Supply Chain Management module 7

DIMENSIONS OF LOGISTICS

MODULE 7

Source: Center for Supply Chain Research, Penn State University (2008).

CONTEMPORARY SUPPLY CHAIN PIPELINE

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• What is Logistics?

• Logistics management

• Business logistics management

• Integrated logistics management

• Materials management

• Physical distribution management

• Marketing logistics

• Industrial logistics

• Distribution

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LOGISTICS DEFINITION

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Logistics Definitions

• Inventory:

• Management of materials in motion and at rest

• Customer:

• Getting the right product, to the right customer, in the right quantity, in the right condition, at the right place, at the right time, and at the right cost (called the dictionary “seven Rs of logistics”)

• International Society of Logistics:

• The branch of military science having to do with procuring, maintaining, utility/ value and transporting material, personnel, and facilitiesCouncil of Supply Chain Management

• The art and science of management, engineering, and technical activities concerned with requirements, design, and supplying and maintaining resources to support objectives, plans, and operations

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Logistics Definitions

• Component support:

• Providing time and place utility/value of materials and products in support of Functional management organization objectives

• Common culture:

• That part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption in order to meet customer requirements

• Supply management for the plant (inbound logistics) and distribution

• Management for the firm’s customers materials requirements, purchasing, transportation, inventory management, warehousing, materials handling, industrial packaging, facility location analysis, distribution, return goods handling, information management, customer service, and all other activities concerned with supporting the internal customer (manufacturing) with materials and the external customer (retail stores) with product

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Four Subdivisions of Logistics

• Business logistics:

• That part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, service, and related information from point of use or consumption in order to meet customer requirements.

• Military logistics:

• The design and integration of all aspects of support for the operational capability of the military forces (deployed or in garrison) and their equipment to ensure readiness, reliability, and efficiency.

• Event logistics:

• The network of activities, facilities, and personnel required to organize, schedule, and deploy the resources for an event to take place and to efficiently withdraw after the event.

• Service logistics:

• The acquisition, scheduling, and management of the facilities/assets, personnel, and materials to support and sustain a service operation or business.

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GENERAL DEFINITION OF LOGISTICS

LOGISTICS IS A PROCESS OF ANTICIPATING CUSTOMER NEEDS AND

WANTS; ACQUIRING THE CAPITAL, MATERIALS, PEOPLE, TECHNOLOGIES,

AND INFORMATION NECESSARY TO MEET THOSE NEEDS AND WANTS;

OPTIMIZING THE GOODS OR SERVICE PRODUCING AND UTILIZING

NETWORK TO FULFILL CUSTOMER REQUESTS.

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VALUE-ADDED ROLES OF LOGISTICS

• The five principal types of economic utility which add value to a product or service are:

• Form Utility----WHAT

• It refers to value added to goods through a manufacturing, production or assembly process. Ex: raw materials combined to make a complete product.

• Time Utility----WHEN

• It is the economic value added to a good or service by having it at a demand point at a specific point. Ex: logistics creates time utility by having heavily advertised products and sale merchandise available in retail stores at precisely the time promised in the advertisement copy

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VALUE-ADDED ROLES OF LOGISTICS

• Place Utility----WHERE

• It provides place utility by moving goods from production surplus points to points where demand exists. Logistics creates place utility primarily through transportation. Ex: moving farm produce by rail or truck from farm areas to market where consumer need this produce creates place utility.

• Possession Utility----WHY

• It is primarily created through the basic marketing activities related to the promotion of products and services.

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Source: Center for Supply Chain Research, Penn State University (2008).

PRODUCTION

FORM UTILITY

MARKETING

POSSESSION

UTILITY

LOGISTICS

PLACE UTILTY

TIME UTILITY

FUNDAMENTAL UTILITY CREATION IN THE ECONOMY

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LOGISTICS IN THE FIRM: THE MICRO DIMENSION

• Logistics interface with Manufacturing/Operations

• Length of production runs: management should decide on production economies whether short run or long run is advantageous Or disadvantageous

• Seasonal demand: manager should look to minimize the effects of seasonal demand for products.

• Supply side interfaces: logistics manager is responsible for inbound movement and storage of raw materials fed to the production line and ensure the availability of raw materials.

• Proactive packaging: another activity at the interface of logistics and operations is packaging.

• Foreign and third-party alternatives: many firms today are making arrangement for 3Pmanufacturers or co packers to produce finished products.

