Module 7Module 7

Logistics in SCMLogistics in SCM

MOD-7 Dimension of MOD-7 Dimension of LogisticsLogistics

Introduction:Introduction:A macro and micro dimension.A macro and micro dimension.Logistics interfaces with other areas.Logistics interfaces with other areas.Approach to analyzing logistics Approach to analyzing logistics systemsystemLogistics and system analysisLogistics and system analysis Techniques of logistics system Techniques of logistics system analysisanalysisFactors affecting the cost and Factors affecting the cost and importance of logisticsimportance of logistics

Macro PerspectiveMacro Perspective

Logistics impacts and has Logistics impacts and has relationship with economyrelationship with economy

Cost of business logistics increasingCost of business logistics increasing Percentage of GDP decreasingPercentage of GDP decreasing Transportation largest percentage of Transportation largest percentage of

logistics costs (rising due to logistics costs (rising due to inventory management practices)inventory management practices)

Macro PerspectiveMacro Perspective

Logistics adds value to a productLogistics adds value to a product Place utility - moving goods to points Place utility - moving goods to points

where demand existswhere demand exists Time utility - moving goods to points at Time utility - moving goods to points at

a specific timea specific time Allows for economic development and Allows for economic development and

specializationspecialization Affects land values due to increased Affects land values due to increased

accessibilityaccessibility

Micro PerspectiveMicro Perspective

Interfaces with production in determining Interfaces with production in determining the length of the production runthe length of the production run

Interfaces with marketing in selling the Interfaces with marketing in selling the productproduct price - size, quantityprice - size, quantity product - dimensions, packagingproduct - dimensions, packaging promotion - inventory, channelspromotion - inventory, channels customer servicecustomer service

Relationship with all areas of a companyRelationship with all areas of a company

Approaches to Analyzing Approaches to Analyzing Logistics SystemsLogistics Systems

Materials Management versus Physical Materials Management versus Physical DistributionDistribution Balanced SystemBalanced System Heavy Inbound Ex Boeing aircraftHeavy Inbound Ex Boeing aircraft Heavy Outbound Ex Crude oilHeavy Outbound Ex Crude oil Reverse Systems Ex Ink catridges in HP Reverse Systems Ex Ink catridges in HP

printersprinters Cost centersCost centers

Trade offsTrade offs

Approaches to Analyzing Approaches to Analyzing Logistics SystemsLogistics Systems

Nodes versus linksNodes versus links nodes - points where goods stop for nodes - points where goods stop for

processingprocessing links - transportation connecting links - transportation connecting

nodesnodes Logistics Channels - network of Logistics Channels - network of

intermediaries that contribute to intermediaries that contribute to efficient flow of goodsefficient flow of goods

Logistics and Systems Logistics and Systems AnalysisAnalysis

System - is a set of interacting elements, System - is a set of interacting elements, variables, parts or objects that are variables, parts or objects that are functionally related to one another and functionally related to one another and that form a coherent group.that form a coherent group.

Optimization –always the best alternative Optimization –always the best alternative (water transportation example)(water transportation example)

Level 1: organizationLevel 1: organization Contain marketing, finance, productionContain marketing, finance, production Level 2 supply chainLevel 2 supply chain Contain customers and other channel Contain customers and other channel

partnerspartners Level 3: EnvironmentLevel 3: Environment Contain social ,political and economicContain social ,political and economic

Factors Affecting the Cost Factors Affecting the Cost and Importance of Logisticsand Importance of Logistics

Competition via customer serviceCompetition via customer service Order CycleOrder Cycle

shorter order cycle, less inventory requiredshorter order cycle, less inventory required SubstitutionSubstitution

more substitutable product, higher customer service more substitutable product, higher customer service level requiredlevel required

Inventory EffectInventory Effect increase inventory, reduce cost of lost salesincrease inventory, reduce cost of lost sales

Transportation EffectTransportation Effect increase transportation costs, reduce cost of lost salesincrease transportation costs, reduce cost of lost sales

Factors Affecting the Cost Factors Affecting the Cost and Importance of Logisticsand Importance of Logistics

Product factorsProduct factors Dollar Value - product value increases, Dollar Value - product value increases,

cost of warehousing, transportation and cost of warehousing, transportation and inventory increasesinventory increases

Density- higher the density, more efficient Density- higher the density, more efficient use of warehouse and transportation spaceuse of warehouse and transportation space

Damage -greater the risk of damage, Damage -greater the risk of damage, higher the transportation and warehousing higher the transportation and warehousing costcost

Special Handling RequirmentsSpecial Handling Requirments

Factors Affecting the Cost Factors Affecting the Cost and Importance of Logisticsand Importance of Logistics

Spatial RelationshipsSpatial Relationships Distance FactorDistance Factor