Marketing and Logistics
MARKETING
Product
Promotion
Price
Place/customer
service levels
Inventory
Transportation
Procurement
Warehousing
Order processing
and information
1
Logistics Operations
Production
Scheduling
Demand
Purchase
Transportation
2
Value-Added Functions of
Logistics
Production
Location
Logistics
Control
Time
3
Evolution of Logistical Integration, 19602000
Demand Forecasting
1980s
Purchasing
Requirements Planning
Materials
Management
Production Planning
1990s
Manufacturing Inventory
2000s
Warehousing
Logistics
Materials Handling
Supply Chain
Management
Packaging
Inventory
Distribution Planning
Order Processing
Physical
Distribution
Information Technology
Transportation
Marketing
Customer Service
Strategic Planning
4
The goal of supply chain
management
“To manage upstream and
downstream relationships with
suppliers and customers in order to
create enhanced value in the final
market place at less cost to the supply
chain as a whole.”
5
Changes in Global Trade Flows
Before 1990
After 1990
Developed Countries
Developed Countries
Developing Countries
Developing Countries
Industrial Pole
Flows of merchandises
Flows of raw materials
6
Maritime Routes and Strategic
Locations
Gibraltar
Bosporus
Suez
Hormuz
Bab el-Mandab
Panama
Malacca
Good Hope
Magellan
7
Major Economic Blocs, 2005
EU
EU Expansion
NAFTA
Mercosur
Andean Pact
ASEAN
EFTA
CAFTA
Caricom
Central America
Europe
8
Levels of Economic Integration
Political
Union
Economic
Union
Common government
Common currency, harmonized tax
rates, common monetary and fiscal
policy: EU (partial)
Factors of production move freely
between members
Common
Market
Customs
Union
Common external tariffs
Free
Trade
Free trade between members: NAFTA,
Mercosur, ASEAN (partial)
Complexity
9
Global Exports of
Merchandises, 1963-2003
100%
80%
Manufactured products
Mineral products
Agricultural products
60%
40%
20%
0%
1963
1975
1990
1994
2000
2003
10
Trade as Share of GDP
Less than 20%
20% to 40%
40% to 60%
60% to 100%
100% to 150%
More than 150%
Not Available
11
International Trade and
Transportation Chains
International Trade
A
B
Trade barrier
Origin
Assembly
A
Destination
Disassembly
Transport Chain
Rail
Maritime
Transshipment
Road
B
Customs
12
Average Tariffs after the
Uruguay Round (%)
Metals
Nonelectrical machinery
Wood, paper & furniture
Other manufactured articles
Electrical machinery
Chemical & photographic supplies
Leather, footwear & travel goods
Fish & fish products
Transport equipment
Mineral products
Reduction
Tariff
Textiles & clothing
All industrial products
0
10
20
30
40
50
60
70
13
“Platform” Corporation
14
Complexity of the Supply Chain
National Supply Chain Simple
Complex
Multinational Supply Chain
National
Factory
Distribution center
Representative
High-throughput
DC
15
Share of Containerized Cargo in
Global Trade, 1980-2000
800
700
Containerized Cargo
Other General Cargo
Million tons
600
500
400
300
200
100
0
1980
1985
1990
1995
2000
16
Product Life Cycle
Competition
Sales
Monopoly
Idea
Promotion
Research and
development
Stage 1
First competitors
Mass production
Decline of
production
Growth
Maturity
Decline
Stage 2
Stage 3
Stage 4
17
Product Life Cycle of a
Television, 1960-1996
12
Low
Medium
High
10
Years
8
6
4
2
0
1960
1980
1990
1996
18
Shorter life cycles make timing crucial
Market
Late Entrant
Sales
Obsolescent
Stock
Time
• Less time to make profit
• Higher risk of obsolescence
19
The role of cash in creating
shareholder value
“the value of a company is determined by the
discounted value of the cash that can be
taken out of the business during its
remaining life”
Warren Buffet
20
Logistics impact on operating income
Income statement
Logistics variable
Net sales
Customer service
Purchasing strategy
Costs of goods sold
Capacity scheduling and control
Order processing
Transportation
Selling and administration
expense
Warehousing
Inventory control
