Management of

Business Logistics
Dr. TRAN QUYNH LE
Dr. LE THI DIEM CHAU
Industrial Systems Engineering Department
Mechanical Engineering Faculty
Ho Chi Minh City University of Technology (HCMUT)–
VNUHCM
CHAPTER 1: Logistics and Supply Chain
Management

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Learning objectives

• Define logistics and supply chain management

• Explain the development of supply chain management.

• Appreciate the importance and role of supply chain management among

organizations.

• Discuss the contributions of a supply chain approach to organizational

efficiency and effectiveness

• Discuss the major challenges and issues facing organizations

developing and implementing supply chain strategies.

• Discuss the major change drivers in the global marketplace

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 AIC
• Introduce yourself, nickname and background (your undergraduate
major, your major, working experience)

• What is supply chain management and logistics ?

• How important SCM and logistics to Agro-Industry?

• What do you expect to gain from this class?

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CHARACTERISTICS OF AGRO-INDUSTRY
• Uncertainty in quantity and quality

• Short shelf life and deterioration

• Seasonality

• Various quality levels or grades

• Need food safety and traceability

• Need R&D for new products and value-added

• Need technology and know how to increase yield

• Need to be careful in the delivery of fresh produce and live animals

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 INTRODUCTION
• The three basic functions of business organizations

Organization

Finance Operations Marketing

• Securing financial • Producing the goods or • Assessing consumer wants and

resources at favorable providing the services needs
prices offered by the • Selling and promoting the goods
• Allocating resources organization or services
throughout the
organization

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OPERATION
Value-added

Input Transformation Outputs

• Land process • Goods
• Labor • Services
• Capital Measurement and
• Information Feedback
Control
Measurement and Measurement and
Feedback Feedback

The operations function involves systems for converting inputs into outputs

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What is Supply Chain Management ?

SUPPLY
LOGISTICS LOGISTICS SUPPLY CHAIN
CHAIN

SUPPLY
LOGISTICS CHAIN

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Definition

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Definition – Supply chain management
A management system that coordinates and integrates all of the
activities performed by supply chain members into a seamless
process, from the source to the point of consumption, resulting in
enhanced customer and economic value.

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Definition – Supply chain management
• SCM is a cross-department and cross-enterprise integration and coordination of material,
information, and financial flows to transform and use the SC resources in the most rational
way along the entire value chain, from raw material suppliers to customers.
• SCM is one of the key components of any organization and is responsible for balancing
demand and supply along the entire value-adding chain.

SUPPLY SIDE DEMAND SIDE

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What is Logistics Management?
▪ Logistics is a function, which inside a supply chain, is responsible for the
efficient organization of the movement and storage of goods and resources,

▪ and for ensuring that the Right product, reaches the Right customer, at the
Right place and Right time, and in the Right quantity and Right condition and
all this, of course, for the Right price – the Seven Rs of logistics.

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ACTIVITIES OF LOGISTICS

▪ Procurement or purchasing ▪ Materials handling

▪ Inward transport or traffic ▪ Outward transport
▪ Receiving ▪ Physical distribution
▪ Warehousing or stores ▪ Recycling returns and waste disposal
▪ Stock control ▪ Location
▪ Order picking ▪ Communication

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ACTIVITIES OF LOGISTICS

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IMPORTANCE OF LOGISTICS
1. Without it, no material move, no operation can be done, no product are
delivered and no customer are served.
2. It is expensive and hard to reduce its costs
3. Directly affects profits and other measure of organizational performance.
4. Has strategic importance with decision affecting performance over the long
term.
5. Forms links with suppliers, developing mutually beneficial, long-term
trading relationship.
6. Forms links with customers, contributing to customer satisfaction and
added value.

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IMPORTANCE OF LOGISTICS
7. Has a major affect on lead time, reliability and other measures of customer
service.
8. Can be risky because of safety, health and environmental concern.
9. Prohibits some operations such as moving excessive loads or dangerous
goods
10. Can encourage growth of other organizations such as suppliers and
intermediaries offering specialized services.
11. Determines the best size and location of facilities.
12. Its cost is usually 15-20% of turnover

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Decision in supply chain and operations
management
▪ When designing and operating a supply chain, what issues are address?

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Decision in supply chain and operations management

• Determination of the size and location of manufacturing

plants or distribution centers
Strategy • Decisions on the structure of service networks.
• Factory planning
• Design of the SC.

• Production planning.
Tactic • Transportation planning.
• Inventory planning.

