Logistics

Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective 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.

This definition conveys the idea that product flows are to be managed from the point where they exist as raw materials to the point where they are finally discarded. Logistics is also concerned with the flow of services as well as physical goods, an area of growing opportunity for improvement. It also suggests that logistics is a process, meaning that it includes all the activities that have an impact on making goods and services available to customers when and where they wish to acquire them. However, it implies that logistics is part of the supply chain process, not the entire process.

Supply Chain Management

Supply chain management (SCM) is a term that has emerged in recent years that captures the Essence of integrated logistics and even goes beyond it. Supply chain management emphasizes the Interactions that take place among the functions of marketing, logistics, and production within a company and those interactions that take place between separate firms within the product-flow channel. Cost or customer service improvement is achieved through co-ordination and collaboration among the channel members.

Definitions of the supply chain and supply chain management reflecting this broader scope are: The supply chain (SC) encompasses all activities associated with the flow and transformation Of goods from the raw materials stage (extraction), through to the end user, as well as the associated information flows. Materials and information flow both up and down the supply chain. Supply chain management (SCM) is the integration of these activities, through improved supply Chain relationships, to achieve a sustainable competitive advantage. After careful study of the various definitions being offered, Mentzer and other writers propose the broad and rather general definition as follows: Supply chain management is defined as the systematic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole.

Main Logistics Targets

Logistics is the management of the flow of goods between the point of origin and the point of destination in order to meet the requirements of customers or corporations. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and often security. Today the complexity of production logistics can be modeled, analyzed, visualized and optimized by plant simulation software, but is constantly changing. This can involve anything from consumer goods such as food, to IT materials, to aerospace and defense equipment.

Main logistics targets Logistics is one of the main functions within a company. The main targets of logistics can be divided into performance related and cost related. They are high due date reliability, short delivery times, low inventory level and high capacity utilization. But when decisions need to be made, there is always a trade off between these targets. This is what makes being a logistician challenging and interesting.

Logistics Viewpoints & Fields

Logistics viewpoints

Inbound logistics is one of the primary processes and it concentrates on purchasing and arranging inbound movement of materials, parts and/or finished inventory from suppliers to manufacturing or assembly plants, warehouses or retail stores. Outbound logistics is the process related to the storage and movement of the final product and the related information flows from the end of the production line to the end user.
Logistics Fields Given the services performed by logistics, one can distinguish the main fields of it as it follows: Procurement Logistics Production Logistics Distribution Logistics After sales Logistics Disposal Logistics

Logistics Fields
Procurement Logistics consists of activities such as market research, requirements planning, make or buy decisions, supplier management, ordering, and order controlling. The targets in procurement logistics might be contradictory - maximize the efficiency by concentrating on core competences, outsourcing while maintaining the autonomy of the company, and minimization of procurement costs while maximizing the security within the supply process. Production Logistics connects procurement to distribution logistics. The main function of production logistics is to use the available production capacities to produce the products needed in distribution logistics. Production logistics activities are related to organizational concepts, layout planning, production planning, and control. Distribution Logistics has, as main tasks, the delivery of the finished products to the customer. It consists of order processing, warehousing, and transportation. Distribution logistics is necessary because the time, place, and quantity of production differs with the time, place, and quantity of consumption. Disposal Logistics' main function is to reduce logistics cost(s), enhance service(s), and save natural resources.

Military logistics
In military science, maintaining one's supply lines while disrupting those of the enemy is a crucialsome would say the most crucialelement of military strategy, since an armed force without resources and transportation is defenseless. The defeat of the British in the American War of Independence and the defeat of the Axis in the African theatre of World War II are attributed to logistical failure.[citation needed] The historical leaders Hannibal Barca, Alexander the Great, and the Duke of Wellington are considered to have been logistical geniuses. Militaries have a significant need for logistics solutions, and so have developed advanced implementations. Integrated Logistics Support (ILS) is a discipline used in military industries to ensure an easily supportable system with a robust customer service (logistic) concept at the lowest cost and in line with (often high) reliability, availability, maintainability and other requirements as defined for the project.

