1. foundations of Chapter M A R K E T I N G Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Supply Chain and Logistics Management 17

2. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Objectives 1. Relate the supply chain management to the other variables of the marketing mix. 2. Explain the role of supply chain and logistics management in an effective marketing strategy. 3. Describe the objectives of logistics. 4. Identify and compare the major components of the logistics system. 5. Discuss some of the basic concepts involved in making transportation decisions. 6. Relate the major transportation alternatives to such factors as efficiency, speed, dependability, and cost. 7. Discuss the problem of suboptimization in logistics. Supply Chain and Logistics Management 17 17-1

3. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Supply Chain A network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply Chain and Logistics Management 17 17-2

4. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. A Simple Supply Chain Supply Chain and Logistics Management 17 Figure 17.1 17-3 Legend Material flow/Raw materialsManufacturing DistributionRetailers/ transportationsupplierplantcentrecustomers downstream upstream Source: Downloaded from http://eil.utonto.ca/profiles/rune/node5.html. Required with permission of Mark S. Fox.

5. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Supply Chain Management (SCM) The systematic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole. Supply Chain and Logistics Management 17 17-4

6. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Logistics That part of the supply chain process that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers requirements. Supply Chain and Logistics Management 17 17-5

7. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Logistics Customer service –What level of customer service should be provided? Transportation. –How will the products be shipped? Materials handling and protective packaging. –How do we develop efficient methods of handling products in the factory, warehouse, and transport terminals? Order Processing –How should orders be handled? Inventory control –How much inventory should be maintained at each location? Warehousing –Where will the products be located? –How many warehouses should be used? Supply Chain and Logistics Management 17 17-6

8. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Total-Cost Approach Holds that relevant factors in physically moving and storing products should be considered as a whole and not individually. Supply Chain and Logistics Management 17 17-7

9. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Suboptimization A condition in which the manager of each physical distribution function attempts to minimize costs, but due to the impact of one physical distribution task on the others, the results are less than optimal. Supply Chain and Logistics Management 17 17-8

10. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Cost Tradeoffs Approach that assumes that some functional areas of the firm will experience cost increases while others will have cost decreases. Supply Chain and Logistics Management 17 17-9

11. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Logistics Concept The integration of the total-cost approach, the avoidance of suboptimization, and the use of cost tradeoffs. Supply Chain and Logistics Management 17 17-10

12. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Logistics Management: The Systems Concept and the Total- Cost Approach Supply Chain and Logistics Management 17 Figure 17.2 17-11 Transportation Materials Handling Order processing Inventory control Warehousing Packaging Management views Logistics as a system of Interrelated components Systems Concept Basic Components of a Logistics System Total-Cost Approach Management attempts to minimize the cost of using the components taken as a whole Source: From Marketing Channels; A Management View, 6th ed., by Bert Rosenbloom, p 404. Copyright © 1999. Reprinted with permission of South-Western, a division of Thomson Learning: www.thomsonrights.com. Fax 800-730-2215.

13. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Third-Party Logistics Provider Specialist firm that performs virtually all of the logistical tasks that manufacturers or other channel members would normally perform themselves. Supply Chain and Logistics Management 17 17-12

14. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Classes of carriers Common Contract Private Supply Chain and Logistics Management 17 17-13

15. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Common Carrier Transportation carrier that provides service to the general public, and is subjected to regulatory authority including fee setting. Supply Chain and Logistics Management 17 17-14

16. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Contract Carrier Transportation carrier that serves only customers it has contracts with. Contracts include rates to be charged. Supply Chain and Logistics Management 17 17-15

17. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Private Carrier Transportation carrier that provides transportation services for a particular firm and may not solicit other transportation business. Supply Chain and Logistics Management 17 17-16

18. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Economic Order Quantity (EOQ) A model that emphasizes a cost tradeoff between inventory holding costs and order costs. Supply Chain and Logistics Management 17 17-17

19. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. The EOQ Model Supply Chain and Logistics Management 17 Figure 17.3 17-18 Inventory Holding Cost per Unit Costs 0 Total Cost Quantity of Units Order Cost per Unit

20. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Just in Time (JIT) An approach to minimizing inventory costs through identify minimal inventory levels and arranging with suppliers to replenish stocks just in time to be used in production. Supply Chain and Logistics Management 17 17-19

21. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Supply Chain and Logistics Management 17 17-20 Protective Packaging and Materials Handling Unitization Combining as many packages as possible into one load. Containerization Combining several unitized loads.

22. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Distribution Warehouse Designed to assemble and then redistribute products. Supply Chain and Logistics Management 17 17-21

23. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Break-Bulk Warehouse Receives consolidated shipments from a central distribution centre, and then distributes them in smaller shipments to individual customers in more limited areas. Supply Chain and Logistics Management 17 17-22

24. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Storage Warehouse Stores products for moderate to long periods of time in an attempt to balance supply and demand for products and purchasers. Supply Chain and Logistics Management 17 17-23

25. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Freight Forwarder Wholesaling intermediary that specializes in international logistics. Supply Chain and Logistics Management 17 17-24