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Business Logistics/SupplyChainA Vital Subject

The supply chain is simply another way ofsaying the whole process of business.

Chapter 1

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Warehousing

Warehousing

Transportation

Transportation

Vendors/plants/portsTransportation

Factory

Transportation Customers

Information

flows

The Immediate Supply Chain for an Individual Firm

1-2

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Logistics DefinedLogistics is the process of planning, implementing and

controlling the efficient, cost-effective flow and storageof raw materials, in-process inventory, finished goodsand related information from the point of origin to pointof consumption for the purpose of conforming tocustomer requirements.

Council of Logistics Managemen

Supply Chain Management Defined

SCM is the integration of all activities associated with the

flow and transformation of goods from raw materialsthrough to end user, as well as information flows, throughimproved supply chain relationships, to achieve asustainable competitive advantage.

Handfield and Nichols

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Evolution of Supply Chain Management

Military logistics - can be traced to the times of Alexander the Great

Clearly focused on where to battle and when, where and how

much to enter and exit

Result - smaller armies could defeat a larger competitor

Teeth versus Tail strategy - focused on simple themes like keeping

lean force with efficient supply through setting forward bases.

Approach - planning, information-sharing and flawless execution

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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 ChainManagement

Supply ChainManagement

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 ChainManagement

Supply ChainManagement

Logistics

Purchasing/Materials

Management

Physical

Distribution

Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+

Evolution of Supply Chain Management

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Supply Chain Schematic

1-5

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The Logistics/SC Mission

Getting the right goods or service to the right place, at the right time,and in the desired condition at thelowest cost and highest return on

investment.

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A Revised Strategy is Generating

Great Top Management Interest

Historical perspective of distribution:The last frontier of cost economies

The contemporary view:Distribution is a new frontier for demand

generationa competitive weapon.

Peter Drucker, 1962

Both views arenow important!

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Customers

Transportation

Inventory

or supply source

Customer order processing (and

transmittal)

Customers

Transportation

Inventory

or supply source

Customer order processing (and

transmittal)

Critical Customer Service

Loop

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4

5

6

7

8

9

10

1992

1994

1996

1998

2000

2002

Year

Days

82

84

86

88

90

92

94

96

%

Order Cycle Time,Days

ProductAvailability--%

ordersProductAvailability--% lineitems

Customer Service Performance

Source: Herb Davis & Company

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Indian ExamplesReliance Industries Limited (Retail)

IRCTC (Railway Booking and Catering)Dr. Reddys Laboratories (pharmaceuticals)

Asian Paints (Chemicals)

Maruti Udyog Limited (Automobiles)

Caf Coffee Day (Beverages)

Times of India (Newspaper publishing)

Pantaloon Retail (Merchandise retail)

ICICI Bank (Retail banking)

Taj Hotels (Lodging)

Reliance Energy (Electric power)Bluedart, DHL (Logistics)

Gas Authority of India (Natural Gas)

Reserve Bank of India (Finance)

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Costs are high

About 10.5% of GDP domestically

About 12% of GDP internationallyA range of 4 to 30% of sales for individual firms, avg. about 10%

A high as 70-80% of sales if purchasing and production areincluded

Customers are more demanding of the supply chain

Desire for quick responseDesire for mass customization

An integral part of company strategy

Generate revenueImprove profit

Logistical lines are lengtheningLocal 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

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SCM Spend of 9 Major IndianManufacturing Industries

Logistics spendin India is about

13% of GDP

SCM Spend Indicator 2001-02 2002-03 2003-04 2004-05

In-bound Transportation Costs

as percentage of Net Sales

1.5% 1.4% 1.3% 1.4%

Inventory-related Costs as

percentage of Net Sales

13.3% 13.9% 13.1% 13.1%

Distribution Expenses as

percentage of Net Sales

3.0% 2.8% 2.8% 2.7%

Total SCM Spend as percentage

of Net Sales

17.8% 18.1% 17.2% 17.2%

Source: Centre for Monitoring Indian Economy

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Costs are lower than K-Mart orTarget Stores

CEO is a former logisticianWal-Mart is the largest retailer inthe world!

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Effect on Logistics Foreign Outsourcing

ProfitG & A

Marketing

Logistics

Overhead

Materials

Labor

ProfitG & A

Marketing

Logistics

Overhead

Materials

Labor

Tariffs

Increase

Reduction

Increase

Domestic sourcing Foreign sourcing

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Scope of the Supply Chain for Most Firms

Physical distributionPhysical supply(Materials management)

Business logistics

Sources ofsupply

Plants/operations

Customers

Transportation Inventory maintenance Order processing Acquisition

Protective packaging Warehousing Materials handling Information maintenance

Transportation Inventory maintenance Order processing Product scheduling

Protective packaging Warehousing Materials handling Information maintenance

Focus firms internal supply chain 1-14

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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

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FocusCompany

Suppliers

Suppliers

suppliers

Customers

Customers/

End users

Acquire Convert Distribute

The Supply Chain is Multi-Enterprise

Product and information flow

Scope in

reality

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Reality of SC Scope

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SUPPLYCHAIN

MANAGEMENT

Activity and processadministration

The Multi-Dimensions of SC

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PLAN

NING

ORGA

NIZING

CONTROLLING

Transport Strategy

Transport fundamentals

Transport decisionsCustomer

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

PLAN

NING

ORGA

NIZING

CONTROLLING

Transport Strategy

Transport fundamentals

Transport decisionsCustomer

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 ishere

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PRODUCTION/OPERATIONSSample activities:Quality controlDetailed production

schedulingEquipment maint .Capacity planningWork measurement

& standards

LOGISTICSSampleactivities:TransportInventory

Orderprocessing

Materialshandling

Interface

activities:Product

schedulingPlant

locationPurchasing

MARKETINGSampleactivities:PromotionMarket

researchProduct

mixSales force

management

Interfaceactivities:

Customerservicestandards

PricingPackagingRetail

location

Production-logisticsinterface

Marketing-logisticsinterface

Relationship of Logistics toMarketing and Production

Internal Supply Chain1-21

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Relationship of Logistics to Marketing

Product

PricePromotion

Place-Customer

service levels

Inventorycarrying costs

Lot quantitycosts Order processing

and informationcosts

Transportcosts

Warehousingcosts

Lo

gistics

1-22

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Relationship of Logistics to Production

Coordinates through scheduling and strategy make-to-orderor make-to-stock

An integral part of the the supply chain

Affects total response time for customers

Shares activities such as inventory planningCosts are in tradeoff

Production lot quantities affect inventorylevels and transportation efficiency

Production response affects transportationcosts and customer service

Production and warehouse location areinterrelated

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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 processQuick response and flexiblemanufacturingMass customization

Supply chain management/collaborative logisticsReverse logistics

Service logisticsContinuous replenishmentLean logistics

Integrated logistics