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LOGISTICS IN THE FIRM: THE MICRO DIMENSION

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• Logistics Interfaces with Marketing:

• Marketing Mix

• Matching Schedules

• Volume relationships

• Consumer Packaging

• Push Vs Pull

• Channel Competition

• Logistics Impact

• Wholesaler Vs Retailer

8. Production planning/scheduling

9. Procurement

10. Customer service

11. Facility location

12. Return goods handling

13. Parts and service support

14. Salvage and scrap disposal

1. Transportation

2. Warehousing and storage

3. Industrial packaging

4. Materials handling

5. Inventory control

6. Order fulfillment

7. Demand forecasting

LOGISTICS ACTIVITIES

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SCOPE OF ACTIVITIES

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LOGISTICS IN THE FIRM: THE MICRO DIMENSION

• Another dimension of logistics is the micro perspective which examines the relationships between logistics and other functional areas in an organization

• Marketing

• Marketing mix

• Carrier pricing- price

• Matching schedules

• Volume relationships

• Consumer packaging- product

• Push vs pull- promotion

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•Channel competition

•Pull strategy

•Push strategy

•Logistics impact

•Wholesalers vs retailers- place

•Customer service- recent trends

LOGISTICS INTERFACE WITH OTHER AREAS

• ROA is defined as follows:

• ROA = Revenue - Expenses/Assets

Or

• ROA = Gross Profit/Assets

The impact that logistics can have upon return on assets (ROA) or return on investment (ROI) is very significant

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RELATIONSHIP BETWEEN REQUIRED INVENTORY AND ORDER CYCLE LENGTH FROM A CUSTOMER PERSPECTIVE

ORDER CYCLES (DAYS)

UN

ITS O

F IN

VEN

TO

RY

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THE GENERAL RELATIONSHIP OF THE COST OF LOST SALES TO INVENTORY COST

COLS = Cost of lost sales

TC = Total cost

INV = Inventory cost

LO

GIS

TIC

S C

OST

FLOW

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THE GENERAL RELATIONSHIP OF THE COST OF LOST SALES TO TRANSPORTATION COST

Improved transportation serviceFlow

TC = Total costTr = Transportation cost COLS = Cost of lost sales

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Weight density of productFlow

Tr = Transportation costInv = Inventory cost (including storage) Whse = Warehousing cost

The General Relationship of Product Weight Density to Logistics Costs

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Susceptibility to loss and damageFlow

Pkg = Packaging costTr = Transportation cost Whse = Warehousing cost

The General Relationship of Product Susceptibility to Loss and Damage to Logistics Cost

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SPATIAL RELATIONSHIPS:

Spatial Relationships are extremely significant to logistics is

spatial relationships, the location of fixed points in the

logistics system with respect to demand and supply points.

Spatial relationships are very important to transportation

costs, since these costs tend to increase with distance.

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LOGISTICS AND SPATIAL RELATIONS

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ANALYSIS OF TOTAL LOGISTICS COST WITH A CHANGE TO A HIGHER COST MODE OF TRANSPORT

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TECHNIQUES OF LOGISTICS SYSTEM ANALYSIS

Short-Run/Static Analysis

Long-Run/Dynamic Analysis

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• Nodes

• The nodes are fixed spatial points where goods stop for storage or processing.

• Links

The links represent the transportation network and connect the nodes in the logistics system.

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DYNAMIC ANALYSIS

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ANALYSIS OF TOTAL LOGISTICS COST WITH A CHANGE TO MORE WAREHOUSES

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NODES AND LINKS IN A LOGISTICS SYSTEMS

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A SIMPLE LOGISTICS CHANNEL

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A MULTI ECHELON LOGISTICS CHANNEL

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A COMPLEX LOGISTICS CHANNEL

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LEVELS OF OPPORTUNITY

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SUMMARY

• Logistics has developed as an important area or function of

business since World War II. It has gone through several

phases of development in achieving its present status.

• Logistics is a critical part of supply chain management. The

coordination and, perhaps, integration of the logistics

systems of all the organizations in a supply chain are

necessary requirements for successful management of the

supply chain.

• Logistics has a number of different definitions because of

the broad-based interest in its activities and the recognition

of its importance.

• Logistics is an area of management that has four

subdisciplines: business, military, service, and event.

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Summary (cont.)

• On a macro basis, logistics-related costs have been

decreasing on a relative basis, which has helped the U.S.

economy regain its competitive position on a global basis.

• Logistics adds place, time, and quantity utilities to products

and enhances the form and possession utilities added by

manufacturing and marketing.

• Logistics has an important relationship to manufacturing,

marketing, finance, and other areas of the organization.

• Logistics managers are responsible for a number of

important activities, including transportation, inventory,

warehousing, materials handling, industrial packaging,

customer service, forecasting, and others.

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Summary (cont.)

• Logistics systems can be viewed or approached in several different ways for analysis purposes, including materials management versus physical distribution, cost centers, nodes versus links, and channels. All four approaches are viable for different purposes.

• Logistics systems are frequently analyzed from a systems approach, which emphasizes total cost and tradeoffs when changes are proposed. Either a short- or long-run perspective can be used.

• The cost of logistics systems can be affected by a number of major factors, including competition in the market, the spatial relationship of nodes, and product characteristics.

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