Logistics and Supply Chain Management,

development of concepts. [The

Management of Business Logistics by
Coyle, Bardi, Langley Page # 13]
 1950s, first post war decade
• Decade of awareness
• Importance of physical movement of
materials to customers
• Focus on costs of these activities
• Idea of total cost: Total cost and its
components
• Importance of mode of transport
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 1960s – Electronics era
• Emergence of Physical Distribution
Management
• Integration of activities of outbound
logistics
• Information as an important element of
Physical Distribution Management
• Impact of electronics on information

2
  1970s
• Integration of some aspects of financial
subsystem – recovery, cash flow
• Focus on activities of inbound logistics until
considered to be vendors’ concern

3
 1980s
• Concept of Logistics as a management function,
internally integrating all activities of inbound
and out bound logistics
• Focus on logistical operations
• Application of TQM, TPM & JIT philosophies

4
 1990s
Gradually concept is encompassing entire value
chain as Supply Chain Management due to
external integration
• Henry Ford’s [early 1890s] concept of mutual
dependence of firms in a value chain
• Idea of control on entire supply chain for
improving product delivery

5
 Supply Chain Management
• Scope - Source of raw materials to end user - all
upstream & downstream organizations & linkages
• Concept of supply chain as a pipe line
• How is this created in business? - External
integration

6
• Main objective - Supply chain profitability by
value creation
• Focus - End User
• Origin - extension of scope of logistics
management
• A set of several subsets

7
• Definition - Management of upstream and down
stream relationships with suppliers and customers
to deliver superior customer value at less cost to
the supply chain as a whole - Ref to Bardi
page#15
How SCM creates value?
• Breaking the organizational barriers

8
 • Sharing of sales information in real time
• Inventory visibility
• Reduces inventories by reducing uncertainties
• Compresses value chain by slashing lead-times
thereby quickening cash flow

9
 Subdivisions of logistics management [The
Management of Business Logistics by Coyle,
Bardi, Langley Page # 39]
Business Logistics
• Procuring, moving and storing of R/M and
transporting, warehousing and distribution of F/G
• Facilitation of relevant manufacturing and
marketing
• Making finished goods available to the customers
in the market
10
 • Procuring, moving and storing of agricultural
products
• Providing competitive edge in commodities
market
 Event logistics - The net work of activities,
facilities and personnel required to organize,
schedule and deploy the resources for an event to
take place and to efficiently withdraw after the
event
11
  Service logistics - the acquisition, scheduling
and management of the facilities/assets, personnel
and materials to support and sustain a service
operation
 Military logistics - design and integration of all
aspects of support for the operational capability of
the military forces [deployed or in garrison] and
their equipment to ensure readiness, reliability and
efficiency
12
 Logistical mission
[Logistics & SCM by Martin Christopher, Page
# 13, L/M by Bowersox Page #9]
• Achievement of business objectives at minimum
logistical cost [delivering- QCD expectations of
customers at minimum logistical costs, i.e. creating
customer value at minimum cost
• Set of goals to be achieved at a particular type of
market responsive to competition
13
 • Mission focus is on out put of the system
• Logistics Mission is achieved by ‘single plan’
for the entire organization
• Mission of logistics is providing a means by
which customer satisfaction is achieved

14
 LOGISTICAL MISSION
Inventory
Mgt Warehouse
Info
Transp M/H
Packg
A Customer service goals
[QCD]
High value At market type A

Customer service goals

B [QCD]
At market type B
Brittle
Customer service goals
[QCD]
C At market type C
Low value

Functional Inputs to Logistical Management

SINGLE PLAN

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 Inbound logistics
• Procurement operations in procurement cycle
• potential avenues for reducing systems costs
• value of inventory is low
• trade off between cost of maintaining inventory in
transit and low cost transport exists
• Input Intensive? Output Intensive?

16
Inbound logistics - continued

Order
Sourcing placement
& expediting

Vendor
(Supplier)

Receiving Transportation

17
 Outbound Logistics
• Value added goods are to be made available in
the market distributed through the network of
warehouses and retailers’ shops
• Value of the inventory is very high as during
conversion value is added
• Input Intensive? Output Intensive?
18
 Outbound Logistics - continued

Activities in distribution performance cycle

Order Order Customer

processing transmission order

Order Order Customer

selection transportation delivery

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 Logistical cost analysis
Conventional Approach
• Focus on function
• Conventionally costs of logistical functions are
apportioned
• Impact of decisions at function level on the
system is not considered
• Cost information tends to get hidden [pushed
under the carpet] out of fear that it may highlight
functional weakness
• Cost in no man’s land is never owned
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• Cost cutting is fragmented so doesn’t reduce
system cost
• Customer dissatisfaction, competitive edge is
lost by the organization

21
 Total cost approach
Modern approach to logistical costing
• Focus on reduction of cost of output of the
system [product delivery to customer]
• Provides competitive edge to the company
• Reveals several trade off points in the system &
further areas of improvement
 Transportation - Inventory
 Warehousing – Customer service
FTL/LTL and cost of transportation
FTL/LTL and cost of inventory

22
 Mission based costing
[budgeting approach] in logistics
• Input focused costing Vs Output focused costing
• Mission goals and costs are set
• Functional inputs are worked out to meet the
system deliverables

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 transportation

Ware housing
Customer service
C1
Mission 15 5 5 goals [QCD]
=Rs. 25/-
A At market type A

