1. MGMT 321 (Logistics) Introduction Class Schedule Grades
Chapter 1 (21st Century Supply Chain)
Chapter 2 (Logistics)

2. Introductions Name ERAU experience Work experience
Logistics experience

3. Class Schedule Monday 24MAY10 Saturday 5JUN10
Thursday 10JUN10 or Saturday 12JUN10
Monday 28JUN10… 1AUG10
We need to figure out when we are going to take all of our classes. We can do some of these over blackboard if necessary.

4. Class Schedule 1

5. Class Schedule 2 3 4

6. 5 6 7 8 9

7. Syllabus Available on-line One in Word 2007 and one in 2003.
What is everyone’s Word status (2007 vs 2003)?

8. Grades Exams (3): 60% Homework: 20% Participation: 20%
Includes 5 page essay.
Participation: 20%

9. Essay Due the last day of class Formatted in APA
Minimum of 5 pages… do not need an abstract
Minimum of 3 references
Topic “Application of Management 411”

10. 21st-Century Supply Chains
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

11. Overview of 21st-century supply chains
The supply chain revolution
Why integration creates value
Generalized supply chain model
Responsiveness
Financial sophistication
Globalization
The 21st supply chain chapter is going to talk about a number of items…
We will talk about each of the items on the screen.
The revolution
Integration
Supply chain model
Responsiveness
Financial sophistications
globalization

12. pre1990 Logistics Long lead time Order to delivery process
From moment of order to arrival to the customer
Order to delivery process
Telephone
Fax
Mail
Unpredictable time to market
The average amount of time that it took a company to process and deliver an order was 15 – 30 days. Sometimes longer.
Orders were placed via phone, fax, or snail mail.
Often inventory was misplaced or out of stock… this hampered the delivery time.
While long lead times are not desirable, more undesirable is unpredictable lead times.
Does any one know why unpredictable is worse than long? You can plan for long and order early… unpredictable makes it difficult to store the correct about of an item.

13. Post 1990s No more scarcity Product diversity Information technology
Process improvement
Prior to the 1990s there was a constant scarcity in supply chains… companies needed to have large inventory levels in case their industry was hit and raw materials were not available.
The reduction in scarcity was a factor in the increase in available in products and services. Many companies were competing for your business. This diversity gave more power to the customers. They had more leverage… they no longer just passively let the supplier dictate design and delivery of products and services.
The Internet (and a range of information technology) happened in the decade on the 1990s. Information was gathered quickly and it allowed for an accurate method for business to communicate with one another. It allowed for the global economy to quickly emerge.
This period of time was characterized by process improvement. Concepts like SIX SIGMA were popular in the manufacturing industry and started to move into logistics. The concept of the perfect order was created. The perfect order is the right product, in the correct quantity, arriving at the correct time, damage free and correctly invoiced.

14. The supply chain revolution has reshaped contemporary strategic thinking
Supply Chain Management
Consists of firms collaborating to leverage strategic positioning and to improve operating efficiency
Supply Chain Strategy
Is a channel and business organizational arrangement based on acknowledge dependency and collaboration
Logistics
The work required to move and geographically position inventory
The world of supply chain has revolutionized since the 1990s.
Here are some terms you need to understand relating supply chain:
SUPPLY CHAIN MANAGEMENT: Consists of firms collaborating to leverage strategic positioning and to improve operating efficiency
SUPPLY CHAIN STRATEGY: Is a channel and business organizational arrangement based on acknowledge dependency and collaboration
The strategy chosen reflects its strategic choice… using FEDEX or your own transportation fleet is a strategic choice.
LOGISTICS: The work required to move and geographically position inventory
Logistics is a subset of supply chain.
The focus of this class is integrated logistics, but to understand logistics you need to have a basic understanding of supply chain management.

15. Successful supply chain strategies
Here are a few supply chain strategies!!
Market saturation driven: generate high profit margins.
Operationally Agile: quickest to change and follow trends
Freshness orientated: newer than the competition
Consumer Customizer: mass customization
Logistics Optimizer: the best supply chain…. Most efficient
Trade Focused.: lowest price, best value for customer.
Source: Supply Chain Management Review, March/ April 2000, p. 29.

