MCQ QUIZ 1 MONDAY, JUNE 15 @ 10:45

Saturday, June 13 Case Presentations Group 30: OUTSOURCING OF HOSPITAL SERVICES page 213 Group 31: HELLO, WAL-MART? Page 395

SUPPLY CHAIN AND LOGISTICS MANAGEMENT Dr. Charles Amoatey GIMPA Consultancy Services Email:charlesamoatey@yahoo.com Tel: 024 975 9933

Learning objectives Explain what supply chain and logistics management are and how they relate to marketing strategy Understand the distinction between supply chain responsiveness and efficiency Explain how managers trade off between different “logistics costs” relative to customer service in order to make a supply chain decision. Recognise how customer service in logistics decision contributes to customer value and successful marketing programs Describe the key logistics function of transportation, warehousing and material handling, order processing and inventory management and the role of third party logistics providers

Relating marketing channels logistics management, and supply chain management

Logistics 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

Logistics Management Organising the cost-effective flow of raw materials in-process inventory finished goods related information from point of origin to point of consumption to satisfy customer requirements.

Elements of this logistic management Flow of the product Cost-effective manner Satisfying customer requirements

Supply Chain Sequence of firms that perform activities required to create and deliver a good or service to consumers or industrial users. Differs from marketing channel Includes suppliers of raw materials wholesalers Retailers

Supply Chain Management is the integration and organization of information and logistics activities across firms in a supply chain For the purpose of creating and delivering goods and services that provide value to consumers.

Supply chain activities Strategic Strategic network optimisation Stragetic partnership Information technology infrastructure Make-or-buy decisions Alignment of organisation strategy with supply strategy Tactical Sourcing contracts Production decisions Inventory decisions Transportation strategy Operational Daily production and distr. Planning Demand planning and forecasting Order promising

Relating marketing channels logistics management, and supply chain management

Generalized Supply Chain Model SUPPLIER NETWORK INTEGRATED ENTERPRISE DISTRIBUTIVE Information, Product, Service, Financial and Knowledge Flows M A T E R I L S Capacity, Information, Core Competencies, Capital and Human Resources Relationship Management Procurement Manufacturing Distribution N D C O U

Sourcing, Assembling and Delivering a New Car: The automotive supply chain Logistical activities are an integral part of the supply chain, including transportation, order processing, inventory control, materials handling, information technology.

Sourcing, Assembling and Delivering a New Car: The automotive supply chain Logistics are also critical to marketing of automobiles–including Transportation of cars and parts to dealers, Operation of distribution centers Management of finished good inventories Order processing for sales. Logistics cost an estimated 25% to 30% of the retail price of a typical new car

SIGNIFICANCE OF SUPPLY CHAIN AND LOGISTICS MANAGEMENT Supply Chain Management and Marketing Strategy Determine if supply chain needs to be More responsive More efficient in meeting customer requirements

Aligning a Supply Chain with Marketing Strategy Understand the customer Identify the needs of the customer segment being served. Needs help to define the relative importance of efficiency and responsiveness Understand the supply chain Understand what a supply chain is designed to do well. Some emphasize being responsive to customer requirements and demand Some emphasize efficiency with a goal of supplying products at the lowest possible delivered cost.

Aligning a Supply Chain with Marketing Strategy Harmonize the supply chain with the marketing strategy Ensure that what the supply chain is capable of doing well is consistent with the targeted customer’s needs and its marketing strategy. If a mismatch exists Company will either need to redesign the supply chain to support the marketing strategy Change the marketing strategy. A poorly designed supply chain can do serious damage to an otherwise brilliant marketing strategy. Dell Computer Corporation: A Responsive Supply Chain Wal-Mart, Inc.: An Efficient Supply Chain Cross docking

INFORMATION & LOGISTICS MANAGEMENT OBJECTIVE IN A SUPPLY CHAIN Information’s Role in Supply Chain Responsiveness and Efficiency Electronic data interchanges Total Logistics Cost Concept Customer Service Concept and Standards

Information’s Role in Supply Chain Responsiveness and Efficiency Data and analysis regarding Inventory Transportation Distribution facilities Customers Throughout the supply chain.

Information’s Role in Supply Chain Responsiveness and Efficiency Data information Improves efficiency and responsiveness Able to forecast customer needs and produce transport store the required amount of inventory

Information’s Role in Supply Chain Responsiveness and Efficiency Electronic data interchanges (EDI)Inventory Combine proprietary computer and telecommunication technologies Exchange electronic invoices, payments, and information among suppliers, manufacturers, and retailers. Linked with store scanning equipment and systems Electronic link from a retail checkout counter to suppliers and manufacturers. WHAT ARE THE BENEFITS OF EDI? Enterprise resource planning (ERP) technology

EDI Benefits EDI provides speed EDI reduces paper work EDI improves accuracy EDI reduces costs EDI improves operational efficiency

Information’s Role in Supply Chain Responsiveness and Efficiency Extranet Internet based network Permits secure communication between Manufacturer Suppliers Distributors Other partners. Less expensive and more flexible than EDI Because of their connection to the public Internet Enterprise resource planning (ERP) technology Manage information in a supply chain. Track logistics cost and customer service variables. Enterprise resource planning (ERP) technology

Total logistic cost concept Includes expenses associated with Transportation Materials handling Warehousing Inventory Stockouts (being out of inventory) Order processing Return goods handling Costs are interrelated Changes in one will impact the others. Efforts to maximize service and minimizing cost

How total logistics cost varies with number of warehouses used

Customer Service Concept To provide adequate customer service whiles controlling logistics costs Customer service is the ability of logistics management to satisfy users in terms of Time Convenience Dependability Communication

Customer Service Concept – 3 components Lead time Lag from ordering an item until it is received and ready for use. Also called order cycle time or replenishment time. Enhanced by electronic data and inventory systems

Customer Service Concept – 3 components Dependability Consistency of replenishment Consistent leadtime, Safe delivery Complete delivery. Essential for just-in-time inventory strategies. Communication Two-way link between buyer and seller Monitors service Anticipates future needs.

