LOGISTICS FUNDAMENTALS AND
PROCESS
BLOCK- 1
Unit 1
Introduction to Logistics and Supply
Chain Management
Introduction
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The term “Supply Chain Management” was coined in 1982 by Keith Oliver of Booz,
Allen and Hamilton Inc. But the discipline and practice has been in existence for
centuries.
The terms Logistics and Supply Chain Management are used interchangeably these
days, but there is a subtle difference that exists between the two.
‘Logistics’ has a military origin, and used to be associated with the movement of
troops and their supplies in the battlefield. But like so many other technologies
and terminologies, it entered into the business lexicon gradually and has now
become synonymous with the set of activities ranging from procurement of raw
materials, to the delivery of the final polished good to the end consumer.
Logistics is concerned with both materials flow and information flow. While the
materials flow from the supplier to consumer, the information flows the other way
round. It is not only concerned with inventory and resource utilization, customer
response also falls under the ambit of logistics.
• In simple terms, logistics can be seen as a link between
the manufacturing and marketing operations of a
company. The traditional organizations used to think of
them separately, but there is a definite value addition
in integrating the two due to the interdependence and
feedback channel between the two.
• The level of coordination required to minimize the
overall cost for the end consumer gets tougher to
achieve as the number of participants in a supply chain
increase, as an extremely efficient flow of material and
information is required for optimization.
• Logistics cover the following broad functional
areas: network design, transportation and inventory
management.
• Manufacturing plants, warehouses, stores etc.
are all facilities which form key components in
the network design. Transportation: the cost and
consistency (reliability) required out of the
transportation network determines the type and
mode of the movement of goods and also affects
the inventory.
• Buffer (or safety) stock is the reserve stock held
to safeguard against shortages or unexpected
surge in demand, to avoid “stock-outs”. Fewer
inventories with negligible stock-outs — the
hallmark of an efficient logistical system.
What is a Supply Chain?
A supply chain consists of the flow of products
and services from/to:
--Raw materials manufacturers
--Intermediate products manufacturers
--End product manufacturers
--Wholesalers and distributors
--Retailers and,
--End customers
Connected by agents, transportation and storage
activities, and
Integrated through sharing of information,
planning, and processing activities.
Examples???
Sources:
plants
vendors
ports
Regional
Warehouses:
stocking
points
Field
Warehouses:
stocking
points
Customers,
demand
centers
sinks
Supply
Inventory &
warehousing
costs
Production/
purchase
costs
Transportation
costs
Inventory &
warehousing
costs
Transportation
costs
Based on the product – relationship matrix Cooper and
Slagmulder (1999, p.10) distinguished four key decisions
and activities areas in the integrated supply chains,
such as:
1. Configuration of product and network, which covers
the decisions concerning the main rules of cooperation,
2.Formation of the production network, mainly the
choice of production facility and warehousing locations
as well as their capabilities,
3.Product design with involvement the research and
development abilities of suppliers,
4. Process optimization in order to reduce cycle times
and inventory level in the cost-effective way.
The traditional role and place of small firms within integrated
supply chains was mostly limited):
- Delivering raw- materials, parts or modules for the final
goods producers,
- Delivering customer goods to wholesalers or selling small
quantities of this goods to the final customers,
- Providing transportation and forwarding services,
- Manufacturing goods and providing other services for
market niches which are considered as not enough profitable
for big companies (also as a subcontractor),
- Trading under well known brand name of large distribution
networks (franchising)
Cost- revenue trade- offs
Profits at different levels of customer service
Revenue, costs, profit
Revenue
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Logistics costs
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85%
91%
95%
Customer service
ISSUES OF SCM
• The supply chain management issues the
concern activities of the firm at various levels
of decision making , ranging from operational
level to strategic level via tactical level
Flows in a Supply Chain
Information
Product
Customer
Funds
Supply chain integration and strategic
partnering
• This is concerned with the complex issue of
strategic inter organizational partnership for
achieving competitive advantage. This is about
sharing of information and efficient use of the
information for coordinating business
processes to deliver a superior value to the
customers. How to achieve this and what are
the challenges? This is one of the emerging
issues in supply chain management
Transportation
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Air
Truck
Rail
Ship
Pipeline
Electronic
Facilities
• Production
Production: Remember BMW: “a sports car disguised as a
sedan”
Service: Can your instructor teach music as well as SCM?
Sports: A playmaker who shoots well is rare.
• Inventory-like operations: Receiving,
Prepackaging, Storing, Picking, Packaging,
Sorting, Accumulating, Shipping
Information
• Information
Accurate?
