1. Text: Ballou - Business Logistics Management, 5/E (Chapter 1)
SCM and Logistics
Dickson K.W. Chiu
PhD, SMIEEE, SMACM
Text: Ballou - Business Logistics Management, 5/E (Chapter 1)

2. Learning Objectives
To familiarize with basic concepts of logistics and supply chain management
To understand recent evolvement of logistics
To understand the reasons for its recent growth in importance
To understand the importance of IT in logistics
Dickson Chiu 2006

3. Overview of Logistics and Supply Chain Management

4. Supply Chain Overview Transportation Customers Warehousing Information
Vendors/plants/ports
Factory
Customers
Information
flows
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
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5. Logistics vs Supply Chain Management
Council of Logistics Management
“Logistics is the process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods and related information from the point of origin to point of consumption for the purpose of conforming to customer requirements.”
Handfield and Nichols
SCM is the integration of all activities associated with the flow and transformation of goods from raw materials through to end user, as well as information flows, through improved supply chain relationships, to achieve a sustainable competitive advantage.
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

6. Common 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
=> IT people have to deal with any related automation anyway 
Dickson Chiu 2006

7. The Logistics/SCM Mission
Getting the right goods or services to the right place, at the right time, and in the desired condition at the lowest cost and highest return on investment.
Product / Service Utility
Possession Utility - the value or usefulness that comes from a customer being able to take possession of a product
Form Utility - in a form that can be used by the customer and is of value to the customer
Place Utility - available where they are needed by customers
Time Utility - available when they are needed by customers
Logistics obviously help time and place utility
Dickson Chiu 2006

8. Evolution of Supply Chain Management
Dickson Chiu 2006
CR (2004) Prentice Hall, Inc.

9. Supply Chain Schematic
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
1-5

10. A Revised Strategy is Generating Great Top Management Interest
Historical perspective of distribution (Peter Drucker, 1962):
“The last frontier of cost economies”
The contemporary view:
Distribution is a new frontier for demand generation—a competitive weapon.
Both views are important!
Dickson Chiu 2006

11. Critical Customer Service Loop
Dickson Chiu 2006

12. 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 about 10% of sales w/o purchasing costs
Add one-third for inbound supply costs
Source: Herb Davis & Company
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

13. Customer Service Performance
Source: Herb Davis & Company
Dickson Chiu 2006

14. Traditional Scope of the Supply Chain
Physical distribution
Physical supply
(Materials management)
Business logistics
Sources of
supply
Plants/
operations
Customers •
Transportation
Inventory maintenance
Order processing
Acquisition
Protective packaging
Warehousing
Materials handling
Information maintenance
Product scheduling
Internal supply chain
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
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15. Key Activities/Processes
Primary
Setting customer service goals
Transportation
Inventory management
Location
Secondary, or supporting
Warehousing
Materials handling
Acquisition (purchasing)
Protective packaging
Product scheduling
Order processing
Dickson Chiu 2006

16. Logistics Strategy and Planning
The objectives of logistics strategy
Minimize cost
Minimize investment
Maximize customer service
Levels of logistical planning
Strategic
Tactical
Operational
Dickson Chiu 2006

17. The Logistics Strategy Triangle (4 problem areas)
Customer
service goals
The product
Logistics service
Information sys.
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

18. Strategic, Tactical, and Operational Decision Making
Decision area
Strategic
Tactical
Operational
Transportation
Mode selection
Seasonal equip-
Dispatching
ment leasing
Inventories
Location, Control policies
Safety stock levels
Order filling
Order
Order entry, transmittal,
Processing
processing
and processing system
orders, Filling
design
back orders
Purchasing
Development of supplier-
Contracting,
Expediting
buyer relations
Forward buying
Warehousing
Handling equipment
Space utilization
Order picking
selection, Layout design
and restocking
Facility
Number, size, and
location
location of warehouses
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

