Fundamentals Of Logistics And Supply Chain Management

Fundamentals of Logistics and Supply Chain Management Dr. Mary Collins Holcomb Associate Professor November 16th and 18th, 1999

Agenda ◆ ◆ ◆ ◆ ◆ ◆

The Role of Logistics Integrated Logistics Management Information Management Implementing Logistics Strategy Supply Chain Management Issues and Challenges

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The Role of Logistics

Logistics Management “That part of supply chain management which deals with the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.” -- Council of Logistics Management University of Tennessee

move

MOVE move

Tangible goods still have to move (and be stocked) through space and time. . . new strategies and methods must create new value.

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Customer Service

Transportation Management

Distribution Center Operations

Production Management

Inventory Management

Purchasing

Demand Forecasting

Order Management

Logistics Management

logistics Cost Components Weighted Average

Transportation

44.3%

Warehousing

19.9%

Inventory Carrying Cost

19.2%

Order Processing

6.5%

Other

6.0%

Administrative

4.1%

Transportation costs comprise the single largest element in most physical distribution systems

100% Source: Herbert W. Davis & Co.

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The

New Logistics

Excellence in distribution & transportation adds value at all levels.

Asset Manageme nt

Inventory Deployment/ Reduction

Outsourcing Strategy

Distribution Network Configuration

Shared Services

Delivery Service

Revenue Enhanceme nt

Basic Service

Customer-Supplier Relation/Partnership

Value-Added Services Distribution Planning

Inter-Facility/ Outbound Transportation Management

Warehouse Management

Operatio nal Planning/Operati Efficienc onal y

3rd Party Service Provider Relation/ Partnership

Strateg ic

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The

New Logistics

To improve deployment & management of assets . . .

Reduce

capital expenditures by improving usage of fixed assets

1. 2. 3. 4. 5. 6.

Reduce

working capital by minimizing inventories

7. 8.

Rationalize distribution networks Outsource select processes Explore shared facilities Understand supply chain tax implications Consolidate warehouses Replace inventories with information Reduce distribution cycle time Implement demand-driven planning

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Drivers Behind Increase in Transportation Expenditures ◆

Accelerating trend toward leaner, more flexible logistics networks

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Less inventory in the pipeline

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Increasing demand for synchronized service

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Increasing requirement for faster more reliable transportation service over longer distances

Pressure to reduce cost and improve service University of Tennessee

Integrated Logistics Management

Integrated Logistics PRODUCT FLOW

Physical Supply ◆ Manufacturing Support ◆ Procurement ◆ Physical Distribution ◆

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Integrated Logistics (cont.) INFORMATION FLOW ◆ Coordination flows ◆ Strategic objectives ◆ Capacity constraints ◆ Logistical requirements ◆ Forecasting

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Integrated Logistics (cont.) INFORMATION FLOW ◆ Operational Flows ◆ Order management ◆ Order processing ◆ Distribution operations ◆ Inventory management ◆ Transportation University of Tennessee

Operating Objectives ◆ ◆ ◆ ◆ ◆ ◆

Rapid response Minimum variance Minimum inventory Movement consolidation Quality Life-cycle support

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Barriers to Integration ◆ ◆ ◆ ◆ ◆

Organizational structure Measurement systems Inventory ownership Information technology Knowledge transfer capability

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Measuring Performance Several different approaches may be used to measure the functional performance of logistics: ◆ ◆ ◆

cost criteria productivity criteria service criteria

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Measuring Performance Firms evaluate logistics managers primarily on the basis of three factors: ◆ ◆ ◆

line management ability problem-solving ability project management ability

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“Best of the Best” Logistics Firms ◆

Organizationally positioned to guide logistics activities at all levels - strategic, tactical, and operational;

◆

Internal integration has enabled the development of operational excellence, and boundary spanning relationships;

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“Best of the Best” Logistics Firms (cont.) ◆

Demonstrated “agility” in terms of the firm’s competency with respect to relevancy, accommodation, and flexibility.