C1 Customer service
Mission =Rs. 100/- goals [QCD]
B 45 35 20 At market type B
Customer service
Mission C1 goals [QCD]
=Rs. 30/-
C At market type C
10 10 10

70 50 35 Rs.155/-

Functional Inputs to Logistical Management

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 Activity Based Costing
All logistical activities involved in product
delivery are identified and resource consumption is
calculated

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Interface with marketing

PRICE

LOGISTICS

PRODUCT

MARKETING

PROMOTION

PLACE

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 Interface with marketing
• A common wall,surface or area with another
body, concept or function - area of common
interest or concern
• Four Ps of marketing and logistical interface
• Price - marketing can re offer the price to beat
the competition with superior logistical support
• Product & Packaging- size shape &
weight/volume ratio of the product has major
impact on logistical cost
# Gillette story of floor displays
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Promotion - promotional strategies of marketing
need to be decided by working closely with
logistics
# Push/Pull strategy
Place - whether to distribute through wholesalers
or through retailers is a marketing decision with
impact on logistics
# wholesalers’ demand & retailers’ demand
Customer Service - another area of interface
between marketing & logistics
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 Interface with
operations
SHORT RUNS

LOGISTICS

SEASONAL
DEMAND

OPERATIONS

SUPPLY SIDE
INTERFACE

PACKAGING

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 Interface with operations
* Short production runs
• Very strong logistical support is needed to
operate Just In Time
• Short runs lead to inventory reduction
* Seasonal demand
• Inventory should be mutually accepted
* Supply side interface
• Prevent shortages
* Packaging
• Protective packaging
• Third party alternatives
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 Role of planning in logistics management
• Role of planning is central to logistics
management
• Mission of logistics is to achieve
desired levels of service and quality at lowest
possible cost.
• Logistics makes one plan, that replaces
traditional concept of planning in pockets

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 Importance of 3Cs & Logistics

“C” customers
Look for value
Value [benefit] at lowest Value
price

“C” company “C” competition

By effective By effective
utilization utilization of assets
of assets tries to Cost differentials tries to create and
create and offer offer value to
value to customers customers

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 What can Logistics do?

HIGH SERVICE SERVICE &

LEADER COST LEADER Whom
shall I
buy
from?
S
E OK HAPPY
R OK HAPPY
COST LEADER
V COMPANY
I
C CUSTOMER
E

SAD OK
LOW

COST LOW
HIGH

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 Attributes of Logistics Department
# Scope is wide spread- functions of logistics are
spread across various stages of value chain in the
organization
# Provides interface between marketing and
customers, marketing and operations, operations
and supplier
# Provides competitive edge to business in the
current environment
# Handles flow of information and materials
# Large avenue for cost reduction
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 # Cost advantage and value advantage
through logistics
Cost advantage through logistical cost
reduction
Value advantage through superior customer
service
# Value added role of logistics in delivering
utility value
Form utility
Time utility
Place utility
Possession utility
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 PRODUCTION
Form Utility

LOGISTICS MARKETING
Place & Possession
Time Utility Utility

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 Integrated Logistics
Integrated logistics is a result of evolution
Factors responsible for the evolution
Consumer awareness 1960s
Introduction of computer 1960s
Global recession of 1970s & 1980s
JIT manufacturing 1980s
Integrated logistics evolved from the status of
“economy’s dark continent” in early 1960s to a
crucial management function of today

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 Evolution is a result of following significant
developments
Internal integration
Single plan concept
Integration with other management functions
Integration of Logistics [infrastructures] of
Services and Products - Infrastructure for logistics
of product & infrastructure for logistics of service

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39
 Logistical competency
What is logistical competence?
Capability (required standards) for performing
logistical functions
Internal integration
Integration with logistical management
Coordinating information and inventory flows in
logistical network
What is Logistical competency?
Level of performance of logistical functions
Relative assessment to ascertain competence
to perform logistical functions
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 It is a strategy to provide a superior service at a
total cost below industry average
Its aim is to view how logistics can be exploited
as a core competency so that it fits into a firm’s
overall strategic positioning
Performing integrated logistics
Definition: Logistical Competency is the relative
assessment of a firm’s capability to provide
competitively superior customer service at the
lowest possible total cost

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 Logistical competency

Inventory flow

Physical Manufacturing Suppliers

Customer
distribution support Procurement

Information flow

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particulars Logistics Supply chain
management management

Scope Inbound logistics, All players in the

in process supply chain from
inventory, raw material source
outbound logistics to finished product
consumer, vendors,
their vendors,
supplier
organization
[shipper],
Warehouses,
service providers,
customers, their
customers
How this is created By internal By external
in business? integration of integration of roles
logistics functions of various players
handled by various in the supply chain.
management
functions within
organization
Main objective Logistics cost Supply chain
reduction by profitability by
integrating value creation.
resources across
the pipeline

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focus L/M tries to take the product SCM focuses on value
to the consumer at minimum creation in the supply chain.
logistical cost. Hence it is Hence this is customer
supply driven. focused or demand driven.

definition Logistics is the process of Management of upstream

strategically managing and down stream
procurement and storage of relationships with suppliers
material , part and finished and customers to deliver
inventory [and related superior customer value at
information flow] through less cost to the supply chain
organization and its as a whole.
marketing
channels in such a way that
current and future profits are
maximized through cost
effective fulfillment of order

Origin A very old concept in As a logical extension of

military planning. logistics management

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