Introduction to

Logistics/Supply Chain
Management

Chapter 1

The Supply Chain

All activities (transportation, inventory

control...) associated with the flow and
transformation of goods from the raw
materials stage through the end user,
as well as the associated information
flows

What is Logistics?
Seven Rs

The Logistics/SC Mission

CSCMP Definition of Logistics Management

Logistics Management is that part of Supply Chain
Management that plans, implements, and controls
the efficient, effective forward and reverse flow and
storage of goods, services and related
information between the point of origin and the
point of consumption in order to meet customers'
requirements.
CSCMP Definition of Supply Chain Management
Supply Chain Management encompasses the
planning and management of all activities
involved in sourcing and procurement,
conversion, and all Logistics Management
activities. Importantly, it also includes coordination
and collaboration with channel partners, which
can be suppliers, intermediaries, third-party service
providers, and customers. In essence, Supply Chain
Management integrates supply and demand
management within and across companies.

Components of Logistics
Management

Integrated Supply Chain Model

Stages of a Detergent Supply

Chain

Supply Chain Stages

Other names for Logistics

Business logistics
Supply chain management
Distribution
Channel management
Logistics management
Materials management
Physical distribution
Quick response and flexible
manufacturing

The Relationship
between Logistics and
Supply Chain Management

SCM = Integrated Business Logistics

Management

Costs can be reduced by integrating such

logistics-related activities as customer
service, transportation, warehousing,
inventory management, order processiong
and information systems, and production
planning and purchasihg.

A model of Supply Chain

Management

Supply Chain Management

SCM is about the coordination of

product flows across business functions
and across companies to achieve
competitive advantage and profitability for
the individual companies in the SC and the
SC members collectively

The Business Logistics/Supply Chain

Concept

Within the SC there are two types of logistics:

- Inbound logistics - is about the receiving of
materials, storing and distribution to manufacturing
premises and it is part of the companys supply side
(physical supply materials management);
- Outbound logistics - is about storing and
distributing products and it is part of the companys
demand side (physical distribution).

A view of Business Logistics in

a company

Scope of BL/SC for an individual

firm

A single firm is not able to control its

entire product flow channel from raw
material source to points of the final
consumption
BL/SC for the individual firm has a
narrower scope: the immediate physical
supply and distribution channels

Evolution of Logistics towards

Supply Chain

Typical Supply Chain for a

Manufacturer
Supplier
Supplier
Supplier

Storage

Mfg.

Storage

Dist.

Retailer

Customer

SC for a plastic homewares manufacturer

(kitchen bowls, food containers, etc.)

Second tier suppliers

Chemical company
Paper and card board supplier
Ink supplier
First tier suppliers
Plastic stockist
Packaging supplier
Plastic homewares manufacturer
First tier customer
Wholesaler
Second tier customers
Retailers

Typical Supply Chain for a Service

Supplier

Supplier

Storage

Service

Customer

Customers are Suppliers

Initial
Supplier

Customer

Customer

Customer

Supplier

Supplier

Supplier

Final
Customer

The bullwhip effect

Logistics/Supply Chain Management and

Competitive Advantage

The experience curve

Logistics and competitive advantage

Gaining Competitive Advantage

through Logistics and Supply Chain
Management

Generic Value Chain

The Immediate Supply Chain for an Individual Firm

Transportation

Warehousing

Transportation

Customers

Information
flows

Factory

Transportation

Vendors/plants/ports
Warehousing

Transportation

Supply Chain Macro Processes

in a Firm

Customer Relationship Management (CRM):

All processes that focus on the interface
between the firm and its customers.
Internal Supply Chain Management (ISCM):
All processes that are internal to the firm.
Supplier Relationship Management (SRM): All
processes that focus on the interface
between the firm and its suppliers.

Reverse logistics

the reverse distribution of products;

the return of unsold goods;
product returns;
product recalls; and
waste management.

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

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

Focus firms internal supply chain

BL Key Activities/Processes

Primary
- Setting customer service goals
- Transportation
- Inventory management
- Information flows and Order processing

Secondary, or supporting
- Warehousing
- Materials handling
- Acquisition (purchasing)
- Protective packaging
- Product scheduling
- Information maintenance

Elements of Supply Chain Management

Element

Typical Issues

Customers

Determining what customers want

Forecasting

Predicting quantity and timing of demand

Design

Incorporating customer wants, mfg., and time

Processing

Controlling quality, scheduling work

Inventory

Meeting demand while managing inventory costs

Purchasing

Evaluating suppliers and supporting operations

Suppliers

Monitoring supplier quality, delivery, and relations

Location

Determining location of facilities

Logistics

Deciding how to best move and store materials

Importance of Logistics/SCM
-Logistics is about creating value, both for customers
and suppliers of the firm, and for the stakeholders.
-Business creates four types of value in products or
services:
form, time, place and possession.
Manufacturing

LOGISTICS

Marketing,
Engineering
and Finance

SCM
-Logistics can help penetrating new markets,
increasing market share and increasing profit, i.e.
it generates sale, not just reduce costs.

Significance of Logistics

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

Total distrib. costs

7.65%

$67.71

Add one-third for inbound supply costs

Source: Herbert Davis & Company

Logistics cost
are about 10% of
sales

Benefits of Supply Chain Management

Organization

Benefit

Campbell Soup

Doubled inventory turnover rate

Hewlett-Packard

Cut supply costs 75%

Sport Obermeyer

Doubled profits and increased sales 60%

National Bicycle

Increased market share from 5% to 29%

Wal-Mart

Largest and most profitable retailer in the world

Costs trade-offs in Marketing

and Logistics

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

Logistics Objective
Maximize return on logistics
assets (ROLA)
Logistics
contribution
to sales

Costs of
logistics
operations

ROLA Revenue Costs

Assets
Investment
in logistics
assets

Location Strategy
Location decisions
The network planning process

The focus is
here

C O N T R O L L IN G

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

Transport Strategy
Transport fundamentals
Transport decisions

P L A N N IN G

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

O R G A N IZ IN G

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

Assignments
Chapter 1
Class assignments

Draw a supply chain for a product of your own

choice.
Compare the concept of a modern supply chain with
more traditional distribution channels. Be specific
regarding inventory level, changing customers
needs, transport capacity, operational performance,
delivery speed and reliability, and occurrence of
failures.
Explain how logistics and SCM can help in gaining
competitive advantage.
What are the different types of utility, and how does
logistics directly, or indirectly affect each one?

Assignments
Suppose that a manufacturer of mens shirts can produce a dress
shirt in its Houston, Texas plant for $8 per shirt (including the cost
of raw materials). Chicago is a major market for 100,000 shirts per
year. The shirt is prices at $15 at the Houston plant. Transportation
and storage charges from Houston to Chicago amount to 5$ per
hundredweight (cwt.). Each packaged shirt weighs 1 pound.
As an alternative, the company can have the shirts produced in Taiwan
for $4 per shirt (including the cost for raw materials). The raw
materials, weighing about 1 pound per shirt, would be shipped
from Houston to Taiwan at a cost of $2 per cwt. When the shirts
are completed, they are to be shipped directly to Chicago at
transportation and storage cost of $6 per cwt. An import duty of
$0.50 per shirt is assessed.
From a logistics-production standpoint, should the shirts be produced in
Taiwan?
What additional considerations, other than economic ones, might be
considered before making a final decision?