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8/12/2019 Introduction to Logistics and Supply Chain Management_nuovograficoGDPExport-V3
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LOGISTICS MANAGEMENT
1. Introduction to Logistics and Supply
Chain Management
Prof. Alessandro PeregoPolitecnico di Milano
1. Introduction to Logistics and Supply Chain Management 2
Learning objectives
! “Logistics” and “Supply Chain Management”: key-
words and definitions
! The evolution of the Logistics concept from PhysicalDistribution System Management in the ’70s to
Supply Chain Management in the ’90s
! A 3-stack model of Logistics/Supply ChainManagement : from logistics execution, to supply
chain planning, to supply chain design and strategy
! The main activities of Logistics Management
! Why Logistics and Supply Chain Management arekey Business Management topics
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1. Introduction to Logistics and Supply Chain Management 3
2. The 3 “stacks”of logistics
management
1.Logisticsand supply
chain
management
Agenda
3. Theimportance of
Logistics
1. Introduction to Logistics and Supply Chain Management 4
Logistics Management
“Logistics Management is that part of supply chainmanagement that plans, implements, and controls the
efficient, effective forward and reverse flow and storage
of goods, services and related information between the
point of origin and the point of consumption in order to
meet customers' requirements.”
CSCPM (Council of Supply Chain ManagementProfessionals)
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1. Introduction to Logistics and Supply Chain Management 5
Council of Supply Chain
Management Professionals
(www.cscmp.org)Founded in 1963, it is the preeminent association for individuals involved
in supply chain management
CSCMP was originally founded as the National Council of Physical
Distribution Management (NCPDM) in January 1963. NCPDM was formed
by a visionary group of educators, consultants, and managers who
envisioned the integration of transportation, warehousing, and inventory
as the future of the discipline. At that time, physical distribution was just
beginning to edge its way into the corporate lexicon and make its
considerable presence felt in the business community.
In 1985, recognizing the growing field of logistics, the association's focus
broadened as it changed its name to the Council of Logistics Management
(CLM). It stayed that way until 2004 when CLM's Executive Committee
voted to become CSCMP, the Council of Supply Chain Management
Professionals (CSCMP)
1. Introduction to Logistics and Supply Chain Management 6
Time
Integration
scope
1960 1970 1980 1990 2000
Distribution of
finished products
Internal Supply
Chain
External Supply
Chain
Physical DistributionManagement, Materials
Management
Integrated Logistics (MaterialsManagement + Physical
Distribution)
Supply Chain Management
The evolution of Logistics
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1. Introduction to Logistics and Supply Chain Management 7
The evolution of the logistics
concept: distribution A term employed in manufacturing and commerce todescribe the broad range of activities concerned with
efficient movement of finished products from the end of
production line to consumer, and in some cases includes
the movement of raw materials from the source of supply
to the beginning of the production line .
NCPD (National Council of Physical Distribution
Management), 1967
! Efficient: emphasis on cost reduction
! From production line to consumer: emphasis on the distributionsystem
! Movement of finished products: emphasis on materials handing and
transportation
1. Introduction to Logistics and Supply Chain Management 8
INTEGRATION OF “PARTS” OF THE INTERNAL SUPPLY CHAIN
FOCUS
• DISTRIBUTION OF THE END PRODUCTS or SUPPLY OF RAW
MATERIALS/PRODUCTION
• SINGLE COMPANY
• REDUCTION OF THE DISTRIBUTION or SUPPLY/PRODUCTIONCOSTS
Suppliers CustomersSupply Production Distribution
Physical Distribution/Materials
Management
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1. Introduction to Logistics and Supply Chain Management 9
Physical Distribution
Management! Focus: distribution of end products with a systemic
view of transportation, storage, inventory
management, packaging and materials handling
! Methodologies: systemic approach, total costanalysis, trade-off analysis, operational research
techniques (inventory management models, demand
forecasting algorithms, site location, etc.)
! Organization: “Distribution Manager”
! Awareness: the National Council of PhysicalDistribution Management is founded in 1963
1. Introduction to Logistics and Supply Chain Management 10
Time
Integration
scope
1960 1970 1980 1990 2000
Distribution of
finished products
Internal Supply
Chain
External Supply
Chain
Integrated Logistics (MaterialsManagement + Physical
Distribution)
Supply Chain Management
The evolution of Logistics
Physical DistributionManagement, Materials
Management
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1. Introduction to Logistics and Supply Chain Management 11
The evolution of the logistics
concept: integrated logistics
The integration of two or more activities for the purposeof planning, implementing, and controlling the efficient
flow of raw materials, in-process inventory and finished
goods from point-of-origin to point-of-consumption”.
