INTRODUCTION

TO LOGISTIC S
& SUPPLY
CHAIN
MANAGEMENT
MODULE I

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 LEARNING OBJECTIVE OF THIS MODULE

 Understanding the functions of distribution channel

 Understanding the difference between logistics and supply chain management
 Discussing examples of supply Chain
 Understanding supply chain drivers and metrics
 Learning the challenges in maintaining a supply chain in India.

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 D.K.Agrawal,p.9

4PS OF MARKETING
 PRODUCT
 PRICE
 PLACE DISTRIBUTION CHANNEL
 PROMOTION Distribution refers to the
development of arrangements
necessary to transfer ownership of
a product and its transportation
from where it is produced to
where it finally consumed.

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 D.K.Agrawal,p.10

DEFINITIONS:DISTRIBUTION CHANNEL

Distribution channel is a set of people and firm involved in the transfer of a title of a
product as it moves from producer to the ultimate consumer or business user.
- Stanton et al. (1994)

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 D.K.Agrawal,p.10

Distribution Strategy

Marketing
Logistics
Channel
Management
Management

Marketing channel is a set of
interdependent organizations involved in
the process of making a product or
service available for consumption or use.
- Ansary and Coughlan (1996)
Logistics is the process of planning, implementing and controlling the
efficient, effective flow and storage of goods, services and related
information from the point of origin to the point of consumption for
the purpose of conforming to customer requirement.
- The Council of Logistics management (1991)

• Wholeslers,distributors,retail
ers,agents and brokers
• 3PL (specialized channel)

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 D.K.Agrawal,p.32

FUNCTIONS OF DISTRIBUTION CHANNEL

According to Stanton et al. (1994),marketing intermediaries has two broad categories of

functions namely,
1. PURCHAGE AGENTS FOR BUYERS
2. SALES SPECALIST FOR PRODUCERS

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 D.K.Agrawal,p.32

Beckman and Davidson (1997) grouped FUNCTIONS of marketing intermediaries into three major
categories.
A. EXCHANGE FUNCTIONS

B. LOGISTICS FUNCTIONS

C. FACILITATING FUNCTIONS

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 A. EXCHANGE FUNCTIONS  CHANGE IN OWNERSHIP OR TITLE TRANSFER
 FINDING AND SEEKING BUYERS AND SELLERS
B. LOGISTICS FUNCTIONS  STIMULATING SALES BY USING PROMOTIONAL MEANS

C. FACILITATING FUNCTIONS

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A. EXCHANGE FUNCTIONS
B. LOGISTICS FUNCTIONS
C. FACILITATING FUNCTIONS
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 BREAKING BULK
 ACCUMULATING BULK
 CREATING ASSORTMENTS
 TRANSACTION EFFICIENCY
 COMMUNICATION FUNCTIONS
9
  BREAKING BULK
 ACCUMULATING BULK
 CREATING ASSORTMENTS
 TRANSACTION EFFICIENCY
 COMMUNICATION FUNCTIONS

MANUFACTURER CONSUMER/RETAILER
MARKETING
(Product in bulk INTERMEDIARY (Products in small
quantity) quantity)

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  BREAKING BULK
 ACCUMULATING BULK
 CREATING ASSORTMENTS
 TRANSACTION EFFICIENCY
PRODUCER 1  COMMUNICATION FUNCTIONS
(Product in X quantity)

CONSUMER/RETAILER
PRODUCER 2 MARKETING
INTERMEDIARY (Product in X+Y+Z
(Product in Y quantity)
quantity)

PRODUCER 3
(Product in Z quantity)

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  BREAKING BULK
 ACCUMULATING BULK
 CREATING ASSORTMENTS
 TRANSACTION EFFICIENCY
MANUFACTURER 1  COMMUNICATION
CONSUMER A FUNCTIONS
(Product - X) (Product – X and Y)

MANUFACTURER
2 MARKETING CONSUMER B
INTERMEDIARY (Product Y and Z)
(Product - Y)

MANUFACTURER 3 CONSUMER C
(Product - Z) (Product X,Y and Z)

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  BREAKING BULK
Without Intermediary
 ACCUMULATING BULK
 CREATING ASSORTMENTS
M M M M
 TRANSACTION EFFICIENCY
 COMMUNICATION FUNCTIONS

R R R R

Number of transactions: 4X4=16

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  BREAKING BULK

With an Intermediary  ACCUMULATING BULK

 CREATING ASSORTMENTS
M M M M  TRANSACTION EFFICIENCY
 COMMUNICATION FUNCTIONS

R R R R

Number of transactions: 4+4=8

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 A. EXCHANGE FUNCTIONS

B. LOGISTICS FUNCTIONS
 AUGMENTED SERVICES
C. FACILITATING FUNCTIONS  CREDIT SERVICES
 RISK TAKING

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DIFFERENCE BETWEEN LOGISTICS AND SUPPLY CHAIN MANAGEMENT

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 LOGISTICS

WHAT IS LOGISTICS?

