1. Introduction to Logistics and Supply Chain1
Introduction to Logistics and Supply Chain

2. PETER DRUCKERS stated that:
Logistics is one of the last frontiers of opportunity for organizations wishing to improve their corporate efficiency.

3. Logistics Management Logistics management is the process of planning,1 1
Logistics Management
Logistics management is the process of
planning,
implementing and
controlling
the efficient, cost-effective forward and reverse flow of raw materials, in-process inventory, finished goods, services, and related information from point of origin to point of consumption
for the purpose of conforming to customer requirements.
Council of Logistics Management

4. Logistics activities Customer service Demand forecasting
Distribution communications
Inventory control
Material handling
Order processing
Parts and service support
Plant and warehouse site selection
Procurement
Packaging
Reverse logistics
Traffic and transportation
Warehousing and storage

5. Logistics Is Relevant to All Types of Organizations
The definition of logistics includes the flow of materials and services in both the manufacturing and service sector.
The service sector includes entities such as the government, hospitals, banks, retailers and wholesalers.

6. Definition of Logistics Management
Logistics has been called by many names including the following:
Materials management
Physical distribution
Business logistics
Channel management
Distribution
Industrial logistics
Logistical management

8. System Approach/Integration
Logistics is, in itself, a system; it is a network of related activities with the purpose of managing the orderly flow of goods, information and service with the logistics channel.
The systems approach simply states that all functions or activities need to be understood in terms of how they affect, and are affected by, other elements and activities with which they interact.

9. System must be viewed as a whole Logistics and Supply Chain Management Approach

10. Systems Approach
The sum of a series of activities is greater than its individual parts.
Trade-off analysis-system should be viewed as a whole.
High inventory- High customer service
High storage costs
High obsolescence risks

11. The Five Rights of Logistics
Right Items, needed for consumption or production,
Right Place
Right Time
Right Condition
Right Cost,

12. Logistics Adds Value by Creating Utility
FORM UTILITY is the process of creating the good and service, or putting it in the proper form for the customer to use. (from raw materials to finished goods)
POSSESSION UTILITY is the value added to a product or service because the customer is able to take actual possession. (by credit a arrangements, loans...)
TIME UTILITY is the value added by having an item when it is needed.
PLACE UTILITY means having the item or service available where it is needed.

13. Logistics Supports Marketing
According to Kotler and Armstrong;
marketing management - determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors
Impact of marketing concept ----customer orientation

14. Marketing / Logistics Management Concept1 4
Marketing / Logistics Management Concept
Customer satisfaction
Suppliers
Intermediate customers
Final customers
Integrated effort
Product
Price
Promotion
Place (distribution)
Company profit
Maximize long-term profitability
Lowest total costs given an acceptable level of customer service

15. Marketing-Logistics Concepts
Time and place utility –customer service level –customer satisfaction
Customer service is an output of the logistics system

16. Relationship of Logistics to Marketing and Production
Sample
activities:
PRODUCTION/
MARKETING
Transport
Interface
OPERATIONS
Sample
Interface
Inventory
activities:
Sample activities:
activities:
activities:
Order
Customer
Quality control
Promotion
Product
processing
service
Detailed production
Market
scheduling
Materials
standards
scheduling
research
Plant
handling
Pricing
Equipment
maint .
Product
location
Packaging
Capacity planning
mix
Purchasing
Retail
Work measurement
Sales force
location
&
standards
management
Production-
logistics
Marketing-
interface
logistics
interface
Internal Supply Chain
CR (2004) Prentice Hall, Inc.
1-21

17. Competitive Advantage
The source of competitive advantage is found ;
In the ability of the organization to differentiate itself, in the eyes of the customer, from its competitors,
By operating at a lower cost and hence at greater profit.
Christopher s.5

18. It is only in the recent past that business organizations have come to recognize the vital impact that logistics management can have in the achievement of competitive advantage.
Martin Christopher

19. Components of Logistics Management1 2
Management actions
Inputs into logistics
Planning
Implementation
Control
Outputs of logistics
Natural resources (land, facilities, and equipment)
Competitive advantage
Logistics management
Human resources
Time and place utility
Suppliers
Raw materials
In-process inventory
Finished goods
Customers
Financial resources
Efficient movement to customer
Information resources
Proprietary asset
Logistics activities
Customer service
Demand forecasting
Distribution communications
Inventory control
Material handling
Order processing
Parts and service support
Plant and warehouse site selection
Procurement
Packaging
Reverse logistics
Traffic and transportation
Warehousing and storage

20. The Outputs of the Logistics System
The outputs of the logistics system are
competitive advantage,
time and
place utility,
efficient movement to the customer, and
providing a logistics service mix such that logistics becomes a proprietary asset of the organization.

21. SCM (CSCMP Definition)
Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics activities.
Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers.
In essence, Supply Chain Management integrates supply and demand management within and across companies.

22. Competition
Today the real competition is not company against company but rather supply chain against supply chain.
Christopher s. 16,38

23. Factors Impacting the Development of Logistics1 3
Factors Impacting the Development of Logistics
Military logistics developments
Transportation deregulation
Competitive pressures
Information technology
Channel power
Profit leverage

24. 1.Military Logistics
Throughout the history ; wars have been won and lost through logistics strengths and capabilities or the lack of them.

