1 Logistics and Supply Chain Management Part I An Introduction ESI 4554 ISE Senior Design.

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Logistics and Supply Chain Management

Part I

An Introduction

ESI 4554

ISE Senior Design

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LogisticsDefinition

“Logistics…

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”

Council on Logistics Management

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LogisticsDefinition The flow of material, information and money

between consumers and suppliers.

In 1990-96: Freight Transportation $352, $455 Billion

Inventory Expense $221, $311 Billion

Administrative Expense $27, $31 Billion

Logistics related activity 11%, 10.5% of GNP.

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Logistics Costs

Logistics costs are estimated about 10% of sales

Source: Delaney, R. - Cass Logistics Annual State of Logistics report, 2001

Cost Category Total Cost ($ Billion

% of Sales % of Logistics Costs

Transportation $590 5.9% 58.4%

Warehousing $78 .8% 7.9%

Inventory $299 3.0% 29.7%

Admin. $39 0.4% 4.0%

Total $1,006 10.1% 100.0%

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Logistics in the Manufacturing Firm

Profit 4%

Logistics Cost 21%

Marketing Cost 27%

Manufacturing Cost 48%

Profit

Logistics Cost

Marketing Cost

Manufacturing Cost

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Logistics vs. Supply Chain Management

What is the difference?

A Supply chain is the network of: facilities (warehouses, factories, terminals, ports,

stores, homes) vehicles (trucks, trains, planes, ships) logistics information systems

connecting suppliers’ suppliers with its customers’ customers.

Logistics is:

“what happens in the supply chain” “putting the right material in the right place at the right

time“ it provides much of the Supply Chain’s value-added.

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Flows in a supply chain

Information

Product

Funds

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History of Logistics

Private industry starts evolving since the

1940’s.

Military were the only ones to using the term

(1950’s, 60’s)

No true concept of the term in the private

industry.

Companies had departments, such as

material housing, warehousing, machining,

etc.

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History of Logistics

1950's 1960's 1970's 1980's 1990's

Sco

pe

& In

flu

ence

WorkplaceLogistics

FacilityLogistics

CorporateLogistics

Supply ChainLogistics

GlobalLogistics

Adapted from:Frazelle, Edward “Supply Chain Strategy” McGraw Hill 2002.

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Phases of Logistics Development1. Workplace Logistics

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Phases of Logistics Development1. Workplace Logistics

Definition: the flow of material at a single workstation.

Objective: to streamline the movements of an individual

working at a machine or assembly line.

Origins: Principles developed by fathers of Industrial

Engineering during and after WWII.

Also known as: Ergonomics.

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Phases of Logistics Development2. Facility Logistics

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Phases of Logistics Development2. Facility Logistics

Definition: the flow of material between work stations

within the four walls of a facility

(interworkstation, intra facility). Facility can be a factory, terminal, warehouse,

distribution center (DC).

Origins: developed in mass production assembly lines

in 1950’s, 60’s and 70’s.

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Phases of Logistics Development3. Corporate Logistics

(Soda Manufacturer)

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Phases of Logistics Development3. Corporate Logistics

Definition: the flow of material and information between

the facilities and processes of a corporation. (inter workstation, inter-facility, intra-corporate).

Objective: Develop and maintain a profitable customer

service policy while maintaining and reducing total logistics cost.

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Phases of Logistics Development

3. Corporate Logistics

Logistics

takes place

between

and

Manufacturers Its factories Warehouses

Wholesalers Distribution Centers

RetailersIts distribution centers (DCs)

Retail Stores

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Phases of Logistics Development4. Supply Chain Logistics

Supplier Manufacturer Wholesaler Retailer Customer

Supply chain is optimized when material,information and money flow simultaneously,

in real time, and paperless.

Adapted from:Frazelle, Edward “Supply Chain Strategy” McGraw Hill 2002.

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Supply Chain Stages




SR: Supplier to RetailerSW: Supplier to Wholesaler

WC: Wholesaler to Consumer

MR: Manufacturer to Retailer

SC: Supplier to Consumer

MC: Manufacturer to Consumer

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Phases of Logistics Development4. Supply Chain Logistics

Definition:

the flow of material, information and

money between corporations

(interworkstation, interfacility,

intercorporate, and intrachain).

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Phases of Logistics Development5. Global Logistics

Definition: The flow of material, information, and

money between countries.

Connects suppliers’ suppliers with its

customers’ customers internationally.

Much more complicated than domestic

logistics given the many languages, laws,

currencies, time zones, cultures, etc.

