1 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M.

Boer

Chapter 1 & 2
Business Logistics/Supply Chain:
- A Vital Subject
- Strategy and Planning

Business Process Project
- Business Logistics
Week 1 block 2 2007-2008
Verin Boer

2 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Introduction
Business Process Project
Business Logistics
Introduction
Content / course manual
Lectures, exercises, exam
Literature & planning
Attendance
Sheets
3 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Introduction
Business Process Project
https://www.sharepoint.hu.nl/sites/BPPYR3IB
MS/default.aspx
Book:
Ronald H. Ballou, Business Logistics/Supply
Chain Management, International edition 5/e,
Prentice Hall 2004, ISBN 0131492861
Planning:
Wednesday: grand lectures: theory
Tuesday: instruction lectures: discuss
exercises (prepare!)
4 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Introduction
Business Logistics week 1
Lecture week 1: chapter 1 & 2:
Supply Chain
Business Logistics / Supply Chain
Significance of Logistics
Scope and Processes in the Supply Chain
Corporate and Logistics Strategy & Objective
Logistics concepts
Cost conflicts in Logistics
Supply Chain Strategies
Instruction lecture & homework
Introduction lecture 2
5 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Business Logistics/Supply
ChainA Vital Subject
The supply chain is simply another way of
saying the whole process of business.
Chapter 1
CR (2004) Prentice Hall, Inc.
6 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Logistics Defined
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.
Council of Logistics Management
Supply Chain Management Defined
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.
Handfield and Nichols
CR (2004) Prentice Hall, Inc.
7 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Warehousing
Warehousing
Transportation
Transportation
Vendors/plants/ports
Transportation
Factory
Transportation
Customers
Information
flows
The Immediate Supply Chain for an
Individual Firm
CR (2004) Prentice Hall, Inc.
1-2
8 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
The Logistics/SC 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.
CR (2004) Prentice Hall, Inc.
9 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
The Supply Chain is Multi-
Enterprise
Focus
Company
Suppliers
Suppliers
suppliers
Customers
Customers/
End users
Acquire Convert Distribute
Product and information flow
Scope in
reality
CR (2004) Prentice Hall, Inc.
10 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Costs are high
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

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
Significance of Logistics
11 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Effect on Logistics Foreign
Outsourcing
Profit
G & A
Marketing
Logistics
Overhead
Materials
Labor
Profit
G & A
Marketing
Logistics
Overhead
Materials
Labor
Tariffs
Increase
Reduction
Increase
Domestic sourcing Foreign sourcing
12 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer

Primary
- Setting customer service goals
- Transportation
- Inventory management
- Location

Secondary, or supporting
- Warehousing
- Materials handling
- Acquisition (purchasing)
- Protective packaging
- Product scheduling
-
Order processing
Key Activities/Processes
CR (2004) Prentice Hall, Inc.
13 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
P
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Transport Strategy
Transport fundamentals
Transport decisions
Customer
service goals
The product
Logistics service
Ord. proc. & info. sys.
Inventory Strategy
Forecasting
Inventory decisions
Purchasing and supply
scheduling decisions
Storage fundamentals
Storage decisions
Location Strategy
Location decisions
The network planning process
P
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C
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T
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Transport Strategy
Transport fundamentals
Transport decisions
Customer
service goals
The product
Logistics service
Ord. proc. & info. sys.
Inventory Strategy
Forecasting
Inventory decisions
Purchasing and supply
scheduling decisions
Storage fundamentals
Storage decisions
Location Strategy
Location decisions
The network planning process
Study Framework
The focus is
here
CR (2004) Prentice Hall, Inc.
14 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
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

The Logistics Strategy Triangle
CR (2004) Prentice Hall, Inc.
15 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Logistics/Supply Chain
Strategy and Planning
Chapter 2
If you dont know where you want to go, any
path will do.
CR (2004) Prentice Hall, Inc.
16 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Corporate Strategy
CR (2004) Prentice Hall, Inc.


Strategy is the process whereby plans are formulated for
positioning the firm to meet its objectives.