In military logistics, logistics officers manage how and when to move resources to the places they are needed. Supply chain management in military logistics often deals with a number of variables in predicting cost, deterioration, consumption, and future demand. The US Military's categorical supply classification was developed in such a way that categories of supply with similar consumption variables are grouped together for planning purposes. For instance, peacetime consumption of ammunition and fuel will be considerably less than wartime consumption of these items, whereas other classes of supply such as subsistence and clothing have a relatively consistent consumption rate regardless of war or peace. Troops will always require uniform and food. More troops will require more uniforms and food.
Some classes of supply have a linear demand relationshipas more troops are added more supply items are neededas more equipment is used more fuel and ammunition is consumed. Other classes of supply must consider a third variable besides usage and quantity: time. As equipment ages more and more repair parts are needed over time, even when usage and quantity stays consistent. By recording and analyzing these trends over time and applying to future scenarios, the US Military can accurately supply troops with the items necessary at the precise moment they are needed.[1] History has shown that good logistical planning creates a lean and efficient fighting force. Lack thereof can lead to a clunky, slow, and ill-equipped force with too much or too little supply.

Business logistics
A logistics provider's warehouse of goods being stacked on pallets with a forklift.

Logistics as a business concept evolved in the 1950s due to the increasing complexity of supplying businesses with materials and shipping out products in an increasingly globalized supply chain, leading to a call for experts called supply chain logisticians. Business logistics can be defined as "having the right item in the right quantity at the right time at the right place for the right price in the right condition to the right customer", and is the science of process and incorporates all industry sectors. The goal of logistics work is to manage the fruition of project life cycles, supply chains and resultant efficiencies.
In business, logistics may have either internal focus (inbound logistics), or external focus (outbound logistics) covering the flow and storage of materials from point of origin to point of consumption. Two different forms of logistics: one optimizes a steady flow of material through a network of transport links and storage nodes; the other coordinates a sequence of resources to carry out some project.

Production logistics
The term production logistics is used to describe logistic processes within an industry. The purpose of production logistics is to ensure that each machine and workstation is being fed with the right product in the right quantity and quality at the right time. The concern is not the transportation itself, but to streamline and control the flow through value-adding processes and eliminate nonvalue-adding ones. Production logistics can be applied to existing as well as new plants. Manufacturing in an existing plant is a constantly changing process. Machines are exchanged and new ones added, which gives the opportunity to improve the production logistics system accordingly. Production logistics provides the means to achieve customer response and capital efficiency. Production logistics is becoming more important with decreasing batch sizes. In many industries (e.g. mobile phones), a batch size of one is the short-term aim, allowing even a single customer's demand to be fulfilled efficiently. Track and tracing, which is an essential part of production logisticsdue to product safety and product reliability issuesis also gaining importance, especially in the automotive and medical industries.

Supply Chain Drivers and Obstacles

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Outline
Drivers of supply chain performance A framework for structuring drivers Facilities Inventory Transportation Information Sourcing Pricing Obstacles to achieving fit

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Drivers of Supply Chain Performance

Facilities places where inventory is stored, assembled, or fabricated production sites and storage sites Inventory raw materials, WIP, finished goods within a supply chain inventory policies Transportation moving inventory from point to point in a supply chain combinations of transportation modes and routes Information data and analysis regarding inventory, transportation, facilities throughout the supply chain potentially the biggest driver of supply chain performance Sourcing functions a firm performs and functions that are outsourced Pricing Price associated with goods and services provided by a firm to the supply chain
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A Framework for Structuring Drivers

Competitive Strategy Supply Chain Strategy Efficiency Supply chain structure Logistical Drivers Facilities Inventory Transportation Responsiveness

Information

Sourcing Cross Functional Drivers

Pricing

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Facilities
Role in the supply chain
the where of the supply chain manufacturing or storage (warehouses)

Role in the competitive strategy

economies of scale (efficiency priority) larger number of smaller facilities (responsiveness priority)

Components of facilities decisions

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Components of Facilities Decisions

