CHAPTER 1

F U N D A M E N TA L S O F
L O G I S T I C S A N D S U P P LY
CHAIN MANAGEMENT
LEARNING OBJECTIVES
• Describe a supply chain and define supply chain management.
• Describe the objectives and elements of supply chain management.
• Describe basic supply chain management activities.
• Understand the definition and importance of Logistics.
• Describe Logistics activities.
• Identify the challenges and current trends in Logistics.

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MAIN CONTENT

Supply Chain

Logistics

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1. SUPPLY
CHAIN

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PRODUCTS AND OPERATIONS
• Products: Goods (tangible) and Services (intangible).
• Operations: manufacturing, serving, transporting, selling, training, and so on.
The main outputs are products.

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WHAT IS A SUPPLY CHAIN?

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A GENERIC SUPPLY CHAIN

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SUPPLY CHAIN OF COCACOLA

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 SUPPLY CHAIN MANAGEMENT
• Council of Supply Chain Management Professionals (CSCMP)
defines supply chain management as: “The planning and management
of all activities involved in sourcing and procurement, conversion, and
all logistics management activities. Importantly, it also includes
coordination and collaboration with channel partners, which can be
suppliers, intermediaries, third-party service providers, and customers”.
• Goals:
o Produce and distribute products at the right quantities, to the right
place, at the right time.
o Minimize total cost while satisfy service level requirements.
https://www.youtube.com/watch?v=Mi1QBxVjZAw

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 IMPORTANCE OF SUPPLY CHAIN
MANAGEMENT

When a firm, its customers, and its suppliers all know each other’s
future plans and are willing to work together  the planning
process is easier and much more productive.
o lower purchasing and inventory carrying costs
o better product quality,
o higher levels of customer service.
 all leading to more sales and better profits.

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 FOUNDATION OF SUPPLY CHAIN
MANAGEMENT
• Supply Elements,
• Operations Elements,
• Logistics Elements,
• Intergartion Elements.

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 SUPPLY CHAIN DECISIONS
• Outsource/in-house
Supply Chain • Location/capacities
Strategy/Desig
• Mode of transportation
n
• Distribution network configuration

• Forecasting
Supply Chain • Inventory policy
Planning
• Timing and size of marketing, price promotion,…

• Allocate inventory, production

Supply Chain • Select supplier
Operation
• Select transportation route….

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 CHALLENGES IN SCM (1/3)

1. Customer service
• Managing efficiently supply chain means to delivery right products
(quantity, quality) to the right place, at right time with lowest cost to
maximize profit.
2. Cost control
• Operating cost of supply chain is under pressure of increasing
transportation cost, labor cost, materials cost and more
requirements on the demand, etc.
• In order to control these costs, there are many factors to control
and monitoring in the supply chain.

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 CHALLENGES IN SCM (2/3)

3. Planning and risk management

• The supply chain must be audited periodically and re-organized/re-
designed to meet the fluctuation of the market.
• It includes new product development, global supply, M&A, credit limit,
the necessary to protect copyright, and the possibility to maintain the
cost and transportation safety.
• In addition, all risks of the supply chain must be identified, quantified,
controlled and removed.

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 CHALLENGES IN SCM (3/3)

4. Supply Relationship Management

• Different organization, even different departments in the same company could
have different methodology to measure and exchange expected results.
• The trust starts to be built up when the managers cooperate together to
achieve the common target and improve the efficiency of the whole system.
5. Talents
• Recruiting, training and talent development are more and more important for
the companies to grow and expand the new markets.
• The managers of the supply chain must understand carefully core competence
needed for SCM jobs, specific job requirements, different methodologies to
develop the future talents.

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 CURRENT CHANGES IN SCM

• Using Supply Chain Analytics

o examining raw supply chain data and then reaching conclusions or
making predictions with the information.
• Improving Supply Chain Sustainability
o meeting the needs of current supply chain members without hindering the
ability to meet the needs of future generations in terms of economic,
environmental, and social challenges.
• Increasing Supply Chain Visibility
o the ability of suppliers, manufacturers, business partners, and customers
to know exactly where products are, at any point in the supply chain.

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2. LOGISTICS

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 WHAT IS LOGISTICS?
“Logistics is 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”- Council of
Supply Chain Management Professionals (CSCMP)

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 ROLE OF LOGISTICS
• 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

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 LOGISTICAL VALUE PROPOSITION

• The typical enterprise seeks to develop and implement an overall

logistical competency that satisfies customer expectations (time,
product quality, quantity..) at a realistic total cost expenditure.
o Service Benefits. The term logistics service describes the
level of service a firm provides all established customers.
o Cost minimization.

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LOGISTICS ACTIVITIES

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 CASE STUDIES

• 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=related
• Amazon Fulfillment Center
https://www.youtube.com/watch?v=8nKPC-WmLjU

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IMPORTANCE OF LOGISTICS

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 EXAMPLE
Assume that ABC company currently has sales of 20 mil./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
• other assets are valued at 15 mil.
Question: What is the current return on assets? How does this change if stock
levels are reduced to 25% of sales?

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 SOLUTION
Taking costs over a year, the current
position is:
o Cost of stock = stock × holding cost = (20
× 0.35) × 0.2 = 1.4 mil./year
o Total costs = operating cost + cost of stock
= 8 + 1.4 = 9.4 mil./year
o Profit = sales − total costs = 20 − 9.4 =
10.6 mil. /year
o Total assets = other assets + stock = 15 +
(20 × 0.35) = 22 mil.
o Return on assets = profit / total assets =
10.6 / 22 = 0.4818 (48.18%).
The new position with stock reduced to
25% of sales has:
o Cost of stocks = 20 × 0.25 × 0.2 = 1 mil.
/year
o Total costs = 8 + 1 = 9 mil. /year
o Profit = 20 − 9 = 11 mil./year
o Total assets = 15 + (20 × 0.25) = 20 mil.
o Return on assets = 11 / 20 = 0.55 or 55%
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 CHALLENGES IN LOGISTICS

• Real-time sales management.

• Transaction control.
• Delivery visibility.
• 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 (3PL, 4PL Providers).

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CURRENT TRENDS IN LOGISTICS (1/2)
• Improving communication
o Electronic data interchange (EDI).
o Electronic point-of-sales data (EPOS).
o e-purchasing of e-procurement.
o Support of EDI.
o Item coding (often bar-coding, QR codes).
o Electronic Fund Transfer (EFT).
• Improving customer service
o Lower lead-times.
o Synchronized material movement.
o Mass customization.

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CURRENT TRENDS IN LOGISTICS (2/2)

• Other significant tendencies:

o Globalization.
o Reduced number of suppliers.
o Concentration of ownership.
o Outsourcing.
o Make or Buy.
o Cross-docking.
o Direct delivery.
o Stock reduction methods.
o Increasing environmental concerns.
o More collaboration along the supply chain.

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 CURRENT THEMES
• LEAN Logistics
o faster deliveries, reduce stock levels, reduce handling, lower
costs, reduce waste, etc.
• AGILE Logistics
o flexible and responsive, customized service, respond quickly
to a changing demand.
• INTEGRATION Logistics
o co-operate with other organizations.
 Ideally, logistics should aim for all three of these.
• Future intelligent logistics solution
https://www.youtube.com/watch?v=EIaw716w1_0

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