25. 1.Military Logistics
Following the World War II, logistics began to receive increased recognition and emphasis.
In the Persian Gulf War in , the ability to efficiently and effectively distribute and store supplies and personnel were key factors in the success of the US Armed Force.

26. 2.Deregulation
Deregulation of the transportation industry in the late 1970s and early 1980s gave organizations many more options and increased the competition within and between transportation modes.
Carriers become more creative, flexible, customer-oriented, and comparative in order to succeed.
They can focus on negotiation of rates, terms, and services, with their overall attention directed toward getting the best transportation buy.

27. 3. Competitive Pressures
Globalization and competition
With rising interest rates and increasing energy costs during the 1970s, logistics received more attention as a cost driver-emphasis on cost control
WHY?
Local firms versus overseas competitors
Increased offshore buying and selling activities, more complex and more costly global supply chains

28. 4.Information Technology
Information technology gave organizations the ability to better monitor transactions intensive activities such as ordering, movement of goods...
Computerized quantitative models for controlling and optimization
MRP,MRP II,DRP,DRP II,JIT link material management from order processing to inventory management, forecasting and production.

29. 5.Channel Power
Shifting channel power from manufacturers to retailers, wholesalers, and distributors has also had a profound impact on logistics.
Lower brand loyalty decreases a manufacturer’s power-increases retailer’s power

30. 6. Profit Leverage
$1 saved in logistics costs has a much greater impact on the organization’s profitability than a $1 increase in sales.
There are costs associated with sales ( cost of goods sold…) ] $ 1 increase in sales does not result in $ 1 dolar increase in profit

31. Key Logistics Activities1
Key Logistics Activities 6
Customer service
Demand forecasting
Inventory management
Logistics communications
Material handling
Order processing
Packaging
Parts & service support
Plant & warehouse site selection
Procurement
Reverse logistics
Traffic & transportation
Warehousing & storage

32. CUSTOMER SERVICE Good customer service supports customer satisfaction.
Customer service is the output of the logistics system.
It involves getting the right product, to the right
customer at the right place, in the right condition, at the right time and at the lowest total cost possible.
The key trade off of customer service: cost of lost sales
Dissatisfied customer tells to average of nine others

33. DEMAND FORECASTING There are many types of demand forecasting such as;
marketing forecasts customer demand based on promotions, pricing, competition and etc. or
manufacturing forecasts production requirements based on marketing sales demand forecasts and current inventory levels.
Logistics usually becomes involved in forecasting in terms of how much should be ordered from its suppliers and how much of finished product should be transported or held in each market that the organization serves.

34. INVENTORY MANAGEMENT
Inventory management involves ; trading off the level of inventory held to achieve high customer service levels with the cost of holding inventory, including capital tied up in inventory, variable storage costs and obsolescence.

35. LOGISTICS COMMUNICATIONS
Communications are becoming increasingly automated, complex and rapid.
Computerized advance communication systems
Wal-Mart ( supplier link-real time demand data-on time replenishment)

36. MATERIALS HANDLING
Materials handling is a broad area that encompasses virtually all aspects of all movements of raw materials, work in process, or finished goods within a plant or warehouse.
A primary objective of materials management is to eliminate handling wherever possible-min. travel distance, bottlenecks, inventory levels and loss.

37. ORDER PROCESSING Order processing entails the systems
getting orders from customers,
checking on the status of orders
communicating to customers about them,
filling the order
making it available to the customer.
Advanced order-processing methods ( EDI-electronic data interchange, EFT-electronic funds transfer, barcoding costs

38. PACKAGING For protection and storage from a logistical perspective.
Important for protection during storage and transportaion
Important to be designed for the warehouse configuration and materials handling equipment

39. PARTS AND SERVICE SUPPORT
Logistics is responsible for providing after-sale service support.
This may include:
delivery of repair parts to dealers,
stocking adequate spares,
responding quickly to demand for repairs...

40. PLANT AND WAREHOUSE SITE SELECTION
Determining the location of the company’s plants and warehouses is a strategic decision
affects the costs of transporting raw materials inbound and finished goods outbound, but also customer service levels and speed of response.

41. Supplier selection, negotiation of price, supplier quality assessment…
PROCUREMENT
Procurement is the purchase of materials and service from outside organizations to support the firm’s operations from production to marketing, sales, and logistics.
Supplier selection, negotiation of price, supplier quality assessment…

42. REVERSE LOGISTICS
Reverse flow of goods, services and related information because of recycling, reusing and disposal activities.
Returns may take place because of a problem with the performance of the item or simply because of the customer changed his or her mind.
Return goods handling is complex and costly.
The cost of moving a product backward nearly as much as nine times as high as moving the same product forward.

