Business Logistics/Supply

ChainA Vital Subject

The supply chain is simply another way of
saying the whole process of business.

Chapter 1
CR (2004) Prentice Hall, Inc.

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The Immediate Supply Chain for an Individual Firm

Transportation
Warehousing

Transportation

Customers

Information
flows

Factory

Transportation

Vendors/plants/ports
Warehousing
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Transportation
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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.

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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.

1-4

Supply Chain Schematic

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The Logistics/SC Mission

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.

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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
generationa competitive weapon.
Both views are
now important!
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Critical Customer Service

Loop
Customer order processing (and
transmittal)

Transportation
Customers
Inventory
or supply source

CR (2004) Prentice Hall, Inc.

1-8

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
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Customer Service Performance

10

96

94
90

88

86
84

82

Product
Availability--%
orders
Product
Availability--%
line items

19
9
19 2
94
19
9
19 6
98
20
0
20 0
02

92

Days

Order Cycle Time,

Days

Year
CR (2004) Prentice Hall, Inc.

Source: Herb Davis & Company

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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

Logistical lines are lengthening

Local vs. long distance supply

Logistics is a key to trade and an increased standard of living

Law of comparative economic advantage applies

Logistics adds value

Time and place utilities

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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!
CR (2004) Prentice Hall, Inc.

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Effect on Logistics Foreign Outsourcing

Domestic sourcing

Foreign sourcing

Profit
G&A

Profit
G&A

Marketing
Logistics
Overhead

Increase

Marketing
Logistics

Increase

Tariffs
Overhead

Materials
Materials

Labor
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Reduction

Labor
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Flows in a Supply Chain

Information
Product

Customer
Funds

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Cycle View of Supply Chains

Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor
Manufacturing Cycle

Manufacturer
Procurement Cycle

Supplier
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Process View of a Supply Chain

Cycle view: processes in a supply chain are
divided into a series of cycles, each
performed at the interfaces between two
successive supply chain stages
Push/pull view: processes in a supply chain
are divided into two categories depending on
whether they are executed in response to a
customer order (pull) or in anticipation of a
customer order (push)
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Push/Pull View of Supply Chains

Procurement,
Manufacturing and
Replenishment cycles

PUSH PROCESSES

Customer Order
Cycle

PULL PROCESSES

Customer
Order Arrives
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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 firms internal supply chain

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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

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The Supply Chain is Multi-Enterprise

Scope in
reality
Focus
Company
Suppliers

Customers
Customers/
End users

Suppliers
suppliers

Acquire

Convert

Distribute

Product and information flow

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Reality of SC Scope

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The Multi-Dimensions of SC

SUPPLY
CHAIN
MANAGEMENT

Activity and process

administration
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Location Strategy
Location decisions
The network planning process

The focus is
here
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CONTROLLING

Customer
service goals
The product
Logistics service
Ord. proc. & info. sys.

Transport Strategy
Transport fundamentals
Transport decisions

PLANNING

Inventory Strategy
Forecasting
Inventory decisions
Purchasing and supply
scheduling decisions
Storage fundamentals
Storage decisions

ORGANIZING

Study Framework

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

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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

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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

Warehousing
costs

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Relationship of Logistics to Production

Coordinates through scheduling and strategy
make-to-order or make-to-stock
An integral part of the the supply chain
Affects total response time for customers
Shares activities such as inventory planning
Costs are in tradeoff
Production lot quantities affect inventory
levels and transportation efficiency
Production response affects transportation
costs and customer service
Production and warehouse location are
interrelated
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Logistics/SC in Diverse Areas

Manufacturingmost common
Environmentcausing restrictions
Serviceemerging opportunities
Non-profitslittle explored
Militarylong history

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Contemporary Logistics Terms

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

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