousing Transportation
 RELATIONSHIP OF LOGISTICS TO MARKETING
Product

Promotion
Price

Place-Customer
service levels

Transport
Logistics

Inventory
carrying costs costs

Lot quantity Warehousing

costs Order processing and costs
information costs
LOGISTICS IN THE FIRM:
THE MICRO DIMENSION
 Logistics Interfaces with Marketing: Marketing The
Mix – Four Ps
 Price
 Product
 Promotion
 Place
LOGISTICS IN THE FIRM:
PRICE
 Carrier pricing
 Generally, since the larger the shipment, the cheaper the
transportation rate, shipment sizes should be tailored to the
carrier’s vehicle capacity where possible.
 Matching schedules

 Quantity discounts should be tied to carrier quantity

discounts.
 Volume relationships

 Volumes sold will affect inventory requirements.

LOGISTICS IN THE FIRM:
PRODUCT
 Consumer packaging
 Generally, since the size, shape, weight and other
physical characteristics of the product impact on its
storage, transportation and handling, the logistics
managers should be included in any decisions regarding these product traits.
 A minor correction in any of the above could
conceivably cost (or save) millions of dollars in logistical costs.
 Logistics costs are not necessarily paramount, but
they need to be considered in the decision making process.
LOGISTICS IN THE FIRM:
PROMOTION
 Push versus pull
 The most important factor is that the logistics division is
aware of any changes in demand patterns so that it can plan
for any consequences.
 Pull strategies tend to be more erratic.
 Push strategies tend to more predictable.
 Channel competition

 The more popular a product, the easier it is to persuade

channel members to promote your product.
LOGISTICS IN THE FIRM:
PLACE
 Wholesalers
 Generally, since wholesalers are combining purchases for
multiple retailers, the shipment sizes tend to be larger and the
number of transactions that have to be processed are fewer,
with the result that logistics costs are smaller.
 Retailers
 With the exception of very large retailers who act more like
wholesalers, smaller sales are the norm. These generally cost
more for transportation and order processing.
LOGISTICS ACTIVITIES
 Transportation
 Storage  Production planning
 Packaging  Purchasing

 Materials handling  Customer service

 Order fulfillment  Site location

 Forecasting  Other activities