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SCM and Logistics
Dickson K.W. Chiu
PhD, SMIEEE, SMACM
Text: Ballou - Business Logistics Management, 5/E
(Chapter 1)
1
Learning Objectives
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To familiarize with basic concepts of logistics
and supply chain management
To understand recent evolvement of logistics
To understand the reasons for its recent growth
in importance
To understand the importance of IT in logistics
Dickson Chiu 2006
SCM-2
Overview of Logistics and
Supply Chain Management
3
Supply Chain Overview
Transportation
Transportation
Warehousing
Customers
Information
flows
Factory
Transportation
Vendors/plants/ports
Warehousing
Transportation
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
1-2
SCM-4
Logistics vs Supply Chain Management
Council of Logistics Management
 “Logistics is the process of planning, implementing
and controlling the efficient, cost-effective flow and
storage of raw materials, in-process inventory,
finished goods and related information from the point
of origin to point of consumption for the purpose of
conforming to customer requirements.”
Handfield and Nichols
 SCM is the integration of all activities associated with
the flow and transformation of goods from raw
materials through to end user, as well as information
flows, through improved supply chain relationships,
to achieve a sustainable competitive advantage.
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
SCM-5
Common Contemporary Logistics Terms
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Value stream/logistics process
Quick response and flexible manufacturing
Mass customization
Supply chain management/ collaborative logistics
Reverse logistics
Service logistics
Continuous replenishment
Lean logistics
Integrated logistics
=> IT people have to deal with any related automation
anyway 
Dickson Chiu 2006
SCM-6
The Logistics/SCM Mission
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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.
Product / Service Utility
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Possession Utility - the value or usefulness that comes from a
customer being able to take possession of a product
Form Utility - in a form that can be used by the customer and is
of value to the customer
Place Utility - available where they are needed by customers
Time Utility - available when they are needed by customers
Logistics obviously help time and place utility
Dickson Chiu 2006
SCM-7
Evolution of Supply Chain Management
Activity fragmentation to 1960
2000+
Activity Integration 1960 to 2000
Demand forecasting
Purchasing
Requirements planning
Production planning
Manufacturing inventory
Purchasing/
Materials
Management
Warehousing
Logistics
Material handling
Packaging
Finished goods inventory
Distribution planning
Physical
Distribution
Supply Chain
Supply Chain
Management
Management
Order processing
Transportation
Customer service
Strategic planning
Information services
Marketing/sales
Finance
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
SCM-8
Supply Chain Schematic
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
1-5
SCM-9
A Revised Strategy is Generating Great
Top Management Interest
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Historical perspective of distribution
(Peter Drucker, 1962):
“The last frontier of cost economies”
The contemporary view:
Distribution is a new frontier for demand
generation—a competitive weapon.
Both views are important!
Dickson Chiu 2006
SCM-10
Critical Customer Service Loop
Customer order processing (and
transmittal)
Transportation
Customers
Inventory
or supply source
Dickson Chiu 2006
SCM-11
Physical Distribution Costs
Category
Percent of sales
$/cwt.
3.34%
$26.52
Warehousing
2.02
18.06
Order entry
0.43
4.58
Administration
0.41
2.79
Inventory carrying
1.72
22.25
7.65%
$67.71
Transportation
Total
Add one-third for inbound supply costs
Source: Herb Davis & Company
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
Logistics cost
are about 10% of
sales w/o
purchasing costs
SCM-12
Customer Service Performance
10
96
9
94
90
7
%
92
8
Days
Order Cycle Time,
Days
88
6
86
84
4
82
19
9
19 2
9
19 4
9
19 6
9
20 8
0
20 0
02
5
Product
Availability--%
orders
Product
Availability--%
line items
Source: Herb Davis & Company
Year
Dickson Chiu 2006
SCM-13
Traditional Scope of the Supply Chain
Business logistics
Physical supply
(Materials management)
Sources of
supply
Physical distribution
Plants/
operations
• Transportation
• Inventory maintenance
• Order processing
• Acquisition
• Protective packaging
• Warehousing
• Materials handling
• Information maintenance
CR (2004) Prentice Hall, Inc.
Customers
• Transportation
• Inventory maintenance
• Order processing
• Product scheduling
• Protective packaging
• Warehousing
• Materials handling
• Information maintenance
Internal supply chain
Dickson Chiu 2006
1-14
SCM-14
Key Activities/Processes
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Primary
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Setting customer service goals
Transportation
Inventory management
Location
Secondary, or supporting
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Warehousing
Materials handling
Acquisition (purchasing)
Protective packaging
Product scheduling
Order processing
Dickson Chiu 2006
SCM-15
Logistics Strategy and Planning
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The objectives of logistics strategy
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Minimize cost
Minimize investment
Maximize customer service
Levels of logistical planning
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Strategic
Tactical
Operational
Dickson Chiu 2006
SCM-16
The Logistics Strategy Triangle
(4 problem areas)
Inventory Strategy
 Forecasting
Transport Strategy
 Storage fundamentals
 Transport fundamentals
 Inventory decisions
 Transport decisions
 Purchasing and supply
scheduling decisions
Customer
Storage
decisions

service goals
 The product
 Logistics service
 Information sys.
