Scm & Logistics

Overview of Logistics and Supply Chain Management

1

Supply Chain Overview Transportation

Transportation

Warehousing

Customers

Information flows

Factory

Transportation

Vendors/plants/ports Warehousing

Transportation

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

1-2 SCM-2

Logistics vs Supply Chain Management Council of Logistics Management  “Logistics is the process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods and related information from the point of origin to point of consumption for the purpose of conforming to customer requirements.” Handfield and Nichols  SCM is the integration of all activities associated with the flow and transformation of goods from raw materials through to end user, as well as information flows, through improved supply chain relationships, to achieve a sustainable competitive advantage. CR (2004) Prentice Hall, Inc. Dickson Chiu 2006

SCM-3

Common Contemporary Logistics Terms         

Value stream/logistics process Quick response and flexible manufacturing Mass customization Supply chain management/ collaborative logistics Reverse logistics Service logistics Continuous replenishment Lean logistics Integrated logistics

=> IT people have to deal with any related automation anyway  Dickson Chiu 2006

SCM-4

Integrated logistics

customer

Physic al distrib ution

Inventory flow

Manufacturing support

Procurem ent

Supplier s

Information flow

5

The Logistics/SCM 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.



Product / Service Utility 







Possession Utility - the value or usefulness that comes from a customer being able to take possession of a product Form Utility - in a form that can be used by the customer and is of value to the customer Place Utility - available where they are needed by customers Time Utility - available when they are needed by customers Dickson Chiu 2006 SCM-6

Evolution of Supply Chain Management Activity fragmentation to 1960

2000+

Activity Integration 1960 to 2000

Demand forecasting Purchasing Requirements planning Production planning Manufacturing inventory

Purchasing/ Materials Management

Warehousing Logistics

Material handling Packaging Finished goods inventory Distribution planning

Physical Distribution

Supply Chain Supply Chain Management Management

Order processing Transportation Customer service Strategic planning Information services Marketing/sales Finance

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-7

Supply Chain Schematic

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

1-5 SCM-8

Critical Customer Service Loop

Customer order processing (and transmittal)

Transportation Customers Inventory or supply source

Dickson Chiu 2006

SCM-9

Physical Distribution Costs Category

Percent of sales

$/cwt.

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

7.65%

$67.71

Transportation

Total

Add one-third for inbound supply costs Source: Herb Davis & Company CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

Logistics cost are about 10% of sales w/o purchasing costs SCM-10

Customer Service Performance 10

96

9

94 90

7

88

6

%

92

8 Days

Order Cycle Time, Days

86 84

4

82

19 92 19 9 19 4 9 19 6 9 20 8 00 20 02

5

Product Availability--% orders Product Availability--% line items

Source: Herb Davis & Company

Year Dickson Chiu 2006

SCM-11

Traditional Scope of the Supply Chain 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

CR (2004) Prentice Hall, Inc.

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

Internal supply chain Dickson Chiu 2006

1-14 SCM-12

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 Dickson Chiu 2006

SCM-13

Logistics Strategy and Planning 

The objectives of logistics strategy   



Minimize cost Minimize investment Maximize customer service

Levels of logistical planning   

Strategic Tactical Operational

Dickson Chiu 2006

SCM-14

The Logistics Strategy Triangle (4 problem areas) 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 • CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-15

Strategic, Tactical, and Operational Decision Making Decision area Strategic

Tactical

Operational

Transportation Mode selection

Seasonal equipment leasing

Dispatching

Inventories

Location, Control policies Safety stock levels Order filling

Order processing

Order entry, transmittal, and processing system design

Processing orders, Filling back orders

Purchasing

Development of supplier- Contracting, buyer relations Forward buying

Expediting

Warehousing

Handling equipment selection, Layout design

Order picking and restocking

Facility location

Number, size, and location of warehouses

CR (2004) Prentice Hall, Inc.

