Presentation on theme: "Introduction to Logistics and Supply Chain"— Presentation transcript:
1 Introduction to Logistics and Supply Chain 1Introduction to Logistics and Supply Chain
2 PETER DRUCKERS stated that: Logistics is one of the last frontiers of opportunity for organizations wishing to improve their corporate efficiency.
3 Logistics Management Logistics management is the process of planning, 11Logistics ManagementLogistics management is the process ofplanning,implementing andcontrollingthe efficient, cost-effective forward and reverse flow of raw materials, in-process inventory, finished goods, services, and related information from point of origin to point of consumptionfor the purpose of conforming to customer requirements.Council of Logistics Management
4 Logistics activities Customer service Demand forecasting Distribution communicationsInventory controlMaterial handlingOrder processingParts and service supportPlant and warehouse site selectionProcurementPackagingReverse logisticsTraffic and transportationWarehousing and storage
5 Logistics Is Relevant to All Types of Organizations The definition of logistics includes the flow of materials and services in both the manufacturing and service sector.The service sector includes entities such as the government, hospitals, banks, retailers and wholesalers.
6 Definition of Logistics Management Logistics has been called by many names including the following:Materials managementPhysical distributionBusiness logisticsChannel managementDistributionIndustrial logisticsLogistical management
8 System Approach/Integration Logistics is, in itself, a system; it is a network of related activities with the purpose of managing the orderly flow of goods, information and service with the logistics channel.The systems approach simply states that all functions or activities need to be understood in terms of how they affect, and are affected by, other elements and activities with which they interact.
9 System must be viewed as a whole Logistics and Supply Chain Management Approach
10 Systems ApproachThe sum of a series of activities is greater than its individual parts.Trade-off analysis-system should be viewed as a whole.High inventory- High customer serviceHigh storage costsHigh obsolescence risks
11 The Five Rights of Logistics Right Items, needed for consumption or production,Right PlaceRight TimeRight ConditionRight Cost,
12 Logistics Adds Value by Creating Utility FORM UTILITY is the process of creating the good and service, or putting it in the proper form for the customer to use. (from raw materials to finished goods)POSSESSION UTILITY is the value added to a product or service because the customer is able to take actual possession. (by credit a arrangements, loans...)TIME UTILITY is the value added by having an item when it is needed.PLACE UTILITY means having the item or service available where it is needed.
13 Logistics Supports Marketing According to Kotler and Armstrong;marketing management - determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitorsImpact of marketing concept ----customer orientation
14 Marketing / Logistics Management Concept 14Marketing / Logistics Management ConceptCustomer satisfactionSuppliersIntermediate customersFinal customersIntegrated effortProductPricePromotionPlace (distribution)Company profitMaximize long-term profitabilityLowest total costs given an acceptable level of customer service
15 Marketing-Logistics Concepts Time and place utility –customer service level –customer satisfactionCustomer service is an output of the logistics system
16 Relationship of Logistics to Marketing and Production Sampleactivities:PRODUCTION/MARKETINGTransportInterfaceOPERATIONSSampleInterfaceInventoryactivities:Sample activities:activities:activities:OrderCustomerQuality controlPromotionProductprocessingserviceDetailed productionMarketschedulingMaterialsstandardsschedulingresearchPlanthandlingPricingEquipmentmaint.ProductlocationPackagingCapacity planningmixPurchasingRetailWork measurementSales forcelocation&standardsmanagementProduction-logisticsMarketing-interfacelogisticsinterfaceInternal Supply ChainCR (2004) Prentice Hall, Inc.1-21
17 Competitive Advantage The source of competitive advantage is found ;In the ability of the organization to differentiate itself, in the eyes of the customer, from its competitors,By operating at a lower cost and hence at greater profit.Christopher s.5
18 It is only in the recent past that business organizations have come to recognize the vital impact that logistics management can have in the achievement of competitive advantage.Martin Christopher
19 Components of Logistics Management 12Management actionsInputs into logisticsPlanningImplementationControlOutputs of logisticsNatural resources (land, facilities, and equipment)Competitive advantageLogistics managementHuman resourcesTime and place utilitySuppliersRaw materialsIn-process inventoryFinished goodsCustomersFinancial resourcesEfficient movement to customerInformation resourcesProprietary assetLogistics activitiesCustomer serviceDemand forecastingDistribution communicationsInventory controlMaterial handlingOrder processingParts and service supportPlant and warehouse site selectionProcurementPackagingReverse logisticsTraffic and transportationWarehousing and storage
20 The Outputs of the Logistics System The outputs of the logistics system arecompetitive advantage,time andplace utility,efficient movement to the customer, andproviding a logistics service mix such that logistics becomes a proprietary asset of the organization.
21 SCM (CSCMP Definition) Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics activities.Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers.In essence, Supply Chain Management integrates supply and demand management within and across companies.
