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Logistics

BUS M&L 650: Professor Blackwell May 24, 2004 Thomas Goldsby, Ph.D.
Asst. Professor of Marketing and Logistics

Session Objectives
To understand the basics of logistics; To review the interrelationship between marketing and logistics; To examine logistics role in supply chain management; To gain insight into the work of the logistician (logistics professional); and To review the learning opportunities available in Transportation and Logistics at OSU.
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Logistics Management: Defined


That part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information from the point of origin to the point of consumption in order to meet customers requirements.
-- Council of Logistics Management

Simply put, what is Logistics?

Production
Materials Management Physical Distribution

Logistics is the movement and storage of inventories (raw materials, work-in-process, finished goods, and consumed/scrap materials) throughout the supply chain
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A Bill of Rights
Logistics embodies the effort to deliver:
the right product in the right quantity in the right condition to the right place at the right time for the right customer at the right cost

SERVICE (effectiveness)

COST (efficiency)

What is the role of Logistics in corporate strategy?


To provide time (when) and place (where) utilities at a level consistent with customer service and cost objectives Logistics also finds its way into:
supply chain strategy
customer relations supplier relations

Logistics is the primary boundary-spanning activity

new product development international marketing strategy environmental strategy


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The Marketing/Logistics Relationship


DEMAND REALIZATION and/or CREATION

DEMAND SATISFACTION

Keep the promise or else!!!

Logistics Role in Marketing Strategy


Product

Price

Promotion

Place Customer Service Levels Inventory Management Transportation Management Warehousing Management

Procurement

Order Processing and Information


Marketing Objective: Logistics Objective: Allocate resources to the marketing mix in such a manner as to maximize the long-term profitability of the firm. Minimize Total Costs given the customer service objective where total costs = Transportation Costs + Warehousing Costs + Order Processing and Information Costs + Lot Quantity Costs + Inventory Carrying Costs

Logistics

Marketing

Douglas M. Lambert

Within each function: activities and costs

Place/customer service levels Customer service (lost sales) Parts & service support Returns goods handling

Inventory carrying cost Opportunity cost of inventory Insurance and taxes Obsolescence and loss

Transportation costs Inbound and outbound transportation

Procurement costs Lot quantities Material handling

Warehousing costs Warehousing and storage Plant and warehouse site selection

Order processing and information costs Order processing Information exchange Demand forecasting/planning
Copyright 2001, Thomas J. Goldsby, all rights reserved

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Logistics Cost (Warehouses)


Total cost

Transportation cost

Inventory cost Warehousing cost Order processing cost

Lot quantity cost Cost of lost sales


Number of Warehouses (anticipated service)
Note: Cost curves are not to scale
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The Systems Concept


View the the sum of logistics operations as a system and seek to minimize the total cost of the system rather than the individual functions. Its like a stereo system:
Tuner vs. Media Player vs. Speakers

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Where does the work of logistics occur?


Answer: At the sources of raw materials supply and within and between each supply chain entity right up to consumption .... and beyond!
Raw Materials [Materials Procurement] Work-in-Process [Manufacturing Support] Finished Goods [Physical Distribution] Returns & recyclables [Reverse Logistics] Supporting Information
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Columbus: At the heart of of it all!


Location: Within 500 miles of Greater Columbus: 58% of U.S. population & 50% of Canadian population 61% of U.S. Manufacturing Capacity 80% of U.S. Corporate Headquarters Logistics Assets 2 International Airports 3 Intermodal rail yards 40 Freight forwarders and customs brokers 140 Trucking Companies - 40 National Carriers Over 150 million square feet of warehouse space Foreign Trade Zone #138 and 24-hour customs

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Some Basic Facts


The field of logistics is the nations second largest employer (#1: healthcare) Almost $1 trillion was spent on logistics in the U.S. in 2003 (about 10% of GDP)
Transportation accounts for $571 billion

Logistics costs represent 5 - 40% of the total (landed) cost of typical products
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Logistics is not new!


