McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.
LEARNING OBJECTIVES (LO)
AFTER READING CHAPTER 16, YOU SHOULD BE ABLE TO:
LO1
LO2
Recognize the relationship between
marketing channels, logistics, and
supply chain management.
Describe how a company’s supply
chain aligns with its marketing
strategy.
16-2
LEARNING OBJECTIVES (LO)
AFTER READING CHAPTER 16, YOU SHOULD BE ABLE TO:
LO3
LO4
Identify the major logistics cost and
customer service factors that
managers consider when making
supply chain decisions.
Describe the key logistics functions in
a supply chain.
16-3
LO1
SIGNIFICANCE OF SUPPLY CHAIN
AND LOGISTICS MANAGEMENT
KEY CONCEPTS

Supply Chain

Supply Chain Management

The Automotive Supply Chain
16-4
LO1
SIGNIFICANCE OF SUPPLY CHAIN
AND LOGISTICS MANAGEMENT
KEY CONCEPTS

Logistics

Logistics Management
• Cost-Effective Flow
• Customer Requirements = Service
16-5
FIGURE 16-1 Relating logistics
management and supply chain management
to supplier networks and marketing
channels
16-6
The Supply Chain
Logistics
You are here
FIGURE 16-2 The automotive supply chain
includes thousands of firms that provide the
5,000 or so parts in a typical car
16-9
FIGURE 16-A Paint industry supply chain
16-10
LO2
SIGNIFICANCE OF SUPPLY CHAIN
AND LOGISTICS MANAGEMENT
SUPPLY CHAIN MANAGEMENT AND
MARKETING STRATEGY

Aligning a Supply Chain
with Marketing Strategy
• Understand the Customer
• Understand the Supply Chain
• Harmonize the Supply Chain
with the Marketing Strategy
16-11
LO2
SIGNIFICANCE OF SUPPLY CHAIN
AND LOGISTICS MANAGEMENT
SUPPLY CHAIN MANAGEMENT AND
MARKETING STRATEGY

Aligning a Supply Chain
with Marketing Strategy
• Dell: A Responsive Supply Chain
• Wal-Mart: An Efficient Supply Chain
16-12
LO3

INFORMATION AND
LOGISTICS MANAGEMENT IN A
CUSTOMER-DRIVEN SUPPLY CHAIN
Information’s Role in Supply Chain
Responsiveness and Efficiency
• Electronic Data
Interchanges (EDIs)
• Extranet
16-13
LO3
INFORMATION AND
LOGISTICS MANAGEMENT IN A
CUSTOMER-DRIVEN SUPPLY CHAIN

Total Logistics Cost Concept

Customer Service Concept
16-15
FIGURE 16-3 How total logistics cost varies
with the number of warehouses used based
on inventory costs and transportation costs
16-17
OBJECTIVE OF INFORMATION
AND LOGISTICS MANAGEMENT
IN A SUPPLY CHAIN
• Customer Service Concept
– Customer Service – ability to satisfy users in
terms of time, dependability,
communication, and convenience
Slide 16-21
OBJECTIVE OF INFORMATION
AND LOGISTICS MANAGEMENT
IN A SUPPLY CHAIN
 Time
• Lead Time (Order Cycle or Replenishment Time)
•Recognition of need to order
•Order transmittal
•Order processing
•Documentation
•Transportation
• Quick Response or Efficient Consumer Response
•Reduce retailer’s delivery time
Slide 16-21
OBJECTIVE OF INFORMATION
AND LOGISTICS MANAGEMENT
IN A SUPPLY CHAIN
• Customer Service Concept, cont…
 Dependability – consistency of replenishment and has
3 elements: consistent lead time, safe delivery, and
complete delivery
 Communication – two-way link between buyer and
seller using status reports to monitor service and anticipate
future needs
 Convenience – minimum effort on part of buyer in doing
business and seller must remove unnecessary barriers
OBJECTIVE OF INFORMATION
AND LOGISTICS MANAGEMENT
IN A SUPPLY CHAIN
• Customer Service Standards
– Firms develop set of written standards that
serve as objective and provide benchmark
against which results are measured
– Information is collected on customers’ needs
and competitors’ practices to establish
standards and ongoing monitoring programs
Slide 16-25
FIGURE 16-4 Supply chain managers
balance total logistics cost factors against
customer service factors
16-22
LO3
INFORMATION AND LOGISTICS MANAGEMENT
IN A CUSTOMER-DRIVEN SUPPLY CHAIN
CUSTOMER SERVICE FACTORS

Dependability

Communication

Convenience
16-24
LO3
INFORMATION AND LOGISTICS MANAGEMENT
IN A CUSTOMER-DRIVEN SUPPLY CHAIN
CUSTOMER SERVICE STANDARDS
16-25
LO4
KEY LOGISTICS FUNCTIONS
IN A SUPPLY CHAIN
TRANSPORTATION

Third-Party Logistics Providers

Service Criteria
• Costs
• Dependability
• Time
• Accessibility
• Capability
• Frequency
16-27
KEY LOGISTICS FUNCTIONS IN
A SUPPLY CHAIN
• Third-Party Logistics Providers – provide
most or all of logistics functions of
manufacturers, suppliers and distributors
– Transportation
– Warehousing an materials handling
– Order processing
– Inventory management
Slide 16-29
KEY LOGISTICS FUNCTIONS IN
A SUPPLY CHAIN
• Transportation Service Criteria
 Cost
 Dependability
 Time
 Accessibility
 Capability
 Frequency
Slide 16-29
KEY LOGISTICS FUNCTIONS IN
A SUPPLY CHAIN
• Warehousing and Materials Handling
 Storage Warehouses
 Distribution Centers
 Materials Handling – high labor costs, loss
and damage
Slide 16-36
CLOSING THE LOOP:
REVERSE LOGISTICS
• Reverse Logistics – process of reclaiming
recyclable and reusable materials, returns, and
reworks from point of consumption or use for
repair, remanufacturing, redistribution, or
disposal
– Ecological and economical
Slide 16-41
KEY LOGISTICS FUNCTIONS IN
A SUPPLY CHAIN
•
Transportation Modes
1.
2.
3.
4.
5.
6.
Railroads
Motor carriers
Air carriers
Pipeline
Water carriers
Intermodal
Slide 16-29
LO4
KEY LOGISTICS FUNCTIONS
IN A SUPPLY CHAIN
TRANSPORTATION