NCPD (National Council of Physical DistributionManagement), 1976
! Integration: emphasis on the value of global optimization (as opposed
to local optimization)
! Plan, implement and control: not only execution, emphasis on logisticsas a business management discipline
! From point of origin to point of consumption: first inclusion of the
(internal) “supply chain perspective”
1. Introduction to Logistics and Supply Chain Management 12
The evolution of the logistics
concept: integrated logistics
The process of planning, implementing, and controllingthe 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”.
CLM (Council of Logistics Management),1985
! Process: it is the first explicit recognition that Logistics is a process
! Related information: not only flow of goods but also flow ofinformation
! Conforming to customer requirements: it is the ultimate objective of
logistics, not only efficiency and cost.-effectiveness
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1. Introduction to Logistics and Supply Chain Management 13
The evolution of the logistics
concept: integrated logistics
The process of planning, implementing, and controllingthe 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 .
CLM (Council of Logistics Management), 1992
! Effective: not cost-effective but effective tout court
! Services: logistics management applies also to the provision ofservices (healthcare, after-sales, engineering&contracting, …)
1. Introduction to Logistics and Supply Chain Management 14
INTEGRATION OF THE INTERNAL SUPPLY CHAIN
FOCUS
• SUPPLY+PRODUCTION+DISTRIBUTION
• SINGLE COMPANY
• REDUCTION OF THE OVERALL LOGISTICS
COSTS
Integrated Logistics
Suppleirs CustomersSupply Production Distribution
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1. Introduction to Logistics and Supply Chain Management 15
Integrated Logistics
! Focus: focus on the overall logistics system with theintegration of the different sub-processes of
Materials Management, Production Management,
Physical Distribution
! Methodologies: systemic approach, total costanalysis, integrated planning principles, competitive
value of the customer service
! Organization: “Logistics Manager”
! Awareness: the National Council of PhysicalDistribution Management becomes the Council of
Logistics Management
1. Introduction to Logistics and Supply Chain Management 16
Time
Integration
scope
1960 1970 1980 1990 2000
Distribution of
finished
products /
Supply of raw
materials
Internal Supply
Chain
External Supply
Chain
Integrated logistics (MaterialsManagement + Physical
Distribution)
Supply Chain Management
The evolution of Logistics
Physical DistributionManagement, Materials
Management
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1. Introduction to Logistics and Supply Chain Management 17
rawmaterialsupply
rawmaterialstorage
manufactu
ring
finishedgoods
storage
Market(user
orcustome
r)
Plant
Plant
Warehouse
Warehouse
Warehouse
Storage
Storage
Storage
Inbound supply chain Outbound supply chain
The Supply ChainIt includes the different members, infrastructures and resources,processes and activities (and all the links among them) that allow the
replenishment of raw materials, their transformation in components
and products and the distribution of products to end customers
1. Introduction to Logistics and Supply Chain Management 18
The Food Supply Chain
Logistics Service Providers
Raw materialssuppliers
Wholesalers
HO.RE.CAWholesalers
Catering(big chains)
Small shops
Customers
LargeRetailers
Manufacturers
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1. Introduction to Logistics and Supply Chain Management 19
The Pharma Supply Chain
L o g i s t i c
s
s e r v i c e
p r o v i d e r s
Raw materialssuppliers
Outsourcers
Packaging suppliers
HospitalsPharmacies
Distributors
3rd party
logistic providers
Manufacturers
1. Introduction to Logistics and Supply Chain Management 20
The evolution of the logistics
concept: supply chain management
“Logistics Management is that part of supply chainmanagement that plans, implements, and controls the
efficient, effective forward and reverse flow and storage
of goods, services and related information between the
point of origin and the point of consumption in order to
meet customers' requirements.” CSCPM (Council ofSupply Chain Management Professionals), 2009
! Part of supply chain management: Logistics is part of a more
comprehensive concept, Supply Chain Management
! Reverse flow: Logistics is also about the reverse flow of goods andinformation from the point-of-consumption backward
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1. Introduction to Logistics and Supply Chain Management 21
Supply Chain Management
“Supply chain management is an integrating function with primary
responsibility for linking major business functions and business
processes within and across companies into a cohesive and high-
performing business model. It includes all of the logistics
management activities, as well as manufacturing operations, and it
drives coordination of processes and activities with and across
marketing, sales, product design, finance, and information
technology. ”
CSCPM (Council of Supply Chain Management Professionals)
Supply Chain Management includes all the inter-company processes,i.e. the processes which extend outside the company boundaries
and span over the whole supply chain (logistics, new product
development, marketing, etc.).
