Introduction to Logistics/Supply Chain ManagementChapter 1

The Supply ChainAll activities (transportation, inventory control...) associated with the flow and transformation of goods from the raw materials stage through the end user, as well as the associated information flows

What is Logistics?Seven Rs

The Logistics/SC 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.

CSCMP Definition of Logistics Management Logistics Management is that part of Supply Chain Management 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. CSCMP Definition of Supply Chain Management Supply Chain Management encompasses 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. In essence, Supply Chain Management integrates supply and demand management within and across companies.

Components of Logistics Management

Integrated Supply Chain Model

Stages of a Detergent Supply Chain

Supply Chain Stages

Other names for LogisticsBusiness logisticsSupply chain management DistributionChannel managementLogistics managementMaterials managementPhysical distributionQuick response and flexible manufacturing

The Relationship between Logistics and Supply Chain ManagementSCM = Integrated Business Logistics Management

Costs can be reduced by integrating such logistics-related activities as customer service, transportation, warehousing, inventory management, order processiong and information systems, and production planning and purchasihg.

A model of Supply Chain Management

Supply Chain ManagementSCM is about the coordination of product flows across business functions and across companies to achievecompetitive advantage and profitability for the individual companies in the SC and the SC members collectively

The Business Logistics/Supply Chain Concept

Within the SC there are two types of logistics:- Inbound logistics - is about the receiving of materials, storing and distribution to manufacturing premises and it is part of the companys supply side (physical supply materials management); - Outbound logistics - is about storing and distributing products and it is part of the companys demand side (physical distribution).

A view of Business Logistics in a company

Scope of BL/SC for an individual firmA single firm is not able to control its entire product flow channel from raw material source to points of the final consumptionBL/SC for the individual firm has a narrower scope: the immediate physical supply and distribution channels

Evolution of Logistics towards Supply Chain

Typical Supply Chain for a Manufacturer

SC for a plastic homewares manufacturer (kitchen bowls, food containers, etc.)Second tier suppliersChemical companyPaper and card board supplierInk supplierFirst tier suppliersPlastic stockistPackaging supplierPlastic homewares manufacturerFirst tier customerWholesalerSecond tier customersRetailers

Typical Supply Chain for a Service

Customers are Suppliers

The bullwhip effect

Logistics/Supply Chain Management and Competitive Advantage

The experience curve

Logistics and competitive advantage

Gaining Competitive Advantage through Logistics and Supply Chain Management

Generic Value Chain

The Immediate Supply Chain for an Individual Firm

Supply Chain Macro Processes in a FirmCustomer Relationship Management (CRM): All processes that focus on the interface between the firm and its customers.Internal Supply Chain Management (ISCM): All processes that are internal to the firm.Supplier Relationship Management (SRM): All processes that focus on the interface between the firm and its suppliers.

Reverse logisticsthe reverse distribution of products;the return of unsold goods;product returns;product recalls; andwaste management.

Scope of the Supply Chain for Most FirmsFocus firms internal supply chain

Primary- Setting customer service goals- Transportation- Inventory management- Information flows and Order processing Secondary, or supporting- Warehousing- Materials handling- Acquisition (purchasing)- Protective packaging- Product scheduling- Information maintenance BL Key Activities/Processes

Elements of Supply Chain Management

Importance of Logistics/SCM-Logistics is about creating value, both for customers and suppliers of the firm, and for the stakeholders.Business creates four types of value in products or services:form, time, place and possession.Marketing, Engineering and FinanceManufacturing LOGISTICSLogistics can help penetrating new markets, increasing market share and increasing profit, i.e. it generates sale, not just reduce costs.SCM

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%

As 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

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

Physical Distribution CostsAdd one-third for inbound supply costsSource: Herbert Davis & CompanyLogistics cost are about 10% of sales

CategoryPercent of sales$/cwt.Transportation3.34%$26.52Warehousing2.0218.06Order entry0.434.58Administration0.412.79Inventory carrying1.7222.25Total distrib. costs 7.65%$67.71

Benefits of Supply Chain Management

OrganizationBenefitCampbell SoupDoubled inventory turnover rateHewlett-PackardCut supply costs 75%Sport ObermeyerDoubled profits and increased sales 60%National BicycleIncreased market share from 5% to 29%Wal-MartLargest and most profitable retailer in the world

Costs trade-offs in Marketing and Logistics

PRODUCTION/OPERATIONSSample activities: Quality control Detailed production scheduling Equipment maint. Capacity planning Work measurement & standardsLOGISTICSSampleactivities:Transport Inventory Order processing Materials handlingInterfaceactivities: Product scheduling Plant location PurchasingMARKETINGSampleactivities: Promotion Market research Product mix Sales force managementInterfaceactivities: Customer service standards Pricing Packaging Retail locationProduction-logisticsinterfaceMarketing-logisticsinterfaceRelationship of Logistics to Marketing and ProductionInternal Supply Chain

Logistics ObjectiveMaximize return on logistics assets (ROLA)Logistics contribution to salesInvestment in logistics assetsCosts of logistics operations

Study FrameworkThe focus is here

The Logistics Strategy Triangle

AssignmentsChapter 1Class assignmentsDraw a supply chain for a product of your own choice.Compare the concept of a modern supply chain with more traditional distribution channels. Be specific regarding inventory level, changing customers needs, transport capacity, operational performance, delivery speed and reliability, and occurrence of failures.Explain how logistics and SCM can help in gaining competitive advantage.What are the different types of utility, and how does logistics directly, or indirectly affect each one?

Assignments

Suppose that a manufacturer of mens shirts can produce a dress shirt in its Houston, Texas plant for $8 per shirt (including the cost of raw materials). Chicago is a major market for 100,000 shirts per year. The shirt is prices at $15 at the Houston plant. Transportation and storage charges from Houston to Chicago amount to 5$ per hundredweight (cwt.). Each packaged shirt weighs 1 pound.As an alternative, the company can have the shirts produced in Taiwan for $4 per shirt (including the cost for raw materials). The raw materials, weighing about 1 pound per shirt, would be shipped from Houston to Taiwan at a cost of $2 per cwt. When the shirts are completed, they are to be shipped directly to Chicago at transportation and storage cost of $6 per cwt. An import duty of $0.50 per shirt is assessed.From a logistics-production standpoint, should the shirts be produced in Taiwan?What additional considerations, other than economic ones, might be considered before making a final decision?

*******************************************