Chapter 2 ROLE OF LOGISTICS IN SUPPLY CHAINS. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly

Chapter 2

ROLE OF LOGISTICS IN SUPPLY CHAINS

ROLE OF LOGISTICS IN SUPPLY CHAINS

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

After reading this chapter, you should be able to do the following:

Learning Objectives

1. Understand the role and importance of logistics in private and public organizations.

2. Discuss the impact of logistics on the economy and how effective logistics management contributes to the vitality of the economy.

3. Understand the value-added roles of logistics on both a macro and micro level.

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4. Explain the relationships between logistics and other functional areas such as manufacturing, marketing, and finance.

5. Discuss the importance of management activities in the logistics function.

6. Analyze logistics systems from several different perspectives to meet different objectives.

7. Determine the total costs and understand the cost tradeoffs in a logistics system.

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Learning Objectives, continued


Figure 2.1

Contemporary Supply Chain Profile

4

Source: Center for Supply Chain Research, Penn State University.


What is Logistics (four views of it as an organization’s division)

●Business logistics:• That part of the supply chain process that plans,

implements, and controls the efficient, effective flow and storage of goods, service, and related information from point of use or consumption in order to meet customer requirements.

●Military logistics: • The design and integration of all aspects of support

for the operational capability of the military forces (deployed or in garrison) and their equipment to ensure readiness, reliability, and efficiency.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6

What is Logistics, continued

●Event logistics: • The network of activities, facilities, and personnel

required to organize, schedule, and deploy the resources for an event to take place and to efficiently withdraw after the event.

●Service logistics: • The acquisition, scheduling, and management of the

facilities/assets, personnel, and materials to support and sustain a service operation or business.


Table 2.1

Logistics DefinitionsPerspective Definition

Source: Adapted from Stephen H. Russell, “A General Theory of Logistics Practices”, Air Force Journal of Logistics 24, no 4 (2000): 15


Logistics – Generic Definition

●A SCM component that plans, implements, and executes flow and storage of goods, service and information from the point of origin to the point of consumption.

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Source: Center for Supply Chain Research, Penn State University

Figure 2.2

Utility Creation in the Economy


●Production• Form Utility (by assembling parts into finished goods)

●Logistics• Place Utility (by moving goods to where demand is)

• Time Utility (by moving goods when demand exists)

• Quantity Utility (by offering the right quantity)

●Marketing• Possession Utility (by promotion and sale to increase

the desire to posses the goods)

Economic utilities and means that add value to a product or service in the SCM


1. Transportation

2. Warehousing and storage

3. Industrial packaging (during the transportation and storage phase)

4. Materials handling

5. Inventory control

6. Order fulfillment

Logistics Activities

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Logistics Activities, continued

7. Demand forecasting

8. Production planning/scheduling

9. Procurement (viewed as part of the logistics process)

10.Customer service (order taking and filling)

11.Facility location (selecting a plant or DC location to supply)


1. 1970’s – 20%

2. 1980’s – 12%

3. 1990’s – 8.6%

4. 2000’s – 9.4%

5. 2010 - 8.3%

Note: the decline started in early1980, due to transportation deregulation.

Logistics cost as a % of GDP


Source: Council of Supply Chain Management Professionals

Figure 2.3

Logistics Cost as a Percentage of GDP


Macro inventory as a % of GDP

●The amount of inventory do organizations carry to support GDP.