• Production scheduling and control

• Inventory control
• Quality control and inspection
Operation • Vehicle routing
• Traffic and materials handling
• Equipment maintenance policies.

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 Why We Should Improve Logistics?
• Customers are more knowledgeable and demand higher quality, lower costs, and
better service.

• Competition is getting fiercer, and organizations must look at every opportunity to

remain competitive.

• There is changing power in the supply chain. Very large retail chains demand
customized logistics from their suppliers.

• Other changes in retail markets include the growth of 24-hour openings, home
deliveries, out-of-town malls, retail parks, telephone and online shopping.

• International trade continues to grow. This is encouraged by free trade areas such as
the European Union (EU) and North American Free Trade Area (NAFTA)

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 Why We Should Improve Logistics?
• Organizations are introducing new types of operations, such as just-in-time, lean
operations, time compression, flexible manufacturing, mass customization, virtual
operations, and so on.

• Some organizations are shifting from a product focus, where they concentrate on the
end products, to a process focus, where they concentrate on the way products are
made. This encourages improvements to operations, including logistics.

• The improvement of communication such as electronic data interchange (EDI), item

coding, electronic fund transfer (EFT), e-commerce, shared knowledge systems, and
other new practices

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 Why We Should Improve Logistics?
• Organizations are outsourcing peripheral activities and concentrating on their core
operations. Logistics is useful for third-party operators.

• Managers are recognizing the strategic importance of the supply chain.

• Attitudes towards transport are changing. Since the congestion on roads has
increased, people are concerned about air quality and pollution, environmental issues
government policies, etc.

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The Changing Business Landscape: Five Driving Forces

• The Empowered Consumer

• Power Shift in the Supply Chain

• Deregulation

• Globalization

• Technology

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The Changing Business Landscape: Five Driving Forces

The Empowered Consumer

✓ Impact on logistics is more direct.

✓ Informed consumers have low tolerance for poor quality in products and services.

✓ Changing demographics commands 24/7 service.

✓ Increased customer service increases the importance of logistics and supply chains.

The customers take control

The customer in today’s marketplace is more demanding, not just of
product quality, but also of service

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The Changing Business Landscape: Five Driving Forces

• Power Shift in the Supply Chain

✓ Large retailers more demanding and commanding.

✓ Focus upon distribution costs and their impact on “everyday low prices”.

✓ Changing logistics and supply chain strategies resulted from shifts in the
balance of economic power.

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The Changing Business Landscape: Five Driving Forces

•Deregulation
✓ Changing economic controls empowered creativity and competition.
✓ Changes in transportation – fewer or no economic controls over rates and
services.

✓ Change in financial institutions blurred traditional differences and increased

competition.

✓ Change in the communications industry also resulted in more competition.

✓ Changes in the utility industry allows more competition.

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The Changing Business Landscape: Five Driving Forces

•Globalization
✓ Global marketplace concept
✓ Global network sourcing, manufacturing, marketing and distribution
✓ Global alternatives have blossomed
✓ No geography --- access available to the world
✓ Supply chain challenges
✓ Wal-Mart’s challenges
✓ New supply sources
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The Changing Business Landscape: Five Driving Forces

• Technology

✓ Information Age provides new and unrestricted

access to the place aspect of business.

✓ My time, my place
✓ Warehouse technology has changed dramatically
with computer devices in use from the office
space to the forklifts.

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Managing the 4Rs

• Responsiveness

• Reliability

• Resilience

• Relationships

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 Logistics in the Economy: A Macro Perspective
Figure 2-2: Logistics Costs as a Percentage of GDP in USA

\ AT Kearney (2021), "Change of Plans," CSCMP's Annual State of Logistics Report, 2021. 29
Logistics in the Economy: A Macro Perspective

• As indicated in Figure 2-2, logistics costs as a percentage of GDP have

declined from 16 percent in 1980, to under 10 percent in 1999.

• Early to mid-1970s saw the figure closer to 20 percent.

• This reflects a serious improvement in the efficiency of logistics systems.

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 Chapter 2

Logistics in the Economy: A Macro Perspective

Logistics Costs as a Percentage of GDP for Select Countries/Regions in 2020

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Logistics in the Economy: A Macro Perspective
Figure: U.S. Logistics Costs --- 1999 Figure: U.S. Logistics Costs --- 2015

AT Kearney (2021), "Change of Plans," CSCMP's Annual State of Logistics Report, 2021

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Logistics in the Economy: A Macro Perspective
Figure: U.S. Logistics Costs --- 1999 Figure: U.S. Logistics Costs --- 2015
Logistics Costs by Function 2018

Source: Adapted from Armstrong & Associates Inc.

