KRUPANIDHI BUSINESS SCHOOL

III Sem MBA DU Logistics and Supply Chain Management Notes UNIT I LOGISTICS AND COMPETITIVE STRATEGY 1. What is logistics? Logistics is the . . . process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements. 2. Mention the Functions of logistics. Purchasing / Procurement Inventory Control Warehousing Materials Handling Facility Location / Network Design Transportation Customer Service Order Processing 3. Write a note on Competitive Advantage and 3cs.

Successful companies either have Productivity advantage- lower cost profile Value advantage Combination of two

Productivity advantage

Value advantage

4. What is a Value chain? Explain.

Value Chain is a high-level model of how businesses receive raw materials as input, add value to the raw materials through various processes, and sell finished products to customers. According to John Del Vecchio, a value chain is "a string of companies working together to satisfy market demands." The value chain typically consists of one or a few primary value (product or service) suppliers and many other suppliers that add on to the value that is ultimately presented to the buying public. 5. What is supply chain? The management of upstream and downstream relationships with the suppliers and customers to deliver superior customer value less cost to the supply chain as a whole. A network of connected and interdependent organizations mutually and cooperatively working together to control, manage and improve the flow of materials and information from suppliers to end users Achieving integrated supply chain

6. What do you mean by Supply Chain Management? Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements.

7. The changing logistics environment The customer service explosion Time compression Globalization of industry Organizational integration

8. What is Logistics Network? Explain. The Logistics Network consists of: Facilities: Vendors, Manufacturing Centers, Warehouse/ Distribution Centers, and Customers Raw materials and finished products that flow between the facilities.

9. What are the decisions involved for tactical planning in logistics? The Tactical Planning decisions in logistics involve the effective allocation of manufacturing and distribution resources over a period of several months. They are as follows: 1. Purchasing and production decisions 2. Work-force size 3. Inventory policies 4. Definition of the distribution channels 5. Selection of transportation and trans-shipment alternatives

10. What is the importance of Logistics in the Economy and the organisation? Logistics is in important component of GDP. Logistics plays a key role in the economy in two significant ways. First, logistics is one of the major expenditures for businesses, thereby affecting and being affected by other economic activities. In the United States, for example, logistics contributed approximately 10.3 percent of GDI in 1996. U.S. industry spent approximately $451 billion on transportation of freight and about $311 billion on warehousing, storage and carrying inventory. These and other logistics expenses added up to about $797 billion.

Second, logistics supports the movement and flow of many economic transactions; it is an important activity in facilitating the sale of virtually all goods and services. To understand this role from a systems perspective, consider that if goods do not arrive on time, customers cannot buy them. If goods do not arrive in the proper place, or in the proper condition, no sale can be made. Thus, all economic activity throughout the supply chain will suffer. Importance of Logistics in the organization One of the fundamental ways that logistics adds value is by creating utility. From an economic standpoint, utility represents the value or usefulness that an item or service has in fulfilling a want or need. There are four types of utility: form, possession, time, and place. The latter two, time and place utility, are intimately supported by logistics. While form and possession utility are not specifically related to logistics, neither would be possible without getting the right items needed for consumption or production to the right place at the right time and in the right condition at the right cost. These ''five rights of logistics" credited to K. Grosvenor Plowman, are the essence of the two utilities provided by logistics: time and place utility. 11. How do we collect data for a logistics network design? 1. A listing of all products 2. Location of customers, stocking points and sources 3. Demand for each product by customer location 4. Transportation rates 5. Warehousing costs 6. Shipment sizes by product 7. Order patterns by frequency, size, season, content 8. Order processing costs 9. Customer service goals 12. What are the Key features of logistics network configuration? Customer-specific service level requirements existing warehouses expansion of existing warehouses specific flow patterns warehouse-to-warehouse flow Bill-of-Material effectiveness (robustness) reasonable running time

13. Explain the models in logistics management. In logistics management there is a need to augment Transactional IT with Analytical IT for the purposes of integrated supply chain planning. Analytical IT involves the implementation and application of two types of mathematical models. First, there are descriptive models that modeling

