STORAGE THE LOGISTICS SYSTEM (OR PIPELINE) STORAGE PLANT #1 PLANT #2 PLANT #3 WAREHOUSE C B A Raw Material StorageManufacturingFinished Goods Storage.

STORAGE

THE LOGISTICS SYSTEM (OR PIPELINE)

STORAGE

STORAGE

PLANT #1

PLANT #2

PLANT #3 WAREHOUSE

WAREHOUSE

WAREHOUSE

C

B

A

Raw Material Storage Manufacturing Finished Goods Storage

Movement/Transportation Movement/Transportation Movement/TransportationMovement/Transportation

Raw Material Supply Points

RAW

MATERI

ALS

Markets

The Procurement(or Supply) System

The Operating System The Distribution System

Physical Supply Materials Management Physical Distribution Marketing Logistics

Flows Within the Logistics Pipeline

Flow of Information Function Flow of Material

•Forecasting•Order Processing•Finished product transportwarehouse to customer•Finished product inventorycontrol•Distribution center warehousing•Transportation from plant todistribution center•Packaging•Product Planning•Plant Storage•Production material control•Raw material storage•Raw material transportation•Raw material inventory control•Procurement

THIRD PARTY LOGISTICS IN GLOBAL OPERATIONS:

The Strategic Benefits of A Logistics Alliance

WHY IS LOGISTICS GROWING IN IMPORTANCE IN GLOBAL

OPERATIONS?FOUR MAIN REASONS & THE FOUR D’s

• INSTANT GRATIFICATION OF DEMAND– Customers want the Product Now

• DECENTRALIZATION– Big companies become more agile by breaking

into smaller pieces• DISTANCE

– Complexity increases with the square of the distance involved

• DIVERSITY– Explosion of product variety

EXAMPLE

• Emery (subsidiary of Consolidated Freightways) and GM

– $100 M/year deal of door-to-door movement of air cargo between suppliers and manufacturing plants and inter-plant movement in US, Canada and Mexico

SUPPORTING FORCES OF LOGISTICS ALLIANCE

• POLITICAL-LEGAL FACTORS– Deregulation of transportation and communications– relaxed antitrust enforcement

• INFORMATION TECHNOLOGY HELPS INTEGRATE– EDI, computer networks, satellite communication,

cellular phones, laser-based bar codes• EMPHASIS ON LEANER & BETTER FOCUSED

ORGANIZATION• COMPETITION IN GLOBAL ENVIRONMENT

– high distribution costs– differing legal and cultural factors in foreign

countries

Information Drivers in Logistics Systems

LOGISTICS SYSTEMS

Important Issues:

• Complex relationships between agents at different levels

Cooperation• A variety of mechanisms for: Coordination

Control

• Many Products and Many Locations

• Uncertainty in Demand (Over Time and Space)

{

SOURCES OF UNCERTAINTY

Time

Quantity

Supply Demand

Vendor LT

CustomersChange

Due Dates

Yield Forecast

* For Demand Uncertainty Freeze Periods

* For Yield Uncertainty Quality Improvement

* For Vendor Unreliability Vendor Management

* For Cycle Time Variability Lead Time Analysis

* For Human Error Education/Discipline

INTER-FIRM INTEGRATION

EFFICIENT CONSUMER RESPONSE:

Program searching for a close Coordination and Cooperation among participants of the Supply Chain

The final Objective is the satisfaction of the CONSUMER

Cooperation is obtained through:

* Optimization of flows (e.g., sharing data, transport, packaging)

* Effective coordination of promotions and negotiations * Effective selection of existing products

* Effective introduction of new products

Product Architecture

Shared Platforms

Modularity

Common Components

Ease of Assembly

Postponement

Critical for mass customization and Supply Chain Efficiency.