Location
centralization (efficiency) vs. decentralization (responsiveness) other factors to consider (e.g., proximity to customers)

Capacity (flexibility versus efficiency) Manufacturing methodology (product focused versus process focused) Warehousing methodology (SKU storage, job lot storage, crossdocking) Overall trade-off: Responsiveness versus efficiency
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Inventory
Role in the supply chain Role in the competitive strategy Components of inventory decisions

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Inventory: Role in the Supply Chain

Inventory exists because of a mismatch between supply and demand Source of cost and influence on responsiveness Impact on
material flow time: time elapsed between when material enters the supply chain to when it exits the supply chain Throughput: rate at which sales to end consumers occur
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Inventory: Role in Competitive Strategy

If responsiveness is a strategic competitive priority, a firm can locate larger amounts of inventory closer to customers
If cost is more important, inventory can be reduced to make the firm more efficient

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Components of Inventory Decisions

Cycle inventory
Average amount of inventory used to satisfy demand between shipments Depends on lot size

Safety inventory
inventory held in case demand exceeds expectations costs of carrying too much inventory versus cost of losing sales

Seasonal inventory
inventory built up to counter predictable variability in demand cost of carrying additional inventory versus cost of flexible production

Overall trade-off: Responsiveness versus efficiency

more inventory: greater responsiveness but greater cost less inventory: lower cost but lower responsiveness

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Transportation
Role in the supply chain Role in the competitive strategy Components of transportation decisions

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Transportation: Role in the Supply Chain

Moves the product between stages in the supply chain Impact on responsiveness and efficiency Faster transportation allows greater responsiveness but lower efficiency Also affects inventory and facilities
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Transportation: Role in the Competitive Strategy

If responsiveness is a strategic competitive priority, then faster transportation modes can provide greater responsiveness to customers who are willing to pay for it

Can also use slower transportation modes for customers whose priority is price (cost) Can also consider both inventory and transportation to find the right balance
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Components of Transportation Decisions

Mode of transportation:
air, truck, rail, ship, pipeline, electronic transportation vary in cost, speed, size of shipment, flexibility

Route and network selection

route: path along which a product is shipped network: collection of locations and routes

In-house or outsource Overall trade-off: Responsiveness versus efficiency

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Information
Role in the supply chain Role in the competitive strategy Components of information decisions

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Information: Role in the Supply Chain

The connection between the various stages in the supply chain allows coordination between stages
Crucial to daily operation of each stage in a supply chain e.g., production scheduling, inventory levels
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Information: Role in the Competitive Strategy

Allows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off) Information technology

What information is most valuable?

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Components of Information Decisions

Push (MRP) versus pull (demand information transmitted quickly throughout the supply chain) Coordination and information sharing Forecasting and aggregate planning Enabling technologies
EDI Internet ERP systems Supply Chain Management software

Overall trade-off: Responsiveness versus efficiency

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Sourcing
Role in the supply chain Role in the competitive strategy Components of sourcing decisions

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Sourcing: Role in the Supply Chain

Set of business processes required to purchase goods and services in a supply chain Supplier selection, single vs. multiple suppliers, contract negotiation

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Sourcing: Role in the Competitive Strategy

Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain In-house vs. outsource decisions- improving efficiency and responsiveness

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Components of Sourcing Decisions

In-house versus outsource decisions Supplier evaluation and selection Procurement process

Overall trade-off: Increase the supply chain profits

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Pricing
Role in the supply chain Role in the competitive strategy Components of pricing decisions

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Pricing: Role in the Supply Chain

Pricing determines the amount to charge customers in a supply chain Pricing strategies can be used to match demand and supply

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Sourcing: Role in the Competitive Strategy

Firms can utilize optimal pricing strategies to improve efficiency and responsiveness Low price and low product availability; vary prices by response times

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Components of Pricing Decisions

Pricing and economies of scale Everyday low pricing versus high-low pricing Fixed price versus menu pricing Overall trade-off: Increase the firm profits

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Considerations for Supply Chain Drivers