43. TRAFFIC AND TRANSPORTATION
This is the key logistics activity actually provide for the movement of materials and goods from point of origin to point of consumption and (disposal as well)
Selection of mode, routing the shipment, assuring of compliance with regulations in the region of the country where shipment is occuring, selection of the carrier…
Largest logistics cost

44. WAREHOUSING AND STORAGE
Warehousing supports time and place utility by allowing an item to be produced and helps for later consumption.
Warehouse layout, design,ownership, automation…

45. Logistics activity is literally thousands of years old, dating back to the earliest forms of organized trade. As an area of study however, it first began to gain attention in the early 1900s -in the distribution of farm products, -as a way to support the organization’s business strategy, -and as a way of providing time and place utility.

46. Development of Logistics 6 Eras
Era 1: Farm to market ( early 1900s)
( )
Major influence- agricultural economies
distribution of farm products
transportation
Era 2: Segmented functions ( )
Major influence-military with World War II
independent functions-institutional approach, inbound outbound transportation, wholesaling, retailing, physical distribution

47. Era 3: Integrated functions ( early 1960s- early 1970s)
Major influence- industrial economies
Linking them together
Total cost approach
Systems approach
Integration of logistics
Era 4: Customer focus (early 1970s-mid 1980)
Major influence: management science
Customer service
Inventory carrying
Productivity
Link-node
OR influence

48. Era 5: Logistics as a differentiator ( mid 1980s-present)
Major influence-IT, management strategy
globalization
reverse logistics
environment
integrated supply chain management
Era 6: Behavioral and boundary spanning (future)
Major influence: marketing, social sciences
behavioral aspects of interfirm relations
theory development
customer perceptions of logistics systems

49. TOTAL COST CONCEPT
“The total cost concept” is the key to effectively managing logistics processes.
The goal of the organization should be to reduce the total cost of logistics activities, rather than focusing on each activity in isolation.

50. MAJOR LOGISTICS COST CATEGORIES1 7
Customer service levels
Transportation costs
Warehousing costs
Order processing/information systems costs
Lot quantity costs
Inventory carrying costs

51. 14 key logistics activites5
14 key logistics activites
Place/ customer service levels
Customer service,
Parts and service support,
Return goods handling
Order processing and information costs
Order processing
LIS(logistics communications)
Demand forecasting/planning
Warehousing costs
Warehouse and storage
Plant and warehouse selection
Transportation costs
Traffic and transportation
Inventory carrying costs
Inventory management
Packaging
Reverse logistics
Lot quantity costs
Material handling
procurement
Source: Adapted from Douglas M. Lambert, The Development of an Inventory Costing Methodology: A Study of the Costs Associated with Holding Inventory (Chicago, IL: National Council of Physical Distribution Management, 1976), p. 7.

52. Inventory carrying costs: capital costs, inventory service cost (insurance and taxes on inventory), storage space costs, inventory risk costs.
Lot quantity costs: procurement and production related costs varying with changes in order size or frequency.
Order costs, setup costs, capacity lost, material handling cost, price differentials due to buying in different quantities

53. TRADE-OFF APPROACH IN LOGISTICS
Central goal of trade off in logistics is to maximize long term profitability and the effective use of assets.
Examining trade-offs among alternatives and costs, thereby reducing the overall total cost of activites.
Reduced transportation costs and longer transit times-increased inventory and inventory carrying costs

54. Cost Trade-offs Required in Marketing and Logistics1 5
Cost Trade-offs Required in Marketing and Logistics
Place/ customer service levels
Product
Promotion
Price
Order processing and information costs
Warehousing costs
Transportation costs
Inventory carrying costs
Lot quantity costs
LOGISTICS
MARKETING
Source: Adapted from Douglas M. Lambert, The Development of an Inventory Costing Methodology: A Study of the Costs Associated with Holding Inventory (Chicago, IL: National Council of Physical Distribution Management, 1976), p. 7.

55. Future Challenges in Logistics1 8
Strategic planning and participation
Total quality management (TQM)
Just-in-time (JIT)
Quick response (QR)
Efficient consumer response (ECR)
Logistics as a competitive weapon
Accounting for logistics costs

56. Future Challenges in Logistics9 1
(Continued)
Logistics as a boundary-spanning activity
Global logistics
Increasing skill requirements
Logistics information systems
Outsourcing, partnering, and strategic alliances
Green marketing

57. JIT
Just in time
Aim to reduce waste and redundant inventory by delivering products, components, materials when they are needed.
Needs close coordination
Reduces inventory, increases customer service level
JIT in retail and grocery: QR and ECR

58. Quick response Began in apparel and textile industry
Retail sector strategy
Speeding inventory flows
Mostly between manufacturer and retailer
When fully implemented, QR applies JIT.
Moving product fastly-cross docking rather than warehousing, floor ready merchandise( prehung and preticketed)
Wide usage of IT ( EDI, POS, Barcodes, CAD, CAM…)

59. Efficient Consumer Response
Combining several logistics methods for improving the competitiveness of the grocery industry by cutting waste in SC
Grocery industry’s answer to QR
Wide implementation of EDI, POS(point of sale), barcoding: paperless information flow
Continuous replenishment
Cooperative relation between manufacturer, suppliers,distributors and customers
Cross dock
Moving away from deal mentality to cooperation

60. ECR % 41 of total chain reduction of inventory
speeds up cycle time from 104 days to 61 days