* InventoryInventory is Higher- Higher in-transit inventories

- Pipelines are longer and slower- Higher Safety Stock levels

- Longer lead times- Political uncertainty- Production uncertainties

- More SKUs

* Facilities Network More Difficult to ControlControl

- Several languages and cultures- Labor norms - Customs- Infrastructure

DOMESTIC vs GLOBAL LOGISTICSLogistics ElementsLogistics Elements

* TransportationTransportation is More Difficult and Costly- Freight rates- Intra-country transport- Different modes- Complex documentation and intermediaries- Consolidation

* ServiceService is Slower and More Costly- Lead times are longer- Pipelines are longer- Uncertainty about availability- Order processing is more difficult- Stockouts are more frequent

ADVANTAGES OF GLOBAL LOGISTIC

* Rationalization of Resources

* Increase Potential Market Size

* Economies of Scale and Scope (i.e., minimization of Costs)

* Flexibility: Operational, Financial, Responsiveness

* Improve Internal and External Service

* Risk reduction through diversification

* Technology Development and R&D (i.e., upgrading Quality)

* Faster Response to the Dynamic Forces of the Global Economy

KEY TAKEAWAYSKEY TAKEAWAYS

1) Logistics is the natural link between Operations and Marketing to 1) Logistics is the natural link between Operations and Marketing to make more efficient the flow of goods and information along the make more efficient the flow of goods and information along the logistics system. Optimization of individual linkages does not guarantee logistics system. Optimization of individual linkages does not guarantee

global solutions and that is why you need a Global Logistics Approach.global solutions and that is why you need a Global Logistics Approach.

e.g., Resource Oriented Logistics, User Oriented Logistics , Information Oriented Logistics

2) When determining and forecasting future Demand, do not confuse historical sales 2) When determining and forecasting future Demand, do not confuse historical sales with Real Demand. Try to incorporate substitution rates and information about stowith Real Demand. Try to incorporate substitution rates and information about stockouts. When measuring service, don’t confuse individual measures with order mckouts. When measuring service, don’t confuse individual measures with order measures.easures.

e.g., mail orders versus POS information; link information with members of the logistics system via EDI, ECR, CR and CFAR; line fill rate versus order fill rate

3) Not all products (or customers) are equally important. Classify products according 3) Not all products (or customers) are equally important. Classify products according to logistics needs as well as financial indicators. Proliferation of SKU’s complicateto logistics needs as well as financial indicators. Proliferation of SKU’s complicates the logistics management.s the logistics management.

e.g., ABC versus ORG, clear rules for introducing and retiring products from the market

4) Outsourcing is a great alternative for rationalizing the existing resources of 4) Outsourcing is a great alternative for rationalizing the existing resources of a company. However, do not outsource without analyzing the strategic fit wa company. However, do not outsource without analyzing the strategic fit with the core competence. ith the core competence. e.g., strategic role of the part in isolation versus strategic role of the part to final assembly

5) 3PL companies are an excellent alternative for outsourcing logistics. Howe5) 3PL companies are an excellent alternative for outsourcing logistics. However, make sure the needs as well as the specific measurement is determinever, make sure the needs as well as the specific measurement is determined in advance.d in advance.e.g., show me the value measurement, determination of the base case for comparison

6) 6) Cost, Quality, Service, and FlexibilityCost, Quality, Service, and Flexibility are the dimensions that allow for a are the dimensions that allow for a better understanding and management of the the logistics system. There arbetter understanding and management of the the logistics system. There are at most two winning criteria and two qualifying criteria. These criteria are e at most two winning criteria and two qualifying criteria. These criteria are dynamic and change with the nature of competition. The best alliances are dynamic and change with the nature of competition. The best alliances are the ones where your qualifying criteria are your partners winning criteria. the ones where your qualifying criteria are your partners winning criteria.

KEY TAKEAWAYS Cont.KEY TAKEAWAYS Cont.

P - COST

P - QUALITY

P-SERVICE

P-FLEXIBILITY

The 4Ps of Operations and Logistics

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The Global Corporation

Fully integrates product design, materialsupply, production, distribution, accounting,marketing, and finance on a world-wide basis.

Typically design their operating strategyobjectives around four components:Technology, Marketing, Manufacturing, andLogistics.