22 CompetitionToday the real competition is not company against company but rather supply chain against supply chain.Christopher s. 16,38
23 Factors Impacting the Development of Logistics 13Factors Impacting the Development of LogisticsMilitary logistics developmentsTransportation deregulationCompetitive pressuresInformation technologyChannel powerProfit leverage
24 1.Military LogisticsThroughout the history ; wars have been won and lost through logistics strengths and capabilities or the lack of them.
25 1.Military LogisticsFollowing the World War II, logistics began to receive increased recognition and emphasis.In the Persian Gulf War in , the ability to efficiently and effectively distribute and store supplies and personnel were key factors in the success of the US Armed Force.
26 2.DeregulationDeregulation of the transportation industry in the late 1970s and early 1980s gave organizations many more options and increased the competition within and between transportation modes.Carriers become more creative, flexible, customer-oriented, and comparative in order to succeed.They can focus on negotiation of rates, terms, and services, with their overall attention directed toward getting the best transportation buy.
27 3. Competitive Pressures Globalization and competitionWith rising interest rates and increasing energy costs during the 1970s, logistics received more attention as a cost driver-emphasis on cost controlWHY?Local firms versus overseas competitorsIncreased offshore buying and selling activities, more complex and more costly global supply chains
28 4.Information Technology Information technology gave organizations the ability to better monitor transactions intensive activities such as ordering, movement of goods...Computerized quantitative models for controlling and optimizationMRP,MRP II,DRP,DRP II,JIT link material management from order processing to inventory management, forecasting and production.
29 5.Channel PowerShifting channel power from manufacturers to retailers, wholesalers, and distributors has also had a profound impact on logistics.Lower brand loyalty decreases a manufacturer’s power-increases retailer’s power
30 6. Profit Leverage$1 saved in logistics costs has a much greater impact on the organization’s profitability than a $1 increase in sales.There are costs associated with sales ( cost of goods sold…) ] $ 1 increase in sales does not result in $ 1 dolar increase in profit
32 CUSTOMER SERVICE Good customer service supports customer satisfaction. Customer service is the output of the logistics system.It involves getting the right product, to the rightcustomer at the right place, in the right condition, at the right time and at the lowest total cost possible.The key trade off of customer service: cost of lost salesDissatisfied customer tells to average of nine others
33 DEMAND FORECASTING There are many types of demand forecasting such as; marketing forecasts customer demand based on promotions, pricing, competition and etc. ormanufacturing forecasts production requirements based on marketing sales demand forecasts and current inventory levels.Logistics usually becomes involved in forecasting in terms of how much should be ordered from its suppliers and how much of finished product should be transported or held in each market that the organization serves.
34 INVENTORY MANAGEMENTInventory management involves ; trading off the level of inventory held to achieve high customer service levels with the cost of holding inventory, including capital tied up in inventory, variable storage costs and obsolescence.
35 LOGISTICS COMMUNICATIONS Communications are becoming increasingly automated, complex and rapid.Computerized advance communication systemsWal-Mart ( supplier link-real time demand data-on time replenishment)
36 MATERIALS HANDLINGMaterials handling is a broad area that encompasses virtually all aspects of all movements of raw materials, work in process, or finished goods within a plant or warehouse.A primary objective of materials management is to eliminate handling wherever possible-min. travel distance, bottlenecks, inventory levels and loss.
37 ORDER PROCESSING Order processing entails the systems getting orders from customers,checking on the status of orderscommunicating to customers about them,filling the ordermaking it available to the customer.Advanced order-processing methods ( EDI-electronic data interchange, EFT-electronic funds transfer, barcoding costs
38 PACKAGING For protection and storage from a logistical perspective. Important for protection during storage and transportaionImportant to be designed for the warehouse configuration and materials handling equipment
39 PARTS AND SERVICE SUPPORT Logistics is responsible for providing after-sale service support.This may include:delivery of repair parts to dealers,stocking adequate spares,responding quickly to demand for repairs...
40 PLANT AND WAREHOUSE SITE SELECTION Determining the location of the company’s plants and warehouses is a strategic decisionaffects the costs of transporting raw materials inbound and finished goods outbound, but also customer service levels and speed of response.
41 Supplier selection, negotiation of price, supplier quality assessment… PROCUREMENTProcurement is the purchase of materials and service from outside organizations to support the firm’s operations from production to marketing, sales, and logistics.Supplier selection, negotiation of price, supplier quality assessment…
42 REVERSE LOGISTICSReverse flow of goods, services and related information because of recycling, reusing and disposal activities.Returns may take place because of a problem with the performance of the item or simply because of the customer changed his or her mind.Return goods handling is complex and costly.The cost of moving a product backward nearly as much as nine times as high as moving the same product forward.