16. The total integration of the overall business process creates value
Table 1.1 Integrative Management Value Proposition
We are going to talk about the three types of value the customer looks for… Economic, Market, and relevancy.
We will talk about each.

17. Economic Value Lowest total cost Economic of scale
Product/service creation
In the economic perception of value the goal is on the efficiency of product/ service creation. It is about doing all processes as well as possible. The customers sees economic value as high quality at a low cost.

18. Market Value Attractive assortment Economy of scope
Product/service presentation
In the market value perception the goal is to provide the most assortment of products a the right time at the right place. The creation of shopping malls and mass-merchandizing retail stores are all ways. You are looking to give convenient products/ service assortments and choice to the customers.

19. Relevancy Value Customization Segmental diversity
Product/service positioning
Of course, Economic and Market value are important to the customer, but there is a third perseption of valve “relevance”
Relevancy is customization, above and beyond product and positioning
Relevancy is at the right product at the right price, but it has been modified, sequenced, synchronized to make a segmented diversity.
In retail = it is making fashionable clothes
In grocery = turning ingredients into ready to eat meals.
The customer sees relevancy as unique product/service bundles.

20. Figure 1.1 The Integrated Supply Chain Framework
The integrated value-creation process must be managed across firms from end to end
Here is the generalized supply chain model
We will start with Information, Product, Service, Financial & Knowledge … this flows both directions for raw materials to customers and it is the synergy behind the supply chain.
Looking at the right at raw materials… we need different suppliers to get the different raw materials to the manufacturers. That is the supply network.
The integrated enterprises (purchases, manufactures, and works with the customer needs)… all parts of logistics
You then need a process it to get the product to the customer
You have to do all this within your capacity, information, core competencies, capital and human resource restraints.
Figure 1.1 The Integrated Supply Chain Framework

21. Forces driving supply chain strategies
Information technology
Integrative management
Responsiveness
Financial sophistication
Globalization
There are 5 forces that drive supply chain strategies.
Information technology is the overarching enabler… we have touched on this already.
We are going to spend a little time talking about:
Integrated management
Responsiveness
Financial sophistication and
globalization

22. Integrated Management
Performing and Measuring Work
Fundamental Measurements
CPUM/ CPHT
Process Achievement
The process of integrated management started with the industrial revolution and Fredrick Taylor. Pig Iron Movement **** Past Slides from Management ***
The goal was to measure performance.
Standardized functional measurements included cost per unit to manufacture or cost per hundredweight to transport.
There are a lot of process measurement

23. Table 1.2 Eight Supply Chain Processes
Integrative management requires simultaneous achievement of 8 processes
Lets talk about each of these…
Each person reads one
It’s not about being the best in one… it is about being the LOWEST TOTAL PROCESS COST. Which is not the lowest in each function in the process.
Table 1.2 Eight Supply Chain Processes

24. Concepts necessary for achieving integrated management
Lowest total process cost
Collaboration
Enterprise extension
Integrated service providers (ISP)
We just touched on the lowest total process cost… it differs from the lowest cost of each function in the process.
Now we will talk about collaboration, Enterprise extension, and ISP

25. Concepts necessary for achieving integrated management
Collaboration of operating information, technology and risk has been encouraged by national legislation to keep US-based firms competitive
Historically, businesses have worked against each other in a competitive environment.
The competitive nature of business is now in the world of logistics and supply chain management.
To compete in a global market… many companies are working together to better their supply chain management. The majority of the cooperation is with sharing of operating information, technology, and risk.

26. Concepts necessary for achieving integrated management
Enterprise extension includes expanded managerial influence and control beyond traditional ownership boundaries of a single enterprise
The concept of enterprise extension… is the movement towards joint planning and operations with customers and suppliers.
The first concept is that information is being shared between supply chain participants.
The second concept is process specialization. The goal is to eliminate nonproductive or non-value added redundancies by firms in the supply chain.

