Download Supply Chain Logistics

Logistics Strategy &
Implementation
Chapter 2
THE DEFINITION OF LOGISTICS
• Logistics has come a long way since the 1960s.
• Logistics is the flow of material, information, and
money between consumers and suppliers.
• The big challenge is to manage the whole logistics system
in such a way that order fulfillment meets or exceeds
customer expectations.
Contemporary Supply Chain Pipeline
Logistics Costs as a Percentage of GDP
Inventory Sales Ratio
Value-Added Role of Logistics
• Referred to as the seven Rs --- Right product,
Right quantity, Right condition, Right place,
Right time, Right customer, and Right cost.
Fundamental Utility Creation in the
Economy
Logistics in the Firm: The Micro
Dimension
• Logistics Interfaces with
Operations/Manufacturing
• Logistics Interfaces with Marketing
• Logistics Interfaces with Other Areas
Logistics in the Firm: Logistics Interfaces with Operations
Manufacturing
• Length of production runs
▫ Balance economies of long production runs
against increased costs of high inventories.
• Seasonal demand
▫ Acceptance of seasonal inventory to balance
lead production times.
• Supply-side interfaces
▫ Stocking
adequate
supplies
to
ensure
uninterrupted production now a logistics function.
• Protective packaging
▫ Principal purpose is to protect the product from
damage.
• Foreign & third party alternatives
▫ Some logistics functions are being outsourced.
Logistics Interfaces with Marketing:
The Marketing Mix – Four Ps
•
•
•
•
Price
Product
Promotion
Place
Price
• Carrier pricing
▫ Generally, since the larger the shipment, the
cheaper the transportation rate, shipment sizes
should be tailored to the carrier’s vehicle capacity
where possible.
• Matching schedules
▫ Quantity discounts should be tied to carrier
quantity discounts.
• Volume relationships
▫ Volumes sold will affect inventory requirements
Product
• Consumer packaging
▫ Generally, since the size, shape, weight and other
physical characteristics of the product impact on
its storage, transportation and handling, the
logistics managers should be included in any
decisions regarding these product traits.
Promotion
• Push versus pull
▫ The most important factor is that the logistics
division is aware of any changes in demand
patterns so that it can plan for any consequences.
Place
• Wholesalers & Retailers
▫ Generally, since wholesalers are combining
purchases for multiple retailers, the shipment
sizes tend to be larger and the number of
transactions that have to be processed are fewer,
with the result that logistics costs are smaller.
Logistics Interfaces with Other Areas
• Other important interfaces now include finance
and accounting.
▫ Logistics can have a major impact on return on
assets and return on investment.
▫ Logistics costs reported by cost systems measure
supply chain trade-offs and performance.
The five phases of logistics
development
•
•
•
•
•
Workplace Logistics
Facility Logistics
Corporate Logistics
Supply Chain Logistics
Global Logistics
Workplace Logistics
• Workplace logistics is the flow of material at a
single workstation.
• The objective of workplace logistics is to
streamline the movements of an individual
working at a machine or along an assembly line.
Source: Bertlesmann
Facility Logistic
• Facility logistics is the flow of material between
workstations within the four walls of a facility
(that is, interworkstation and intrafacility).
• The facility could be a factory, terminal,
warehouse, or distribution center.
Corporate Logistics
• Corporate logistics is the flow of material and information between
the facilities and processes of a corporation (inter-workstation,
inter-facility, and intra-corporate).
• For a manufacturer, logistics activities occur between its factories
and warehouses; for a wholesaler, between its distribution centers;
and for a retailer, between its distribution centers and retail stores.
Supply Chain Logistics
• Supply chain logistics is the flow of material,
information, and money between corporations
(interworkstation, interfacility, intercorporate,
and intrachain).
Global Logistics
• Global logistics is the flow of material,
information, and money between countries.
LOGISTICS ACTIVITIES
•
•
•
•
•
Customer Response
Inventory Planning and Management
Supply
Transportation
Warehousing
Customer Response
• The logistics of customer response includes the
activities of:
▫ Developing and maintaining a customer service
policy
▫ Monitoring customer satisfaction
▫ Order Entry (OE)
▫ Order Processing (OP)
▫ Invoicing and collections
Inventory Planning and Management
(IP & M)
• The logistics of inventory
management includes
▫
▫
▫
▫
▫
Forecasting
Order quantity engineering
Service level optimization
Replenishment planning
Inventory deployment
planning
an
Supply
• The logistics of supply include:
▫ Developing and maintaining a Supplier Service
Policy (SSP)
▫ Sourcing
▫ Supplier integration
▫ Purchase order processing
▫ Buying and payment
Transportation
• The logistics of transportation includes
▫
▫
▫
▫
▫
Network design and optimization
Shipment management
Fleet and container management
Carrier management
Freight management
Warehousing
• The logistics of warehousing includes
▫
▫
▫
▫
▫
Receiving
Put away
Storage
Order picking
Shipping
Approaches to Analyzing Logistics
Systems
• Cost Centers
▫ Treating logistics activities as cost centers makes it
easier to study cost trade-offs between the centers.
• Nodes versus Links
▫ Nodes are spatial points (warehouses, plants, etc.);
▫ Links are the transportation network (rail, motor, air,
pipe and water).
• Logistics Channel
▫ The network of intermediaries involved in the logistics
system.
Analysis of Total Logistics Cost with a
Change to Higher Cost Mode of
Transport
Analysis of Total Logistics Cost with a
Change to More Warehouses
Nodes and Links in a Logistics System
A Simple Logistics Channel
A Multi-Echelon Logistics Channel
LOGISTICS OPTIMIZATION
• Additionally, logistics systems must work in harmony
with marketing, finance, production, etc.--- this may
also result in sub-optimal logistics performance.
• The optimization process tends to focuses a project
team’s attention on the solution that maximizes total
corporate performance.
Short-Run/Static Analysis
• Comprised a matrix-like table which presents
each of the logistics and other relevant costs for
two or more alternative logistics systems.
Static Analysis of C & B Chemical
Company (50,000 pounds of output)
Long-Run/Dynamic Analysis
• Comprised a graph of the fixed and variable
costs of at least two alternative logistics systems.
• System 1
Total Cost = Fixed Costs + Variable Cost/unit x number
of units
y = $4200 + 0.0315x
• System 2
Total Cost = Fixed Costs + Variable Cost/unit x number
of units
y = $4800 + 0.0230x
• Trade-off Point
System 1 Total Costs = System 2 Total Costs
$4200 + 0.0315x = $4800 + 0.0230x
0.0085x = $600
x = 70,588 pounds