43 TRAFFIC AND TRANSPORTATION This is the key logistics activity actually provide for the movement of materials and goods from point of origin to point of consumption and (disposal as well)Selection of mode, routing the shipment, assuring of compliance with regulations in the region of the country where shipment is occuring, selection of the carrier…Largest logistics cost
44 WAREHOUSING AND STORAGE Warehousing supports time and place utility by allowing an item to be produced and helps for later consumption.Warehouse layout, design,ownership, automation…
45 Logistics activity is literally thousands of years old, dating back to the earliest forms of organized trade. As an area of study however, it first began to gain attention in the early 1900s -in the distribution of farm products, -as a way to support the organization’s business strategy, -and as a way of providing time and place utility.
46 Development of Logistics 6 Eras Era 1: Farm to market ( early 1900s)( )Major influence- agricultural economiesdistribution of farm productstransportationEra 2: Segmented functions ( )Major influence-military with World War IIindependent functions-institutional approach, inbound outbound transportation, wholesaling, retailing, physical distribution
47 Era 3: Integrated functions ( early 1960s- early 1970s) Major influence- industrial economiesLinking them togetherTotal cost approachSystems approachIntegration of logisticsEra 4: Customer focus (early 1970s-mid 1980)Major influence: management scienceCustomer serviceInventory carryingProductivityLink-nodeOR influence
48 Era 5: Logistics as a differentiator ( mid 1980s-present) Major influence-IT, management strategyglobalizationreverse logisticsenvironmentintegrated supply chain managementEra 6: Behavioral and boundary spanning (future)Major influence: marketing, social sciencesbehavioral aspects of interfirm relationstheory developmentcustomer perceptions of logistics systems
49 TOTAL COST CONCEPT“The total cost concept” is the key to effectively managing logistics processes.The goal of the organization should be to reduce the total cost of logistics activities, rather than focusing on each activity in isolation.
50 MAJOR LOGISTICS COST CATEGORIES 17Customer service levelsTransportation costsWarehousing costsOrder processing/information systems costsLot quantity costsInventory carrying costs
51 14 key logistics activites 514 key logistics activitesPlace/ customer service levelsCustomer service,Parts and service support,Return goods handlingOrder processing and information costsOrder processingLIS(logistics communications)Demand forecasting/planningWarehousing costsWarehouse and storagePlant and warehouse selectionTransportation costsTraffic and transportationInventory carrying costsInventory managementPackagingReverse logisticsLot quantity costsMaterial handlingprocurementSource: Adapted from Douglas M. Lambert, The Development of an Inventory Costing Methodology: A Study of the Costs Associated with Holding Inventory (Chicago, IL: National Council of Physical Distribution Management, 1976), p. 7.
52 Inventory carrying costs: capital costs, inventory service cost (insurance and taxes on inventory), storage space costs, inventory risk costs.Lot quantity costs: procurement and production related costs varying with changes in order size or frequency.Order costs, setup costs, capacity lost, material handling cost, price differentials due to buying in different quantities
53 TRADE-OFF APPROACH IN LOGISTICS Central goal of trade off in logistics is to maximize long term profitability and the effective use of assets.Examining trade-offs among alternatives and costs, thereby reducing the overall total cost of activites.Reduced transportation costs and longer transit times-increased inventory and inventory carrying costs
54 Cost Trade-offs Required in Marketing and Logistics 15Cost Trade-offs Required in Marketing and LogisticsPlace/ customer service levelsProductPromotionPriceOrder processing and information costsWarehousing costsTransportation costsInventory carrying costsLot quantity costsLOGISTICSMARKETINGSource: Adapted from Douglas M. Lambert, The Development of an Inventory Costing Methodology: A Study of the Costs Associated with Holding Inventory (Chicago, IL: National Council of Physical Distribution Management, 1976), p. 7.
55 Future Challenges in Logistics 18Strategic planning and participationTotal quality management (TQM)Just-in-time (JIT)Quick response (QR)Efficient consumer response (ECR)Logistics as a competitive weaponAccounting for logistics costs
56 Future Challenges in Logistics 91(Continued)Logistics as a boundary-spanning activityGlobal logisticsIncreasing skill requirementsLogistics information systemsOutsourcing, partnering, and strategic alliancesGreen marketing
57 JITJust in timeAim to reduce waste and redundant inventory by delivering products, components, materials when they are needed.Needs close coordinationReduces inventory, increases customer service levelJIT in retail and grocery: QR and ECR
58 Quick response Began in apparel and textile industry Retail sector strategySpeeding inventory flowsMostly between manufacturer and retailerWhen fully implemented, QR applies JIT.Moving product fastly-cross docking rather than warehousing, floor ready merchandise( prehung and preticketed)Wide usage of IT ( EDI, POS, Barcodes, CAD, CAM…)
59 Efficient Consumer Response Combining several logistics methods for improving the competitiveness of the grocery industry by cutting waste in SCGrocery industry’s answer to QRWide implementation of EDI, POS(point of sale), barcoding: paperless information flowContinuous replenishmentCooperative relation between manufacturer, suppliers,distributors and customersCross dockMoving away from deal mentality to cooperation
60 ECR % 41 of total chain reduction of inventory speeds up cycle time from 104 days to 61 days