Accessible?
Up-to-date?
In the Correct form?
Product Design
• This is concerned with the design of the
product and its impact on total cost of the
product. It is possible that the design
determines the strategies to be followed
regarding inventory or transportation. The
design may also determine the length of the
product life cycle and the extent of
uncertainty associated with demand for this
product.
Customer value
• The key issue is the definition of customer
value in an age of increasing consumer power.
How will supply chains will be designed to
provide value to the customers and how will
firms define value?
SCM Framework
• A framework to understand the various issues involved in SCM is
provided by the pyramid structure for the SCM paradigm
Strategic
• On the strategic, level it is important to know
how SCM can contribute to the enterprises‟
basic “value proposition” to the customers.
Important questions that are addressed at this
level include: What are the basic and
distinctive service needs of the customers?
What can SCM do to meet these needs? Can
the SCM capabilities be used to provide
unique services to the customers?
Structural
• After the strategic issues are dealt with, the next
level question(s) that should be asked are :
Should the organization market directly or should
it use distributors or other intermediaries to
reach the customers? What should the SCM
network look like? What products should be
sourced from which manufacturing locations?
How many warehouses should the company have
and where should the be located? What is the
mission of each facility (full stocking, fast moving
items only, cross-docking etc.)
Functional
• This is the level where operational details are decided
upon. Functional excellence requires that the optimal
operating practices for transportation management,
warehouse operations, and materials management
(which includes forecasting, inventory management,
production scheduling, and purchasing) are designed.
These strategies should keep in view the trade-offs that
may need to be made for the overall efficiency of the
system. Achieving functional excellence also entails
development of a process-oriented perspective on
replenishment and order fulfillment so that all
activities involved in these functions can be well
integrated.
Implementation
• Without successful implementation, the development
of SCM strategies and plans is meaningless. Of
particular importance are the organizational and
information systems issues. Organizational issues
centres on the overall structure, individual roles and
responsibilities, and measurement systems needed to
build an integrated operation. Information systems are
“enablers” for supply chain management operations
and therefore must be carefully designed to support
the SCM strategy. Supply chain managers must
consider their information needs relative to decision
support tools, application software’s, data capture, and
the system’s overall structure.
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The type and structure of the supply chain that
is established depends on many factors, some
of the major factors are:
Geographical
Cultural
Govt. Legislation
Time
Geographical
• If the supply chain is stretched across the
globe then it may not be possible to
incorporate some of the principles of lean
production like JIT delivery, flexible
manufacturing and coordination among
suppliers and customers. It can lead to
uncertain
transportation
schedules
unpredictable lead time and may need larger
inventory carriage.
Cultural
• The difference in the “culture” of the
participants in the chain (the difference can be
due to geographical factors or corporate
practices) can lead to friction and distrust. This
may hamper the development of close ties.
Government Legislation
• The laws of the country may prohibit the
sharing of information about some facet of
the supply chain and thus, may lead to a
restrictive participation by one or more
participant in the supply chain.
Time
• Just as among individuals, organizations require
time before trust can be built up. The first phase
in any relationship is manifest as confrontation
that essentially means that participants in the
chain try to win at the cost of other participants.
And, the last phase is exemplified by total trust
and working together of organizations. The
information sharing behaviour in the first phase is
almost zero, while in the integrated relationship
the information sharing is mutual and free about
the common concerns. In between the two
phases lie a continuum of phases
Unit 2
Quantitative Methods and IT in Supply
Chain Management
Quantitative Methods and SCM
SCM in the Public Sector
To understand the relevance of ‘SCM’ to the government sector,
one must understand the difference between the objective of a
government/public sector enterprise and that of a private sector
enterprise. A government/public sector enterprise objective is not
maximization of profit solely, but also economic development of
the nation (as a long term goal) and the welfare of the society;
whereas a private sector enterprise is oriented towards the sole
objective of maximization of profit. But, even if the objectives, of
these two exclusive categories of enterprises, are entirely different,
they share some features:
• The satisfaction of their respective consumers by providing the
consumer with the right product, in the right condition and at the
right time, at the least cost.
• The allocation of limited resources (of the nation and/or
enterprise) for this purpose.
• In the government sector (in India) the SCM paradigm
can be used by the public sector organizations involved
in
 Petroleum products
 Fertilizer production industry
 Steel industry
 Coal and other minerals
 Electricity generating industry
 Food grain procurement and distribution
 Postal clearance and delivery system
 Export and Import
 Public health services
 Banking and financial services