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Phases of Logistics Development5. Global Logistics

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What Activities take place in Logistics?Activities

1. Customer Response2. Inventory Planning & Management (IP&M)3. Supply4. Transportation5. Warehousing / DC Operations

Each of these requires:- Measures and Goals- Process Design- Information System Requirements- Organizational Development

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Logistics Activity Framework

*

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*

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Logistics Activities1. Customer Response

Involves:• Developing / Maintaining a Customer Service

Policy* • Order Entry• Order Processing• Invoicing / Collections• Monitoring Customer Satisfaction

(* the contract between the logistics organization and the customer,

defining service targets, such as fill rates, response times, min. order

quantities, terms and conditions for returns, etc.).

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*

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Logistics Activities2. Inventory Planning & Management

Goal:

determining / maintaining the lowest inventory

levels possible that will meet Customer Service

Policy requirements.

Involves: Forecasting

Order Quantity Engineering

Replenishment planning

Inventory deployment

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*

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Logistics Activities3. Supply

Goal:

• Minimize total acquisition cost

(TAC) while meeting availability, response time and quality requirements

Involves:• Developing / Maintaining a Supplier Service Policy• Sourcing (of supplies)• Supplier integration• Purchase Order processing• Buying and Payment

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*

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Logistics Activities4. Transportation

Links sources of supply with customers.

Goal: Link all pick-up and deliver-to points within the

response time requirements and transportation limitations

at the lowest possible cost.

Involves: Network design & optimization Shipment Management Fleet and Container Management Carrier Management Freight Management

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*

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Logistics Activities5. Warehousing (DC Operations)

Goal:

To minimize the cost of labor, space and equipment in the warehouse while meeting cycle time and shipping accuracy and storage capacity requirements.

Involves: Receiving Putaway Storage Order Picking Shipping

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Logistics involves OptimizationOptimization is a key ingredient in

Logistics Master Planning

In general, we optimize:

- Customer Service Policy (CSP)

- purchase order quantities

- product sources (which one is best)

- location of DCs

- product placement in the warehouse

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Logistics involves Optimization Example

If we want to optimize CSP, we would address the

Total Logistics Costs

( = inventory cost + response time cost + lost sales cost)

MIN Total Logistics Costs

Subject to

Inventory Availability > Customer Service Inventory Target

Response time < Customer Service Response time Target

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Logistics Activity Profiling and Data MiningWhat is Data Mining? The process of automatically searching large volumes

of data for patterns using tools such as classification, association rule mining, clustering, etc..

A class of database applications that look for hidden patterns in a group of data that can be used to predict future behavior.

True data mining software doesn't just change the presentation.

Actually discovers previously unknown relationships among the data.

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Logistics Activity Profiling and Data Mining

What is Profiling?

Definition

The systematic analysis of item and order activity used to:

· quickly identify root cause of material/information

flow problems.

· Identify opportunities for improvement.

· Provide basis for decision making.

· First step in logistics master planning.

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Logistics Activity Profiling and Data Mining

What is a Profile?

A snapshot or picture of an aspect of a

logistics activity.

Many different profiles will be needed to

fully characterize and re-engineer the

logistics enterprise.

Provides basis for decision making.

First step in logistics master planning.

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Logistics Activity Profiling and Data MiningWhat is a Logistics Activity Profile?

Definition

The compilation of profiles for flow of material, information and money for each of the major logistics activities.

Logistics Activity Profiles

Flow of Material

Flow of Information Flow of Money

1. Customer Response √ √ √

2. Inventory Planning & Management (IP&M)

√ √ √

3. Supply √ √ √

4. Transportation √ √ √

5. Warehousing √ √ √

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Logistics Activity Profiling and Data MiningResult:

Five basic sets of activity profiles

1. Customer Activity Profile (CAP)

2. Inventory Activity Profile (IAP)

3. Supply Activity Profile (SAP)

4. Transportation Activity Profile (TAP)

5. Warehouse Activity Profile (WAP)

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Logistics Activity ProfilesResult:

Typically a profile will exist for the activity, the item, and the activity-item pair (and many other relevant ones).

Examples: Customer Sales Activity Profile Item Sales Activity Profile Customer - Item Sales Activity Profile

Supplier Activity Profile Item Purchasing Activity Profile Supplier - Item Purchasing Activity Profile

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Logistics Activity Profiling and Data MiningWhat are Segments?

Segments represent and classify something according to

some criteria into A, B, C (usually) or more groups.

Example: Customers and Items sold

Customer Segments (typical) A Category: the top 5% of customers B Category: the next 15% of customers C Category: the bottom 80% of customers

Item Segments (typical) A Category: represents 80% of sales B Category: represents 15% of sales C Category: represents 5% of sales

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Example: Customer – Item Sales Activity Profile

Item Category A – 80% of Sales B – 15% of Sales C – 5% of Sales

Customer Category

A – Top 5% AA AB AC

B – Mid 15% BA BB BC

C – Bottom 80% CA CB CC

A B C

A

BC

0

10

20

30

40

50

60

70

% of Sales Volume

Customer Categories

Item Categories

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Logistics Activity Profiling and Data MiningWhat are Segments?