19. Relationship of Logistics to Marketing and Production
Sample
activities:
PRODUCTION/
MARKETING
Transport
Interface
OPERATIONS
Sample
Interface
Inventory
activities:
Sample activities:
activities:
activities:
Order
Customer
Quality control
Promotion
Product
processing
service
Detailed production
Market
scheduling
Materials
standards
scheduling
research
Plant
handling
Pricing
Equipment
maint .
Product
location
Packaging
Capacity planning
mix
Purchasing
Retail
Work measurement
Sales force
location
&
standards
management
Production-
logistics
Marketing-
interface
logistics
interface
Internal Supply Chain
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

20. Relationship of Logistics to Marketing
Product
Marketing
Promotion
Price
Place-Customer service levels
Transport costs
Inventory carrying costs
Logistics
Warehousing costs
Lot quantity costs
Order processing and information costs
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

21. Relationship of Logistics to Production
Coordinates through scheduling and strategy
make-to-order
make-to-stock
An integral part of 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
Dickson Chiu 2006

22. Contemporary IT and Logistics

23. Wal-Mart Wins with Logistics
Costs are lower than K-Mart or Target Stores
CEO is a former logistician
Wal-Mart is the largest retailer in the world!
Dickson Chiu 2006

24. Logistics/SCM in Diverse Areas
Manufacturing - most common
Service - emerging opportunities
Environment - causing restrictions
Non-profits / Government - little explored
Military - long history
Note the global evolvement into a service-oriented economy!
Dickson Chiu 2006

25. Supply Chain is Multi-Enterprise
Conventional Scope
Focus
Company
Suppliers
Customers
Customers/
Supplier’s
End users
suppliers
Acquire
Convert
Distribute
Product and information flow
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

26. Effect on Logistics Foreign Outsourcing
Domestic sourcing
Foreign sourcing
Profit
G & A
Marketing
Logistics
Overhead
Materials
Labor
Profit
Increase
G & A
Marketing
Logistics
Increase
Tariffs
Overhead
Materials
Reduction
Labor
Dickson Chiu 2006
CR (2004) Prentice Hall, Inc.

27. Reality of SCM Scope
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

28. The Multi-Dimensions of SCM
Inter-functional (Intra-organizational) coordination
Inter-organizational coordination
SUPPLY
CHAIN
MANAGEMENT
Activity and process
administration
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

29. Increasing Significance of Logistics
Costs are high
About 10.5% of GDP domestically
About 12% of GDP internationally
A range of 4 to 30% of sales for individual firms, avg. about 10%
A high as 70-80% of sales if purchasing and production are included
Customers are more demanding of the supply chain
Desire for quick response
Desire for mass customization
An integral part of company strategy
Generate revenue
Improve profit
Logistical lines are lengthening
Local vs. long distance supply
Globalization of trade
Logistics is a key to trade and an increased standard of living
Law of comparative economic advantage applies
Logistics adds value
Time and place utilities
Dickson Chiu 2006

30. Contemporary IT Applications in Logistics – Focus of this Course
Tremendous technological advances in past decades
Logistics management relies on analysis over massive information from heterogeneous sources
Disparate business functions in service-oriented economy
Internet and mobile technologies has further improved logistical effectiveness and efficiency
Enabled logisticians and management to make timely, informed, and accurate decisions
but create new dimensions of complexity
IT people work closely with logistician and management
Understand complex requirements
Choose the right technology and design appropriate IT infrastructures, architectures, and systems
Explain how contemporary IT can help to others
Dickson Chiu 2006

31. Some Useful Contemporary IT in Logistics
eXtended Markup Language (XML)
Service-oriented architecture
Process integration and interaction management
Exceptions, alerts, and relationship management in logistics
Information integration
Facilitating decision support
Mobile technologies
Radio Frequency Identification (RFID)
=> The key is to achieve information and process integration for efficient and effective decision support.
Dickson Chiu 2006

32. Summary

33. Summary
The logistic process plans, implements, controls the flow and storage of goods, services, and related information between the point of origin and the point of consumption to satisfy customer requirements
Logistics addresses the time utility & place utility out of the four economic utilities
Logistics becomes more important and complex because of new requirements of the service-oriented economy, disparate business functions, and the impact of various contemporary IT
Logistics involves the interaction with multiple departments within a company as well as now also across business partner organizations and customers
Application of contemporary IT, especially information and process integration for efficient and effective decision support, is a critical success factor and therefore the focus of this course.
Dickson Chiu 2006