It is part of everyday life Personal vs. Business vs. Military applications Its focus has shifted
(from cost reduction to competitive services)

Being good at it is new (competitive advantage) Implications:


The need for expertise Solid prospects for career advancement
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Logistics in the Modern Environment


Examples of the new emphasis on logistics:
Electronic commerce/Virtual storefronts There is no such thing as virtual logistics! Lean manufacturing systems Greater reliance on perfect, JIT logistics performance Product attributes can be easily duplicated The service component of product offerings (logistics) is difficult to duplicate Excellent logistics execution can lend significantly to customer loyalty
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Supply Chain Management


Supply Chain Management: the integration of key business processes from end user through original suppliers that provides products, services, and information that add value for customers and other stakeholders.
-- The Global Supply Chain Forum, OSU

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SCM Processes
Information Flow
Tier 2 Supplier Tier 1 Supplier Purchasing Production Logistics Marketing & Sales Customer Consumer

PRODUCT FLOW
R&D

Finance

Supply Chain Business Processes

CUSTOMER RELATIONSHIP MANAGEMENT CUSTOMER SERVICE MANAGEMENT DEMAND MANAGEMENT ORDER FULFILLMENT MANUFACTURING FLOW MANAGEMENT SUPPLIER RELATIONSHP MANAGEMENT PRODUCT DEVELOPMENT AND COMMERCIALIZATION RETURNS MANAGEMENT

Source: Adapted from Keely L. Croxton, Sebastin J. Garca-Dastugue, Douglas M. Lambert and Dale S. Rogers, "Supply Chain Management Processes, The International Journal of Logistics Management, Vol. 12, No. 2 (2001), p. 14.

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Supply Chain Network Structure


Tier 3 to Initial suppliers Tier 2 Suppliers Tier 1 Suppliers Tier 1 Customers Tier 2 Customers Tier 3 to Consumers/ End-Customers

1 2 n 1 1

Initial Suppliers

1 n 1 2 3 n 1 n n 3 n 2 2

1 n

1 2 n

Focal Company

Members of the Focal Companys Supply Chain


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Consumers/End-customers

Motivation for Supply Chain Management


Realization that systems concept applies to multiple-organization channels (as well as within the firm) Movement toward partnering with choice suppliers and customers This is the way business will dominantly be conducted in the future
Supply chain competition, perhaps? Firms are seeking to partner with other supply chain entities now before competitor approaches
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The Elevating Status of Logistics and SCM Professionals


Logistics has become a strategic weapon
No longer viewed as a necessary cost of doing business

Logistics professionals are gaining unprecedented stature in their organizations No longer uncommon for a logistician to become chief executive particularly by way of leadership in supply chain management
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Supply Chain Vice President - Worldwide


The Company The world's fourth largest company, well respected in its industry. A Brand name. Revenues under $5 billion and extremely successful. Increasing the number of OEM agreements, outsourcing initiatives and more direct shipments. Needs to optimize their global transportation network. Intensifying exports which requires tight control of US export regulations. The Supply Chain Management Group focuses on the strategic aspects of global supply chain. The operation responsibility lies within many Business Units and other Countries. The Responsibilities/Requirements - Self Analysis Profile These are the areas in which the company requires experience and proven success. How do you rate yourself in each? Please complete the Self Analysis Profile below rating yourself on each letter (A-S) from 1 to 5 with 5 being the highest in your skills, strengths and desires. Give a brief description as to why that rating. This will benefit you in order to determine compatibility. G) Integrating a new Manufacturing application. H) Set up and lead strategic outsourcing organization. I) Provide a major role in SAP implementation from a supply chain perspective. J) Build modern supply chain skills in the organization. Work across five independent business units.

Base salary in the high six-figures range plus a bonus.


L) 15 years experience in supply chain techniques. M) Time sensitive to the customer's needs (currently providing above 90% customer service satisfaction). N) Familiar with modern Supply Chain techniques (rapid replenishment, ship direct, etc.) and Global. O) MBA or equivalent. P) Handling both high and low volume products. Q) Information technology, success in establishing solid procedures which currently does not exist. R) Politically able to successfully deal within a large, complex worldwide organization. S) Travel worldwide. A) Visionary and skilled in working across multiple business units and customer needs (matrix mgmt.). B) Lead and refine supply chain strategy implementation and "change areas". C) Proven record of overcoming "turf" issues with a recently merged, multi location company. D) Building relationships in addition to extensive interpersonal skills (hiring training, team building).

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Other Suppliers: Rival Institutions


Arizona State University Iowa State University University of Maryland Michigan State University Penn State University University of Tennessee

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Potential Employers
Manufacturing firms Retailers, Wholesalers & Distributors Service institutions (restaurants, hospitals, etc.) Passenger & Freight transportation companies Third-party logistics organizations Consulting firms Government
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The T&L Major at OSU


M&L 780: Introduction to Logistics M&L 781: Analysis and Design of Logistics Systems M&L 784: Principles of Transportation Plus two more from a set of approved electives

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The Transportation and Logistics Association (TLA) at OSU


Meeting information:
Tuesday evenings (resuming next quarter)
Pizza at 7:00pm Guest speaker at: 7:30pm

Location: Schoenbaum Hall (2nd floor) Need not be a T&L major nor TLA member to attend meetings TLA website:
www.osutla.com
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