27. Concepts necessary for achieving integrated management
Integrated service providers (ISP) provide a range of logistics services to accommodate customers, ranging from order entry to product delivery
Outsourcing
Transportation
Warehousing
Commonly known as third (or fourth) party service providers
For-hire transportation industry consists of thousand of product movement specialists. The value is generated by economy of scale, specialization and efficiency. Additionally, offers shared transportation for multiple shippers.
Public warehouse are another potential value. They decrease construction cost and allow storage location for transportation of small shipments eventually requiring multiple shipper consolidation.
The concept of warehousing and shipping leads to more specialized service. Value Added Service (VAS) for example, is UPS handling all financial and order processing for Nike in their Louisville warehouse.
ISP can be third or forth part service providers. They are classified as asset or nonasset based. Third party or asset based own and operate transportation equipment or warehouses. Forth party or nonasset based arrange services by integrating third party assets or behalf their customers. Third party contracts were about $122b in 2007.

28. Responsiveness Responsiveness Business Model Postponement
Integrated Management alone was probably enough to start the supply chain revolution, but a fundamental change in thinking was also occurring in business. There was also a movement from anticipatory to responsive business model. After we discuss that change, we will talk about postponement.

29. Responsiveness emerges as a competitive advantage
Figure 1.2 Anticipatory Business Model
Figure 1.3 Responsive Business Model
Anticipatory is the top model. Since the industrial revolution, the primary business model was based on forecasting what the customer would require in the future.
The purchased inventory to eventually use in the manufacturing of the product or sell to the customer. Unfortunately, the forecast was often incorrect and excess inventory was wasted.
The responsive model does not start production until the product has been purchased. For this model to work, there needs to be a rapid exchange of information between suppliers. This is often called a “pull system”. In 2004, Dell built computers in China. The order to deliver time was 5 days. Custom made autos can now be produced quickly (order to ship time of 10 days). The key is the customization… getting the customer exactly what they want. This is different from build to order which just produces the standard product.

30. Postponement strategies keep supply chains responsive
Types of Postponement
Manufacturing (or Form)
Geographic (or Logistics)
Combined
Manufacturing and geographic types are exact opposites in practice but have the same goal
Meeting customer demand quickly while minimizing inventories
The heart of time based competition is the capability to postpone customization. The two types of postponement are manufacturing (or form) geographic (or logistics). They are the same goal… but the practice of performing the postponement is exactly opposite.

31. Manufacturing (or Form) Postponement
Manufacturing one order at a time
Base modular construction of product
No customization until the exact customer specs and financial commitment is received
Objective is to maintain products in an uncommitted status as long as possible
Balances economy of scale with responsiveness
Can build a sufficient quantity of “ready to customize” basic units
Requires a lot of forethought during product design
The first type of postponement is manufacturing. The vision of manufacturing postponement is to produce everything one order at a time… but this process does not take into account the economic advantage of lot size benefits. New manufacturing techniques have reduced setup time and switching expenses.

32. Example of Manufacturing Postponement
Keeping all the car panels a base color (white or gray) until the order is received, then painting to the color ordered
A common example of manufacturing postponement is waiting to paint the cars until the order is received. This is also called late customization.

33. Geographic (or Logistics) Postponement
Build or stock a full-line inventory at one or a few strategic locations
Forward deployment of inventory is postponed until customer orders are received
Once orders received, specific item is expedited to the local distributor
Advantages are manufacturing economies of scale along with responsiveness to customer
Often used for critical, high cost parts and assemblies (e.g. engines)
The second type of postponement is geographic postponement. This process puts critical and high cost items at central inventory locations for potential users. The expedited shipments can then be made to the end user. This process is more responsive to the need of the customer.

34. Example of Geographic Postponement
Here is a visual of geographic postponement. You can see that the final product can be shipped from the forwarded deployed location or directly from the manufacture depending on the quickest method.
Keeping full inventory in a central warehouse and releasing customer orders to local distributors or direct shipping to customer

35. Combined Postponement
Keeping the basic products centralized and performing the customization at the destination distributor
Historical example - Autos
Installing dealer options like sound systems, GPS, sun roofs on new cars purchased
Contemporary example - Computers
Dell Computers, doing final assembly or packaging additional system options like printers, digital cameras at a distribution center
You can also use the two methods together in a combined postponement manner.
The process keeps the basic product centralized and the the customization is completed at the final destination of distributor.
In the world of autos… you could add GPS or sound systems.
Computers can add monitors or printer into the final shipment.