Railroads
• Intermodal Transportation
• Piggy-Back or Trailer
on Flatcar (TOFC)
• Containers
16-33
LO4
KEY LOGISTICS FUNCTIONS
IN A SUPPLY CHAIN
TRANSPORTATION

Motor Carriers

Air Carriers and
Express Companies

Freight Forwarders/
Express Companies
16-34
LO4
KEY LOGISTICS FUNCTIONS
IN A SUPPLY CHAIN
TRANSPORTATION

Pipelines

Water
16-35
LO4
KEY LOGISTICS FUNCTIONS
IN A SUPPLY CHAIN
WAREHOUSING AND MATERIALS HANDLING

Storage Warehouses

Distribution Centers

Materials Handling
16-36
FIGURE 16-5 Advantages and
disadvantages of five modes of
transportation
16-37
LO4
KEY LOGISTICS FUNCTIONS
IN A SUPPLY CHAIN
ORDER PROCESSING

Order Processing
• Backorder
• EDI/EFT
16-38
KEY LOGISTICS FUNCTIONS IN
A SUPPLY CHAIN
• Inventory Management
 Supply Chain Inventory Strategies
• Just-In-Time (JIT) Concept
• Vendor-Managed Inventory (VMI)
Slide 16-39
KEY LOGISTICS FUNCTIONS IN
A SUPPLY CHAIN
• Order Processing
– Order transmitted – Internet, extranet, or
EDI
– Entered into appropriate databases and sent
to those needing it
– Inventory checked for availability
– If out of stock, backorder is created
– Customer credit checked, all documentation
prepared, transportation arranged, and
order confirmation sent
Slide 16-36
LO4
KEY LOGISTICS FUNCTIONS
IN A SUPPLY CHAIN
INVENTORY MANAGEMENT

Reasons for Inventory

Inventory Costs
• Capital Costs
• Storage Costs
• Inventory
Service Costs
• Risk Costs
16-41
LO4
KEY LOGISTICS FUNCTIONS
IN A SUPPLY CHAIN
INVENTORY MANAGEMENT

Supply Chain Inventory Strategies
• Just-in-Time (JIT) Concept
• Vendor-Managed Inventory (VMI)
16-42
LO4

CLOSING THE LOOP:
REVERSE LOGISTICS
Reverse Logistics
16-43
Logistics
Logistics consists of those
activities that focus on getting the
right amount of the right products
to the right place at the right time
at the lowest possible cost.
16-44
Logistics Management
Logistics management is the
practice of organizing the costeffective flow of raw materials,
in-process inventory, finished goods,
and related information from point of
origin to point of consumption to
satisfy customer requirements.
16-45
Supply Chain
A supply chain consists of a
sequence of firms that perform
activities required to create and
deliver a good or service to
consumers or industrial users.
16-46
Supply Chain Management
Supply chain management
is the integration and organization
of information and logistic
activities across firms in a supply
chain for the purpose of creating
and delivering goods and services
that provide value to consumers.
16-47
Electronic Data Interchanges (EDIs)
Electronic data interchanges
(EDIs) combine proprietary
computer and telecommunication
technologies to exchange
electronic invoices, payments,
and information among suppliers,
manufacturers, and retailers.
16-48
Total Logistics Cost
Total logistics cost consists of
expenses associated with
transportation, materials handling
and warehousing, inventory,
stockouts (being out of inventory),
order processing, and return
goods handling.
16-49
Customer Service
Customer service is the ability
of logistics management to satisfy
users in terms of time,
dependability, communication, and
convenience.
16-50
Lead Time
Lead time is the lag from ordering
an item until it is received and
ready for use or sale. Also called
order cycle time or replenishment
time.
16-51
Quick Response
Quick response, in inventory
management systems, are designed to
reduce the retailer’s lead time for
receiving merchandise which then lowers
a retailer’s inventory investment, improves
customer service levels, and reduces
logistic expenses. Also called efficient
consumer response.
16-52
Efficient Consumer Response
Efficient consumer response, in
inventory management systems, are
designed to reduce the retailer’s lead
time for receiving merchandise which
then lowers a retailer’s inventory
investment, improves customer service
levels, and reduces logistic expenses. Also
called quick response.
16-53
Third-Party Logistics Providers
Third-party logistics providers
are firms that perform most or
all of the logistics functions that
manufacturers, suppliers, and
distributors would normally
perform themselves.
16-54
Just-In-Time (JIT) Concept
The just-in-time (JIT) concept
is an inventory supply system that
operates with very low inventories
and requires fast, on-time delivery.
16-55
Vendor-Managed Inventory (VMI)
Vendor-managed inventory is
an inventory-management system
whereby the supplier determines
the product amount and
assortment a customer (such as
a retailer) needs and automatically
delivers the appropriate items.
16-56
Reverse Logistics
Reverse logistics is a process
of reclaiming recyclable and
reusable materials, returns, and
reworks from the point of
consumption or use for repair,
remanufacturing, redistribution,
or disposal.
16-57