Customer Service Standards Effective supply chains usually develop written customer service standards, Objectives and provide a benchmark against which results can be measured for control purposes. Customer service standards will vary by type of firm. Type of firm Customer service standard Wholesaler at least 98% orders filled accurately Manufacturer order cycle time <5 days Retailer returns accepted within 30 days Airline at least 90% of arrivals on time Trucker a max of 5% loss/damage per year Restaurant lunch served within 5min of order

Concept Check How does consumer demand information increase supply chain responsiveness and efficiency? What is the relationship between the number of warehouses a company operates, the inventory costs and its transportation costs?

KEY LOGISTICS FUNCTIONS IN A SUPPLY CHAIN Transportation Warehouse and material handling Order processing Inventory management

Evaluating Transportation Cost Total price to move the product from the point of origin to the destination. Time Speed of transit Capability Ability of the carrier to provide the appropriate equipment and provide conditions for moving goods. What can be realistically carried with this mode?

Evaluating Transportation Dependability Reliability of service regarding time, loss, and damage; Accessibility Carrier’s ability to move goods over a specific route or network. Relative ease with which a shipment can be located and transferred. Frequency Scheduling

Railroads Unit train Dedicated to one commodity (often coal) Permanently coupled cars that run a continuous loop from a single origin to a single destination and back. Keep to a specific schedule Customers can plan on reliable delivery Usually carry products that can be loaded and unloaded quickly and automatically.

Unit trains

Railroads Intermodal transportation Combining different transportation modes to get the best features of each. Attracts high-valued freight that would normally go by truck. Truck-rail, called piggyback or trailer on flatcar (TOFC). Containers in place of trailers. Containers can be loaded on ships, trains, and truck trailers. Containers are used in international trade because they occupy less space on ocean-going vessels.

Motor Carriers Pickup and delivery nearly everywhere. Carry higher-valued shipments that are time-sensitive & costly to carry Limitations are size and weight Rates are substantially higher than rail

Air Carriers and Express Companies Costly Speed may create savings in lower inventory. Usually valuable, time-sensitive, and lightweight. Specialized firms provide ground support.

Freight Forwarders Accumulate small shipments into larger lots Hire a carrier to move them Usually at reduced rates. Shipment receives improved service at lower cost.

Freight forwarders

Advantages and disadvantages of five modes of transportation

KEY LOGISTICS FUNCTIONS IN A SUPPLY CHAIN Warehousing In storage warehouses Distribution centers

In storage warehouses Goods are intended to come to rest for some period of time, as in the aging of products or in storing household goods

Distribution Centers Designed to facilitate the timely movement of goods Second most significant cost in a supply chain after transportation. Allow holding stock in decentralized locations Facilitate sorting and consolidating products from different plants or suppliers. Some physical transformation can also take place

KEY LOGISTICS FUNCTIONS IN A SUPPLY CHAIN Material handling

Material handling Storage helps manufacturers manage supply and demand Provides time utility to buyers and sellers. Moves inventory into, within, and out of the warehouse.

Material handling The two major problems with this activity are: High labor costs. High rates of loss and damage. Every time an item is handled, there is a chance for loss or damage. Materials handling in warehouses is automated by using computers and robots to reduce the cost of holding, moving, and recording inventories

Material Handling

KEY LOGISTICS FUNCTIONS IN A SUPPLY CHAIN Order processing

Order processing Critical to providing good service and accurate record flows Processing systems are evaluated in terms of speed and accuracy. Electronic order processing dominates for most large companies Processes the requirements of the customer Sends the information into the supply chain Electronic data interchange (EDI) uses computer technology to replace the paper documents

KEY LOGISTICS FUNCTIONS IN A SUPPLY CHAIN Inventory Management Reasons for Inventory Inventory Costs Supply Chain Inventory Strategies Just-in-time (JIT) concept Vendor-managed inventory

Reasons for Holding Inventory To create a buffer against uncertainties in supply & demand To take advantage of lower purchasing and transportation cost associated with high volume To take advantage of economies of scale associated with manufacturing products in batches To build up seasonal demand for promotional sales To accommodate product flowing from one location to another (work in process or in transit) To exploit speculative opportunities for buying and selling commodities and other products

Inventory Costs Capital costs Inventory service costs Storage costs. Opportunity costs of the investment; these are related to interest rates. Inventory service costs Taxes and insurance Storage costs. Warehousing space and materials handling. Risk costs. Possible loss, damage, pilferage, perishability, and obsolescence

Supply Chain Inventory Strategies Just-in-time (JIT) Operates with very low inventories Requires fast, on-time delivery. Requires accurate demand forecasting, and is Not suitable for inventories that are to be stored over significant periods of time vendor-managed inventory (VMI) Supplier determines the product amount and assortment a customer (such as a retailer) needs and Automatically delivers the appropriate items.

CLOSING THE LOOP Reverse supply chain

Reverse Logistics Reclaiming recyclable and reusable materials, returns, and reworks from the point of consumption or use for repair, remanufacturing, redistribution, or disposal. Its effect can be seen in reduced waste in landfills and lowered operating costs for companies.

Monday, June 15 Case Presentations Group 32: MASTERTAG page 545 Group 33: PRESENT THE SUPPLY CHAIN OF A LOCAL FIRM OF YOUR CHOICE

Next Week Topic: Customer Accommodation Quiz : Sessions 1, 2 and 3 Overview of SCM