◆

Measured performance both internally and externally.

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Information Management

Electronic Commerce ◆

Examples: ◆ Electronic data interchange (EDI) ◆ e-mail ◆ Electronic funds transfer ◆ Electronic publishing ◆ Shared databases ◆ Internet / Web sites

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A. The sender assembles the data using its own business application system B. This data is translated into an EDI standard format (i.e., transaction set) C. The transaction set is transmitted either through a value added network (VAN) or directly to the receiver's EDI translation system D. The transaction set, in EDI standard format, is translated into files that are usable by the receiver's business application system E. The files are processed using the receiver's business application system

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Electronic Commerce Levels ◆

LEVEL 1 One-way communication ◆ LEVEL 2 Database access ◆ LEVEL 3 Data exchange ◆ LEVEL 4 Sharing processes University of Tennessee

The Internet Changes Everything! ◆

The Internet is ubiquitous.

◆

The Internet is user friendly.

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The Internet is inexpensive.

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The Internet is global.

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How Long Until Your Company…... ◆

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Receives over 64% of its $8.5 billion in sales over the Internet 70% of all technical support questions are asked over the Internet 55% of its employee resumes come over the Internet Cisco Systems, USA Today, Sept. 23, 1998

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Implementing Logistics Strategy

If logistics managers do not understand corporate strategy, they will not be able to make decisions that are in the best interest of the organization.

The Hierarchy of Planning Strategic Tactical Operational ____________________________________ What is the organization’s overall customer service strategy and what should it be? What are the best opportunities for cost reduction in the organization’s logistics system? What are the core competencies of the logistics function, I.e. which activities should be outsourced? University of Tennessee

The Strategic Issues and Challenges ◆

How to help the firm and its customers deal with big changes -- globalization, restructuring, competition

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How to improve profitability (growth) and value creation - for the firm and its customers

◆

How to raise the performance of all services to competitive advantage levels

◆

How to integrate/leverage logistics within the firm and the supply chain

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Supply Chain Management

The supply chain encompasses all activities associated with the flow and transformation of goods from the raw materials stage, through to the end user, as well as the associated information flows.

How to Achieve Profitable Growth and Value Creation* Cost Minimization

Profitable Growth

Tax Minimization Value

Working Capital Efficiency

i

Time

Fixed Capital Efficiency

* Based on “Supercharging Supply Chains,” a new book by E&Y/J. Wiley, Inc.

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Stages of Supply Chain Development ◆

◆

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STAGE 1 - Fundamentals Focus on quality STAGE 2 - Cross Functional Teams Serve our customers STAGE 3 - Integrated Enterprise Drive business efficiency

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Stages of Supply Chain Development (cont.) ◆

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STAGE 4 - Extended Supply Chain Create market value STAGE 5 - Supply Chain Communities Be a market leader!

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Supply Chain Cost Categories ◆

◆

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Manufacturing ◆ Purchased materials, labor, equipment charge, and supplier’s margin Movement ◆ Transportation, inventory in the pipeline (cycle), safety stock, and duty Incentives and subsidies

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Supply Chain Cost Categories (cont.) ◆

◆

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Intangibles ◆ Quality, product adaptation or performance, coordination Overhead ◆ Total current landed costs Long-term ◆ Productivity and wage changes, exchange rates, product design, and core competencies University of Tennessee

“Sluggish” Supply Chains ◆

◆ ◆ ◆ ◆

Lack of synchronization in materials management Ambiguous goals and objectives Poorly designed procedures and forms Outdated technology Lack of information

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“Sluggish” Supply Chains ◆ ◆ ◆ ◆

Poor communication Limited coordination Limited cooperation Lack of / ineffective training

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The Strategic Issues and Challenges ◆

How to help the firm and its customers deal with big changes -- globalization, restructuring, competition

◆

How to improve profitability (growth) and value creation - for the firm and its customers

◆

How to raise the performance of all services to competitive advantage levels

◆

How to integrate/leverage logistics within the firm and the supply chain

University of Tennessee