Driver Inventory Transportation Facilities Information Efficiency Cost of holding Consolidation Responsiveness Availability Speed

Consolidation / Proximity / Dedicated Flexibility What information is best suited for each objective
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Obstacles to Achieving Strategic Fit

Increasing variety of products Decreasing product life cycles Increasingly demanding customers Fragmentation of supply chain ownership Globalization Difficulty executing new strategies

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Summary
What are the major drivers of supply chain performance? What is the role of each driver in creating strategic fit between supply chain strategy and competitive strategy (or between implied demand uncertainty and supply chain responsiveness)? What are the major obstacles to achieving strategic fit? In the remainder of the course, we will learn how to make decisions with respect to these drivers in order to achieve strategic fit and surmount these obstacles

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Forecast
Forecast is an estimate of future demand.

A forecast can be constructed using quantitative methods, qualitative methods, or a combination of methods, and a forecast can be based on extrinsic (external) or intrinsic (internal) factors.
Although the term forecast can be applied to many things such as Weather forecast, economic growth forecast and more, here we are going to focus on forecast and forecasting as used in businesses and again related particularly to the forecast of products sold to their customers i.e. Sales Forecasting. Sales Forecasting is used in the practice of Customer Demand Planning in every day business forecasting for manufacturing, distribution and retail businesses. The discipline of business forecasting, also sometimes referred to as supply chain forecasting, embraces both statistical forecasting and judgemental forecasting using a consensus process. Sales Forecasting is the business function that attempts to predict sales and use of products so they can be purchased or manufactured in appropriate quantities in advance. In Supply chain management Sales forecasting is used to make sure that the right product is at the right place at the right time. Accurate sales forecasting will help manufacturers, distributors and retailers reduce excess inventory and therefore increase profit margin.

Demand Forecasting and Supply Chain Planning

Demand Forecasting and Supply Chain Planning enable manufacturers to understand their customers buying behaviours and adapt to the fluctuating demand. Demand Forecasting and Supply Chain Planning ensures a profitable match of demand and supply. In order to maximize their return on assets, most manufacturers resort to Demand Forecasting and Supply Chain Planning. Balancing the uncertainty in demand and supply Demand Forecasting and Supply Chain Planning helps the manufacturers to ensure that they get a complete picture of anticipated customer demand on a finished product level as well as supply. Demand and Supply Planning fulfils a given customer forecast requirement

WAREHOUSING : SUPPLY CHAIN

Warehouse is a commercial building for storage of goods. Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are usually large plain buildings in industrial areas of cities and towns. They come equipped with loading docks to load and unload trucks; or sometimes are loaded directly from railways, airports, or seaports. They also often have cranes and forklifts for moving goods, which are usually placed on ISO standard pallets loaded into pallet racks. Some warehouses are completely automated, with no workers working inside. The pallets and product are moved with a system of automated conveyors and automated storage and retrieval machines coordinated by programmable logic controllers and computers running logistics automation software. These systems are often installed in refrigerated warehouses where temperatures are kept very cold to keep the product from spoiling, and also where land is expensive, as automated storage systems can use vertical space efficiently.

WAREHOUSING : SUPPLY CHAIN

These high-bay storage areas are often more than 10 meters high, with some over 20 meters high. The direction and tracking of materials in the warehouse is coordinated by the WMS, or warehouse management system, a database driven computer program. The WMS is used by logistics personnel to improve the efficiency of the warehouse by directing put aways and to maintain accurate in inventory by recording warehouse transactions. For a warehouse to function efficiently, the facility must be properly slotted. Effective slotting addresses which storage medium a product will be picked from (pallet rack or carton flow), and how they will be picked (pick-to-light, pick-to-voice or pick-to-paper).With a proper slotting plan, a warehouse can improve its inventory rotation requirements-- such as FIFO (First In First Out) and LIFO (Last In First Out) control labor costs and increase productivity. Traditional warehousing has been declining since the last decades of the 20th century with the gradual introduction of Just In Time (JIT) techniques designed to improve the return on investment of a business by reducing in-process inventory. The JIT system promotes