Chap2 Logistics Management

8/7/2019 Chap2 Logistics Management

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Chapter 2

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` The objective is to plan and coordinate all the activitiesnecessary to achieve desired level of delivered service

and quality at lowest possible cost.

` The scope of logistics include the entire gamut of

activities starting from the procurement andmanagement of raw materials through to delivery of

final product to the customer.

` The ultimate purpose of any logistics system is to

satisfy the customer by establishing linkages of peopleat all levels in the organization directly or indirectly to

the market place.

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` As it is getting increasingly difficult to maintain acompetitive edge through product alone,

customer service has started to provide thedistinctive difference between one companysoffer and that of its competitors.

` The underlying concept is The process of

strategically managing the procurement,movement and storage of materials, parts andfinished inventory and the related informationflows through the organization and its marketingchannels in such a way that the current andfuture profitability are maximized through thecost effective fulfillment of orders.

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4

Customers seeking benefits at acceptable cost

Company A

(Asset utilization)

Company B

(Asset utilization)Cost differential


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` Competitive advantage is the ability of an

organization to differentiate itself in the eyes of

the customer, from its competition, and to operateat a lower cost and hence greater profit.

` Competitive advantage helps organizations to

achieve commercial success which mainly

depends upon two factors cost advantage andvalue advantage.

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Commercial success

Cost advantage Value advantage


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` Cost advantage or Productivity advantage

- Characterized by low cost of production due to

greater sales volume, economies of scale enablingfixed costs to be spread over a greater volume andthe impact of the experience curve.

` Value advantage is in terms of product offering adifferential plus over competitive offerings.

- Based on marketing concept that customers thatcustomers don't buy products, they buy benefits.

- Benefits may be intangibles and may not relate tospecific product features.

- It can be an image or reputation or even somefunctional aspects.

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` Adding value through differentiation is extremely

powerful means of achieving competitive edge in

the market.

` One of the significant method of adding value is

service.

` Service helps in developing relationship with the

customers through provision of an augmented

offer.

` Augmentation takes many forms such as

delivery services, after-sales services, financial

packages, technical support etc.

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Commodity Market

(1)

Cost Leader

(2)

Service Leader

(3)

Cost and Service

Leader

(4)

ProductivityAdvantage

V

a

lu

e

A

d

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` For companies in quadrant (1), the market is

uncomfortable place as their products cannot be

differentiated from their competitors offerings asthey do not have any cost advantage. These are

commodity markets.

` Companies in quadrant (2), adopt cost leadership

strategies. Traditionally, these are based oneconomies of scale gained through volume.

` Another route to achieving cost advantage is

through logistics management. As logistics

constitutes a major proportion of total costs,reengineering logistics processes results into

substantial cost reduction.

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` Companies in quadrant (3), seek differentiation

through service excellence since markets are

becoming more and more service sensitive.` Customers expect greater responsiveness and

reliability from the suppliers, reduced lead times,

just-in-time delivery, and various other value added

services.` Services strategies can be developed through

enhanced logistics management.

` Companies in quadrant (4) are distinctive in value

they deliver and are also cost competitive.` Competitors find it hard to attack these companies

which try to excel in all the value chain activities.

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12

Value Chain Activities

Primary Activities

Inbound Logistics

Operations

Outbound LogisticsMarketing & Sales

Service

Secondary Activities

Infrastructure

Human Resource ManagementTechnology Development

Procurement


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` Primary activities represent the functional areas

like arranging inputs for transforming them into

output, and managing distribution, marketing,sales, and services.

` The secondary activities facilitate the integration

of all the functions across the entire organization.

` The companies can achieve competitiveadvantage and create differentiation by organizing

and performing these activities more efficiently or

in a unique manner than their competitors.

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A. Productivity advantage

- Capacity utilization

- Asset utilization

- Inventory reduction

- Integration with the suppliers.

B. Value advantage- Customized services

- Reliability

- Responsiveness.

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Suppliers Procurement Operation Distribution Customers

Materials Flow

Information Flow


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` The objective of logistics is to link the market

place, distribution network, the manufacturing

process and procurement activity, so as to provide

higher levels of services to the consumers yet at alower cost.

` Scope of logistics management encompasses

management of raw materials and other inputsthrough the delivery of the final product.

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` A process of satisfying customer needs throughcoordination of materials and information flows thatextend from the market through the firms operationand beyond that to the suppliers.

` A shift to an integrated orientation from theconventional manufacturing or marketingorientation.

` Traditionally, manufacturing and marketing have

been considered as separate activities each havingdifferent priorities.

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` Manufacturing priorities and objectives are concernedwith achieving operating efficiencies based on longproduction runs, minimized set ups and changeovers,and product standardization.

` Marketing priorities and objectives are concerned withachieving competitive advantage based on varieties,high service levels, and frequent product changes.

` Customer orientation and cost competitiveness hasbeen integrated by introducing flexible manufacturingsystems, practicing inventory management policiesbased on manufacturing requirement planning and just-in-time inventory policy, laying sustained emphasis on

quality and integrating supply side issues in strategicplans.

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` Supply Chain: the sequence of organizations - their

facilities, functions, and activities - that are involved

in producing and delivering a product or service.

