Logistics Management
OPMA 4302 /5369
Business Logistics:
A Vital Subject
The supply chain is
simply another way of
saying “the whole
process of business.”
Logistics in History
Introduction—Chapter 1
3
18th & 19th Century Warfare
 “18th Century armies are supposed to have fed
from magazines in their rear, yet they
normally subsist at the enemy’s expense.”
JAH de Guibert in Essai Général de Tactique, 1803
 “Pass the order to levy a contribution of many
millions from Lerida as a means to feed, pay,
and dress the army. I cannot send money, war
should nourish war.” Napoleon Bonapart in 1810 Communique
 “Such is the superiority of a war carried on by
means of requisitions over one dependent on
magazines that the latter does not at all look
like the same instrument.”
MG Karl von Clausewitz in Vom Kreige, 1832
Introduction—Chapter 1
4
US Civil War
Gettysburg Battlefield CSA Artillery Battery Position, 1863
Introduction—Chapter 1
5
18th & 19th Century Warfare
 Three of GEN Robert E. Lee’s objectives for the
Gettysburg campaign in July 1863
– Feed my soldiers off the enemy’s land
– Capture the boot factory in Gettysburg to cover
barefooted soldiers
– Capture enemy provisions for war
 Both GENs Grant and Sherman fought battles of
annihilation (scorched earth) in Mississippi and Georgia
(destroy enemy’s supplies)
 MG Sheridan used this philosophy in 1868 Winter
Campaign to destroy the Southern Cheyenne, Arapaho,
Kiowa, and Comanche (starve, freeze, or surrender)
 GEN Sheridan repeated the strategy with 1876 Winter
Campaign to destroy Sioux and Northern Cheyenne
Introduction—Chapter 1
6
20th Century Warfare
 World War I
– Germans entered WWI with no arrangements to feed their
horses
– Fodder frequently found, ready-harvested, and neatly
stacked in the fields
H. von Kuhl und J. von Bergmann, 1920
 World War II
– “In view of the undoubted importance of mud as a factor
in the German defeat (Soviet Invasion 1941), the
Wehrmacht was wrong in basing its logistic system on
wheels instead of tracks.”
B H Liddell Hart in History of WWII, 1972
– US Military brought detailed Operations Research and
Logistics Planning skills into Operation Torch and later
Operation Overlord
– Red Ball Express—One way highway system in Europe open
exclusively to thousands of Allied Logistics vehicles (24
hours per day)
Introduction—Chapter 1
7
World War II
Invasion of Fortress Europe, D-Day 1944
Introduction—Chapter 1
8
World War II
USA Engineers Build Pontoon
Bridge Across Mosel River, 1944
Introduction—Chapter 1
9
Desert Storm
Military Containers Arrive in Saudi Arabia, 1990
Introduction—Chapter 1
10
What Is A Supply Chain?
Network of manufacturing &
distribution sites that interact to
procure & transform raw materials for
producing finished goods to customers.
Introduction—Chapter 1
11
Supply Chain
Manufacturers
Warehouses
Raw
Material
Customers
Assemblers
Stages
Procurement
Production
Introduction—Chapter 1
Distribution
12
Concentrate Plant
Bottling Plants
Distribution Centers
Physical Flows
Suppliers
Information and Money Flows
Supply Chain for Beverage Provider
Customers
Introduction—Chapter 1
13
Supply Chain Decisions
Strategic level
Tactical
Operational
Long term
Mid term
Near term
Introduction—Chapter 1
• Corporate objectives
• Capacity
• Facilities – size/location
• Mode selection
• Design of order entry
• Inventory positioning
• Resource allocation
• Seasonal service mix
• Contracting, vendor
Selection
• Routing and dispatching
• Order filling
• Replenishment quantities
And timing
14
The Immediate Supply Chain for an Individual Firm
Transportation
Transportation
Warehousing
Factory
Customers
Information
flows
Transportation
Vendors/plants/ports
Warehousing
Transportation
Introduction—Chapter 1
1-2
15
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
Introduction—Chapter 1
16
Evolution of Supply Chain Management
Activity fragmentation to 1960
2000+
Activity Integration 1960 to 2000
Demand forecasting
Purchasing
Requirements planning
Production planning
Manufacturing inventory
Purchasing/
Materials
Management
Warehousing
Logistics
Material handling
Packaging
Finished goods inventory
Distribution planning
Physical
Distribution
Supply Chain
Supply Chain
Management
Management
Order processing
Transportation
Customer service
Strategic planning
Information services
Marketing/sales
Finance
Introduction—Chapter 1
17
Supply Chain Schematic
Introduction—Chapter 1
1-5
18
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.
Introduction—Chapter 1
19
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
generation—a competitive weapon.
Both views are
now important!
Introduction—Chapter 1
20
Critical Customer Service
Loop
Customer order processing (and
transmittal)
Transportation
Customers
Inventory
or supply source
Introduction—Chapter 1
21
Physical Distribution Costs
Category
Percent of sales
$/cwt.
