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.

1-1

The Immediate Supply Chain for an Individual Firm

Transportation

Warehousing

Transportation

Customers

Information
flows

Factory

Transportation

Vendors/plants/ports
Warehousing
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Transportation
1-2

Logistics Defined

Supply Chain Management Defined

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Evolution of Supply Chain Management

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Supply Chain Schematic

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The Logistics/SC Mission

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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
generationa competitive weapon.
Both
Bothviews
viewsare
are
now
now important!
important!
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1-7

Critical Customer Service

Loop
Customer order processing (and
transmittal)

Transportation
Customers
Inventory
or supply source

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1-8

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

7.65%

$67.71

Total

Add one-third for inbound supply costs

Source: Herb Davis & Company
CR (2004) Prentice Hall, Inc.

Logistics cost
are about 10% of
sales w/o
purchasing costs

1-9

Customer Service Performance

Source: Herb Davis & Company

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Significance of Logistics

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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
G&A

Profit
G&A

Marketing
Logistics
Overhead

Increase

Marketing
Logistics

Increase

Tariffs
Overhead

Materials
Materials
Labor
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Labor

Reduction

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Scope of the Supply Chain for Most Firms

Business logistics

Physical supply
(Materials management)
Sources of
supply

Physical distribution
Plants/
operations

Transportation
Inventory maintenance
Order processing
Acquisition
Protective packaging
Warehousing
Materials handling
Information maintenance

CR (2004) Prentice Hall, Inc.

Customers
Transportation
Inventory maintenance
Order processing
Product scheduling
Protective packaging
Warehousing
Materials handling
Information maintenance

Focus firms internal supply chain

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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
Customers/
End users

Suppliers
suppliers

Acquire

Convert

Distribute

Product and information flow

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Reality of SC Scope

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co
ord
na
l
un
cti
o
erf

n
rdi
oo
lc
na
tio
iza

SUPPLY
CHAIN
MANAGEMENT

on
ati

Int

n
rga
ero
Int

ina
tio
n

The Multi-Dimensions of SC

Activity and process

administration
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Location Strategy
Location decisions
The network planning process

C O N T R O L L IN G

Customer
service goals
The product
Logistics service
Ord. proc. & info. sys.

Transport Strategy
Transport fundamentals
Transport decisions

P L A N N IN G

Inventory Strategy
Forecasting
Inventory decisions
Purchasing and supply
scheduling decisions
Storage fundamentals
Storage decisions

O R G A N IZ IN G

Study Framework

The focus is
here
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The Logistics Strategy Triangle

Inventory Strategy
Forecasting
Transport Strategy
Storage fundamentals
Transport fundamentals
Inventory
decisions

Transport decisions
Purchasing and supply
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
PRODUCTION/
OPERATIONS
Sample activities:
Quality control
Detailed production
scheduling
Equipment maint.
Capacity planning
Work measurement
& standards

Interface
activities:
Product
scheduling
Plant
location
Purchasing

LOGISTICS
Sample
activities:
Transport
Inventory
Order
processing
Materials
handling

Interface
activities:
Customer
service
standards
Pricing
Packaging
Retail
location

Productionlogistics
interface

Marketinglogistics
interface

Internal Supply Chain

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MARKETING
Sample
activities:
Promotion
Market
research
Product
mix
Sales force
management

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Marketing

Relationship of Logistics to Marketing

Product
Promotion

Price

Logistics

Place-Customer
service levels
Transport
costs

Inventory
carrying costs
Lot quantity
costs

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Order processing
and information
costs

Warehousing
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

Manufacturingmost common
Environmentcausing restrictions
Serviceemerging opportunities
Non-profitslittle explored
Militarylong 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

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