Packaging
Support activities
Interest expense
Income before tax
Inventory carrying cost
21
Logistics impact on the balance sheet
Balance sheet
Logistics variable
Assets
Cash
Order cycle time
Order completion rate
Receivables
Invoice accuracy
Inventories
Inventory
Property, plant and
equipment
Distribution facilities and equipment
Liabilities
Current liabilities
Debt
Equity
Plant and equipment
Purchase order quantities
Financing options for inventory Plant
and equipment
22
Routes to improved shareholder value
Boost shareholder value
Raise return on capital
Net income increase
Revenue growth
Cost optimisation
Capital reduction
Working capital
Fixed assets
Innovation
Sourcing
Inventory
Network
Customer relationship
management
Production
Receivables
Facilities
Logistics
Payables
Real estate
Integrated supply chain
23
Source : Mercer Management Consulting
Logistics and economic value added
Material &
Purchases
Sales
+
Net
operating
profit
Labour
Cost of
sales
+
Overheads
Economic
value
added
Cost of
debt
True cost
of capital
Inventory
Cost of
equity
+
Net
receivables
Net working
capital
+
+
Cash
Fixed
assets
x
Capital
charge
Capital
employed
24
Total Freight Costs for Imports in
World Trade (% of Total Costs)
Oceania
Europe
Asia
America
Africa
Developing Countries
Developed Countries
2000
1990
Word
0
2
4
6
8
10
12
14
25
Market Share by Freight Transport Mode,
Western Europe, 1980-2002 (in ton-km)
100%
90%
80%
70%
60%
Inland Waterways
Road
Rail
50%
40%
30%
20%
10%
0%
1980
1985
1990
1995
2000
2002
26
Logistical Improvements, Manufacturing Sector,
1960-2000
40
Logistics Costs (% GDP)
18
Inventory Costs (% GDP)
16
Cycle Time Requirements (days)
% of GDP
14
35
30
12
25
10
20
8
15
6
Days
20
10
4
2
5
0
0
1960s
1970s
1980s
1990s
2000s
27
Worldwide Logistics Costs
6%
4%
39%
24%
Transportation
Warehousing
Inventory Carrying
Order Processing
Administration
27%
28
Logistics Costs and Economic
Development
Agriculture
Logistics Costs / GNP
Argentina Brazil
Kenya
Mining
Industry
Services
Information
Poland
Ukraine
Belgium
Canada
Japan
Singapore United States
Economic Development
29
Logistical Cost Trade-off
cost
total distribution costs
inventory costs
storage costs
transport costs
no. of warehouses
30
From Push to Pull Logistics
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Freight flow
Manufacturer
Manufacturer
3PL
Distributor
Distributor
Customer
Push
Returns / Recycling
Pull
Point-of-sale data
Customer
31
Average Order Lead Times of European
Manufacturers, Wholesalers, and Retailers
30
25
Days
20
15
10
5
0
1985
1990
1995
2000
2005
32
Changes in the Relative
Importance of Logistical Functions
in Distribution Systems
Demand Driven
Inventory
Transport System
Information System
Supply Driven
0%
20%
40%
60%
80%
100%
33
Conventional and Contemporary
Arrangement of Goods Flow
Conventional
Raw
Materials
Manufacturing
Distribution
Local
National
Regional
Retailers
Distribution Storage Distribution
Storage
Customers
Raw Materials & Parts
Contemporary
Raw
Materials
Material flow (delivery)
Manufacturing
Distribution
Center
Retailers
Customers
Supply Chain Management
Core component
Information flow (order)
34
The Global Car Production Network
Mazda
Jaguar
Isuzu
Land Rover
Suzuki
Vauxhall
Ford
Volvo
Skoda
Daewoo
Lancia
VAG
Seat
VW
Dailmer Chrysler
GM
Aston Martin
Bentley
Mercedes Benz
Opel
Maserati
Fiat
Audi
Ferrari
Equity ownership
Joint venture
Equity relationship
Functionally integrated group
Daihatsu
Citroen
Renault
Jeep
Toyota
Alfa Romeo
Porsche
Nissan
Chrysler
Saab
PSA
BMW
Rolls Royce
Honda
Peugeot
Hyundai
Mitsubishi
35
The Automobile Supply Chain
Supplying
industries
Steel and
other metals
Rubber
Electronics
Bodies
Manufacture and
stamping of
body panels
Body assembling
and painting
Components
Manufacture of mechanical and electrical
components (wheels, tires, seats, breaking
systems, windshields, exhausts, etc.)
