business logistics/supply chain—a vital subjectmindran.com/scm/ballou01.pdf · 1 1-1 business...
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Business Logistics/Supply Chain—A Vital Subject
The supply chain is simply another way of saying “the whole process of business.”
Warehousing
Warehousing
Transportation
Transportation
Vendors/plants/portsTransportation
Factory
Transportation Customers
Informationflows
The Immediate Supply Chain for an Individual Firm
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Logistics DefinedLogistics is the process of planning, implementing andcontrolling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods and related information from the point of origin to pointof consumption for the purpose of conforming to customer requirements.
Council of Logistics Management
Supply Chain Management DefinedSCM is the integration of all activities associated with the flow and transformation of goods from raw materialsthrough to end user, as well as information flows, throughimproved supply chain relationships, to achieve a sustainable competitive advantage.
Handfield and Nichols
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Demand forecasting
Purchasing
Requirements planning
Production planning
Manufacturing inventory
Warehousing
Material handling
Packaging
Finished goods inventory
Distribution planning
Order processing
Transportation
Customer service
Strategic planning
Information services
Marketing/sales
Finance
Supply Chain Management
Supply Chain Management
Logistics
Purchasing/Materials
Management
PhysicalDistribution
Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+
Demand forecasting
Purchasing
Requirements planning
Production planning
Manufacturing inventory
Warehousing
Material handling
Packaging
Finished goods inventory
Distribution planning
Order processing
Transportation
Customer service
Strategic planning
Information services
Marketing/sales
Finance
Supply Chain Management
Supply Chain Management
Logistics
Purchasing/Materials
Management
PhysicalDistribution
Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+
Evolution of Supply Chain Management
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Supply Chain Schematic
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The Logistics/SC Mission
Getting the right goods or servicesto the right place, at the right time, and in the desired condition at thelowest cost and highest return oninvestment.
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A Revised Strategy is Generating Great Top Management Interest
Historical perspective of distribution:“The last frontier of cost economies”
The contemporary view:Distribution is a new frontier for demand
generation—a competitive weapon.
Peter Drucker, 1962
Both views are now important!
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CustomersTransportation
Inventoryor supply source
Customer order processing (and transmittal)
CustomersTransportation
Inventoryor supply source
Customer order processing (and transmittal)
Critical Customer Service Loop
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$67.717.65%Total
22.251.72Inventory carrying
2.790.41Administration4.580.43Order entry
18.062.02Warehousing$26.523.34%Transportation
$/cwt.Percent of salesCategory
Physical Distribution Costs
Add one-third for inbound supply costs
Source: Herb Davis & Company
Logistics cost are about 10% of
sales w/o purchasing costs
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1992
1994
1996
1998
2000
2002
Year
Day
s
8284868890929496
%
Order Cycle Time,Days
ProductAvailability--%ordersProductAvailability--% lineitems
Customer Service Performance
Source: Herb Davis & Company
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• Costs are high − About 10.5% of GDP domestically − About 12% of GDP internationally − A range of 4 to 30% of sales for individual firms, avg. about 10% − A high as 70-80% of sales if purchasing and production are
included
• Customers are more demanding of the supply chain − Desire for quick response − Desire for mass customization
• An integral part of company strategy − Generate revenue − Improve profit
• Logistical lines are lengthening − Local vs. long distance supply
• Logistics is a key to trade and an increased standard of living − Law of comparative economic advantage applies
• Logistics adds value − Time and place utilities
Significance of Logistics
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•Costs are lower than K-Mart or Target Stores
•CEO is a former logistician•Wal-Mart is the largest retailer in
the world!
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Effect on Logistics Foreign Outsourcing
ProfitG & A
Marketing
Logistics
Overhead
Materials
Labor
ProfitG & A
Marketing
Logistics
Overhead
Materials
Labor
Tariffs
Increase
Reduction
Increase
Domestic sourcing Foreign sourcing
Scope of the Supply Chain for Most Firms
Physical distributionPhysical supply(Materials management)
Business logistics
Sources ofsupply
Plants/operations Customers
• Transportation• Inventory maintenance• Order processing• Acquisition• Protective packaging• Warehousing• Materials handling• Information maintenance
• Transportation• Inventory maintenance• Order processing• Product scheduling• Protective packaging• Warehousing• Materials handling• Information maintenance
Focus firm’s internal supply chain1-14
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• Primary- Setting customer service goals- Transportation- Inventory management- Location
• Secondary, or supporting- Warehousing- Materials handling- Acquisition (purchasing)- Protective packaging- Product scheduling- Order processing
Key Activities/Processes
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FocusCompany
Suppliers
Supplier’ssuppliers
Customers
Customers/End users
Acquire Convert Distribute
The Supply Chain is Multi-Enterprise
Product and information flow
Scope in reality
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Reality of SC Scope
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SUPPLYCHAIN
MANAGEMENT
Inte
rfunc
tiona
l coo
rdin
atio
n Interorganizational coordination
Activity and processadministration
The Multi-Dimensions of SC
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PLA
NN
ING
OR
GA
NIZ
ING
CO
NTR
OLL
ING
Transport Strategy• Transport fundamentals• Transport decisionsCustomer
service goals• The product• Logistics service• Ord. proc. & info. sys.
Inventory Strategy• Forecasting• Inventory decisions• Purchasing and supply
scheduling decisions• Storage fundamentals• Storage decisions
Location Strategy• Location decisions• The network planning process
PLA
NN
ING
OR
GA
NIZ
ING
CO
NTR
OLL
ING
Transport Strategy• Transport fundamentals• Transport decisionsCustomer
service goals• The product• Logistics service• Ord. proc. & info. sys.
Inventory Strategy• Forecasting• Inventory decisions• Purchasing and supply
scheduling decisions• Storage fundamentals• Storage decisions
Location Strategy• Location decisions• The network planning process
Study Framework
The focus is here
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Customer service goals• The product• Logistics service• Information sys.
Inventory Strategy• Forecasting• Storage fundamentals• Inventory decisions• Purchasing and supply
scheduling decisions• Storage decisions
Transport Strategy• Transport fundamentals• Transport decisions
Location Strategy• Location decisions• The network planning process
The Logistics Strategy Triangle
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PRODUCTION/OPERATIONSSample activities:• Quality control• Detailed production
scheduling• Equipment maint.• Capacity planning• Work measurement
& standards
LOGISTICSSampleactivities:•Transport• Inventory• Order
processing• Materials
handling
Interfaceactivities:• Product
scheduling• Plant
location• Purchasing
MARKETINGSampleactivities:• Promotion• Market
research• Product
mix• Sales force
management
Interfaceactivities:• Customer
servicestandards
• Pricing• Packaging• Retail
location
Production-logisticsinterface
Marketing-logisticsinterface
Relationship of Logistics to Marketing and Production
Internal Supply Chain1-21
Relationship of Logistics to MarketingProduct
Price Promotion
Place-Customer service levels
Inventory carrying costs
Lot quantity costs Order processing
and information costs
Transport costs
Warehousing costs
Mar
ketin
gLo
gist
ics
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Relationship of Logistics to Production•Coordinates through scheduling and strategy—make-to-order or make-to-stock•An integral part of the the supply chain
−Affects total response time for customers−Shares activities such as inventory planning
•Costs are in tradeoff−Production lot quantities affect inventory
levels and transportation efficiency−Production response affects transportation
costs and customer service−Production and warehouse location are
interrelated
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Logistics/SC in Diverse Areas
•Manufacturing—most common
•Environment—causing restrictions
•Service—emerging opportunities
•Non-profits—little explored
•Military—long history