36. Barriers to implementing responsive systems
Need for publicly held corporations to maintain planned quarterly profits
Expectations of continued financial results often drive promotional and pricing strategies to “load the channel” with inventory
Need to establish collaborative relationships
Most business managers do not have training or experience in development of collaborative arrangements
The use of postponement hinges on volume, economies of scale and delivering speed.
The need for US companies to show quarterly profits goes against the manufacturing postponement strategy. They need to generate sales to move a particular amount of product each season.
The additoinal need for collaborative relationships is something that most companies are working towards, but not really there. The collaboration of data is easier said than done.

37. Financial sophistication
Cash-to-cash conversion
Dwell time minimization
Cash spin
Speed for the sake of being fast has little, if any, enduring value. The fundamental benefits of timely response are straight forward. Fast delivery = less inventory and reduced need for distribution facilities.
The 3 aspects of financial sophistication are
Cash to cash conversion
Dwell time minimization
And cash spin.

38. Financial sophistication enables measurement of time-based supply chain
Cash-to-Cash Conversion—the time required to convert raw material or inventory purchases into sales revenue
The time required to convert raw materials into sales revenue is cash to cash conversion.
The higher the inventory turn, the quicker the conversion. The supply chain goal is to reduce receipt to delivery time in an effort to accelerate inventory turns.
The benefit of speed can be seen when suppliers give 2% discount for 10 day payment. An order of $1000 paid in 10 days = $20.
Sometimes the discount is already in the price… this is called dead net pricing.
Incentives for timely payment are replaced with performance commitments. Payments are then made with Electronic Funds Transfers (EFT).

39. Financial sophistication enables measurement of time-based supply chain
Dwell Time Minimization—dwell time is the ratio of time that an assets sits idle to the time required to satisfy its supply chain mission
Dwell time is the ratio of time tat an asset sits idle to the time required to satisfy its supply chain mission.
Process such as reducing nonvalue added work can reduce dwell time. The process of cross docking (where product is continually moved and not diverted to storage) reduces dwell time.

40. Financial sophistication enables measurement of time-based supply chain
Cash Spin—reducing assets in the supply chain can “spin” cash for reinvestment in other projects
Cash spin or free cash spin is the benefit of reducing assts across the supply chain. The concept is to reduce the number of assets, then warehouses can be reduced, less people paid, and less $ in inventory replacement.

41. Globalization offers firms several attractive opportunities
Demand exceeds local supply
90% of global demand is not fully satisfied by local supply
Strategic sourcing
Identifying and matching the sources of raw materials and components to manufacturers and distributors
Offshoring
Moving manufacturing and distribution operations to countries with favorable labor costs and tax laws
Globalization has become a necessity. It is estimated that 90% of our global demand is not satisfied by local supply.
This coupled with world population growth (estimated 200,000 per day for the next 10 years) give a lot of market opportunity.
Developing countries are interested in basic products like, food, clothing and durables such as fridges, washing machines, and autos.
The global market has opened up an efficiency where a company can strategically source raw materials and components, there are labor savings in these new markets, and new trax laws make value added operating very attractive globally.

42. Significant differences for global logistics
Distance of typical order-to-delivery operations is significantly longer compared to domestic business
Documentation requirements for business transactions is significantly more complex
Operations must be deal with significant Diversity in work practices and local operating environments
How consumers Demand products and services must accommodate cultural variations
How does global logistics differ from regular logistics…
Distance: it takes a lot longer to ship to china than it does to norfolk. You have to look at different shipping channels than just trucks.
Documentation: you also have to deal with a lot more laws and regulations (all require documents). Everyone is trying to get a cut on the profits.
Diversity: work practices differ form country to country, you must take the differences into account.
Demand: just because you sell 100,000 Twinkies boxes a year in Eliz City, doesn’t mean you will have similar demand in a similar size city in Brazil.