Strategy formulation begins with defining a corporate
strategy. This involves:
a. Assessing needs, strengths, and weaknesses of the 4
major components:
- customers
- suppliers
- competitors
- the company itself
b. "Visioning" where counter - intuitive, unheard of, and
unconventional strategies are considered.


Corporate strategies are converted to more specific
strategies for the various functional areas of the firm such as
logistics.
17 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Logistics Strategy

Levels of logistical planning:
- Strategic
- Tactical
- Operational
Recall the
logistics strategy
triangle


The 4 problem areas of supply chain planning
- Customer service levels
- Facility location
- Inventory decisions
- Transportation decisions

The objectives of logistics strategy are:
- Minimize cost
- Minimize investment
- Maximize customer service
Use
ROLA
18 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Logistics Strategy


When to plan?
- No distribution network currently exists.
- There has been no re-evaluation in 5 years.
- When costs are changing rapidly, especially transport & inventory.
- When markets have shifted.
- When current distribution economics encourage shifts.
- When there has been a major policy shift in logistics such as in price,
customer service, or investment level.
19 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Logistics Objective
Maximize return on logistics
assets (ROLA)
Assets
Costs Revenue
ROLA

Logistics
contribution
to sales
Investment in
logistics
assets
Costs of
logistics
operations
CR (2004) Prentice Hall, Inc.
20 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Six Concepts for Logistics
Strategy Formulation

Total cost concept
Tradeoff conflicting costs at optimum

Differentiated distribution
Not all products should be provided the same level of
customer service

Mixed strategy
A pure strategy has higher costs than a mixed strategy

Postponement
Delay formati on of the final product as long as possible

Shipment consolidation
Smaller shipment sizes have disproportionately higher
transportation costs than larger ones

Product standardization
Avoid product variety since it adds to inventory
21 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Cost of
transportation
service
Inventory cost
(includes
storage and
intransit
Total cost
Rail Truck Air
C
o
s
t
,

i
n

d
o
l
l
a
r
s
Transportation service
(greater speed and dependability)

A Cost Conflict in Logistics
CR (2004) Prentice Hall, Inc.
22 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
More Cost Conflicts
Improved customer service
0 100%
(a) Setting the customer service level
C
o
s
t
Lost sales cost
Transportation,
order processing,
and inventory
costs
Total costs
Increasing number of stocking points
0
(b) Determining the number of warehouses in a logistics
system
C
o
s
t
Transportation costs
Total costs
Inventory
costs
0
Revenue
R
e
v
e
n
u
e

0
Average inventory level 0
(c) Setting safety stock levels
Lost sales cost
Total costs
Inventory
carrying
costs
C
o
s
t
0
Product run length and product sequencing
altenatives
(d) Setting the sequence of production runs for
multiple products
Production costs
Total costs
C
o
s
t
0
Inventory
carryng cost
2-10
23 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Choosing the Right Supply Chain
Strategy
Functional
Products--
Predictable
demand
Innovative
Products--
Unpredictable
demand
Efficient supply
chain
Staple food
products
Responsive
supply chain
Electronic
equipment
Low margin
High margin
24 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Efficient supply
chain
Economical production runs
Finished goods inventories
Economical buy quantities
Large shipment sizes
Batch order processing
Responsive
supply chain

Excess capacity
Quick changeovers
Short lead times
Flexible processing
Premium transportation
Single order processing
Supply-
to-stock
Supply-
to-order
Choosing the Right Supply Chain
Strategy
25 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Actions for Misclassified Products
Supply Chain
Design Type
Predictable/ Mature Unpredictable/
Introductory
Supply-to-Stock/
Efficient
Tomato Soup If product is here
Supply-to-Order/
Responsive
If product is here Personal
Computer Models
Product Characteristic
CR (2004) Prentice Hall, Inc.
26 IBMS Business Process Project - Business Logistics - block 2 2007/2008 Verin M. Boer
Exercises & homework
Exercises for next instruction lecture
Chapter 1: question 12.
Chapter 2: question 13


Next lecture week 2:
Read chapter 9