Topic 6 – Logistics and Supply Chain Management A – Logistics and Value Chains B – Distribution Facilities C – Distribution Systems

A – The Role and Function of Logistics Read section 1

Is there a difference between logistics and supply chain management? Yes and no… A wide set of activities dedicated to the transformation and distribution of goods, from raw material sourcing to final market distribution as well as the related information flows. Physical distribution Activities involved in the movement of goods from points of production to final points of sale and consumption. Materials management Activities involved in the manufacturing of commodities in all their stages of production along a supply chain.

The Concept of Logistics Derived Demand Logistics Materials Management Physical Distribution Manufacturing Sourcing Inventory Packaging Recycling/Reusing Transportation Warehousing Wholesale Retail Induced Demand Read this content

Logistics Goals and Operations Read this content Fulfillment (Goals) Order Right product Right quantity Delivery Right location Right time Quality Right condition Cost Right price Demand (Operations) Transportation Handling Packaging Stock Management Production scheduling Warehousing Orders Processing Sales Purchase

The Supply Chain and its Cycles Customer Customer Order Cycle Retailer Inventory Time Replenishment Cycle Distributor Manufacturing Cycle Manufacturer Procurement Cycle Supplier

A Simple Distribution between a Supplier and a Customer… Source: P.O. Roberts (2003) Supply Chain Management: New Directions for Developing Economies, PSD Professionals’ Forum.

… can Generate a Large Amount of Logistics Activity Source: P.O. Roberts (2003) Supply Chain Management: New Directions for Developing Economies, PSD Professionals’ Forum.

Value Added by Logistics Read this content Production Costs Improved efficiency of manufacturing with appropriate shipment size, packaging and inventory levels. Location Taking better advantage of various locations, implying access to expanded markets (more customers) and lower distribution costs. Time Having goods and services available when required along the supply chain. Control Better marketing and demand response.

Supply Chain Differentiation: Selective Performance Preferences Explain how logistics adds value and how supply chains are differentiated. Costs Stability of the cost structure. Dependent on the cargo being carried. Time Influence inventory carrying costs and inventory cycle time. Routing options in relation to value / perishability. Reliability Stability of the distribution schedule. Reliability can mitigate time. Risk Level of confidence that the shipment will reach its final destination within expected costs, time and reliability considerations.

Logistical Improvements, Manufacturing Sector, 1960s to 2010s Read this content Source: Logistics Management & Distribution, 1999. http://www.logisticsmgmt.com/ Cycle time: The amount of time required from receipt of an order from a customer to shipment of the completed goods.

Logistic Performance Index, 2016 Read this content

Worldwide Logistics Costs, 2002 Read this content What are the main components of logistics costs and what do they mean? Source: Adapted from P.O Roberts, Supply Chain Management: New Directions for Developing Economies, http://www.worldbank.org/html/fpd/transport/ports/trf_docs/new_dir.pdf Warehousing costs: fixed costs of owning or leasing warehousing space. They vary according to the number and the size of facilities and are irrespective of the amount of inventory being handled. Inventory carrying costs: variable costs of maintaining inventory in a warehouse (utilities, insurance, taxes, labor costs). It varies according to the volume handled.

Logistics Costs and Economic Development Read this content Source: World Bank for GDP data (in current dollars). Various sources for logistics costs.

Logistics Costs, United States, 1980-2017 (in billions of $) Source: Council of Supply Chain Management Professionals, State of Logistics Report, (after 2012). Logistics Management & Distribution Report (before 2012). https://leanlogisticsblog.files.wordpress.com/2012/06/logistics-system-cost.png

From Push to Pull Logistics Read this content Push Pull Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier Freight flow Manufacturer Manufacturer 3PL Distributor Returns / Recycling Distributor Customer Point-of-sale data Customer

Main Actors of the Logistics Chain Cargo owners Carriers Logistics service providers Lead logistics providers & consultants

Layers to Logistics Services Read this content Actors Services 1PL 2PL 3PL 4PL Cargo owners Manufacturing, Retailing Carriers Transportation Logistics service providers Service integration Logistics Lead logistics providers & consultants Supply chain management Supply chain integration

Value Chains Definition Functionally integrated network of production, trade and service activities. Covers all the stages in a supply chain: Transformation of raw materials. Intermediate manufacturing stages. Delivery of a finished good to a market. A series of nodes, linked by transactions, such as sales and intra firm transfers. Each successive node involves the acquisition or organization of inputs for the purpose of added value.

The Commodity Chain (or Value Chain) Read this content Stages Market 1- Commodities 2- Intermediate Goods 3- Final Goods Distribution center Raw materials Manufacturing and assembly Distribution Storage Warehouse Attributable to climatic (agricultural products, forestry products) or geological (ores and fossil fuels) conditions. Transformation that confers added value. Materials and parts used to make other goods. Goods shipped to large consumption markets (cities). Flow and inventory management. Flows Market Bulk shipping Unit shipping LTL shipping Transport Chain High volumes Low frequency Average volumes High frequency Low volumes High frequency Explain the three main stages of a value chain

Benefits of Improved Freight Transportation on Value Chains Direct Read this content Cost reductions to carriers and shippers. Reduced transit times. Increased reliability of shipments. Indirect Source: adapted from ICF Consulting (2002) Economic Effects of Transportation: The Freight Story. http://www.icfconsulting.com/Publications/doc_files/FHWA%20Freight%20Story.pdf Improvements in logistics and sourcing. Lower inventory levels and costs. Induced Lower costs for suppliers and customers. Improved diversity of parts and goods.

Value Chains and Types of Transported Freight Read this content Raw materials Semi-finished products Manufactured goods Extraction Intra-industrial linkages Distribution Transfer Processing Manufacturing Retailing

Commodity Chains and Added Value Read this content High R&D Fabrication Sales / Services Design / Branding Marketing Added Value Source: Adapted from the Stan Shih “Smile Curve” concept. Procurement Distribution Manufacturing Concept Logistics Low Value Chain Pre-Production (Intangible) Production (Tangible Activities) Post-Production (Intangible) Global value chains involves competition over three main dimensions. What are they?

Short Assignment: Logistics Goals and Operations Logistics has several goals. Explain what they are and how they are achieved.