1. Introduction to Logistics and Supply Chain Management 22
INTEGRATION OF THE EXTERNAL SUPPLY CHAIN
FOCUS
• ENTIRE SUPPLY CHAIN
• VALUE OF THE CUSTOMER SERVICE
• OVERALL LOGISTICS COST TO SERVE THE FINAL CUSTOMER
• SUPPLY CHAIN BASED COMPETITION
Supply chain management
Suppliers CustomersSupply Production Distribution
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1. Introduction to Logistics and Supply Chain Management 23
Supply chain management
! Focus: focus on the Supply Chain as a whole;competition among supply chains; logistics as a
differentiation lever
! Methodologies: analysis of supply chainperformance, supply chain integration, collaborative
planning models (VMI, CPFR)
! Organization: “Supply Chain Manager”
! Awareness: the Council of Logistics Management
becomes the Council of Supply Chain ManagementProfessionals
Strategic approach where:
! Competitiveness of the company is strongly impacted by
the actions of the other supply chain members
! Competitiveness is, first of all, between different supplychains (and not between companies of the same supply
chain)
Strategic implications
! Competitiveness of the company can be improved
focusing on the interface processes with the other supplychain members, through integration and collaboration
! In many cases the action on the interface processes is
more effective (in terms of impact on KPIs) than that on
internal processes
Supply Chain Based Competition
1. Introduction to Logistics and Supply Chain Management 24
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What is the amount of inventory (of finished products) in thewarehouses of manufacturers and retailers?
! 40 days of inventory (on average) in the warehouses of the
manufacturers (including both cycle and safety stock)
! 20 days of inventory in the warehouses of the retailers
(both distribution centres and backrooms) (including
safety, cycle and speculative stock)
What is the average value of the on-shelf availability in thestores of the retailers?
! 93% as an average of all the the different types of products.This means that 7 times out of 100, consumer does not find
what he is looking for (Source: GS1 Europe)
Performances of the FMCG
supply chain
1. Introduction to Logistics and Supply Chain Management 25
How much does the order-delivery-invoicing-payment cyclecost?
! Approximately 80 ! /cycle (from order to payment), of which
50% due to the management of the activities generated byerrors…
! …equally split among manufacturer and retailer
(Source: Electronic Invoicing Observatory - Politecnico MI)
What is the average saturation of the means of transportation
used by manufacturers to deliver their products to retailers?
! Approximately 70% for the single trips (do hope that returns
are not empty!)…
! … with a very limited adoption of “multi-drop”deliveries
Performances of the FMCG
supply chain
1. Introduction to Logistics and Supply Chain Management 26
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1. Introduction to Logistics and Supply Chain Management 27
2. The 3 “stacks”of logistics
management
1.Logistics andsupply chain
management
Agenda
3. Theimportance of
Logistics
1. Introduction to Logistics and Supply Chain Management 28
sourceSuppliers
PERFORMANCE MEASUREMENT SYSTEM
SUPPLY CHAIN PLANNING
LOGISTICS EXECUTION
stockmake deliver
SUPPLY CHAIN DESIGN AND STRATEGY
The 3 stacks of logistics management
Decision
level
Operatio
nal
Tactical
Strategic
DemandInventoryDistributionProduc-
tionSupply
PERFORMANCE MEASURES
Logistic costs
#
Customer service
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1. Introduction to Logistics and Supply Chain Management 29
1. Logistics Execution
Logistics Execution includes the design and managementof the processes that support the flow of materials
(handling, storage, physical transformation and transport
activities) and data/documents along the supply chain
! It is the most traditional “scope” of Logistics (but it is only part of its
most comprehensive scope)
! It is the base upon which all the other stacks are built (therefore itrepresents the “basics” a good logistician must know)
Company A
Transport
Trasforma - zione fisica
Stoc - caggio Picking Messa a
Stoc - caggio Physical -
transform. Warehouse
Picking Receiving Storing Stoc - Warehouse - Shipping
1. Introduction to Logistics and Supply Chain Management 30
2. Supply Chain Planning
Supply chain planning is the process that plans for theadjustment of the operational capacity and for the
execution of the operational activities linking the demand
and the supply sides of the supply chain. It aims at
“getting the supply chain aligned and tuned”
! This is the stack that “plans and manages” the operational level of
logistics
! It should be an integrated process (and not merely a collection ofphases)
! It should consider both the structure of the distribution network and
all the specific operational constraints
Demand
Planning
Inventory
Planning
Distribution
Planning
Production
Planning
Procurement
Planning
CUSTOMERS SUPPLIERS
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1. Introduction to Logistics and Supply Chain Management 31
3. Supply chain design and
strategySupply chain design and strategy aims at defining:(1) the logistics network structure (supply network,
production network and distribution network)
(2) the transportation modes (road, rail, ship, inter-modal,
etc.)