• Logistics is a term used to describe the process of handling goods within a specific department
while at the same time keeping an inventory document of the status and whereabouts of different
inventories.
• Besides, logistics can be defined as the process of planning, execution, and control of the
movement of goods and other related activities.

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 Alan Rushton, Phil Croucher,Peter backer
LOGISTICS:DEFINITIONS

Logistics is... the management of all activities which facilitate movement and the coordination
of supply and demand in the creation of time and place utility.
(Hesket, Glaskowsky and Ivie, 1973)

Logistics is the management of the flow of goods and services between the point of origin and
the point of consumption in order to meet the requirements of customers.
(Wikipedia, 2012)

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-Council of Supply Chain Management Professionals, 2012)

Logistics is... the positioning of resource at the right time, in the right place, at the right cost, at
the right quality.
(Chartered Institute of Logistics and Transport (UK), 2012)

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 Alan Rushton, Phil Croucher,Peter backer

LOGISTICS concerns the efficient transfer of goods from the source of supply through
the place of manufacture to the point of consumption in a cost-effective way while
providing an acceptable service to the customer.

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 REVERSE LOGISTICS

The flow of used products and returnable packaging

back through the system.

• Reverse logistics is for all operations related to the

reuse of products and materials.
• It is "the process of moving goods from their typical
final destination for the purpose of capturing value,
or proper disposal.
• Remanufacturing and refurbishing activities also may
EXTRA:
be included in the definition of reverse logistics." 1. https://en.wikipedia.org/wiki/Reverse_logistics

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COMPONENTS OF Different elements of logistics
DISTRIBUTION AND provide an ‘added value’ to a
LOGISTICS product as it is made available
to the final user – rather than
just imposing an additional cost.

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 LOGISTICS

WHAT IS SUPPLY CHAIN MANAGEMENT?

• Supply chain management is a terminology used to describe all the activities, which include the
purchase of raw materials, receiving of raw materials, manufacturing, and production of goods, and
delivery of the desired goods to their respective customers or destinations.

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 Sunil Chopra,Peter Meindl,Ch.1

A SUPPLY CHAIN consists of all parties involved, directly or indirectly, in fulfilling a

customer request. The supply chain includes not only the manufacturer and suppliers, but
also transporters, warehouses, retailers, and even customers themselves.

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 Sunil Chopra,Peter Meindl,Ch.1

Source: Sunil Chopra,Peter Meindl,Ch.1

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 Sunil Chopra,Peter Meindl,Ch.1

A supply chain is dynamic and involves the constant flow of information, product, and funds
among different stages.

Walmart
Amazon

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 Sunil Chopra,Peter Meindl,Ch.1

• The primary purpose of any supply chain is to satisfy customer needs and, in the process,
generate profit for itself.

• The term supply chain conjures up images of product or supply moving from suppliers to
manufacturers to distributors to retailers to customers along a chain.

• The term supply chain may also imply that only one player is involved at each stage. In reality,
a manufacturer may receive material from several suppliers and then supply several
distributors.

• Thus, most supply chains are actually networks. It may be more accurate to use the term
SUPPLY NETWORK or SUPPLY WEB to describe the structure of most supply
chains,

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 Sunil Chopra,Peter Meindl,Ch.1

Source: Sunil Chopra,Peter Meindl,Ch.1

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 Sunil Chopra,Peter Meindl,Ch.1

A typical supply chain may involve a variety of stages, including the following:

 Customers
 Retailers
 Wholesalers/distributors
 Manufacturers
 Component/raw material suppliers

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 Sunil Chopra,Peter Meindl,Ch.1

• Each stage in a supply chain is connected through the flow of

products, information, and funds.

• These flows often occur in both directions and may be

managed by one of the stages or an intermediary.

• The appropriate design of the supply chain depends on both

the customer’s needs and the roles played by the stages
involved.

• For its server business, Dell BUILD TO ORDER (DIRECT SALES

MODEL) - a customer order initiates manufacturing at Dell.

