SUPPLY CHAIN MANAGEMENT

MODULE 7 DIMENSIONS OFLOGISTICS

INTRODUCTION

Peter Drucker 1962 The Economys Dark Continent Logistics is one of the most neglected but most promising areas of business Logistics originated in the military's need to supply itself with arms, ammunition and rations as the army moved to different locations Gulf War in 1991, Afghanistan War in 21st century regarded as significant logistical wars

DEFINITIONS OF LOGISTICS

Management of the flow and storage of resources between the point of origin and the point of consumption in order to meet customers requirements Planning, Execution and Control of the procurement, movement, and stationing of personnel, material and other resources to achieve the objectives of a campaign, plan, project, or strategy The management of business operations such as the acquisition, storage, transportation and delivery of goods along the supply chain

SEVEN RS

Ensuring availability of the: Right product Right quantity Right condition Right Place Right time Right customer Right cost

Inbound logistics

Outbound logistics
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MACRO DIMENSION OF LOGISTICS

Logistics has a significant relationship with overall economy

Cost of business logistics increasing

Transportation is the largest percentage of logistics costs Logistics adds value to a product Place utility - moving goods to points where demand exists Time utility - moving goods to points at a specific time Allows for economic development and specialization Affects land values due to increased accessibility

MICRO DIMENSION OF LOGISTICS

Micro Dimension of logistics examines the relationships between logistics and other departments in an organization Interfaces with Manufacturing:

Length of the Production Run - Balance economies of long production runs against increased costs of high inventories Supply interfaces - Stocking adequate supplies to ensure uninterrupted production Protective packaging - Principal purpose is to protect the product from damage during transit

MICRO DIMENSION OF LOGISTICS CONTINUED

Interfaces with Sales and Marketing:

Sales forecast Sales forecast will decide quantities estimated to be transported and stored Product - Size, shape, weight, volume of the product impacts storage, transportation and handling Price Larger shipments means cheaper transportation rate, therefore shipment sizes should be customized to the carriers vehicle capacity

Promotion - Logistics function must be aware of any promotional activities so that it can plan accordingly

MICRO DIMENSION OF LOGISTICS CONTINUED

Interfaces with Sales and Marketing continued

Place: Wholesalers - Since wholesalers combine purchases for multiple retailers, the shipment sizes are larger and number of transactions are fewer, resulting in smaller logistics costs

Retailers - With the exception of very large retailers who act more like wholesalers, smaller shipment sizes are the standard. These generally cost more for transportation and order processing

Interfaces with Finance and Accounting:

Logistics management can have a major impact on overall Return on Investment

LOGISTICS ACTIVITIES

Transportation:

Physical movement or flow of goods between different locations

Storage:

Inventory management and warehousing

Packaging:

Affected by type of product and transportation

Materials handling:

Movement into, from and within a warehouse

LOGISTICS ACTIVITIES CONTINUED

Order fulfillment:

Completing customer orders which affects lead time

Forecasting:

Predicting inventory necessary to fulfill customer demand

Production planning:

Product necessary to cover market

Purchasing:

Procurement of supplies which affects transportation

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APPROACHES TO ANALYZING LOGISTICS SYSTEMS

Materials Management v/s Physical Distribution:

Balanced System:

e.g. HUL The company receives materials from various vendors in different locations and distributes finished products to various customers in different locations. However, the inbound / outbound products and processes are relatively simple and balanced.

Heavy Inbound:

e.g. Boeing - Use thousands of parts manufactured by hundreds of vendors to assemble an aircraft. The inbound process requires detailed scheduling, coordination and planning to ensure parts arrive in time. Once completed, the company simply flies the aircraft to the customer. The outbound process requires no warehousing, special transportation arrangements or packaging.
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APPROACHES TO ANALYZING LOGISTICS SYSTEMS CONTINUED

Materials Management v/s Physical Distribution continued

Heavy Outbound:

e.g. Dow Chemicals - Inbound crude oil by-products, saltwater and other raw materials flow from a limited number of sources and move in volumes over relatively short distances. On the outbound side, a wide variety of complex industrial and consumer chemicals are produced that need storage, packaging, and transportation to the customer.
e.g. HP, Samsung - These companies have frequent product returns on the outbound side of their logistics systems due to exchange or repairs.

Reverse Systems:

Nodes v/s Links:

Nodes are places where goods stop for processing e.g. Warehouses, Production plants, Stock points Links are the means of transport connecting the nodes e.g. Aircraft, Ship, Train, Truck etc.
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APPROACHES TO ANALYZING LOGISTICS SYSTEMS CONTINUED

Cost Centers:
Treating logistics activities as cost centers makes it easier to study cost trade-offs between the centers. For example:

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APPROACHES TO ANALYZING LOGISTICS SYSTEMS CONTINUED

Logistics Channels:

Network of intermediaries involved in the logistics system

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LOGISTICS AND SYSTEMS ANALYSIS

Cost Perspective:

The most efficient systems are not always comprised of each component operating at its lowest possible cost The significant concern is to have the entire system operating at its lowest total cost

Optimization:

Deciding upon the best possible alternative in terms of locations and transport options: Constructing warehouse near to factory or near to customer location ? Which mode of transport to be utilized ?

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LOGISTICS AND SYSTEMS ANALYSIS CONTINUED

Levels of optimality:

There are often constraints working which result in less than optimum outcomes Additionally, logistics systems must work in harmony with marketing, finance, production etc.

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TECHNIQUES OF LOGISTICS SYSTEM ANALYSIS

Short-Run/Static Analysis:

Looks at short run situation and selects the system with the lowest overall cost Comprises of a matrix-like table which presents each of the logistics and other relevant costs for two or more alternative logistics systems.

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TECHNIQUES OF LOGISTICS SYSTEM ANALYSIS CONTINUED

Long-Run/Dynamic Analysis:

Mathematically calculates the point of equality between two alternate logistics systems over a longer time duration Comprises of a graph of fixed and variable costs of the two systems

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FACTORS AFFECTING THE COST AND IMPORTANCE OF LOGISTICS

Competition through customer service:

Order Cycle: Shorter order cycle, less inventory required Substitution: More substitutable product, higher customer service level required Inventory Effect: Increase inventory, reduce cost of lost sales Transportation Effect: Increase transportation, reduce cost of lost sales
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FACTORS AFFECTING THE COST AND IMPORTANCE OF LOGISTICS CONTINUED

Product factors:

Value:

When product value increases, the cost of warehousing, transportation and inventory increases
Higher the density, more efficient use of warehouse and transportation space Greater the risk of damage, higher the transportation and warehousing cost

Density:

Damage:

Special Handling Requirements:

Critical, Very Heavy and Very High Value raw materials/products e.g. Aircrafts, Oil Rigs, Medical equipment

Distance Factor Warehouse near to factory or near customer?

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