INTRODUCTION TO LOGISTICS AND SUPPLY CHAIN
MANAGEMENT
Prof. Jarosław Witkowski, Phd
Vice -rector for International Co-operation
Wroclaw University of Economics
Komandorska Street 118/120, 53-345 Wroclaw,
Poland
Tel. 0048713680151, Cell phone: 48501090903
E-mail: jwit@ae.jgora.pl
Lecture outline
1.Definition and main activities of business
logistics
2. Trade-offs analyses
3. Idea of supply chains
4. Supply Chain Management matrix
5. Supply chain performance and efficiency
improvement (SCOR and GSCF models)
6. Japanese and European supply chain
networks
7. Simple EOQ formula
8. Center of Gravity Technique
Logistics (according to CLM) 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 point of origin to
point of consumption for the purpose of
conforming to customer requirements
The mission of logistics is to get the right goods
or services to the right place, at he right time, and
in the desired condition and quantity in relation to
customers order
Main logistics activities and decisions:
• cooperate with marketing to set customer service
levels,
• facility location decisions,
• transportation activities (eg. transportation mode
selection, vehicle scheduling, carrier routing),
• inventory management (inventory short -term
forecasting, planning and control, cooperate with
production to calculate EOQ, sequence and time
production ),
• information collection and flows and order processing,
• warehousing and materials handling,
• packaging and packing.
Cost- revenue trade- offs
Profits at different levels of customer service
Revenue, costs, profit
Revenue

Logistics costs

85%
91%
95%
Customer service
Inventory costs trade- off
• Inventory carring costs (space costs, capital
costs, inventory risk and services costs)
• Procurement costs (acquisition costs,
transportation costs, manufacturing and
handling costs)
• Out – of – stock costs (lost sales and back
order costs)
Supply chain (since 80’s of XXc.)
• In broader sense „SC is any combination of processes,
activities, relationships and pathways along which
products, services, information and financial transactions
move in and between enterprices” (Gattorna 2006, p. 2)
• In narrow sens SC is restricted to materials and
information flows from suppliers, through manufactures
and distribution centers to retailers and final customers
e.g. M. Christopher (2005) defines SC „as a network of
connected and independent organizations mutually and
cooperatively working together to, control, manage and
improve the flow of materials and informations from
suppliers to end users”.
Council of Supply Chain Management
Professionals (former Council of Logistics
Management
):
“Supply
Chain
Management is the systemic, strategic
coordination of the traditional business
functions and the tactics across business
functions within a particular company and
across businesses within the supply chain
for the purposes of improving the longterm performance of the individual
companies and a supply chain as a whole”
(CSCMP 2005).
According to the new definition of
CSCMP
• SCM encompasses the planning and
management of all activities involved in
sourcing and procurement, conversion, and all
logistics management activities (including
coordination and collaboration with channel
partners).
• In essence SCM integrates supply chain and
demand management within and across
companies
GSCMF (Lambert and others)
• SCM is the integration of key business
processes from end user through original
supplier that provides products, services and
information that add value for customers and
other stakeholders.
• GSCMF vs. SCOR model (8 vs 5 key processes)
Supply Chain Operations Reference Model
Global Supply Chain Managgement
Forum Model (from 1996)
Customer Relationship Management (key)
Demand Management
Order Fulfillement
Manufacturing Flow Management
Supplier Relationship Management (key)
Product Development
Commercialization
Returun Management
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:
- configuration of product and network, which covers
the decisions concerning the main rules of cooperation,
- formation of the production network, mainly the
choice of production facility and warehousing locations
as well as their capabilities,
- product design with involvement the research and
development abilities of suppliers,
- process optimization in order to reduce cycle times
and inventory level in the cost-effective way.
The product- relationship SCM matrix
Keiretsu and Kaizen as a source of the development of Supply Chain Management in Japan
KEIRETSU
JIT
JIT
JIT
JIT
TQM
TQM
TQM
TQM
Kanban
Kanban
Kanban
Kanban
Supplier
Producer
Wholeseler
Kaizen
Retailer
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)
Table:
The directions of SME’s changes as a links in supply chains and networks
Scope of changes in SME’s
Hierarchical supply chains
Polycentric supply network
Competences and skills
Narrow in particular
technological or functional
areas
Flexibility
Role of small retailers
Key intermediary
Low or middle
Low and passive
Wholesaler or large retail
network
Dominant logistics services
model
Self- or combined- service
model
Wide based on process
orientation, ability to
performance evaluation and
outsourcing
Middle or high
Increasing and active
Brokers or third party
logistics providers
Public logistics service
providers
Small truck companies
Source: Author’s own discription
Large number of
independent firms
Subcontractors dependent
on market leaders
New vs. Traditional logistics
• Integration (within organizational structures,
computer systems, supply chain and network)
• Strategic approach
• Outsourcing
• Globalization and virtualization
• Customer orientation
• City logistics and non- conventional
applications
EOQ simple formula (Harris, Wilson)
Economic order quantity formula helps to find
the optimal number of units which should be
ordered or made in order to minimize the
total inventory costs
Developed in 1913 by Harris and applied in
industry by Wilson
Many disadvantages and several extensions
Main assumptions (disadvatages) of
EOQ formula
• Demand and ordering cost are constant
• Maximum inventory is equal to order quantity,
new order is delivered when the inventory is zero
• Lead time is fixed
• No discount is avaliable for bigger orders
• Replenishment is delivered at once
• Lack of inflation
The required parameters to calculate
EOQ:
•
•
•
•
D – demand quantity (units per year, month, day)
P – purchase cost per each item
S – fixed cost per order
i – inventory carring cost rate related to capital invested in
inventory
• Q – order quantity
• D/Q – number of orders
How to calculate EOQ based on total
cost function?
• Total cost of inventory TC= inventory carring cost +
procurement cost
QxPxi
sxD
TC =
------------ + --------  min
2
Q
2xDx s
Q=
√
--------Pxi
Facility location factors:
A.Weber, Polander, Thunen classical theories
• Labour cost, land cost, transportation cost
• Aviability and cost of materials, energy, water
• Socio- economic factors (taxes, political
stability, import and export restrictions,
enviromental regulations, quality of life, etc.)
Analytical techniques for facility
location decisions:
• Heuristic approach (e.g. factor rating by
weights reflecting the importance of each
factor)
• Simulation models
• Cost- benefit analisis
• Center of gravity technique
Center of gravity (to find single
location that minimizes of
transportation cost)
Technika „Centrum Grawitacji”
X
S3(x3’; y3’)
S1(x1’; y1’)

