Business Logistics/Supply ChainA Vital Subject

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

Chapter 1
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Introduction

SCM and logistics activities provide the bridge between production and market locations that are separated by time and distance.

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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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Definition of SCM and Logistics

The supply chain encompasses all activities associated with the flow and transformation of goods from the raw material stage (extraction), through to the end user, as well as the associated information flows. Materials and information flow both up and down the supply chain. (Handfield and Nichols,1999)

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Definition of SCM and Logistics

Supply Chain Management (SCM) is the integration of these activities, through improved supply chain relationships, to achieve a sustainable competitive advantage. (Handfield and Nichols)

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Definition of SCM and Logistics

Within the supply chain Mentzer et al.(2001) propose the broad and rather general definition: Supply chain management is defined as the systematic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of

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Definition of SCM and Logistics

Improving the long term performance of the individual companies and the supply chain as a whole. Russell Morey, 1997 defined SCM as the process of planning organizing and controlling the flow of materials and services from suppliers to end users/ customers. This integrated approach incorporates suppliers, supply management, integrated logistics and operations.

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Definition of SCM and Logistics

Logistics is that part of the supply chain process that plans, implements and controls the efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption in order to meet customers requirements. (Council of Logistics Management)
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Definition of SCM and Logistics

Integrated Logistics is the process of anticipating customer needs and wants; acquiring the capital, materials, people, technologies and information necessary to meet those needs and wants; optimizing the goods or service producing network to fulfill customers requests; and utilizing the network to fulfill customer requests in a timely way. (Arthur D. Little and Pennsylvania State University)

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Evolution of Supply Chain Management

Activity fragmentation to 1960 Demand forecasting Purchasing Requirements planning Production planning Manufacturing inventory Warehousing Material handling Packaging Finished goods inventory Distribution planning Order processing Transportation Customer service Strategic planning Information services Marketing/sales Finance Physical Distribution Supply Chain Supply Chain Management Management Logistics Purchasing/ Materials Management Activity Integration 1960 to 2000 2000+

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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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Critical Customer Service Loop

Customer order processing (and transmittal)

Transportation Customers Inventory or supply source

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Physical Distribution Costs

Category Transportation
Warehousing Order entry

Percent of sales 3.34%

2.02 0.43

$/cwt. $26.52
18.06 4.58
Logistics cost are about 10% of sales w/o 22.25costs purchasing
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Administration 0.41 Add one-third for inbound supply costs

Source: Herb Davis & Company
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2.79

Inventory carrying Total

1.72 7.65%

$67.71

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 Generate revenue Improve profit

An integral part of company strategy

Logistical lines are lengthening

Local vs. long distance supply Law of comparative economic advantage applies Time and place utilities

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

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Effect on Logistics Foreign Outsourcing

Domestic sourcing Profit G&A Marketing Logistics Overhead Foreign sourcing Profit G&A
Increase

Marketing
Logistics Tariffs Overhead
Increase

Materials

Materials
Labor
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Reduction

Labor
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Scope of the Supply Chain for Most Firms

Business logistics

Physical supply (Materials management) Sources of supply Plants/ operations Transportation Inventory maintenance Order processing Acquisition Protective packaging Warehousing Materials handling Information maintenance

Physical distribution

Customers Transportation Inventory maintenance Order processing Product scheduling Protective packaging Warehousing Materials handling Information maintenance

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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 Suppliers suppliers Customers Customers/ End users

Acquire

Convert
Product and information flow

Distribute

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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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Objectives of Business Logistics/SCM

A workable financial objective for scm/logistics can be expressed in the ratio known as ROLA (Return on Logistics Assets). ROLA is defined as: ROLA = (Contribution to revenue Logistics operating costs) / Logistics Assets

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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

LOGISTICS Sample activities: Transport Inventory Order processing Materials handling MARKETING Sample activities: Promotion Market research Product mix Sales force management

PRODUCTION/ OPERATIONS Sample activities: Quality control Detailed production scheduling Equipment maint . Capacity planning Work measurement & standards

Interface activities: Product scheduling Plant location Purchasing

Interface activities: Customer service standards Pricing Packaging Retail location

Productionlogistics interface

Marketinglogistics interface

Internal Supply Chain

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Relationship of Logistics to Marketing

Product

Price Place-Customer service levels

Promotion

Logistics

Inventory carrying costs Lot quantity costs

Transport costs

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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Application: Logistics/SC in Diverse Areas

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