• Dell also sells consumer products such as PCs and tablets

through retailers (INTERMEDIARY) such as Walmart, which
EXTRA:
carry Dell products in inventory.
1. https://en.wikipedia.org/wiki/Build_to_order

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 Alan Rushton, Phil Croucher,Peter backer

The TOTAL LOGISTICS CONCEPT advocates

the benefits of viewing the various
elements of logistics as an integrated
whole.

SUPPLY CHAIN MANAGEMENT is similar,

but also includes the supplier and the end
user in the process or, as indicated in
Figure, the upstream (supply side) and
downstream (demand side) partners in
the supply chain.

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 http://www.differencebetween.net/business/di
fferences-between-logistics-and-supply-chain/

DIFFERENCES BETWEEN LOGISTICS AND SUPPLY CHAIN MANAGEMENT

LOGISTICS SUPPLY CHAIN MANAGEMENT

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 Sunil Chopra,Peter Meindl,Ch.3

DRIVERS OF SUPPLY CHAIN PERFORMANCE

• The STRATEGIC FIT requires that a company’s supply chain achieve the balance between RESPONSIVENESS
and EFFICIENCY that best supports the company’s competitive strategy.

• A supply chain’s performance in terms of responsiveness and efficiency is based on the interaction
between the following logistical and cross-functional drivers of supply chain performance: facilities,
inventory, transportation, information, sourcing, and pricing.

• The structure of these drivers also affects the financial measures.

• The goal is to structure the drivers to achieve the desired level of responsiveness at the lowest possible
cost, thus improving the supply chain surplus and the firm’s financial performance.

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 Sunil Chopra,Peter Meindl,Ch.3

DRIVERS OF SUPPLY CHAIN PERFORMANCE

 FACILITIES

 INVENTORY

 TRANSPORTATION

 INFORMATION

 SOURCING

 PRICING

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 SUPPLY CHAIN
DECISION
MAKING
FRAMEWORK

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 Sunil Chopra,Peter Meindl,Ch.3

DRIVERS OF SUPPLY CHAIN PERFORMANCE

 FACILITIES • Are the actual physical locations in the supply chain network where product is
stored, assembled, or fabricated.
 INVENTORY
• The two major types of facilities are PRODUCTION SITES and STORAGE SITES.
 TRANSPORTATION • Decisions regarding the role, location, capacity, and flexibility of facilities have a

 INFORMATION significant impact on the supply chain’s performance.

 SOURCING

 PRICING

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 Sunil Chopra,Peter Meindl,Ch.3

DRIVERS OF SUPPLY CHAIN PERFORMANCE

• In 2013, Amazon increased the number of warehousing facilities (and, as a result,

 FACILITIES
experienced an increase in PP&E and in turn facility cost) located close to
 INVENTORY
customers to improve its responsiveness.
 TRANSPORTATION • In contrast, Best Buy tried to improve its efficiency in 2013 by shutting down

 INFORMATION retail facilities even though it reduced responsiveness.

 SOURCING

 PRICING

PP&E:Property,Plant & Equipment

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 Sunil Chopra,Peter Meindl,Ch.3

DRIVERS OF SUPPLY CHAIN PERFORMANCE

• Encompasses all raw materials, work in process, and finished goods

 FACILITIES
within a supply chain.
 INVENTORY
• The inventory belonging to a firm is reported under assets.
 TRANSPORTATION • Changing inventory policies can dramatically alter the supply chain’s
efficiency and responsiveness.
 INFORMATION
• For example, W.W. Grainger makes itself responsive by stocking large
 SOURCING
amounts of inventory and satisfying customer demand from stock even
 PRICING though the high inventory levels reduce efficiency.
• Such a practice makes sense for Grainger because its products hold their
value for a long time.

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 Sunil Chopra,Peter Meindl,Ch.3

DRIVERS OF SUPPLY CHAIN PERFORMANCE

• A strategy using high inventory levels can be dangerous in the fashion

 FACILITIES
apparel business, though, in which inventory loses value relatively
 INVENTORY
quickly with changing seasons and trends.
 TRANSPORTATION • Rather than hold high levels of inventory, Spanish apparel retailer Zara
has worked hard to shorten new product and replenishment lead times.
 INFORMATION
As a result, the company is very responsive but carries low levels of
 SOURCING
inventory.
 PRICING

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 Sunil Chopra,Peter Meindl,Ch.3

DRIVERS OF SUPPLY CHAIN PERFORMANCE

• Entails moving inventory from point to point in the supply chain.

 FACILITIES
• Transportation can take the form of many combinations of modes
 INVENTORY
and routes, each with its own performance characteristics.
 TRANSPORTATION • Transportation choices have a large impact on supply chain
responsiveness and efficiency.
 INFORMATION
• For example, a mail-order catalog company can use a faster mode of
 SOURCING
transportation such as FedEx to ship products, thus making its supply
 PRICING chain more responsive— but also less efficient, given the high costs
associated with using FedEx.