●It is a measure of operations efficiency.●GDP went up by 212% from 1985 to 2006,

while the inventory value went up by 119%, indicating companies were improving in managing their inventory

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Figure 2.5

Macro Inventory as a Percentage of GDP

Source: Council of Supply Chain Management Professionals


Figure 2.4

Total Logistics Costs – 2011 ($billion)

Source: 22nd Annual State of Logistics Report, http://www.cscmp.org (2011) reproduced with permission from Council of Supply Chain Management Professionals

4

280

112

336

403

189

592

60

33

10

33

32

168

9

47

1211

Forwarders

Subtotal

Shipper–related costs

Logistics administration

Total logistics cost

Other CarriersRailroads

Water (international 32, domestic 8)

Oil pipelines

Air (international 15, domestic 23)

Transportation CostsMotor CarriersTruck—Intercity

Truck—Local

Subtotal

Interest

Taxes, obsolescence, depreciation, insuranceWarehousing

Subtotal


●Logistics interfaces with manufacturing or operations• Demand fluctuation

• Setup (changeover)

• Inbound and outbound

• Loading and packaging

●Logistics Interfaces with marketing• Price (quantity discounts)

• Product (physical attributes)

• Promotion (to promote sales)

• Place (to select different channels)

Logistics in the Firm: The Micro Dimension


●Competitive relationships• Order cycle

• Sustainability

• Inventory effect

• Transportation effect

●Product relationships• Dollar value

• Density

• Special handling & susceptibility to damage

●Spatial relationships

Logistics in the Firm: Factors Affecting the Cost and Importance of Logistics


Figure 2.6

Required Inventory and Order Cycle



Figure 2.7

Lost Sales Cost to Inventory Cost



Figure 2.8

Lost Sales Cost to Transportation Cost



Figure 2.9

Product Dollar Value to Logistics Costs



Figure 2.10

Product Weight Density to Logistics Costs



Figure 2.11

Susceptibility to Loss & Damage to Costs



Figure 2.12Logistics and Spatial Relations (Plant selection)



Table 2.3Logistics Mode Cost Comparison (transportation mode selection)


COST CENTER RAIL MOTOR

Transportation 3 4.3

Inventory 5 3.75Packaging 3.5 3.2Warehousing 1.5 0.75

Cost of Lost Sales 2 1

Total Cost (per unit) 15 13


●Materials management versus physical distribution

●Cost centers●Nodes versus links

• Nodes are fixed spatial points where goods stop for storage or processing.

• Links represent the transportation network and connect the nodes in the logistics system.

●Logistics Channels

Approaches to Analyzing Logistics Systems


Figure 2.13

Dynamic (Cost) Analysis



Figure 2.14

Nodes and Links in a Logistics System



Figure 2.15

Simple Logistics Channel



Figure 2.16

Multi-Echelon Logistics Channel



Figure 2.17 Complex Logistics Channel



Summary

1. Logistics has developed as an important area or function of business since World War II. It has gone through several phases of development in achieving its present status.

2. Logistics is a critical part of supply chain management. The coordination and, perhaps, integration of the logistics systems of all the organizations in a supply chain are necessary requirements for successful management of the supply chain.

3. Logistics has a number of different definitions because of the broad-based interest in its activities and the recognition of its importance. The definition developed by the Council of Supply Chain Management Professionals is the primary definition used in this text. 34


4. Logistics is an area of management that has four sub-disciplines: business, military, service, and event.

5. On a macro basis, logistics-related costs have been decreasing on a relative basis, which has helped the U.S. economy regain its competitive position on a global basis.

6. Logistics adds place, time, and quantity utilities to products and enhances the form and possession utilities added by manufacturing and marketing.

7. Logistics has an important relationship to manufacturing, marketing, finance, and other areas of the organization.

8. Logistics managers are responsible for a number of important activities, including transportation, inventory, warehousing, materials handling, industrial packaging, customer service, forecasting, and others.

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Summary, continued


9. Logistics systems can be viewed or approached in several different ways for analysis purposes, including materials management versus physical distribution, cost centers, nodes versus links, and channels. All four approaches are viable for different purposes.

10. Logistics systems are frequently analyzed from a systems approach, which emphasizes total cost and tradeoffs when changes are proposed. Either a short- or a long run perspective can be used.

11. The cost of logistics systems can be affected by a number of major factors, including competition in the market, the spatial relationship of nodes, and product characteristics.

36

Summary, continued

Documents

Chapter 2 ROLE OF LOGISTICS IN SUPPLY CHAINS. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly