LEADING EDGE LOGISTICS

BY:
FARAH (10)
SOHILA(34)
 SUPPLY CHAIN MANAGEMENT (SCM)
 A supply chain is a sequence of suppliers, warehouses,
operations & retail outlets.
 Integration of various activities encompassed by the
supply chain through improved supply chain
relationships to achieve a sustainable competitive
advantage.
INFORMATION
(ORDER &
SCHEDULES)

GOODS
/SERVICES
Supplier’s Customer’s
Supplier Firm Customer Customer
Supplier 2

PAYMENT
ELEMENTS OF SCM

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 SUPPLY CHAIN MANAGEMENT
 How is Supply Chain Management applied in the
Logistics Function?

– It provides for a strategic view of logistics functions.

– It is not simply what occurs inside of a company
– It is completely customer driven

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LOGISTICS

 What is Logistics = Logical thinking +Statistics

 "Logistics means having the right thing, at the right place,

at the right time in the right quantity at the right price.“

 Therefore, Logistics is an optimization process of the

location, movement and storage of resources from the point
of origin, through various economic activities, to the final
consumer.
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 LEADING EDGE LOGISTICS
 The companies with following features
have leading edge in logistics:

 Exhibit an overriding commitment to customers (100%

customer satisfaction).
 Emphasize planning

 Encompass a significant span of functional control

 Have a highly-formalized logistical process

 Place a premium on operational flexibility

 Employ comprehensive performance measurement

 Invest in I.T.

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HOW LEADING-EDGE COMPANIES
MANAGE LOGISTICS??

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 BUSINESS TRANSFORMATION
 Functions To Processes.

 Profit To Performance.

 Products To Customers.

 Inventory To Information.

 Transactions To Relationships.
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 FUNCTIONS TO PROCESSES

COVENTIONAL
VERTICAL SYSTEM

HORIZONTAL
HORIZONTAL SYSTEM SYSTEM
HELPS IN:
•Better co-ordination & co- EXAMPLE: HUL
operation entering a strategic tie-up
with PepsiCo India for
•Connects the customer with bottling & distribution of
Lipton’s ready-to-drink.
the business & its suppliers
{CORE PROCESS}
•Cross functional capabilities 9
 PROFIT TO PERFORMANCE

NON-FINANCIAL PERFORMANCE INDICATORS INCLUDE:

Customer Satisfaction Flexibility People Commitment

Customer Retention Set up times Employee Turnover

Brand Preference Commonality of materials Suggestions

Dealer Satisfaction Reduction of complexity Internal climate and

culture
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Service Performance Training And
Development
 PRODUCTS TO CUSTOMERS
EMERGING TRENDS
 Ultimate objective- Customer Satisfaction

 Demand management

 Using measures like ‘activity based costing’ &

‘throughput costing’ instead of ‘traditional accounting’.
 Replace ‘brand value’ by ‘customer value’.

 Develop an ‘offer’ or ‘package’ that positively impact

customer’s perceptions of the value.

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INVENTORY TO INFORMATION
BEFORE NOW
UNCERTAINTY INFORMATION

FORECAST LOGISTICS
SYSTEM

SUBSTITUTING
INFORMATION FOR
INVENTORY
BENETTON, ITALIAN FASHION 12
MANUFACTURER
 TRANSACTIONS TO
RELATIONSHIPS
 Winning Keeping

 Absolute Quality of market share

 Longer customer stays with us, the more profitable they

become.
 SINGLE SOURCING:
 IMPROVED QUALITY
 INNOVATION SHARING

 REDUCED COSTS

 INTEGRATED SCHEDULING OF PRODUCTION

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 MODIFYING INTERNAL ENVIRONMENT
WITH EXTERNAL ENVIRONMENT

PARADIGMS LEADING TO SKILLS REQUIRED

SHIFT
FUNCTION TO Integral management of Cross Functional
PROCESS Material and goods Management
PROFIT TO Focus on market and Perfect order
PERFORMANCE customer value Achievement
PRODUCTS TO Focus on performance Understanding Costs to
CUSTOMER drivers of profit serve & time based
performance indicators.

INVENTORY TO Demand based and quick Systems and technology

INFORMATION response systems
TRANSACTIONS TO Supply chain partnership Win-Win Orientation
RELATIONSHIPS 14
 EXTENDED ENTERPRISE
Today’s business is increasingly ‘boundaryless’

Extended Enterprise

Sources Converters Retailers

Product and service flow

Information flow
Funds flow
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Suppliers Distributors Consumer
 VIRTUAL SUPPLY CHAIN
 E-mail Chain: When a supply chain is managed
electronically, usually with Web-based software, it is
referred to as an e-supply chain.
Example:

 FedEX started Virtual Order – Online B2B site.

 Shippers can setup an online catalog of goods that consumers can order
from.
 FedEx setup Express Distribution Centres like Dubai, Philipines.
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CONTD…
 FedEX systems are fully integrated with that of the shippers

 Customer places the order.

 Shippers notified

 Order Enters into FedEx network.

 Order collected from a variety of shippers.

 Within 48 hours delivery to customer

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INTERNET APPLICATION & SUPPLY CHAIN

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 RECONFIGURING THE
VALUE CHAIN THROUGH
‘POSTPONEMENT’
 Postponement creates flexibility
in terms of time, place & form utility.
 Time & Place postponement occurs when
organization centralizes inventory leading to:
 reduction in total inventory & improving product
availability by effective forecast.
 But increases transportation & holding costs.
 Final Form postponement is attractive as:
 Products have short life cycle leading to increased levels of
obsolescence & stock write-offs.
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 Requirement of rapid transmission of information to
upstream & downstream supply chain partners, so that the
final product is made on demand creating a competitive
edge.

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 THE EXTENDED VALUE CHAIN

Inbound Outbound
Operations Branding
Logistics Logistics

 The challenge is to delay the final configuration as long as

possible & hence reduce the risk.
 Hewelett Packard- “design for a localization”

product development philosophy

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 Thus, the unit costs of manufacturing will go higher but the
overall cost/benefit will be considerable as
 Inventory holding cost

 Obsolescence

 Customer service

Postponement concept makes the conventional economies of

scale redundant.

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 EXAMPLE
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WAL-MART IS THE WORLD’S LARGEST RETAIL
COMPANY

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 HUB AND SPOKE SYSTEM
 In the early 1970s, Wal-Mart became one of
the first retailing companies in the world to
centralize its distribution system, pioneering
the retail hub-and-spoke system.

 Under the system, goods were centrally

ordered, assembled at a massive warehouse,
known as ‘distribution center’ (hub), from
where they were dispatched to the individual
stores (spoke).
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 HUB AND SPOKE SYSTEM
 The hub and spoke system enabled Wal-Mart to achieve
significant cost advantages by the centralized
purchasing of goods in huge quantities..

 and distributing them through its own logistics

infrastructure to the retail stores spread across the U.S.
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 WAL-MART’S PROCUREMENT
 Wal-Mart emphasized the need to reduce purchasing
costs and offer the best price to the customer.

 The company directly procured from manufacturers, by

passing all intermediaries.

 Wal-Mart finalizes a purchase deal only when it is fully

confident that the products being bought is not
available else where at a lower price.

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WAL-MART’S
PROCUREMENT…

 Wal-Mart spends a significant amount of time meeting

vendors and understanding their cost structure.

 By making the process transparent, the retailer can be

certain that the manufacturers are doing their best to cut
down costs.

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 USING EDI FOR PROCUREMENT

 The computer systems of Wal-Mart were

connected to those of its suppliers.
 EDI enabled the suppliers to download
purchase orders along with store-to-store
sales information relating to their products
sold.
 On receiving information about the sales of
various products, the suppliers shipped the
required goods to Wal-Mart’s distribution
centers.
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 LOGISTICS MANAGEMENT
 An important feature of Wal-Mart’s logistics
infrastructure was its fast and responsive transportation
system.
 The distribution centers were serviced by more than
3500 company owned trucks.
 Wal-Mart believed that it needed drivers who were
committed and dedicated to customer service.
 The company hired only experienced drivers who had
driven more than 300,000 accident-free miles, with no
major traffic violation.
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 INVENTORY
MANAGEMENT

 Wal-Mart invested heavily in IT and

communication systems to effectively track
sales and merchandise inventories in stores
across the country.
 With the rapid expansion, it was essential to
have a good communication system.
 Hence, Wal-Mart set up its own satellite
communication system in 1983.
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INVENTORY
MANAGEMENT…

 Wal-Mart was able to reduce unproductive

inventory by allowing stores to manage their
own stocks, reducing pack sizes across many
product categories, and timely price
markdowns.
 Instead of cutting the inventory across the
board, Wal-Mart made full use of its IT
capabilities to make more inventories
available in the case of items that customers
wanted most, while reducing the overall
inventory levels.
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 INVENTORY MANAGEMENT…

 Employees at the stores had the “Magic Wand,” a hand-held

computer which was linked to in-store terminals through a
radio frequency network.

 These helped them to keep track of the inventory in stores,

deliveries, and backup merchandise in stock at the
distribution centers.
 The order management and store replenishment of goods
were entirely executed with the help of computers through
the Point-of-Sales (POS) system.

 Through this system, it was possible to monitor and track the

sales and merchandise stock levels on the store shelves.
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 INVENTORY MANAGEMENT…
(RETAIL LINK SYSTEM)

 In 1991, Wal-Mart had invested

approximately $4 billion to build a retail
link system.
 More than 10,000 Wal-Mart retail
suppliers used the retail link system to
monitor the sales of their goods at stores
and replenish inventories.
 Details of daily transactions (~10 million
per day) were processed through this
system. 34
 CPFR
 By the mid 1990s, Retail Link had emerged into an Internet-
enabled SCM system whose functions were not confined to
inventory management alone, but also covered collaborative
planning, forecasting and replenishment (CPFR).

 In CPFR, Wal-Mart worked together with its key suppliers on a

real-time basis by using the Internet to jointly determine
product-wise demand forecast.

 CPFR is defined as a business practice for business partners to

share forecasts and results data through the Internet, in order to
reduce inventory costs while at the same time, enhancing
product availability across the supply chain.

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 RFID TECHNOLOGY
(RADIO FREQUENCY IDENTIFICATION)
 In efforts to implement new technologies to
reduce costs and increase the efficiency, in July
2003, Wal-Mart asked its top 100 suppliers to
be RFID compliant by January, 2005.

 Wal-Mart planned to replace bar-code

technology with RFID technology.

 The company believed that this replacement

would reduce its supply chain management
costs and enhance efficiency.
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 RFID TECHNOLOGY
(RADIO
FREQUENCY IDENTIFICATION)

 Because of the implementation of RFID,

employees were no longer required to
physically scan the bar codes of goods entering
the stores and distribution centers, saving labor
cost and time.

 Wal-Mart expected that RFID would reduce the

instances of stock-outs at the stores.
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