practitioners develop to better understand functional relationships in the company and the outside world. Descriptive models include forecasting models that predict demand for the companys finished products, the cost of raw materials, or other factors, based on historical data cost relationships that describe how direct and indirect costs vary as functions of cost drivers resource utilization relationships that describe how manufacturing activities consume scarce resources simulation models that describe how all or parts of the companys supply chain will operate over time as a function of parameters and policies This list is representative but not exhaustive of the wide range of descriptive models that the modeling practitioner might create to better understand a companys supply chain. Second, there are normative models that modeling practitioners develop to help managers make better decisions. The term normative refers to processes for identifying norms that the company should strive to achieve. Our viewpoint is that normative models and optimization models are synonyms. Further, we view optimization models as a synonym for mathematical programming models, a venerable class of mathematical models that have been studied by researchers and practitioners in the field of operations research for over fifty years. Henceforth, we will use the term optimization models to refer to models that might otherwise be termed normative or mathematical programming. The construction of optimization models requires descriptive data and models as inputs. Clearly, the supply chain plan suggested by an optimization model will be no better than the inputs it receives, which is the familiar garbage-in, garbage-out problem. In many applications, however, the modeling practitioner is faced with the reality that although some data is not yet as accurate as it might be, using approximate data is better than abandoning the analysis. In other words, many model implementation projects pass through several stages of data and model validation until sufficient accuracy is achieved. Supply chain managers should also realize that the development of accurate descriptive models is necessary but not sufficient for realizing effective decision-making. For example, accurate demand forecasts must be combined with other data in constructing a global optimization model to determine which plants should make which products to serve which distribution centres and markets so that demand is met at minimal supply chain cost. Similarly, an accurate management accounting model of manufacturing process costs is necessary but not sufficient for the purpose of identifying an optimal production schedule. Of course, to be applied, a model conceptualized on paper must be realized by programs for generating a computer readable representation of it from input data. In addition, this representation must be optimized using a numerical algorithm, and the results gleaned from the output of the algorithm must be reported in managerial terms. Programs for viewing and managing input data and reports must be implemented. Depending on the application, the modeling system must also be integrated with other systems that collect data, disseminate reports, or optimize other aspects of the companys supply chain. In short, an optimization model provides the inspiration for

implementing, validating and applying a modeling system, but the great bulk of the work is required by these subsequent tasks. Mathematical programming methods provide powerful and comprehensive tools for crunching large quantities of numerical data describing the supply chains of many companies. Experienced practitioners generally agree about what is, or is not, an accurate and complete model for a particular class of applications. Unfortunately, since most managers are not modeling experts, they can easily be taken in by systems that translate input data into supply chain plans using ad hoc, mediocre models and methods. The opportunity loss incurred by applying a mediocre modeling system is not simply one of mathematical or scientific purity. Although a mediocre system may identify plans that improve a companys supply chain operations, a superior system will often identify much better plans, as measured by improvements to the companys bottom line. For a company with annual sales in the hundreds of millions, rigorous analysis with a superior modeling system can add tens of millions dollars to the companys net revenue, while analysis with a mediocre system may identify only a small portion of this amount. Such returns justify the time and effort required to develop and apply a superior system. Thus, with the goal of converting non-experts to more knowledgeable consumers of models and modeling systems, we provide in later chapters a detailed introduction to mathematical modeling of supply chain decision problems. We also provide a brief exposure to algorithms for optimizing these models. The mathematical development uses algebraic methods that are taught in high school, which should render it no more painful to the reader than that he or she experienced during a typical algebra class in years gone by. A more subtle, related point is that good models and modeling systems expand the consciousness of managers and analysts regarding decision options and methods for improving supply chain design and operations. Their expanded consciousness relies on translations of qualitative and quantitative concepts from diverse management disciplines into modeling constructs employed by a modeling system. 14. Write a note on integrated supply chain planning. Supply chain management refers to integrated planning. First, it is concerned with functional integration of purchasing, manufacturing, transportation and warehousing activities. It also refers to spatial integration of these activities across geographically dispersed vendors, facilities, and markets. Finally, it refers to inter-temporal integration of these activities over strategic, tactical and operational planning horizons. Roughly speaking, strategic planning involves resource acquisition decisions to be taken over long-term planning horizons, tactical planning involves resource allocation decisions over medium-term planning horizons, and operational planning involves decisions affecting the short-term execution of the companys business. Inter-temporal integration, which also is called hierarchical planning, requires consistency and coherence among overlapping supply chain decisions at the various levels of planning. Although it is not yet widely appreciated, inter-temporal integration is critical to the firms sustained competitive advantage. Efficient operations will not lead to superior profits if the companys products are being manufacturing in plants with outdated technologies that are poorly located

relative to the companys vendors and its markets. Conversely, to evaluate a new or re-designed supply chain network, we must, at least approximately, optimize operations to be carried out under the design. Another aspect of inter-temporal planning is the need to optimize a products supply chain over its life cycle through the stages of design, introduction, growth, maturity and retirement. Like most areas of strategic planning, life-cycle planning requires integration of supply chain and demand management. For example, analysis of capital investment decisions in manufacturing equipment during the growth phase of a new product should take into account marketing decisions affecting product sales and gross revenues that may provide future returns sufficient to justify the investments. Improved integration of activities across multiple companies sharing components of a supply chain is a concern of increasing interest and importance. Such integration is obviously relevant to the efficient operation of two companies after a merger or acquisition. It is also relevant to two companies that wish to tighten their working arrangements, such as a manufacturer of consumer durables and a major distributor of these durables, or a manufacturer of food products and a wholesale grocery distributor. In such instances, integration is complicated because both companies have other vendors and customers; that is, their supply chains overlap significantly but are far from identical. Moreover, enhanced integration implies greater sharing of confidential information about costs and capacities, as well as integrative management of business processes. Developments in integrated supply chain planning have been both facilitated and required by advances in IT. Managers today have much faster access to much more complete databases than they did only five years ago. The challenge is to transform this capability into competitive advantage.