1. © 2004 McGraw-Hill Companies Inc. 11-1 Chapter 11 Supply Chain Management and Logistics

2. © 2004 McGraw-Hill Companies Inc.11-2 Chapter Outline Supply Chain Management (SCM) Supply Chain Logistics

3. © 2004 McGraw-Hill Companies Inc.11-3 New Key Terms in SCM Value Proposition: a clear concise set of factual statements describing the real value (benefits) customers can expect to receive from a firm’s products and services. A good value proposition quantitatively differentiates the firm’s offerings from those of competitors, (e.g., 40-50% material savings). Value Chain: an analysis process that disaggregates the channel system into each channel member’s activities and specifically considers how each activity creates value for the channel’s ultimate customers.

4. © 2004 McGraw-Hill Companies Inc.11-4 New Key Terms in SCM Value Added: traditionally referred to how much margin a particular product could earn for a firm. High value added products were preferred over low value added products. Recently the phrase is also used to refer to how much value a channel member brings to a particular product’s supply chain. Inbound Supply Chain: purchasing managers concern themselves with managing the firm’s inbound supply chain. Supply Chain Logistics: Traditionally the management of material flow inbound, through, and outbound from a particular firm. The sum of the channel members supply chain logistics are coordinated on a channel wide scale by Supply Chain Management.

5. © 2004 McGraw-Hill Companies Inc.11-5 Physical Distribution (outbound material flow) Physical distribution: The process of planning, implementing, and controlling 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's requirements. Why is it important to learn about physical distribution? Physical distribution cost can represent 20% or more of the selling price of a product. It is an integrated part of the entire company system— problems in other areas impact distribution and vice versa. From customer’s perspective, the supplier’s physical distribution function gets the right products to them, at the right place, at the right time. These are basic customer rights (along with right price and right condition).

6. © 2004 McGraw-Hill Companies Inc.11-6 Logistics Management (single firm) Logistics involves more than physical distribution. In the science of logistics, the flow of materials is efficiently managed inbound-through and outbound of an organization. Two primary product flows: Physical supply (materials management): Flows that provide raw materials, components, and supplies to the production process. Physical distribution management: Flows that deliver the completed product to customers and channel intermediaries.

7. © 2004 McGraw-Hill Companies Inc.11-7 Supplier Manufacturer Customer Materials management Physical distribution management Logistics Management

8. © 2004 McGraw-Hill Companies Inc.11-8 Supply chain management: An integrated philosophy to manage the multidirectional flow of materials and information through an entire channel, from the first raw material supplier to the ultimate user of the finished product. Supply Chain Management

9. © 2004 McGraw-Hill Companies Inc.11-9 Study Area Map Supply chain management (a series of connected logistics flows) Logistics management Materials managementPhysical distribution Incoming transportationTraffic management ReceivingShipping PurchasingCustomer service Incoming warehousingFinished goods Inventory control

10. © 2004 McGraw-Hill Companies Inc.11-10 Functions of Traffic Management Mode and carrier selection Routing Claims processing Operation of private transportation

11. © 2004 McGraw-Hill Companies Inc.11-11 Many of the imported goods you purchase were shipped in 20-foot or 40-foot steel containers

12. © 2004 McGraw-Hill Companies Inc.11-12 Large cranes loaded the containers on a ship. ) (Image courtesy of the Port of Charleston )

13. © 2004 McGraw-Hill Companies Inc.11-13 Larger container ships can hold 4,000 to 6,000 containers. (Image courtesy of Maersk Sealand)

14. © 2004 McGraw-Hill Companies Inc.11-14 After unloading from the ship, the containers can be loaded onto a flatbed rail car for additional intermodal shipping. (Image courtesy of CSX Corp.)

15. © 2004 McGraw-Hill Companies Inc.11-15 Alternatively, a container can be attached to a set of wheels for motor transport (as an 18-wheeler trailer).

16. © 2004 McGraw-Hill Companies Inc.11-16 Intermodal container motor carrier (Image courtesy of Maersk Sealand)

17. © 2004 McGraw-Hill Companies Inc.11-17 Rail freight carrierBarge/river freight carrier (Image courtesy of CSX Corp.)

18. © 2004 McGraw-Hill Companies Inc.11-18 PipelineAir freight carrier Container stack train Jumbo jet air freight

19. © 2004 McGraw-Hill Companies Inc.11-19 Major Advantages by Transportation Mode Motor Speed of delivery Diversity of equipment Flexibility Frequency of movement Transfer of goods to other carriers Convenient to both shipper and receiver Rail Mass movement of goods Low unit cost of movement Dependability Long-haul moving Wide coverage to major markets and suppliers Many auxillary services (i.e., switching) Transfer of goods to other carriers Specialized equipment Water Very low unit cost of movement Movement of low-unit-value commodities Long-haul movement Mass movement of bulk commodities (continued)

20. © 2004 McGraw-Hill Companies Inc.11-20 Pipeline Lowest unit cost of movement Mass movement of liquid or gas products Long-haul moving Large capacity Most dependable mode Air Frequent service to major markets Large capability Overnight service Most rapid speed of any carrier Intermodal Cost savings Lower loss and damage claims due to containerization Service extended to more shippers and receivers Reduced handling and storage costs Major Advantages by Transportation Mode

21. © 2004 McGraw-Hill Companies Inc.11-21 Controllable Elements in a Logistics System Customer service Logistics communications Warehousing Packaging Production planning Order processing Transportation Inventory control Materials Handling Plant and warehouse location

22. © 2004 McGraw-Hill Companies Inc.11-22 Major Categories of Service Complaints Traffic and transportation Damaged merchandise Carrier did not meet standard transit time Merchandise delivered prior to date promised Carrier failed to follow customer routing Carrier did not comply with specific instructions Errors present on bill of lading Condition or type of transport equipment not satisfactory Warehousing and packaging Merchandise delivered late Problem with containers in packaging plants Special promotion merchandise not specified in delivery Errors in warehouse release forms Incorrect types and quantities of merchandise shipped Papers not mailed promptly to headquarters Field warehouse delivered damaged merchandise (continued)

23. © 2004 McGraw-Hill Companies Inc.11-23 Inventory control Stockouts Contaminated products received Product identification errors Poor merchandise shipped Sales order service Delayed shipments Invoice, sales coding, or brokerage errors Special instructions ignored No notification of late shipments Major Categories of Service Complaints

24. © 2004 McGraw-Hill Companies Inc.11-24