Space utilization

Dickson Chiu 2006

SCM-16

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 CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-17

Logistic in Marketing Marketing Process is successfully completed only when

18

Arrangements are made to supply the goods through selected distribution channels. 2 Products are produced and priced to satisfy the identified needs of the customers. 3 Goods are physically supplied to the buyers at the price and time selected. 1

Dickson Chiu 2006

SCM-19

4 An awareness is created among the buyers about the availability of the goods through advertisement 5 Other than satisfying the customer’s needs, the marketing process must be profitable to the seller

Dickson Chiu 2006

SCM-20

Trends in marketing Past expectation

Today's expectation

•Products

Standardized products

Customized products

•Forms

Predefined

Often configurated

•Time

Now as available

When wanted

•Quality

Acceptable

Exceed Expectation

•Price

Low

Competitive

•Value Added

Minimal

Complex

•Services 21

Marketing

Relationship of Logistics to Marketing Product Promotion

Price

Logistics

Place-Customer service levels Transport costs

Inventory carrying costs Lot quantity costs

CR (2004) Prentice Hall, Inc.

Order processing and information costs Dickson Chiu 2006

Warehousing costs

SCM-22

Elements of the logistics marketing mix     

Product Price Promotion Place People

Dickson Chiu 2006

SCM-23

Relationship of Logistics to Production 

Coordinates through scheduling and strategy  



An integral part of the supply chain  



make-to-order make-to-stock 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

Dickson Chiu 2006

SCM-24

Logistics/SCM in Diverse Areas    



Manufacturing - most common Service - emerging opportunities Environment - causing restrictions Non-profits / Government - little explored Military - long history

Note the global evolvement into a service-oriented economy! Dickson Chiu 2006

SCM-25

Supply Chain is Multi-Enterprise Conventional Scope

Focus Company Suppliers

Customers Customers/ End users

Supplier’s suppliers

Acquire

Convert

Distribute

Product and information flow

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-26

Effect on Logistics Foreign Outsourcing Domestic sourcing

Foreign sourcing

Profit G&A

Profit G&A

Marketing

Increase

Marketing

Logistics

Logistics

Overhead

Increase

Tariffs Overhead

Materials Materials Labor CR (2004) Prentice Hall, Inc.

Labor Dickson Chiu 2006

Reduction

SCM-27

Reality of SCM Scope

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-28

rdi n na Int (In er-fu tra nct -or ion ga niz al ati o

n

tio

ina

rd oo

c al

SUPPLY CHAIN MANAGEMENT

on ati

iz an

l) c oo

org

er-

I nt

ati on

The Multi-Dimensions of SCM

Activity and process administration

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-29

Increasing Significance of Logistics 

Costs are high   





Customers are more demanding of the supply chain  







Local vs. long distance supply Globalization of trade

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



Generate revenue Improve profit

Logistical lines are lengthening 



Desire for quick response Desire for mass customization

An integral part of company strategy 



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

Law of comparative economic advantage applies

Logistics adds value

Dickson Chiu 2006

SCM-30

Contemporary IT Applications in Logistics – Focus of this Course 

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Tremendous technological advances in past decades Logistics management relies on analysis over massive information from heterogeneous sources Disparate business functions in service-oriented economy Internet and mobile technologies has further improved logistical effectiveness and efficiency 

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

Enabled logisticians and management to make timely, informed, and accurate decisions but create new dimensions of complexity

IT people work closely with logistician and management  

Understand complex requirements Choose the right technology and design appropriateSCM-31 IT Dickson Chiu 2006

Some Useful Contemporary IT in Logistics   

eXtended Markup Language (XML) Service-oriented architecture Process integration and interaction management 

 

 

Exceptions, alerts, and relationship management in logistics Information integration Facilitating decision support

Mobile technologies Radio Frequency Identification (RFID)

=> The key is to achieve information and process integration for efficient and effective decision support. Dickson Chiu 2006

SCM-32

Logistical sub-systems 





Physical supply or management of flow of raw materials , spare parts , consumable stores and machinery and tools from suppliers Physical distribution or mgt of finished goods from the factory to the customers Logistical controls for managing the logistics system; these help in the efficient co-ordination of physical Dickson Chiu 2006

SCM-33

The aim of an ideal logistic system is to ensure flow of supply to the customer     

In the right quantity At the required location At the required time In a usable condition At the lowest total cost

Dickson Chiu 2006

SCM-34

Summary 

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The logistic process plans, implements, controls the flow and storage of goods, services, and related information between the point of origin and the point of consumption to satisfy customer requirements Logistics addresses the time utility & place utility out of the four economic utilities Logistics becomes more important and complex because of new requirements of the serviceoriented economy, disparate business functions, and the impact of various contemporary IT Logistics involves the interaction with multiple departments within a company as well as now also across business partner organizations and customers Application of contemporary IT, especially information and process integration for efficient and effective decision support, Dickson Chiu 2006 is a critical SCM-35