Business Logistics/Supply ChainA Vital Subject

The supply chain is simply another way of saying the whole process of business.

Chapter 1

The Immediate Supply Chain for an Individual Firm

Transportation
Warehousing

Transportation

Customers

Information flows

Factory

Transportation

Vendors/plants/ports Warehousing Transportation

1-2

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

Supply Chain Management Defined

SCM is the integration of all activities associated with the flow and transformation of goods from raw materials through to end user, as well as information flows, through improved supply chain relationships, to achieve a sustainable competitive advantage. Handfield and Nichols

Evolution of Supply Chain Management

Military logistics - can be traced to the times of Alexander the Great Clearly focused on where to battle and when, where and how much to enter and exit Result - smaller armies could defeat a larger competitor Teeth versus Tail strategy - focused on simple themes like keeping lean force with efficient supply through setting forward bases. Approach - planning, information-sharing and flawless execution

Evolution of Supply Chain Management

Activity fragmentation to 1960 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 Physical Distribution Supply Chain Supply Chain Management Management Logistics Purchasing/ Materials Management Activity Integration 1960 to 2000 2000+

Supply Chain Schematic

1-5

The Logistics/SC 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.

A Revised Strategy is Generating Great Top Management Interest

Historical perspective of distribution: The last frontier of cost economies
Peter Drucker, 1962

The contemporary view: Distribution is a new frontier for demand generationa competitive weapon.
Both views are now important!

Critical Customer Service Loop

Customer order processing (and transmittal)

Transportation Customers Inventory or supply source

Customer Service Performance

10 9 8 96 94 92 88 86 84 82
Source: Herb Davis & Company

Order Cycle Time, Days Product Availability--% orders Product Availability--% line items

Days

7 6 5 4

19 9 19 2 9 19 4 96 19 9 20 8 00 20 02

Year

90

Indian Examples
Reliance Industries Limited (Retail) IRCTC (Railway Booking and Catering) Dr. Reddys Laboratories (pharmaceuticals) Asian Paints (Chemicals) Maruti Udyog Limited (Automobiles) Caf Coffee Day (Beverages) Times of India (Newspaper publishing) Pantaloon Retail (Merchandise retail) ICICI Bank (Retail banking) Taj Hotels (Lodging) Reliance Energy (Electric power) Bluedart, DHL (Logistics) Gas Authority of India (Natural Gas) Reserve Bank of India (Finance)

Significance of Logistics
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 Generate revenue Improve profit

An integral part of company strategy

Logistical lines are lengthening

Local vs. long distance supply Law of comparative economic advantage applies Time and place utilities

Logistics is a key to trade and an increased standard of living Logistics adds value

SCM Spend of 9 Major Indian Manufacturing Industries

SCM Spend Indicator In-bound Transportation Costs as percentage of Net Sales Inventory-related Costs as 13.3% 13.9% 13.1% 13.1% 2001-02 1.5% 2002-03 1.4% 2003-04 1.3% 2004-05 1.4%

percentage of Net Sales Distribution Expenses as 3.0% 2.8% 2.8% 2.7%

percentage of Net Sales Total SCM Spend as percentage of Net Sales Source: Centre for Monitoring Indian Economy 17.8% 18.1% 17.2% 17.2%

Logistics spend in India is about 13% of GDP

Costs are lower than K-Mart or

Target Stores CEO is a former logistician Wal-Mart is the largest retailer in the world!

Effect on Logistics Foreign Outsourcing

Domestic sourcing Foreign sourcing

Profit G&A
Marketing Logistics Overhead Materials

Profit G&A
Marketing Logistics Tariffs Overhead Materials

Increase

Increase

Labor

Reduction

Labor

Scope of the Supply Chain for Most Firms

Business logistics

Physical supply (Materials management) Sources of supply Plants/ operations

Physical distribution

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 firms internal supply chain

1-14

Key Activities/Processes

Primary - Setting customer service goals - Transportation - Inventory management - Location Secondary, or supporting - Warehousing - Materials handling - Acquisition (purchasing) - Protective packaging - Product scheduling - Order processing

The Supply Chain is Multi-Enterprise

Scope in reality
Focus Company Suppliers Suppliers suppliers Customers Customers/ End users

Acquire

Convert
Product and information flow

Distribute

Reality of SC Scope

The Multi-Dimensions of SC

SUPPLY CHAIN MANAGEMENT

Activity and process administration

Study Framework
CONTROLLING ORGANIZING
Inventory Strategy Forecasting Inventory decisions Purchasing and supply scheduling decisions Storage fundamentals Storage decisions Transport Strategy Transport fundamentals Transport decisions

Location Strategy Location decisions The network planning process

The focus is here

PLANNING

Customer service goals The product Logistics service Ord. proc. & info. sys.

The Logistics Strategy Triangle

Inventory Strategy Forecasting Transport Strategy Storage fundamentals Transport fundamentals Inventory decisions Transport decisions Purchasing and supply scheduling decisions Customer Storage decisions service goals The product Logistics service Information sys.

Location Strategy Location decisions The network planning process

Relationship of Logistics to Marketing and Production

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

Interface activities: Product scheduling Plant location Purchasing

Interface activities: Customer service standards Pricing Packaging Retail location

Productionlogistics interface

Marketinglogistics interface

Internal Supply Chain

1-21

Relationship of Logistics to Marketing

Product Price Place-Customer service levels Logistics Transport costs Warehousing costs Promotion

Inventory carrying costs Lot quantity costs

Order processing and information costs

1-22

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

Logistics/SC in Diverse Areas

Manufacturingmost common
Environmentcausing restrictions Serviceemerging opportunities Non-profitslittle explored Militarylong history

Contemporary Logistics Terms

Value stream/logistics process Quick response and flexible

manufacturing Mass customization Supply chain management/ collaborative logistics Reverse logistics Service logistics Continuous replenishment Lean logistics Integrated logistics