Chapter 1 & 2
Business Logistics/Supply Chain:
- A Vital Subject
- Strategy and Planning
IBE Business Process
Blockweek 1 2008-2009
1
Introduction
IBE Business Process
Business Processes/Logistics
■ Introduction course
■
■
■
■
■
Content / course manual
Lectures, exercises, exam
Literature & planning
Attendance & nameplates
Sheets
2
Introduction
Business Processes week 1
■
■
■
■
Business Logistics in practice;
Lecture week 1: chapter 1 & 2:
■ Supply Chain
■ Business Logistics / Supply Chain
■ Significance of Logistics
■ Scope and Processes in the Supply Chain
■ Corporate and Logistics Strategy & Objective
■ Logistics concepts
■ Cost conflicts in Logistics
■ Supply Chain Strategies
Instruction lecture & homework
Introduction lecture 2
3
Business Logistics/Supply
Chain—A Vital Subject
The supply chain is simply another way of
saying “the whole process of business.”
Chapter 1
CR (2004) Prentice Hall, Inc.
4
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 Nichols5
CR (2004) Prentice Hall, Inc.
The Immediate Supply Chain for an
Individual Firm
Transportation
Warehousing
Transportation
Customers
Information
flows
Factory
Transportation
Vendors/plants/ports
Warehousing
CR (2004) Prentice Hall, Inc.
Transportation
6
1-2
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.
CR (2004) Prentice Hall, Inc.
7
The Supply Chain is MultiEnterprise
Scope
in reality
Focus
Company
Suppliers
Customers
Customers/
End users
Supplier’s
suppliers
Acquire
Convert
Distribute
Product and information flow
CR (2004) Prentice Hall, Inc.
8
Significance of Logistics
• Costs are high
− 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
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Effect on Logistics Foreign
Outsourcing
Domestic sourcing
Profit
G&A
Marketing
Logistics
Overhead
Foreign sourcing
Profit
G&A
Increase
Marketing
Logistics
Increase
Tariffs
Overhead
Materials
Materials
Labor
Reduction
Labor
10
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
CR (2004) Prentice Hall, Inc.
11
CONTROLLING
Customer
service goals
• The product
• Logistics service
• Ord. proc. & info. sys.
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
CR (2004) Prentice Hall, Inc.
12
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
CR (2004) Prentice Hall, Inc.
13
Logistics/Supply Chain
Strategy and Planning
“If you don’t know where you want to go, any
path will do.”
Chapter 2
CR (2004) Prentice Hall, Inc.
14
Corporate Strategy
• Strategy is the process whereby plans are formulated for
positioning the firm to meet its objectives.
• Strategy formulation begins with defining a corporate
strategy. This involves:
a.Assessing needs, strengths, and weaknesses of the 4
major components:
- customers
- suppliers
- competitors
- the company itself
b."Visioning" where counter -intuitive, unheard of, and
unconventional strategies are considered.
• Corporate strategies are converted to more specific
strategies for the various functional areas of the firm such as
logistics.
CR (2004) Prentice Hall, Inc.
15
Logistics Strategy
• The objectives of logistics strategy are:
- Minimize cost
- Minimize investment
- Maximize customer service
Use
ROLA
• Levels of logistical planning:
- Strategic
- Tactical
- Operational
• The 4 problem areas of supply chain planning
- Customer service levels
- Facility location
- Inventory decisions
- Transportation decisions
Recall the
logistics strategy
triangle
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Logistics Strategy
• When to plan?
- No distribution network currently exists.
- There has been no re-evaluation in 5 years.
- When costs are changing rapidly, especially transport & inventory.
- When markets have shifted.
- When current distribution economics encourage shifts.
- When there has been a major policy shift in logistics such as in price,
customer service, or investment level.
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Logistics’ Objective
Maximize return on logistics
assets (ROLA)
Logistics’
contribution
to sales
Costs of
logistics
operations
ROLA =Revenue−Costs
Assets
Investment
in logistics
assets
CR (2004) Prentice Hall, Inc.
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Six Concepts for Logistics
Strategy Formulation
•
Total cost concept
Tradeoff conflicting costs at optimum
•
Differentiated distribution
Not all products should be provided the same level of
customer service
•
Mixed strategy
A pure strategy has higher costs than a mixed strategy
•
Postponement
Delay formation of the final product as long as possible
•
Shipment consolidation
Smaller shipment sizes have disproportionately higher
transportation costs than larger ones
•
Product standardization
Avoid product variety since it adds to inventory
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Cost, in dollars
A Cost Conflict in Logistics
Total cost
Cost of
transportation
service
Inventory cost
(includes
storage and
intransit
Rail
Truck
Air
Transportation service
(greater speed and dependability)
CR (2004) Prentice Hall, Inc.
20
More Cost Conflicts
Revenue
Transportation,
order processing,
and inventory
costs
Revenue
Total costs
Cost
Cost
Total costs
Inventory
costs
Lost sales cost
Transportation costs
0
0
Improved customer service
100%
(a) Setting the customer service level
0
0
Increasing number of stocking points
(b) Determining the number of warehouses in a logistics
system
Cost
Total costs
Cost
Total costs
Inventory
carrying
costs
Inventory
carryng cost
Lost sales cost
0
0
Production costs
0
Average inventory level
(c) Setting safety stock levels
Product run length and product sequencing
altenatives
(d) Setting the sequence of production runs for
multiple products
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2-10
Choosing the Right Supply Chain
Strategy
Low margin
Efficient supply
chain
Responsive
supply chain
Functional
Products-Predictable
demand
Innovative
Products-Unpredictable
demand
Staple food
products
Electronic
equipment
High margin
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Choosing the Right Supply Chain
Strategy
Efficient supply
chain
Supplyto-stock
Responsive
supply chain
Supplyto-order
Economical production runs
■ Finished goods inventories
■ Economical buy quantities
■ Large shipment sizes
■ Batch order processing
■
Excess capacity
■ Quick changeovers
■ Short lead times
■ Flexible processing
■ Premium transportation
■ Single order processing
■
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Actions for Misclassified Products
Product Characteristic
Supply Chain
Design Type
Predictable/ Mature
Supply-to-Stock/
Efficient
Tomato Soup
If product is here
Supply-to-Order/
Responsive
If product is here
Personal
Computer Models
CR (2004) Prentice Hall, Inc.
Unpredictable/
Introductory
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Exercises & homework
Exercises for today
■ Chapter 1: question 12.
■ Chapter 2: question 13
Next lecture week 2:
■ Read chapter 9
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