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 Logistics in the Economy: A Macro Perspective
Figure 2-4: Inventory Sales Ratio

• As indicated in Figure 2-4, the Federal Reserve measure of inventory to sales ratios
from 1991 to 1999 clearly indicate that companies are getting better at managing
inventory.
• Companies have been supporting larger amounts of sales with decreasing amounts of
inventory.
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AIC
Một số kỹ thuật để giảm chi phí logistics:

• Tập trung hóa các hoạt động logistics bằng cách xây dựng trung tâm vận hành
logistics cho tổ chức hoặc bộ phận logistics

• Tối ưu hóa hệ thống phân phối

• Kỹ thuật “di chuyển hàng liên tục thông qua kho” (cross-docking)

• Phát triển quan hệ chiến lược với các nhà cung cấp dịch vụ 3PL

• Giải pháp về công nghệ thông tin trong ngành logistics

• Quản lý chi phí xăng dầu

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Logistics in the Firm: The Micro Dimension
• Logistics Interfaces with Operations/Manufacturing
✓ Transportation: material, finish good
✓ Inventory: material, finish good
• Logistics Interfaces with Marketing
✓ Order Fulfillment
✓ Inventory management
✓ Communication
• Logistics Interfaces with Other Areas
✓ Finance: information of transportation cost, inventory=>efficient financial
management.
✓ Event Management: arranging transportation and shipping of event materials,
equipment, and promotional items to the event venue.

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Logistics in the Firm: Logistics Interfaces with
Operations Manufacturing
Length of production runs

• Balance economies of long production runs against increased costs of high

inventories.

Seasonal demand

• Acceptance of seasonal inventory to balance lead production times.

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 Chapter 2

Logistics in the Firm: Logistics Interfaces with

Operations/Manufacturing
Supply-side interfaces

• Stocking adequate supplies to ensure uninterrupted production now a

logistics function.

Protective packaging

• Principal purpose is to protect the product from damage.

Foreign & third-party alternatives

• Some logistics functions are being outsourced.

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Logistics in the Firm: The Micro Dimension
Logistics Interfaces with Marketing: The Marketing Mix – Four Ps

• Price

• Product

• Promotion

• Place

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Logistics in the Firm: Price
Carrier pricing

• Generally, since the larger the shipment, the cheaper the transportation
rate, shipment sizes should be tailored to the carrier’s vehicle capacity
where possible.

Matching schedules

• Quantity discounts should be tied to carrier quantity discounts.

Volume relationships

• Volumes sold will affect inventory requirements.

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 Logistics in the Firm: Product

Consumer packaging

• Generally, since the size, shape, weight and other physical characteristics of the
product impact on its storage, transportation and handling, the logistics managers
should be included in any decisions regarding these product traits.

• A minor correction in any of the above could conceivably cost (or save) millions of
dollars in logistical costs.

• Logistics costs are not necessarily paramount, but they need to be considered in
the decision-making process.

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Logistics in the Firm: Promotion
Push versus pull

• The most important factor is that the logistics division is aware of any
changes in demand patterns so that it can plan for any consequences.

• Pull strategies tend to be more erratic.

• Push strategies tend to more predictable.

Channel competition

• The more popular a product, the easier it is to persuade channel

members to promote your product.

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Logistics in the Firm: Place
Wholesalers

• Generally, since wholesalers are combining purchases for multiple

retailers, the shipment sizes tend to be larger and the number of
transactions that have to be processed are fewer, with the result that
logistics costs are smaller.
Retailers

• With the exception of very large retailers who act more like
wholesalers, smaller sales are the norm. These generally cost more for
transportation and order processing.

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Logistics Interfaces with Other Areas
Manufacturing and marketing are probably the two most important internal,
functional interfaces with logistics.

Other important interfaces now include finance and accounting.

• Logistics can have a major impact on return on assets and return on

investment.

• Logistics costs reported by cost systems measure supply chain trade-

offs and performance.

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Approaches to Analyzing Logistics Systems: Materials
Management v. Physical Distribution
Frequently the movement and storage of raw materials is far different
from the movement and storage of finished goods.

