Download Introduction

Business Logistics/Supply
Chain—A Vital Subject
The supply chain is simply another way of
saying “the whole process of business.”
Chapter 1
CR (2004) Prentice Hall, Inc.
1-1
What is Logistics?

Popular logistics terms:
– Logistics Management
– Business Logistics Management
– Integrated Logistics Management
– Materials Management
– Physical Distribution Management
– Marketing Logistics
– Industrial Logistics
– Distribution
1-2
What is Logistics?:


Business Logistics – supply chain process
that plans, implements, and controls the
efficient, effective flow of goods, services, and
related information from the point of origin to
the point of use or consumption in order to
meet customer requirements.
Military Logistics – design and integration of
all aspects of support for the operational
capacity of the military forces, and their
equipment to ensure readiness, reliability, and
efficiency.
1-3
What is Logistics?:


Event Logistics – 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 – acquisition, scheduling,
and management of the facilities/assets,
personnel, and materials to support and
sustain a service operation or business.
1-4
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.
1-5
A Revised Strategy is Generating
Great Top Management Interest
Historical perspective of distribution:
“The last frontier of cost economies”
Peter Drucker, 1962
The contemporary view:
Distribution is a new frontier for demand
generation—a competitive weapon.
Both views are
now important!
CR (2004) Prentice Hall, Inc.
1-6
History of Logistics and SCM



Physical Distribution Era (1960s –
1970s)
Integrated Logistics Management Era
(1970s – 1980s)
Supply Chain Management Concept
(1990s – present)
1-7
Supply Chain Characteristics





Visibility
Inventory
Landed cost
Sharing risk
Alliances
1-8
Supply Chain Objectives


Recognizing final customers’
requirements
Developing appropriate policies and
procedures for managing the supply
chain as a single entity
1-9
Supply Chain Characteristics





Visibility
Inventory
Landed cost
Sharing risk
Alliances
1-10
Logistics Defined
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.
Council of Logistics Management
Supply Chain Management Defined
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.
Handfield and Nichols
CR (2004) Prentice Hall, Inc.
1-11
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%
A 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 adds value
 Time and place utilities
1-12
Figure 2-2: Logistics Costs as a
Percentage of GDP
1999
9.9
1998
10.1
1996
10.3
1995
10.4
1990
11.4
1985
12.3
1980
15.7
0
5
10
15
20
1-13
Figure 2-4:
Inventory Sales Ratio
1-14
Value-Added Role of Logistics

Most commonly referred to in terms of
economic utilities:
– Form utility (what)
– Place utility (where)
– Time utility (when)
– Possession utility (why)
1-15
Figure 2-5 Fundamental Utility
Creation in the Economy
1-16
Physical Distribution Costs
Category
Percent of sales
$/cwt.
Transportation
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
Total
Add one-third for inbound supply costs
Source: Herb Davis & Company
CR (2004) Prentice Hall, Inc.
Logistics cost
are about 10% of
sales w/o
purchasing costs
1-17
Scope of the Supply Chain for Most Firms
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
Focus firm’s internal supply chain
1-14
Key Activities/Processes

Primary
- Setting customer service goals
- Transportation
- Inventory management
- Location

Secondary, or supporting
- Warehousing
- Materials handling
- Acquisition (purchasing)
- Protective packaging
- Product scheduling
- Order processing
CR (2004) Prentice Hall, Inc.
1-19
The Logistics Strategy Triangle
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.
1-20
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.
1-21