Introduction to Logistics

Logistical and Supply Chain issues for Lincolnshire food businesses

Martin HingleyProfessor of Strategic MarketingUniversity of Lincoln Business School

David B. Grant Professor of Logistics and Director, Logistics InstituteHull University Business School

Agenda:• What are Logistics and Supply Chain Management?

• Their Relationship to Marketing• Functional Activities of Logistics

• Inventory• Warehousing• Transportation• Information Systems and Technology

• Current Issues in Logistics and SCM

• Issues of retailer-led centralized food supply?

• Access for the small and specialist food supplier?

Definitions of SCM and Logistics Supply Chain Management (SCM):“...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.”

Logistics Management:“...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.”

A simplified supply chain...

Grant, D.B. (2012) Logistics Management, Pearson

The Emerging Importance of Logistics and SCM• Intensification of competition

– Liberalisation of trade– Deregulation of transportation– Shortened expectation of time

• Move beyond product to ‘product and service’– Mass customisation, service & product based– Product variety, market segmentation– Consumer expectation service delivery, price efficiency

• Change in channel power– Global brands– Retailers v manufacturers– Global manufacturing economies

• IT improvements– Power, functionality & cost– Planning, execution and control

• Profit Leverage– Cost minimisation with service excellence– Business process re-engineering

Logistics/Marketing Interface

Grant, D.B. (2012) Logistics Management, Pearson

IntangibilityPerishability

OwnershipInseparability

Heterogeneity

Grant, D.B. (2012) Logistics Management, Pearson

Logistics activities are services!

Inventory and Inventory Management

Stocks “are stores of all goods and materials that are stored by an organization until needed for future use”

Inventory “is a list of all the items held in stock”

Inventory Management “is the function responsible for all decisions and aspects of stock control in an organization”

BUT...

“It is surprising how many blue chip companies do not have stock policies in place and rely on local management knowledge and skill to maintain the levels of stock necessary often to poorly defined service level requirements...”

“Inventory management is a mixture of economically sound theory, accepted industrial practices, tested personalized approaches and outright fallacies.”

Why Hold Stocks?“Stocks are expensive, why hold them…?”

There are several answers that all have the same basic requirement: Stocks provide a Buffer between Supply and Demand!!

TIME: reduces customer waiting time (time and possession utility!)

DISCONTINUITY: allows inter-related functions to be disconnected and operated more efficiently (place utility!)

UNCERTAINTY: offers protection against unanticipated and unplanned events

ECONOMY: permits bulk purchases at discounted rates (beware “false” economies though!)

Model of Inventory Carrying Costs

What Warehouse Activities Take Place?

Grant, D.B. (2012) Logistics Management, Pearson

Handling Units and Terms

Grant, D.B. (2012) Logistics Management, Pearson

What is Freight Transport?

A simple definition could be:

“The planning and undertaking the movement of goods between two points in a cost effective manner and which also achieves the times and condition specified.”

Parameters of Freight• Geographic scale

– length of haul• Volume/weight/value

– dimension limits– market capacity

• Consignment, load & transit unit– intermediate handling

• Accessibility – terminals– primary & secondary

• Transit time – speed– door-to-door lead time

• Service frequency– scheduled

• Reliability– congestion – weather– alternative routings– international regulation

• Environmental costs– externalities

• Cost structure– fixed, variable, direct

assets, track/terminals• Price

– regulated– throughput /distance/time

Freight Mode Characteristics

Grant, D.B. (2012) Logistics Management, Pearson

Current Issues in Logistics and SCM

• Costs• Globalisation of supply and markets• Supply chain structures• Time compression• Product range and life cycles• Quality of service• Risk and disruption• Environmental impact

Let’s look at three a little more deeply…

100

67

5651

44

0

20

40

60

80

100

120

1987 1993 1998 2003 2008

Time Compression and Order Lead Times

Number of Days

Product Complexity and RangeThe Boeing 787 ‘Dreamliner’

Environmental Impact of Logistics and SCM Food Miles Road Congestion

Greenhouse Gases/Global Warming

One company, still dominates UK retailing (30% market share, Feb 2012)

>>>>>>>

Retail market concentration…

Source: Adapted from IGD, 2001

Store

Store

Store

Supplier

Supplier

Information/feedback

Supplier

Supplier

Dis

trib

utio

n C

entr

e

Centralized Distribution

Reduced sourcing and preferred supply

Reduced source model & ‘preferred’/Supply Chain Relationships (Hingley, 2005)

Competition is not between firms, but entire value chains (Horvath, 2001). As networks of competing supply chains rather than through inter-firm competition:-

Consumers &

Overseas Markets

ComplementaryCustomers

RetailerPartner

Prim

ary

Pro

duce

rs

Competitor Relationship

“SuperMiddlemen”

Overseas Suppliers

Inpu

ts a

nd r

aw m

ater

ials

Source: Hingley

Innovative/ SpecialistSupplier

....but are the big guys the most creative and innovative?

It can also be

boring for the

customer…

Doesn’t have to be boring…

…but

What about access for good new, innovative and small-specialist suppliers?

Multiple led ‘hubs’ : e.g. Asda, Lincs Co-op, Ideal Lincs?

www.asdasupplier.com/about-us/local-sourcing

http://www.specialityfoodmagazine.com/content/news/new_delivery_service_for_heart_of_england

SC Issues of Small and Specialist suppliersBenefits:

Flexible, unique, differentiated, local, responsive…

Problems:

Non-standard, volume issues, stock-holding and control issues…

Store

Store

Store

Supplier

Information/feedback

Supplier

Specialist Supplier

Dis

trib

utio

n C

entr

e

Hub e.g.

Ideal Lincs

Hubbing of specialist/local/specialist product

Case example of a speciality fresh produce grower: The evolution of their SCRs and evolving routes to market

…and finally, a tale of full circle SC ‘back to the future…’

Consumers &

Overseas Markets

Retailerpartner

Wholesalers & Hubs

Innovative /SpecialistSupplier

SuperMiddleman

Source: Hingley

Small retailers

Growers Co-op

Phase 1. Traditional wholesale transactionalPhase 2. Grower owned co-opPhase 3. Super-middleman dedicatedPhase 4. ‘Back to the future’ and spreading the customer base

1

4

23

Thank you; any questions…?