Business Logistics/Supply

Chain—A Vital Subject

The supply chain is simply another way of

saying “the whole process of business.”

Chapter 1
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 The Immediate Supply Chain for an Individual Firm

Transportation Transportation Customers

Warehousing

Information
flows
Factory

Transportation

Vendors/plants/ports
Warehousing Transportation

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 Logistics Defined

Logistics
controllin
Supply Chain Management Defined

SCM is
of raw mth
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Evolution of Supply Chain Management

Activity fra
1-4
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 Supply Chain Schematic

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 The Logistics/SC Mission

Gettin 1-6
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A Revised Strategy is Generating
Great Top Management Interest
Historical perspective of distribution:
“The last frontier of cost economies”
Peter Drucker, 1962
The contemporary view:
Distribution is a new frontier for demand
generation—a competitive weapon.

Both views are

now important!
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 Critical Customer Service
Loop
Customer order processing (and
transmittal)

Transportation
Customers

Inventory
or supply source

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 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
Add one-third for inbound supply costs are about 10% of
sales w/o
Source: Herb Davis & Company purchasing costs

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 Customer Service Performance
10 96
Order Cycle Time,
9 94 Days
92
8 Product
90 Availability--%
Days

7 orders

%
88 Product
6 Availability--% line
86 items
5 84
4 82
19 2
19 4
19 6
20 8
20 0
02
9

0
9

9
9
19

Year

Source: Herb Davis & Company

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Significance of Logistics

• Costs are
− About
− About 1-11
•Costs are lower than K-Mart or
Target Stores
•CEO is a former logistician
•Wal-Mart is the largest retailer in
the world!
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Effect on Logistics Foreign Outsourcing
Domestic sourcing Foreign sourcing
Profit Profit Increase
G&A G&A
Marketing Marketing

Logistics Increase
Logistics

Overhead Tariffs
Overhead
Materials
Materials

Labor Reduction
Labor
1-13
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Scope of the Supply Chain for Most Firms
Business logistics

Physical supply Physical distribution

(Materials management)

Sources of Plants/
Customers
supply operations
• Transportation • Transportation
• Inventory maintenance • Inventory maintenance
• Order processing • Order processing
• Acquisition • Product scheduling
• Protective packaging • Protective packaging
• Warehousing • Warehousing
• Materials handling • Materials handling
• Information maintenance • Information maintenance

Focus firm’s internal supply chain 1-14

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 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
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The Supply Chain is Multi-Enterprise
Scope
in reality

Focus
Company

Suppliers Customers

Supplier’s Customers/
suppliers End users

Acquire Convert Distribute

Product and information flow

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 Reality of SC Scope

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 The Multi-Dimensions of SC

Int
on

ero
ti
ina

rga
ord

niz
co

ati
l
na

on
tio
SUPPLY

al
nc

co
CHAIN
rfu

ord
MANAGEMENT
e

ina
Int

tio
n
Activity and process
administration
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 Study Framework
Inventory Strategy
• Forecasting Transport Strategy
• Inventory decisions • Transport fundamentals

CONTROLLING
• Purchasing and supply

ORGANIZING
• Transport decisions
scheduling decisions Customer

PLANNING
• Storage fundamentals service goals
• Storage decisions • The product
• Logistics service
• Ord. proc. & info. sys.

Location Strategy
• Location decisions
• The network planning process

The focus is
here
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 The Logistics Strategy Triangle
Inventory Strategy
• Forecasting
• Storage fundamentals Transport Strategy
• Inventory decisions •Transport fundamentals
• Purchasing and supply •Transport decisions
scheduling decisions
Customer
• Storage decisions service goals
• The product
• Logistics service
• Information sys.

Location Strategy
•Location decisions
•The network planning process

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 Relationship of Logistics to
Marketing and Production
LOGISTICS
Sample
activities: MARKETING
PRODUCTION/ •Transport Interface Sample
OPERATIONS • Inventory
Interface activities: activities:
Sample activities: • Order • Customer
• Quality control activities: • Promotion
• Product processing service • Market
• Detailed production
scheduling • Materials standards research
scheduling • Plant • Pricing
• Equipment maint. handling • Product
location • Packaging
• Capacity planning mix
• Purchasing • Retail • Sales force
• Work measurement
location management
& standards

Production-
logistics Marketing-
interface logistics
interface

Internal Supply Chain

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 Relationship of Logistics to Marketing
Product
Marketing

Promotion
Price

Place-Customer
service levels

Transport
Logistics

Inventory
carrying costs costs

Lot quantity Warehousing

costs Order processing costs
and information
costs
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Relationship of Logistics to Production
•Coordinates through scheduling and strategy—
make-to-order or make-to-stock
•An integral part of the 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
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 Logistics/SC in Diverse Areas
•Manufacturing—most common
•Environment—causing restrictions
•Service—emerging opportunities
•Non-profits—little explored
•Military—long history

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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 1-25