3. 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.
Dickson Chiu 2006 SCM-3
CR (2004) Prentice Hall, Inc.
4. 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 SCM-4
5. 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 SCM-5
6. Evolution of Supply Chain Management
Dickson Chiu 2006 SCM-6
Demand forecasting
Purchasing
Requirements planning
Production planning
Manufacturing inventory
Warehousing
Material handling
Packaging
Finished goods inventory
Distribution planning
Order processing
Transportation
Customer service
Strategic planning
Information services
Marketing/sales
Finance
Supply Chain
Management
Supply Chain
Management
Logistics
Purchasing/
Materials
Management
Physical
Distribution
Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+
Demand forecasting
Purchasing
Requirements planning
Production planning
Manufacturing inventory
Warehousing
Material handling
Packaging
Finished goods inventory
Distribution planning
Order processing
Transportation
Customer service
Strategic planning
Information services
Marketing/sales
Finance
Supply Chain
Management
Supply Chain
Management
Logistics
Purchasing/
Materials
Management
Physical
Distribution
Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+
CR (2004) Prentice Hall, Inc.
8. 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 SCM-8
9. Critical Customer Service Loop
Customers
Transportation
Inventory
or supply source
Customer order processing (and
transmittal)
Customers
Transportation
Inventory
or supply source
Customer order processing (and
transmittal)
Dickson Chiu 2006 SCM-9
10. Physical Distribution Costs
Dickson Chiu 2006 SCM-10
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
Add one-third for inbound supply costs
Source: Herb Davis & Company
Logistics cost
are about 10% of
sales w/o
purchasing costs
CR (2004) Prentice Hall, Inc.
14. 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 SCM-14
15. The Logistics Strategy Triangle
(4 problem areas)
Dickson Chiu 2006 SCM-15
Customer
service goals
The product
Logistics service
Information sys.
Inventory Strategy
Forecasting
Storage fundamentals
Inventory decisions
Purchasing and supply
scheduling decisions
Storage decisions
Transport Strategy
Transport fundamentals
Transport decisions
Location Strategy
Location decisions
The network planning process
CR (2004) Prentice Hall, Inc.
16. Strategic, Tactical, and Operational Decision
Making
Dickson Chiu 2006 SCM-16
Decision area Strategic Tactical Operational
Transportation Mode selection Seasonal equip-
ment leasing
Dispatching
Inventories Location, Control policies Safety stock levels Order filling
Order
processing
Order entry, transmittal,
and processing system
design
Processing
orders, Filling
back orders
Purchasing Development of supplier-
buyer relations
Contracting,
Forward buying
Expediting
Warehousing Handling equipment
selection, Layout design
Space utilization Order picking
and restocking
Facility
location
Number, size, and
location of warehouses
CR (2004) Prentice Hall, Inc.
17. Relationship of Logistics to
Marketing and Production
Dickson Chiu 2006 SCM-17
PRODUCTION/
OPERATIONS
Sample activities:
Quality control
Detailed production
scheduling
Equipment maint.
Capacity planning
Work measurement
& standards
LOGISTICS
Sample
activities:
Transport
Inventory
Order
processing
Materials
handling
Interface
activities:
Product
scheduling
Plant
location
Purchasing
MARKETING
Sample
activities:
Promotion
Market
research
Product
mix
Sales force
management
Interface
activities:
Customer
service
standards
Pricing
Packaging
Retail
location
Production-
logistics
interface
Marketing-
logistics
interface
Internal Supply Chain
CR (2004) Prentice Hall, Inc.
18. Relationship of Logistics to
Marketing
Dickson Chiu 2006 SCM-18
Product
Price
Promotion
Place-Customer
service levels
Inventory
carrying costs
Lot quantity
costs Order processing
and information
costs
Transport
costs
Warehousing
costs
Logistics
CR (2004) Prentice Hall, Inc.
19. 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 SCM-19
21. 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 SCM-21
22. 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 SCM-22
23. Supply Chain is Multi-Enterprise
Dickson Chiu 2006 SCM-23
Focus
Company
Suppliers
Supplier’s
suppliers
Customers
Customers/
End users
Acquire Convert Distribute
Product and information flow
Conventional
Scope
CR (2004) Prentice Hall, Inc.
24. Effect on Logistics Foreign Outsourcing
Dickson Chiu 2006 SCM-24
Profit
G & A
Marketing
Logistics
Overhead
Materials
Labor
Profit
G & A
Marketing
Logistics
Overhead
Materials
Labor
Tariffs
Increase
Reduction
Increase
Domestic sourcing Foreign sourcing
CR (2004) Prentice Hall, Inc.
25. Reality of SCM Scope
Dickson Chiu 2006 SCM-25
CR (2004) Prentice Hall, Inc.
26. The Multi-Dimensions of SCM
Dickson Chiu 2006 SCM-26
SUPPLY
CHAIN
MANAGEMENT
Activity and process
administration
CR (2004) Prentice Hall, Inc.
27. 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 SCM-27
28. 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 SCM-28
29. 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 SCM-29
31. 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 SCM-31