Fundamentals of Logistics and

Supply Chain Management

Ashwani Kumar
CRIS
TERI, 15.4.2017
 Logistics

Those
Those activities
activities that
that focus
focus on
on getting
getting thethe
right
right amount
amount of of the
the right
right products
products to to the
the
right
right place
place at
at the
the right
right time
time at
at the
the lowest
lowest
possible
possible price.
price.
 Logistics Management

The
The practice
practice of
of organizing
organizing the
the cost-effective
cost-effective flow
flow
of
of raw
raw materials,
materials, in-process
in-process inventory,
inventory, finished
finished
goods,
goods, and
and related
related information
information from
from point
point of
of
origin
origin to
to point
point of
of consumption
consumption to to satisfy
satisfy
customer
customer requirements.
requirements.
 History of Logistics
Military were the only ones to using the term
(1950s, 60s)
Industry started using the term Logistics in 70s
No single concept of the term in the private
industry.
Companies had departments such as material
management, transport, purchase, warehousing,
machining, etc.
 Supply Chain

AA sequence
sequence ofof firms
firms that
that perform
perform activities
activities
required
required to
to create
create and
and deliver
deliver aa good
good or
or
service
service to
to consumers
consumers or or industrial
industrial users.
users.
 Supply Chain Management

The
The integration
integration and
and organization
organization of of
information
information andand logistic
logistic activities
activities across
across
firms
firms in
in aa supply
supply chain
chain for
for the
the purpose
purpose of
of
creating
creating and
and delivering
delivering goods
goods and
and
services
services that
that provide
provide value
value toto customers.
customers.
 Logistics vs. Supply Chain Management
What is the difference?
A Supply chain is the network of:
Facilities (warehouses, factories, terminals, ports, stores,
homes)
Vehicles (trucks, trains, planes, ships)
Logistics information systems
Connecting suppliers suppliers with its customers customers.
Logistics is:
What happens in the supply chain
Putting the right material in the right place at the right time
It provides much of the Supply Chains value-added.
 The Logistics/SCM Mission

Getting the right goods or services to the right

place, at the right time, and in the desired
condition at the lowest cost and highest return
on investment.
 How Top Management Perceives
Logistics?
Historical perspective of Logistics (Distribution)
(Peter Drucker, 1962):
The last frontier of cost economies

The contemporary view:

Logistics is a new frontier for demand fulfillmenta
competitive weapon.

Both views are important!

Logistics in a Typical Manufacturing Firm
Profit 4%
Profit
Logistics
Cost
Logistics Cost 21%
Marketing
Cost
Marketing Cost 27%

Manufacturing
Manufacturing Cost 48% Cost

Source: CSCMP Annual State of Logistics report, 2015

 Logistics Costs Break-up
Cost Category Total Cost ($ % of Sales % of Logistics
Billion Costs
Transportation $590 5.9% 58.4%

Warehousing $78 .8% 7.9%

Inventory $299 3.0% 29.7%

Admin. $39 0.4% 4.0%

Total $1,006 10.1% 100.0%

Logistics costs are about 10% of sales, about 8.5% of US GDP

Source: CSCMP Annual State of Logistics report, 2015 11

 Increasing Significance of Logistics
Costs are high
About 12% of GDP internationally
A range of 4 to 30% of sales for individual firms, avg. about 10%
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
Globalization of trade
E-business : Logistics is a key competitive advantage
 Logistics Strategy and Planning
The objectives of logistics strategy
Minimize cost
Minimize investment
Maximize customer service
Levels of logistical planning
Strategic
Tactical
Operational
The Logistics Strategy Triangle
(4 problem areas)
Inventory Strategy
Forecasting
Storage fundamentals Tr
ansp
or
tS t
rat
eg y
Inventory decisions Tra
nsp
or
tfunda m
ent
a ls
Purchasing and supply Tra
nsp
or
td ec
isio
ns
scheduling decisions
Customer
Storage decisions service goals
The product
Logistics service
Information sys.

L
oca
ti
on St
ra
tegy
Lo
c
ati
on d
eci
sio
ns
T
henet
wor
k p
lann
i
ngp
r
oce
s
s

CR (2004) Prentice Hall, Inc.

 Strategic, Tactical, and Operational Decisions
Decision area Strategic Tactical Operational

Transportation Mode selection Seasonal equip- Dispatching

ment leasing

Inventories Location, Control policies Safety stock levels Order filling

Order Order entry, transmittal, Processing

processing and processing system orders, Filling
design back orders

Purchasing Development of supplier- Contracting, Expediting

buyer relations Forward buying

Warehousing Handling equipment Space utilization Order picking

selection, Layout design and restocking

Facility Number, size, and

location location of warehouses
CR (2004) Prentice Hall, Inc.
 Relationship of Logistics to
Marketing and Production

LOGISTICS
Sample
activities: MARKETING
PRODUCTION/ Transport Interface Sample
OPERATIONS Inventory
Interface activities: activities:
Sample activities: Order Customer
Quality control activities: Promotion
Product processing service Market
Detailed production
scheduling Materials standards research
scheduling Plant Pricing
Equipment maint. handling Product
location Packaging
Capacity planning mix
Purchasing Retail Sales force
Work measurement
location management
& standards

Production-
logistics Marketing-
interface logistics
interface

Internal Supply Chain

CR (2004) Prentice Hall, Inc.
Thank you.