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 Sunil Chopra,Peter Meindl,Ch.3

DRIVERS OF SUPPLY CHAIN PERFORMANCE

• McMaster-Carr and W.W. Grainger, however, have structured their

 FACILITIES
supply chains to provide next-day service to most of their customers
 INVENTORY
using ground transportation.
 TRANSPORTATION • They are providing a high level of responsiveness at lower cost.
Outbound transportation costs of shipping to the customer are
 INFORMATION
typically included in selling, general, and administrative expense,
 SOURCING
whereas inbound transportation costs are typically included in the
 PRICING cost of goods sold.

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 Sunil Chopra,Peter Meindl,Ch.3

DRIVERS OF SUPPLY CHAIN PERFORMANCE

• Consists of data and analysis concerning facilities, inventory,

 FACILITIES
transportation, costs, prices, and customers throughout the supply
 INVENTORY
chain.
 TRANSPORTATION • Information is potentially the biggest driver of performance in the
supply chain because it directly affects each of the other drivers.
 INFORMATION
• Information presents management with the opportunity to make supply
 SOURCING
chains more responsive and more efficient.
 PRICING

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 Sunil Chopra,Peter Meindl,Ch.3

DRIVERS OF SUPPLY CHAIN PERFORMANCE

• For example, Seven-Eleven Japan has used information to better match

 FACILITIES
supply and demand while achieving production and distribution
 INVENTORY
economies.
 TRANSPORTATION • The result is a high level of responsiveness to customer demand while
production and replenishment costs are lowered.
 INFORMATION
• Information technology-related expenses are typically included under
 SOURCING
either operating expense (typically under selling, general, and
 PRICING administrative expense) or assets.

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 Sunil Chopra,Peter Meindl,Ch.3

DRIVERS OF SUPPLY CHAIN PERFORMANCE

• Is the choice of who will perform a particular supply chain activity, such as
 FACILITIES
production, storage, transportation, or the management of information.
 INVENTORY
• At the strategic level, these decisions determine what functions a firm
 TRANSPORTATION performs and what functions the firm outsources.
• Sourcing decisions affect both the responsiveness and efficiency of a supply
 INFORMATION
chain.
 SOURCING

 PRICING

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 Sunil Chopra,Peter Meindl,Ch.3

DRIVERS OF SUPPLY CHAIN PERFORMANCE

• After Motorola outsourced much of its production to contract

 FACILITIES
manufacturers in China, for instance, it saw its efficiency improve but its
 INVENTORY
responsiveness suffer because of the long lead times.
 TRANSPORTATION • To make up for the drop in responsiveness, Motorola started flying in some
of its cell phones from China even though this choice increased
 INFORMATION
transportation cost.
 SOURCING
• Flextronics, an electronics contract manufacturer, is trying to make its
 PRICING production facilities in high-cost locations very responsive while keeping its
facilities in low-cost countries efficient.
• Sourcing costs show up in the cost of goods sold, and monies owed to
suppliers are recorded under accounts payable.

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 Sunil Chopra,Peter Meindl,Ch.3

DRIVERS OF SUPPLY CHAIN PERFORMANCE

 FACILITIES

 INVENTORY • Determines how much a firm will charge for the goods and services
 TRANSPORTATION that it makes available in the supply chain.
• Pricing affects the behavior of the buyer of the good or service, thus
 INFORMATION
affecting demand and supply chain performance.
 SOURCING

 PRICING

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 Sunil Chopra,Peter Meindl,Ch.3

DRIVERS OF SUPPLY CHAIN PERFORMANCE

 FACILITIES
• For example, if a transportation company varies its charges based on
 INVENTORY
the lead time provided by the customers, it is likely that customers
 TRANSPORTATION who value efficiency will order early and customers who value

 INFORMATION responsiveness will be willing to wait and order just before they need
a product transported.
 SOURCING
• Any change in pricing affects revenues directly but could also affect
 PRICING costs based on the impact of this change on the other drivers.

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 E?
DG
W LW
K NO
R
T YOU
TES
1. Explain the various function of distribution channel.
2. Point out the difference between logistics and supply chain management.
3. Identify the major drivers of supply chain performance.
4. Discuss the role of each driver in creating strategic fit between the supply chain strategy and
the competitive strategy.
5. Define the key metrics that track the performance of the supply chain in terms of each
driver.

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THANK YOU
MD SAIFULLAH KHALID

51