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
Transportation
Total
Add one-third for inbound supply
costs
Source: Herb Davis & Company
Introduction—Chapter 1
Logistics cost
are about 10% of
sales w/o
purchasing costs
22
Customer Service Performance
10
96
9
94
90
7
88
6
86
84
4
82
Product
Availability--%
orders
Product
Availability--%
line items
19
9
19 2
94
19
9
19 6
9
20 8
0
20 0
02
5
%
92
8
Days
Order Cycle Time,
Days
Year
Source: Herb Davis & Company
Introduction—Chapter 1
23
Significance of Logistics
 Costs are high




About 10.5% of GDP domestically
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
Introduction—Chapter 1
24
•Costs are lower than K-Mart or
Target Stores
•CEO is a former logistician
•Wal-Mart is the largest retailer in
the world!
Introduction—Chapter 1
25
Effect on Logistics Foreign Outsourcing
Domestic sourcing
Foreign sourcing
Profit
G&A
Profit
G&A
Marketing
Increase
Marketing
Logistics
Logistics
Overhead
Increase
Tariffs
Overhead
Materials
Materials
Reduction
Labor
Labor
Introduction—Chapter 1
26
Scope of Supply Chain for Most Firms
Inbound
logistics
Business logistics
Physical supply
(Materials management)
Sources of
supply
Outbound
logistics
Physical distribution
Plants/
operations
• Transportation
• Inventory maintenance
• Order processing
• Acquisition
• Protective packaging
• Warehousing
• Materials handling
• Information maintenance
Customers
• Transportation
• Inventory maintenance
• Order processing
• Product scheduling
• Protective packaging
• Warehousing
• Materials handling
• Information maintenance
Focus firm’s internal supply chain
Introduction—Chapter 1
1-14
27
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
Introduction—Chapter 1
28
The Supply Chain is Multi-Enterprise
Scope in
reality
Focus
Company
Suppliers
Customers
Customers/
End users
Supplier’s
suppliers
Acquire
Convert
Distribute
Product and information flow
Introduction—Chapter 1
29
Reality of SC Scope
Introduction—Chapter 1
30
Introduction—Chapter 1
31
Customer
service goals
• The product
• Logistics service
• Ord. proc. & info. sys.
CONTROLLING
Transport Strategy
• Transport fundamentals
• Transport decisions
PLANNING
Inventory Strategy
• Forecasting
• Inventory decisions
• Purchasing and supply
scheduling decisions
• Storage fundamentals
• Storage decisions
ORGANIZING
Study Framework
Location Strategy
• Location decisions
• The network planning process
The focus is
here
Introduction—Chapter 1
32
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
Introduction—Chapter 1
33
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
MARKETING
Sample
activities:
 Promotion
 Market
research
 Product
mix
 Sales force
management
Marketinglogistics
interface
Internal Supply Chain
Introduction—Chapter 1
34
1-21
Relationship of Logistics to
Marketing
Product
Promotion
Price
Logistics
Place-Customer
service levels
Transport
costs
Inventory
carrying costs
Lot quantity
costs
Order processing
and information
costs
Introduction—Chapter 1
Warehousing
costs
1-22
35
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
Introduction—Chapter 1
36
Logistics/SC in Diverse Areas
Manufacturing—most common
Environment—causing restrictions
Service—emerging opportunities
Non-profits—little explored
Military—long history
Introduction—Chapter 1
37
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
Introduction—Chapter 1
38
Logistics Principle #1
 Logistics Benefits Society
– Makes Goods & Services Available
– It Influences Price of Goods & Services
– It Helps Society Respond to Needs of
Citizens
• Standard of Living
• Emergency Needs For Food, Medical Care, &
Shelter
Introduction—Chapter 1
39
Logistics Principle #2
 Logistics Is Pervasive
– Affects Every Aspect of Business
• Reach Customers
• Create Brand Loyalty
– Manufacturers Need Parts & Supplies
– Retailers Need Goods to Sell
– Services Need Equipment & Supplies
– Not-For-Profit Organizations Must Reach
Clients & Services
Introduction—Chapter 1
40
Logistics Principle #3
 Logistics Contributes to Company’s
Revenues & Growth
– Positive Effect on ROI
– Substantial Portion of Costs in Many
Industries
– Good Logistics Practices Provides
• Better Customer Service
• Lower Costs
• Higher Profits
– Extends Market Reach
Introduction—Chapter 1
41
Logistics Principle #4
 Logistics Plays Key Role in Marketing
Strategy
– Supporting Strategies
•
•
•
•
–
–
–
–
Price
Product Development
Service
Promotion
Promote Customer Loyalty
Reach New Markets
Segment Markets
Competitive Advantage
Introduction—Chapter 1
42
Logistics Principle #5
 Logistics Activities Affect One Another
& Other Functions of Marketing
– Not a Single Activity
– Combination of Integrated Functions
Introduction—Chapter 1
43
Logistics Principle #6
 Logistics Fulfills Promises Made by
Other Facets of Marketing
– Promises to Customers
• Performance
• Availability
• Price
– Creates Demand
Introduction—Chapter 1
44