Z2(x2 ; y2)
c (x,y)
Z1(x1 ; y1)
S2(x2’; y2’)
0
Y
•
•
•
•
How to calculate the coordinates for
CX and CYthe new facility
location?(Ballu, p.487)
Parameters:
Vi – volume at point i
Ri – transportation rate to or from point i
Xi and Yi – coordinates of existing locations
∑ Vi Ri Xi
∑ Vi Ri Yi
CX = -------------------CY= ------------∑ Vi Ri
∑Vi Ri
Assumptions (disadvantages) of center
of gravity technique
• Transportation rate is a linear function of
transported volume (units, tons, etc.) and the
traveling distance,
• It doese’t consider real traveling distance
which is depended on the roads availability
References:
• [1] Ballu R.H.: Business logistics management, Prentice Hall International,
New Jersey 1999
• [2] Christopher M.: Logistics and Supply Chain Management. Creating
Value – Adding Networks, Prentice Hall 2005
• [3] Gattorna J.: Living Supply Chains. How to Mobilize the Enterprise
Around Delivering What Your Customers Want, Prentice Hall, 2006
• [4] SCOR model http://supply-chain.org/
• [5] CSCMP Supply Chain Management Definitions , www.cscmp.org
• [6] Cooper R., Slagmulder R.: Supply Chain Development for the Lean
Enterprise – Inter- organizational Cost Management, Productivity Press
Portland 1999
• [7] Witkowski J.: Zarządzanie łańcuchem dostaw. Koncepcje, procedury,
doświadczenia, PWE, Warszawa 2010