Four different classifications of logistics systems

• Balanced system - e.g., consumer products

• Heavy inbound - e.g., aircraft, construction

• Heavy outbound - e.g., chemicals

• Reverse systems - e.g., returnable products

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Approaches to Analyzing Logistics Systems
1. Cost Centers
• Treating logistics activities as cost centers makes it easier to study cost
trade-offs between the centers. (see Tables 2-2 and 2-3)
2. Nodes versus Links
• Nodes are spatial points (warehouses, plants, etc.);
• Links are the transportation network (rail, motor, air, pipe and water).
(see Figure 2-6)
3. Logistics Channel
• The network of intermediaries involved in the logistics system. (see
Figures 2-7, 2-8, and 2-9)
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Table 2-2 Analysis of Total Logistics Cost with a Change to
Higher Cost Mode of Transport
Cost Centers Rail Motor

Transportation $ 3.00 $ 4.20

Inventory 5.00 3.75
Packaging 4.50 3.20
Warehousing 1.50 .75
Cost of Lost Sales 2.00 1.00
Total Cost $ 15.00 $ 13.00

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Table 2-3 Analysis of Total Logistics Cost with a
Change to More Warehouses
System 1 System 2
Cost Centers
Three Warehouses Five Warehouses
Transportation $ 850,000 $ 500,000
Inventory 1,500,000 2,000,000
Warehousing 600,000 1,000,000
Cost of Lost Sales 350,000 100,000
Total Cost $ 3,300,000 $ 3,600,000

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Figure 2-6 Nodes and Links in a Logistics
System

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Figure 2-7
A Simple Logistics Channel

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Figure 2-8
A Multi-Echelon Logistics Channel

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Figure 2-9: A Complex Logistics Channel

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 Chapter 2

Logistics and Systems Analysis

Cost Perspective

• Keep in mind that the most efficient systems are not always comprised of
each system component operating at its lowest possible cost.

• The critical concern is to have the entire system operating at its lowest total
cost.

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 Chapter 2

Logistics and Systems Analysis

Level of Optimality

• There are often constraints working

which result in sub-optimal outcomes.

• Additionally, logistics systems must

work in harmony with marketing,
finance, production, etc.--- this may also
result in sub-optimal logistics
performance.

• See Figure 2-10 Levels of Optimality in

Economic Environments

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 Techniques of Logistics System Analysis: Short-
Run/Static Analysis

• Comprised a matrix-like table which presents each of the logistics and other
relevant costs for two or more alternative logistics systems.

• The major downside to the model is that it presents a solution which is not
necessarily the correct one at all possible volume levels.

• Examine the data presented in Table 2-4.

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Table 2-4 Static Analysis of C & B Chemical Company
(50,000 pounds of output)

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Techniques of Logistics System Analysis: Long-
Run/Dynamic Analysis
• This technique is illustrated in Figure 2-11.
• Comprised a graph of the fixed and variable costs of at least two alternative
logistics systems.

• The graph may have at least one indifference point, but may have multiple
points of indifference.

• Examine the data presented in Figure 2-11.

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Figure 2-11
Dynamic Analysis

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Dynamic Analysis
System 1
Total Cost = Fixed Costs + Variable Cost/unit x number of units
y = $4200 + 0.0315x
System 2
Total Cost = Fixed Costs + Variable Cost/unit x number of units
y = $4800 + 0.0230x
Trade-off Point
System 1 Total Costs = System 2 Total Costs
$4200 + 0.0315x = $4800 + 0.0230x
0.0085x = $600
x = 70,588 pounds

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Logistics in the Firm: Factors Affecting the Cost and
Importance of Logistics
Competitive Relationships
• Inventory/order cycle length – see Figure 2-12.
• Inventory/lost sales effect – see Figure 2-13.
• Transportation/lost sales effect - see Figure 2-14.
Product Relationships
• Product dollar value/logistics costs – see Figure 2-15.
• Weight density/logistics costs – see Figure 2-16.
• Susceptibility to loss & damage/logistics costs – see Figure 2-17.
Spatial Relationships
• Examine Figure 2-18.
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Figure 2-12 The Relationship between Required Inventory
and Order Cycle Length from a Customer Perspective

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Figure 2-13 The General Relationship of the Cost of
Lost Sales to Inventory Cost

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Figure 2-14
The General Relationship of the Cost of Lost Sales to
Transportation Cost

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Figure 2-15
The General Relationship of Product Dollar Value to Various
Logistics Costs

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Figure 2-16 The General Relationship of Product
Weight Density to Logistics Costs

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Figure 2-17 The General Relationship of Product
Susceptibility to Loss and Damage to Logistics Costs

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Figure 2-18
Logistics and Spatial Relations

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