(3) the “make or buy” policies
! These decisions must be strongly aligned with theoverall company strategy (markets served, product range,
trade channels, etc.)
! These choices have to consider the specific features/
constraints of both the planning process and the logistics
execution process
1. Introduction to Logistics and Supply Chain Management 32
LOGISTICS
PROCESS
Performance
measurement
Gap
analysis
Environment
Objective performances
The performance measurement
system
Main choices:
! the metrics
! the measurement techniques
! the process: phases, responsibilities, frequency,
reports, etc.
Actions
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1. Introduction to Logistics and Supply Chain Management 33
2. The 3 “stacks”of logistics
management
1.Logistics andsupply chain
management
Agenda
3. Theimportance of
Logistics
1. Introduction to Logistics and Supply Chain Management 3434
Importance of Logistics and
Supply Chain Management
In a nutshell the importance of logistics and supply chainmanagement (L&SCM) depends on the following reasons:
! L&SCM are non-discretionary activities that must beaccomplished to deliver the right value to the right
customer
! These activities are costly: L&SCM related costsrepresent on average between 5 and 15% of revenues
and more if a supply chain perspective is taken
! They have a substantial impact on the assets of acompany (inventories, manufacturing plants, transport
vehicles, …)
! ….
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1. Introduction to Logistics and Supply Chain Management 35
Cost of logistics as % of sales
Administration
Inventory
Warehousing
Transportation
1987
5,9%
2,4%
2,5%
1,3%
1993
3,9%
1,8%
1,7%
1,2%
1998
2,8%
1,6%
1%
1%
2003
3,1%
1,5%
0,8%
0,8%
2008
3,5%
1,8%
1,2%
0,8%
2013
3,8%
1,8%
1,3%
0,8%
12,1%
8,5%
6,4% 6,1%
7,3%7,7%
-30%
-25%
-4%+20%
+5%
Source: European Logistics study 2008-2009 (ELA – AT Kearney)
Globalization: export grows
more than GDP
1. Introduction to Logistics and Supply Chain Management 36
Source: World Economic Outlook Database, October 2013 (International Monetary Fund)
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The evolution of the market
Trends in factors of production in Europe
1. Introduction to Logistics and Supply Chain Management 37
60
80
100
120
140
160
2009 2010 2011 2012 2013 (*)
Fuel
Energy
Price of money
Costs of renting
Labour costs -employees
Labour costs - external
workers
(*)Values referred to the first 8 months of 2013
In the last years the logistics sector has been facing an
increase in the costs of the factors of production (most of all
labour, energy and fuel)
1. Introduction to Logistics and Supply Chain Management 38
INDUSTRY War. Admin. Invent. TOTAL
Publishing 3,0% 2,1% 3,6%
Electric appliances 2,6% 2,9% 4,6%
Wholesalers 3,0% 2,2% 2,9%
Food & beverage 2,2% 1,7% 2,8%
Consumer electronics 2,0% 2,5% 3,8%
Chemical 2,3% 1,5% 2,6%
Mechanical 2,2% 1,9% 2,9%
Automotive 2,3% 1,2% 2,7%
Retail 3,0% 1,6% 2,0%
Pharmaceutical
Transp.
