Business Logistics/Supply

Chain—A Vital Subject

The supply chain is simply another way of

saying “the whole process of business.”

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Textbooks
Ronald H. Ballou, (2004), Business
Logistics/Supply Chain Management,
Prentice Hall

Gianpaolo Ghiani, Gilbert Laporte, and

Roberto Musmanno, (2004), Introduction to
Logistics Systems Planning and Control,
Wiley

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Logistics Management

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 The Immediate Supply Chain for an Individual Firm

Transportation Transportation Customer

Warehousing
s

Information
flow
Factory s

Transportation

Vendors/plants/ports
Warehousing Transportation

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An Example of a supply chain

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 Logistics Defined

Supply Chain Management Defined

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 Definition of logistics
Definition of logistics by
Council of Logistics Management (CLM)

Logistics is part of the supply chain process

that plan, implement, and controls the
efficient, effective flow and storage of goods,
services, and related information from the
point of origin to the point of consumption in
order to meet customers’ requirement.

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Evolution of Supply Chain Management

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 Supply Chain Schematic

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 The Logistics/SC Mission

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A Revised Strategy is Generating
Great Top Management Interest
Historical perspective of distribution:
“The last frontier of cost economies”
Peter Drucker, 1962
The contemporary view:
Distribution is a new frontier for demand
generation—a competitive weapon.

Both
Bothviews
viewsare
are
now
nowimportant!
important!
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 Critical Customer Service
Loop

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 Physical Distribution Costs
Category Percent of sales $/cwt.
Transportation 3.34% $26.52
Warehousing 2.02 18.06
Order entry 0.43 4.58
Administration 0.41 2.79
Inventory carrying 1.72 22.25
Total 7.65% $67.71
Logistics cost are
Add one-third for inbound supply costs about 10% of
sales w/o
Source: Herb Davis & Company purchasing costs

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Business Logistics

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How Logistics Systems Work

● Order processing
● Inventory management
● Freight transportation

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The aim of inventory management:

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 Inventory and Transportation Strategy

Inventory and transportation strategy policies are

intertwined. When distributing a product, three main
strategies can be used:

• Direct shipment
• Warehousing
• Crossdocking

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A manufacturer or distributor can choose among
three alternatives to transport its materials

● Private transportation. Company may operate a

private fleet of owned or rented vehicles.
● Contract transportation. A carrier may be in
charge of transporting materials through direct
shipment regulated by a contract.
● Common transportation. The company can
resort to a carrier that uses common resources
(vehicles, crews, terminals) to fulfill several client
transportation needs.

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 Customer Service Performance

Source: Herb Davis & Company

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Significance ofLogistics

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•Costs are lower than K-Mart or
Target Stores
•CEO is a former logistician
•Wal-Mart is the largest retailer in
the world!
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Effect on Logistics Foreign
Outsourcing
Domestic Foreign
sourcing
Profit sourcing
Profit Increase
G&A G&A
Marketin Marketin
g g
Logistic
Logistic Increase
s
s
Overhea Tariffs
d Overhea
d
Material
s Material
s
Reduction
Labo
r Labo
r 1-36
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 Scope of the Supply Chain for Most Firms
Business logistics

Physical Physical
(Materials management)
supply distribution
Sources of Plants
Customers
suppl operations
/
y
• Transportation • Transportation
Inventory maintenance
• •
Inventory maintena
• Order processing • Order processing
• Protective packaging • Product scheduling
•Acquisition • Protective packaging
• Warehousing • Warehousing
Materials handling • • • Materials handling
• Information maintenance Information maintenance

Focus firm’s internal supply chain 1-14

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 Key Activities/Processes
∙ Primary
- Setting customer service
- goals
Transportation
- Inventory management
- Location

∙ Secondary, or supporting
- Warehousing
- Materials handling
- Acquisition (purchasing)
- Protective
- Product
packagingscheduling
- Order processing
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The Supply Chain is Multi-
Scope in
Enterprise reality

Focus
Compan
y
Supplier Customer
s s
Supplier’ Customers
suppliers /End
users

Acquire Convert Distribut

e
Product and information
flow

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 Reality of SC Scope

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 The Multi-Dimensions of SC

Int
e
ror
g an
iza
tio
n l
ina iona

n
SUPPLY

al
tio
ord ct

co
CHAIN
co erfun

o
rdi
MANAGEMENT

n
Int

ati
on
Activity and process
administration
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 Study Framework

The focus is
here
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 The Logistics Strategy Triangle

Customer
service goals
∙ The product
∙ Logistics service
∙ Information sys.

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 Relationship of Logistics to
Marketing and Production
LOGISTICS
Sample
activities: MARKETING
PRODUCTION/ ∙ Transport Interface Sample
OPERATIONS ∙ Inventory
Interface activities: activities:
Sample activities: ∙ Order ∙ Customer
∙ Quality control activities: ∙ Promotion
∙ Product processing service ∙ Market
∙ Detailed production
scheduling ∙ Materials standards research
scheduling ∙ Plant ∙ Pricing
∙ Equipment maint. handling ∙ Product
location ∙ Packaging
∙ Capacity planning mix
∙ Purchasing ∙ Retail ∙ Sales force
∙ Work measurement
location management
& standards

Production-
logistics Marketing-
interface logistics
interface

Internal Supply Chain

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 Relationship of Logistics to Marketing
Product
Marketin

Promotion
Price
g

Place-Customer
service levels

Inventory Transport
Logistic

carrying costs costs

s

Lot quantity Warehousing

costs Order processing costs
and information
costs
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Relationship of Logistics to
Production
∙Coordinates through scheduling and strategy—
make-to-order or make-to-stock
∙An integral part of the the supply chain
− Affects total response time for customers
− Shares activities such as inventory planning
∙Costs are in tradeoff
− Production lot quantities affect inventory levels
and transportation efficiency
− Production response affects transportation
costs and customer service
− Production and warehouse location are
interrelated
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 Logistics/SC in Diverse Areas
∙Manufacturing—most common
∙Environment—causing restrictions
∙Service—emerging opportunities
∙Non-profits—little explored
∙Military—long history

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Contemporary Logistics Terms
∙Value stream/logistics process
∙Quick response and flexible
manufacturing
∙Mass customization
∙Supply chain management/
collaborative logistics
∙Reverse logistics
∙Service logistics
∙Continuous replenishment
∙Lean logistics
∙Integrated logistics 1-48