Logistics Strategy & Implementation Chapter 2

THE DEFINITION OF LOGISTICS Logistics has come a long way since the 1960s. Logistics is the flow of material, information, and money between consumers and suppliers. The big challenge is to manage the whole logistics system in such a way that order fulfillment meets or exceeds customer expectations.

Contemporary Supply Chain Pipeline

Logistics Costs as a Percentage of GDP

Inventory Sales Ratio

Value-Added Role of Logistics Referred to as the seven Rs --- Right product, Right quantity, Right condition, Right place, Right time, Right customer, and Right cost.

Fundamental Utility Creation in the Economy

Logistics in the Firm: The Micro Dimension Logistics Interfaces with Operations/Manufacturing Logistics Interfaces with Marketing Logistics Interfaces with Other Areas

Length of production runs Logistics in the Firm: Logistics Interfaces with Operations Manufacturing Length of production runs Balance economies of long production runs against increased costs of high inventories. Seasonal demand Acceptance of seasonal inventory to balance lead production times.

Supply-side interfaces Stocking adequate supplies to ensure uninterrupted production now a logistics function. Protective packaging Principal purpose is to protect the product from damage. Foreign & third party alternatives Some logistics functions are being outsourced.

Logistics Interfaces with Marketing: The Marketing Mix – Four Ps Price Product Promotion Place

Price Carrier pricing Matching schedules Volume relationships Generally, since the larger the shipment, the cheaper the transportation rate, shipment sizes should be tailored to the carrier’s vehicle capacity where possible. Matching schedules Quantity discounts should be tied to carrier quantity discounts. Volume relationships Volumes sold will affect inventory requirements

Product Consumer packaging Generally, since the size, shape, weight and other physical characteristics of the product impact on its storage, transportation and handling, the logistics managers should be included in any decisions regarding these product traits.

Promotion Push versus pull The most important factor is that the logistics division is aware of any changes in demand patterns so that it can plan for any consequences.

Place Wholesalers & Retailers Generally, since wholesalers are combining purchases for multiple retailers, the shipment sizes tend to be larger and the number of transactions that have to be processed are fewer, with the result that logistics costs are smaller.

Logistics Interfaces with Other Areas Other important interfaces now include finance and accounting. Logistics can have a major impact on return on assets and return on investment. Logistics costs reported by cost systems measure supply chain trade-offs and performance.

The five phases of logistics development Workplace Logistics Facility Logistics Corporate Logistics Supply Chain Logistics Global Logistics

Workplace Logistics Workplace logistics is the flow of material at a single workstation. The objective of workplace logistics is to streamline the movements of an individual working at a machine or along an assembly line.

Source: Bertlesmann

Facility Logistic Facility logistics is the flow of material between workstations within the four walls of a facility (that is, interworkstation and intrafacility). The facility could be a factory, terminal, warehouse, or distribution center.

Corporate Logistics Corporate logistics is the flow of material and information between the facilities and processes of a corporation (inter-workstation, inter-facility, and intra-corporate). For a manufacturer, logistics activities occur between its factories and warehouses; for a wholesaler, between its distribution centers; and for a retailer, between its distribution centers and retail stores.

Supply Chain Logistics Supply chain logistics is the flow of material, information, and money between corporations (interworkstation, interfacility, intercorporate, and intrachain).

Global Logistics Global logistics is the flow of material, information, and money between countries.

LOGISTICS ACTIVITIES Customer Response Inventory Planning and Management Supply Transportation Warehousing

Customer Response The logistics of customer response includes the activities of: Developing and maintaining a customer service policy Monitoring customer satisfaction Order Entry (OE) Order Processing (OP) Invoicing and collections

Inventory Planning and Management (IP & M) The logistics of inventory planning an management includes Forecasting Order quantity engineering Service level optimization Replenishment planning Inventory deployment

Supply The logistics of supply include: Developing and maintaining a Supplier Service Policy (SSP) Sourcing Supplier integration Purchase order processing Buying and payment

Transportation The logistics of transportation includes Network design and optimization Shipment management Fleet and container management Carrier management Freight management

Warehousing The logistics of warehousing includes Receiving Put away Storage Order picking Shipping

Approaches to Analyzing Logistics Systems Cost Centers Treating logistics activities as cost centers makes it easier to study cost trade-offs between the centers. Nodes versus Links Nodes are spatial points (warehouses, plants, etc.); Links are the transportation network (rail, motor, air, pipe and water). Logistics Channel The network of intermediaries involved in the logistics system.

Analysis of Total Logistics Cost with a Change to Higher Cost Mode of Transport

Analysis of Total Logistics Cost with a Change to More Warehouses

Nodes and Links in a Logistics System

A Simple Logistics Channel

A Multi-Echelon Logistics Channel

LOGISTICS OPTIMIZATION Additionally, logistics systems must work in harmony with marketing, finance, production, etc.--- this may also result in sub-optimal logistics performance. The optimization process tends to focuses a project team’s attention on the solution that maximizes total corporate performance.

Short-Run/Static Analysis Comprised a matrix-like table which presents each of the logistics and other relevant costs for two or more alternative logistics systems.

Static Analysis of C & B Chemical Company (50,000 pounds of output)

Long-Run/Dynamic Analysis Comprised a graph of the fixed and variable costs of at least two alternative logistics systems.

System 1 Total Cost = Fixed Costs + Variable Cost/unit x number of units y = $4200 + 0.0315x System 2 y = $4800 + 0.0230x Trade-off Point System 1 Total Costs = System 2 Total Costs $4200 + 0.0315x = $4800 + 0.0230x 0.0085x = $600 x = 70,588 pounds