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Sometimes referred to asSometimes referred to as value chainsvalue chains


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` Warehouses

` Factories

` Processing centers

` Distribution centers` Retail outlets

` Offices

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` Forecasting` Purchasing

` Inventory management

` Information management

` Quality assurance

` Scheduling

` Production and delivery

` Customer service

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PurchasingReceiving Storage Operations Storage

Production Distribution


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Supplier

Supplier

Supplier

St r e Mf . St r e i t. et iler u t er


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1. Improve operations2. Increasing levels of outsourcing

3. Increasing transportation costs

4. Competitive pressures

5. Increasing globalization

6. Increasing importance of e-commerce

7. Complexity of supply chains

8. Manage inventories

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Figure 16.3

Final CustomerInitial

Supplier

Demand

Inventory oscillations become progressively

larger looking backward through the supply chain


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` Lower inventories` Higher productivity

` Greater agility

` Shorter lead times

` Higher profits

` Greater customer loyalty

` Integrates separate organizations into a

cohesive operating system


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Organization Benefit

Campbell Soup Doubled inventory turnover rate

Hewlett-Packard Cut supply costs 75%

Sport Obermeyer Doubled profits and increased sales 60%

National Bicycle Increased market share from 5% to 29%

Wal-Mart Largest and most profitable retailer in the

world


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` Requires linking the market, distribution channels

processes, and suppliers

` Supply chain should enable members to:

Share forecasts Determine the status of orders in real time

Access inventory data of partners


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Deciding how to best move and store materialsLogistics

Determining location of facilitiesLocationMonitoring supplier quality, delivery, and relationsSuppliers

Evaluating suppliers and supporting operationsPurchasing

Meeting demand while managing inventory costsInventory

Controlling quality, scheduling workProcessing

Incorporating customer wants, mfg., and timeDesign

Predicting quantity and timing of demandForecasting

Determining what customers wantCustomers

Typical IssuesElement

Deciding how to best move and store materialsLogistics

Determining location of facilitiesLocationMonitoring supplier quality, delivery, and relationsSuppliers

Evaluating suppliers and supporting operationsPurchasing

Meeting demand while managing inventory costsInventory

Controlling quality, scheduling workProcessing

Incorporating customer wants, mfg., and timeDesign

Predicting quantity and timing of demandForecasting

Determining what customers wantCustomers

Typical IssuesElement


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` Trust among trading partners

` Effective communications

` Supply chain visibility` Event-management capability

The ability to detect and respond to unplanned events


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1. Quality

2. Cost

3.Flexibility

4. Velocity

5. Customer service


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` Inventory velocity

The rate at which inventory(material) goes through the

supply chain

` Information velocity

The rate at which information is communicated in a

supply chain


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` Barriers to integration of organizations

` Getting top management on board

` Dealing with trade-offs

` Small businesses

` Variability and uncertainty

` Long lead times


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1. Lot-size-inventory Bullwhip effect

2. Inventory-transportation costs

Cross-docking

3. Lead time-transportation costs

4. Product variety-inventory

Delayed differentiation5. Cost-customer service

Disintermediation


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` Bullwhip effect Inventories are progressively larger moving backward

through the supply chain

` Cross-docking

Goods arriving at a warehouse from a supplier are

unloaded from the suppliers truck and loaded onto

outbound trucks

Avoids warehouse storage

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` Delayed differentiation Production of standard components and

subassemblies, which are held until late in the process

to add differentiating features

` Disintermediation

Reducing one or more steps in a supply chain by

cutting out one or more intermediaries

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` SCM raises the challenge of integrating and coordinatingthe flow of materials from multitude of suppliers, includingoffshore, and similarly managing the distribution of thefinished product by way of multitude intermediaries.

` Transferring costs upstream or downstream leads to

logistics myopia as all costs ultimately will make way to thefinal market place to be reflected in the price paid by theend user.

` The prime objective of SCM is to reduce or eliminate thebuffers of inventory that exists between the organizations in

a chain through sharing of information on demand andcurrent stock levels.

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` Logistics management is primarily concerned withoptimizing flows within the organization.

` Supply chain management deals with integration ofall partners in the value chain.

` Logistics is essentially a framework that creates asingle plan for flow of products and informationthrough a business.

` Supply chain builds upon this framework and seeksto achieve linkage and coordination betweenprocesses of other entities in the pipeline i.e.suppliers and customers, and organization itself.

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` Traditionally, marketing has focused on end-customer or consumer, seeking to promote brandvalues and to generate a demand pull in themarket place for companys products.

` Due to shift in power in marketing channels,companies are realizing to develop strong relationswith such intermediaries like large retail outlets tocreate a customer franchise as well as consumerfranchise.

` The impact of both strong consumer franchise andcustomer franchise can be enhanced or diminishedby effectiveness of suppliers logistics system.

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Consumer

FranchiseBrand values

Corporate image

Availability

Customer

Franchise

CustomerServices

Partnership

Quick

Response

Supply Chain

Efficiency

Flexibility

ReducedInventory

Low cost

supplier

arketing

Effectiveness

arket

ShareCustomer

Retention

Superior

ROI


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` Logistics competency is achieved by coordinatingthe following functional areas.- Network design

- Information

- Transportation- Inventory

- Warehousing, material handling and packaging.

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Thank You

Chap2 Logistics Management

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