Segments are a type of classification system.

The more you know about your customers, the more likely

you will offer the right product’ at the right time and the

right place, and the right price.

Pareto Principle: 80% of your sales & profits come from

20% of your customers.

Create A, B, C, D segments

A: Customers deliver largest portion of revenue

B: Close second, followed by C and D.

Recognize each group’s characteristics.

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Logistics Activity Profiling and Data MiningFine tune each Segment (A, B, C, D Customers)

How many products/services do they buy?

Purchase frequency?

Type of business?

Profitability of each transaction?

Payment promptness?

Cost of the service?

Referrals provided?

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Logistics Activity Profiling and Data MiningOnce Segments are fine tuned & sub classified, plan

to promote customers from one category to the next highest:

Ex. from C to B, from B to A

An “A” customer is the hardest to replace.

Need replacements in case customers go “elsewhere”.

If you loose an “A” customer, promote a good “B” customer to replace it.

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Logistic Activity ProfilesWhat does each profile tell us?

1. Customer Activity Profile (CAP): illustrates sales activity by customer and by item.

captured in terms of dollars, # of orders, # of order lines, units, weight, cube, truckloads, pallets and cases.

different items and customers create different level / type of logistics

logistics strategy must reflect unique logistics requirements of each customer – item combination.

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Logistic Activity Profiles1. Example of a Customer Activity Profile (CAP)

How to understand example: Very few customers or items can be found in AA segment, yet it has high volumes, high

revenues and intense competition Many customers and items are found in the CC segment, yet it has low volumes, low

revenues and little or no competition

AB

C AB

C0

10

20

30

40

50

60

70

% of Sales Volume

Customer Categories

Item Categories

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Logistic Activity ProfilesDefinition - SKU

The abbreviation for Stock Keeping Unit.

An SKU is an individual item or part, a unit of

inventory that is carried as a separate identifiable

unit, and is typically represented by a UPC.

i.e. A box of 100 ball point pens, although

containing the same unit, is a different SKU from a

single ball point pen.

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Logistic Activity ProfilesAnother Example of a Customer Activity Profile (CAP)

A

B

C

A SKUs

B SKUs

C SKUs0

100

200

300

Units Purchased

Customer Categories

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2. Inventory Activity Profile (IAP):

helps determine opportunities to reduce inventory

and improve customer service.

shows locations in the supply chain where excess

has accumulated.

reports inventory turns, days-on-hand, other.

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Logistic Activity ProfilesExamples of Inventory Activity Profile (IAP):

ABC Inventory Valuation Analysis

S= StoreT= TransitW = Warehouse

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3. Supply Activity Profile (SAP):

reveals opportunities for purchasing improvements

reports purchasing in $, units, cases, pallets,

truckloads, weight, volume, orders, SKU, supplier,

other.

helps categorize suppliers, make / buy analysis, etc

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Logistic Activity ProfilesExample of Supply Activity Profile (SAP)

Supplier – Item Classification

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Logistic Activity ProfilesExample of Supply Activity Profile (SAP):

Inbound Logistics Strategy and Stratification

A B C D A B C D A B C D A B C D A B C DSuppliersA VMI VMI VMI VMI Cns

B VMI VMI VMI VMI CnsC CnsD Cns

DC VMI Vendor Man. Inv. Cns Consignment

Promos.

EliminateCross Dock

Health/Beauty HousewaresSupplyPlan

Dry Grocery Perishables Clothing

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4. Transportation Activity Profile (TAP):

For each transportation lane, reports:

units, cases, pallets, truckloads, weight, volume,

dollars moved, carrier availability, statistics, on-

time percentage, damage and claims rates.

Helps measure carrier performance, routing,

scheduling, consolidation opportunities.

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Logistic Activity ProfilesExample of Transportation Activity Profile (TAP):

Multi commodity transportation activity profile

in the chemical industry.

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Helps reveal patterns in item activity and customer orders to

help improve:

storage system design

warehouse layout

order activity profile

Captures: requests, units, cases pallets, dollars, weight

shipped per unit time.

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Logistic Activity Profiles

What does each profile tell us?


Helps choose and design a storage system for each

item.

Helps design order picking and shipping systems.

Typically includes distributions such as:

Order mix by Family

Lines per order

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Logistic Activity ProfilesExample of Warehouse Activity Profile (WAP):

Lines per Order Distribution

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Logistic Activity ProfilesExample of Warehouse Activity Profile (WAP):

Item Popularity Distribution

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Video

Supply Chain Management

1 Logistics and Supply Chain Management Part I An Introduction ESI 4554 ISE Senior Design.

Documents

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