4,7%
2,5%
2,9%
3,7%
2,0%
3,8%
2,3%
2,7%
2,3%
2,2% 2,0% 2,1% 2,5%
13,4%
12,6%
11,0%
10,4%
10,3%
10,2%
9,3%
8,9%
8,9%
8,8%
The incidence of the logistic costs on the revenuesSource: ELA-AT Kearney (early 2000s)
The incidence of logistic costsAn analysis by industry
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Cost of logistics as % of sales in
different industries
1. Introduction to Logistics and Supply Chain Management 39
Source: the Benchmarking Institute 2007
1. Introduction to Logistics and Supply Chain Management 40
Politecnico di Milano (early 2000s)
The incidence of logistic costsAn analysis by supply chain: the textile – apparel
Logistic costs
Net margin
Industrial costs
Added value
Suppliers Manufact. Distributors Overall
supply chain
10 1,83,2
23
43,3
35
11,58
69
14,5
16,5
15,3
30,3
54,5 100
22
15,51,5
22,8
6,84,5
6
43
22,3
12,7
6,5
55,2 100
Financial cost (inventories)
Obsolescence costs
Other costs (administration, quality, …)
Transportation and handling
23
5
15,5
49,5
6,2
Suppliers Manufact. Distributors Overall
supply chain
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1. Introduction to Logistics and Supply Chain Management 4141
Importance of Logistics and
Supply Chain Management In a nutshell the importance of logistics and supply chainmanagement (L&SCM) depends on the following reasons:
! L&SCM are non-discretionary activities that must beaccomplished to deliver the right value to the right
customer
! These activities are costly: L&SCM related costsrepresent on average between 5 and 15% of revenues
and more if a supply chain perspective is taken
! They have a substantial impact on the assets of acompany (inventories, manufacturing plants, transport
vehicles, …)
! Last but not least L&SCM affects the top line of theprofit&loss, i.e. revenues (customer service, lost sales,
…)
1. Introduction to Logistics and Supply Chain Management 42
Customer service
Many customer service factors are strongly affected bythe logistic process and should be considered as key
performance indicators of the process itself:
! the order-delivery cycle time
! the delivery accuracy
! the order fill rate
! tracking information from order to delivery
! …
Input
(resources)Output Customers
CUSTOMER SERVICE
LOGISTIC PROCESS
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1. Introduction to Logistics and Supply Chain Management 43
Product
Price
Customer service
Promotion
Food Chemical Pharmac Auto Paper Electronics Textiles Total
34,8
25,8
20,0
19,4
33,0
34,8
19,1
13,1
36,9
29,4
17,3
16,4
26,8
29,8
33,5
9,9
23,2
35,8
28,9
12,1
41,3
26,5
21,8
10,4
34,7
22,0
22,8
20,5
33,3
29,9
22,4
14,4
“Importance of Marketing Variables by Industry” Council of Logistics Management 1988
The “weight” of marketing mix
variables
= the most important variable in the industry
= the second most important variable
Already 20 years ago the importance of Customer Service wasin line with the importance of more traditional product mix
variables such as price and product
Service level expected by the customers
of the Logistic Service Providers (LSPs)
1. Introduction to Logistics and Supply Chain Management 44
96% 96,3%
98,3% 98,8%
97,1%98,4% 98,9%
96,2%
93,2%93,7%
91,7%
89%
93%92,2%
88,2%88 %
1993 1998 2003 2008 1993 1998 2003 2008
Service level expected by the customers of the LSPs
Service level given by LSPs
On time deliveries Complete deliveries
Source: European Logistics study
2008-2009 (ELA – AT Kearney)
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1. Introduction to Logistics and Supply Chain Management 45
Supplementary Readings
! Cooper, Lambert, Pagh, 1997, Supply chain
management: more than a new name for logistics,
International journal of logistics management,volume 8, pp.1-14
! Coyle, Bardi, Langley, Supply Chain Management,
The management of business logistics, a supply
chain perspective, pp. 1-73
1. Introduction to Logistics and Supply Chain Management 46
Relevant websites
Logistics and Supply Chain Management association websites:
! www.cscmp.org
! wwww.elalog.org
! www.sole.org
Practitioner Websites and industry insights:! www.logisticsworld.com
! www.logistics.about.com
! www.logisticstoday.com
! www.supply-chain.org
! www.logisticsmanager.com
! www.scmr.com
! www.supplymanagement.co.uk
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1. Introduction to Logistics and Supply Chain Management 47
Challenge questions
! Suppose you are asked to tell why Logistics is not
only Warehousing and Transportation. What would
be your line of reasoning? Which could be theactivities under the responsibility of a Logistics or
Supply Chain Executive?
! What is the main idea behind the foundation of
Logistics as a new discipline?
! What is the difference between Logistics and Supply
Chain Management?! Build a strong case in favour of the following
statement: Logistics is crucial for a Retailer in the
Fast Moving Consumer Goods sector
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