Location Strategy
 Location decisions
 The network planning process
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
SCM-17
Strategic, Tactical, and Operational
Decision Making
Decision area Strategic
Tactical
Operational
Transportation Mode selection
Seasonal equipment leasing
Dispatching
Inventories
Location, Control policies Safety stock levels Order filling
Order
processing
Order entry, transmittal,
and processing system
design
Processing
orders, Filling
back orders
Purchasing
Development of supplier- Contracting,
buyer relations
Forward buying
Expediting
Warehousing Handling equipment
selection, Layout design
Facility
location
Space utilization
Order picking
and restocking
Number, size, and
location of warehouses
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
SCM-18
Relationship of Logistics to
Marketing and Production
PRODUCTION/
OPERATIONS
Sample activities:
 Quality control
 Detailed production
scheduling
 Equipment maint.
 Capacity planning
 Work measurement
& standards
Interface
activities:
 Product
scheduling
 Plant
location
 Purchasing
LOGISTICS
Sample
activities:
Transport
 Inventory
 Order
processing
 Materials
handling
Interface
activities:
 Customer
service
standards
 Pricing
 Packaging
 Retail
location
Productionlogistics
interface
MARKETING
Sample
activities:
 Promotion
 Market
research
 Product
mix
 Sales force
management
Marketinglogistics
interface
Internal Supply Chain
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
SCM-19
Relationship of Logistics to Marketing
Product
Promotion
Price
Logistics
Place-Customer
service levels
Transport
costs
Inventory
carrying costs
Lot quantity
costs
CR (2004) Prentice Hall, Inc.
Order processing
and information
costs
Dickson Chiu 2006
Warehousing
costs
SCM-20
Relationship of Logistics to Production
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Coordinates through scheduling and strategy
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An integral part of the supply chain
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make-to-order
make-to-stock
Affects total response time for customers
Shares activities such as inventory planning
Costs are in tradeoff
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Production lot quantities affect inventory levels and
transportation efficiency
Production response affects transportation costs and
customer service
Production and warehouse location are interrelated
Dickson Chiu 2006
SCM-21
Contemporary IT and Logistics
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Wal-Mart Wins with Logistics
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Costs are lower than K-Mart or Target Stores
CEO is a former logistician
Wal-Mart is the largest retailer in the world!
Dickson Chiu 2006
SCM-23
Logistics/SCM in Diverse Areas
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Manufacturing - most common
Service - emerging opportunities
Environment - causing restrictions
Non-profits / Government - little explored
Military - long history
Note the global evolvement into a
service-oriented economy!
Dickson Chiu 2006
SCM-24
Supply Chain is Multi-Enterprise
Conventional
Scope
Focus
Company
Suppliers
Customers
Customers/
End users
Supplier’s
suppliers
Acquire
Convert
Distribute
Product and information flow
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
SCM-25
Effect on Logistics Foreign Outsourcing
Domestic sourcing
Foreign sourcing
Profit
G&A
Profit
G&A
Marketing
Increase
Marketing
Logistics
Logistics
Overhead
Increase
Tariffs
Overhead
Materials
Materials
Reduction
Labor
CR (2004) Prentice Hall, Inc.
Labor
Dickson Chiu 2006
SCM-26
Reality of SCM Scope
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
SCM-27
The Multi-Dimensions of SCM
SUPPLY
CHAIN
MANAGEMENT
Activity and process
administration
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
SCM-28
Increasing Significance of Logistics
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Costs are high
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Customers are more demanding of the supply chain
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Local vs. long distance supply
Globalization of trade
Logistics is a key to trade and an increased standard of living
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Generate revenue
Improve profit
Logistical lines are lengthening
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Desire for quick response
Desire for mass customization
An integral part of company strategy
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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%
A high as 70-80% of sales if purchasing and production are included
Law of comparative economic advantage applies
Logistics adds value
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Time and place utilities
Dickson Chiu 2006
SCM-29
Contemporary IT Applications in Logistics
– Focus of this Course
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Tremendous technological advances in past decades
Logistics management relies on analysis over massive
information from heterogeneous sources
Disparate business functions in service-oriented economy
Internet and mobile technologies has further improved
logistical effectiveness and efficiency
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Enabled logisticians and management to make timely, informed,
and accurate decisions
but create new dimensions of complexity
IT people work closely with logistician and management
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Understand complex requirements
Choose the right technology and design appropriate IT
infrastructures, architectures, and systems
Explain how contemporary IT can help to others
Dickson Chiu 2006
SCM-30
Some Useful Contemporary IT in Logistics
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eXtended Markup Language (XML)
Service-oriented architecture
Process integration and interaction management
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Exceptions, alerts, and relationship management in logistics
Information integration
Facilitating decision support
Mobile technologies
Radio Frequency Identification (RFID)
=> The key is to achieve information and process
integration for efficient and effective decision support.
Dickson Chiu 2006
SCM-31
Summary
32
Summary
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The logistic process plans, implements, controls the flow
and storage of goods, services, and related information
between the point of origin and the point of
consumption to satisfy customer requirements
Logistics addresses the time utility & place utility out of
the four economic utilities
Logistics becomes more important and complex because
of new requirements of the service-oriented economy,
disparate business functions, and the impact of various
contemporary IT
Logistics involves the interaction with multiple
departments within a company as well as now also
across business partner organizations and customers
Application of contemporary IT, especially information
and process integration for efficient and effective
decision support, is a critical success factor and
therefore the focus of this course.
Dickson Chiu 2006
SCM-33