Final
Assembly
Consumer
market
Plastic
Glass
Textiles
Engines and transmissions
Forging and casting of
engine and transmission
components
Machining and
assembly of engines
and transmissions
36
Cereals Supply Chain
Manufacturing
Extraction
Farm
Grain
Processing
Facility
Cereal
Distribution and Retailing
Packaged Cereal
Converter
Paperboard
Packaging
Wood Pulp
Wood Pulp
Mfg
Distributor
Store
Packaged Cereal
Wood Pulp
Label Mfg
Labels
37
Third and Fourth Party Logistics
Providers
38
Ten Largest Global Logistics
Service Providers
Deutsche Post Fracht
Employees (thousands)
Revenue (Billion $US)
Panalpina
Maersk Moeller
Danzas
Kuhne & Nagel
NFC/Exel
Deutsche Bahn Cargo
TNT Post Group
Schenker
GEODIS
0
5
10
15
20
25
30
35
40
45
50
39
Distributors
Recyclers
Collectors
Suppliers
Producers
Consumers
Forward and Reverse
Distribution
Forward Channel
Reverse Channel
40
Characteristics of Large-scale Distribution
Centers
Size
Larger
More throughput and less warehousing.
Facility
One storey; Separate
loading and unloading
bays
Sorting efficiency.
Land
Large lot
Parking space for trucks; Space for
expansion.
Accessibility Proximity to highways
Constant movements (pick-up and
deliveries) in small batches; Access to
corridors and markets.
Market
Regional / National
Less than 48 hours service window.
IT
Integration
Sort parcels; Control movements from
receiving docks to shipping dock;
Management systems controlling
transactions.
41
Cross-Docking Distribution Center
Before Cross-Docking
Distribution Center
Suppliers
Suppliers
LTL
Customers
Receiving
Sorting
After Cross-Docking
Shipping
TL
Cross-Docking
DC
TL
Customers
42
National Semiconductors, Supply Chain,
1993, 2001, 2005
Bangkok (Thailand)
Santa Clara
Santa Clara (CA)
Penang (Malaysia)
South Portland
Melaka (Malaysia)
Swindon (UK)
Toa Payoh (Singapore)
Hong Kong
Cebu (Philippines)
Tokyo
Salt Lake City (UT)
Arlington (TX)
Greenock (Scotland)
Migdal Haemek (Israel)
Customers
Regional Distribution Centers (1993)
South Portland (Maine)
Global Distribution Center (2001)
Bangkok (Thailand)
South Portland (Maine)
Penang (Malaysia)
Santa Clara (CA)
Salt Lake City (UT)
Melaka (Malaysia)
Arlington (TX)
Toa Payoh (Singapore)
Greenock (Scotland)
Cebu (Philippines)
Singapore (GDC)
Supply Chain Rationalization (2005)
South Portland (Maine)
Melaka (Malaysia)
Arlington (TX)
Toa Payoh (Singapore)
Greenock (Scotland)
Suzhou (China)
Wafer Fabrication
Assembly & Testing
Singapore (GDC)
Distribution Center
43
Gaining competitive advantage
“A business is profitable if the value it
creates exceeds the cost of
performing the value activities. To
gain competitive advantage over its
rivals, a company must either perform
these activities at a lower cost or
perform them in a way that leads to
differentiation and a premium price
(more value).”
Michael Porter 44
Achieving an integrated
supply chain
Stage One: Baseline
Material
flow
Purchasing
Customer
service
Material
Control
Production
Stage Two: Functional Integration
Material
flow
Materials
Management
Manufacturing
Management
Manufacturing
Management
Distribution
Customer
service
Distribution
Stage Four: External Integration
Material
flow
Suppliers
Internal Supply
Chain
Distribution
Customer
service
Stage Three: Internal Integration
Material
flow
Materials
Management
Sales
Customer
service
Customers
45
The two dimensions of supply
chain excellence
• Cost advantage :
Lower end-to-end delivered cost
• Value advantage :
Creating superior customer value
through enhanced service
46
Supply chain excellence
High
Relative
Customer
Value
Low
High
Relative
Delivered Cost
Low
47
Gaining competitive advantage
through logistics
Value Advantage
Logistics Leverage Opportunities:
• Tailored service
• Reliability
• Responsiveness, etc
Cost Advantage
Logistics Leverage Opportunities:
• Capacity utilisation
• Asset turn
• Schedule integration
48
How long is the logistics
pipeline?
Cumulative
Lead-Time
(Procurement
to Payment)
Raw Material Stock
Sub-Assembly Stock
Intermediate Stock
Product Assembly
Finished Stock at Central Warehouse
In-Transit
Regional Distribution Centre Stock
Customer Order Cycle (Order-Cash)
49
Logistics and E-commerce
Supply chain
Warehousing
E-Retailer
Warehousing
Retailer
Customers
Customers
E-Logistics
Traditional Logistics
Supply chain
50
Shifts of Logistical Operations in the Internet
economy
Traditional logistics
E-logistics
Orders
Predictable
Variable
Order cycle time
Weekly
Daily or hourly
Customer
Strategic
Broader base
Customer service
Reactive, rigid
Responsive, flexible
Replenishment
Scheduled
Real-time
Distribution model
Supply-driven (push)
Demand-driven (pull)
Demand
Stable, consistent
More cyclical
Shipment type
Bulk
Smaller lots
Destinations
Concentrated
More dispersion
Warehouse reconfiguration
Weekly or monthly
Continual, rules-based
International trade compliance
Manual
Automated
51
Producer and Buyer-driven Commodity Chains
Producer-driven
Manufacturers
Distributors
Retailers and
Dealers
Domestic and foreign
subsidiaries and
subcontractors
Buyer-driven
International
National
Branded
Marketers
Traders
Factories
Retailers
Overseas
Buyers
Branded
Manufacturers
52
Producer-Driven and Buyer-Driven
Global Commodity Chains
Producer-Driven Commodity Chains
Buyer-Driven Commodity
Chains
Drivers of Global
Commodity Chains
Industrial Capital
Commercial Capital
Core Competencies
Research & Development; Production
Design; Marketing
Barriers to Entry
Economies of Scale
Economies of Scope
Economic Sectors
Consumer Durables; Intermediate Goods;
Capital Goods
Consumer Nondurables
Typical Industries
Automobiles; Computers; Aircraft
Apparel; Footwear; Toys
Ownership of
Manufacturing Firms
Transnational Firms
Local Firms, predominantly in
developing countries
Main Network Links
Investment-based
Trade-based
Predominant Network
Structure
Vertical
Horizontal
53
Benefits of Demand-Driven Supply Systems
Cause
Consequence
Inventory turnover
Working capital
Customer service
Net income
Labor productivity
Operating expenses
Capacity utilization
Return on assets
Logistics costs
Operating expenses
54