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CHAPTER 1 Logistics and the Supply Chain CHAPTER 1 Logistics and the Supply Chain

Learning Objectives F To learn the definition of logistics F To understand the economic Learning Objectives F To learn the definition of logistics F To understand the economic importance of logistics F To learn of recent events and their influences on logistics practices © 2008 Prentice Hall 2

Learning Objectives F To gain an understanding of logistics practices within a firm F Learning Objectives F To gain an understanding of logistics practices within a firm F To learn different pricing policies F To know about logistics careers © 2008 Prentice Hall 3

Logistics and the Supply Chain F Key Terms – Channel intermediaries – Cost trade-offs Logistics and the Supply Chain F Key Terms – Channel intermediaries – Cost trade-offs – Economic utility – FIFO – FOB origin/destination pricing systems F Key Terms – Form utility – Freight absorption – Landed costs – LIFO – Marketing channel © 2008 Prentice Hall 4

Logistics and the Supply Chain F Key Terms – Phantom freight – Place utility Logistics and the Supply Chain F Key Terms – Phantom freight – Place utility – Possession utility – Reverse logistics – Supply chain Terms – Stock-keeping units (SKUs) – Stockouts – Systems approach – Time utility – Total cost approach © 2008 Prentice Hall 5

Economic Impacts of Logistics F Macroeconomic Impacts F Economic Utility – Possession utility – Economic Impacts of Logistics F Macroeconomic Impacts F Economic Utility – Possession utility – Form utility – Place utility – Time utility © 2008 Prentice Hall 6

Table 1 -1: The Cost of the Business Logistics System in Relation to Gross Table 1 -1: The Cost of the Business Logistics System in Relation to Gross Domestic Product (GDP) in $ Billion Year Inventory Carrying Costs Transportation Costs Administrative Costs Total U. S. Logistics Cost Logistics As a Percentage of GDP 1960 31 44 3 78 14. 7 1965 38 64 4 106 14. 7 1970 56 91 6 153 14. 7 1975 97 116 9 222 13. 5 1980 220 214 17 451 16. 1 1985 227 274 20 521 12. 4 1990 283 351 25 659 11. 4 1995 302 441 30 773 10. 4 2000 377 590 39 1, 006 10. 1 Source: R. Wilson and R. Delaney, Twelfth Annual State of Logistics Report, 2001 © 2008 Prentice Hall 7

Logistics: What It Is F Council of Logistics Management definition: “Logistics is that part Logistics: What It Is F Council of Logistics Management definition: “Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers’ requirements. ” Source: clm 1. org © 2008 Prentice Hall 8

The Increased Importance of Logistics FA Reduction in Economic Regulation F Recognition by Prominent The Increased Importance of Logistics FA Reduction in Economic Regulation F Recognition by Prominent Non-Logisticians F Technological Advances F The Growing Power of Retailers F Globalization of Trade © 2008 Prentice Hall 9

The Systems and Total Cost Approaches to Logistics F Systems Approach – Interdependence of The Systems and Total Cost Approaches to Logistics F Systems Approach – Interdependence of company and logistics goals – Interdependence of functional areas u Stock-keeping units (SKUs) – Interdependence of logistics activities or Intrafunctional logistics © 2008 Prentice Hall 10

Figure 1 -1: Control Over the Flow of Inbound and Outbound Movements © 2008 Figure 1 -1: Control Over the Flow of Inbound and Outbound Movements © 2008 Prentice Hall 11

Figure 1 -2: The Utilization of Logistics Service as a Major Selling Point © Figure 1 -2: The Utilization of Logistics Service as a Major Selling Point © 2008 Prentice Hall 12

The Systems and Total Cost Approaches to Logistics F Total Cost Approach – Cost The Systems and Total Cost Approaches to Logistics F Total Cost Approach – Cost trade-offs: changes to one activity cause some costs to increase and others to decrease – Total Logistics Concept: to find the lowest total cost that supports an organization’s customer service requirements © 2008 Prentice Hall 13

Logistical Relationships within the Firm F Finance – LIFO – FIFO F Production © Logistical Relationships within the Firm F Finance – LIFO – FIFO F Production © 2008 Prentice Hall 14

Logistical Relationships within the Firm F Marketing – Place Decisions – Price Decisions u Logistical Relationships within the Firm F Marketing – Place Decisions – Price Decisions u FOB origin/FOB destination pricing systems u Landed costs u Phantom freight u Freight absorption © 2008 Prentice Hall 15

Figure 1 -3: Phantom Freight and Freight Absorption © 2008 Prentice Hall 16 Figure 1 -3: Phantom Freight and Freight Absorption © 2008 Prentice Hall 16

Logistical Relationships within the Firm F Marketing – Product Decisions u Stockouts – Promotion Logistical Relationships within the Firm F Marketing – Product Decisions u Stockouts – Promotion Decisions © 2008 Prentice Hall 17

Marketing Channels F “sets of interdependent organizations involved in the process of making a Marketing Channels F “sets of interdependent organizations involved in the process of making a product or service available for use or consumption. ” Source: Louis W. Stern and Adel I. El-Ansary, Marketing Channels, 4 th edition, Upper Saddle River, NJ: Prentice Hall, 1992, p. 1 F Ownership channel – Manufacturers – Wholesalers – Retailers © 2008 Prentice Hall 18

Marketing Channels F Negotiations channel – Buy and sell agreements are reached F Financing Marketing Channels F Negotiations channel – Buy and sell agreements are reached F Financing channel – Payments for goods F Promotions channel – Promoting a new or existing product F Logistics channel – Moving and storing product throughout the channel © 2008 Prentice Hall 19

Channel Intermediaries/ Facilitators F Ownership channel – Banks, public warehouses F Negotiations channel – Channel Intermediaries/ Facilitators F Ownership channel – Banks, public warehouses F Negotiations channel – Brokers F Financing channel – Banks, insurance companies F Promotions channel – Advertising agencies, public relations agencies F Logistics channel – Freight forwarders © 2008 Prentice Hall 20

Activities in the Logistical Channel Customer service F Facility location decisions F Inventory management Activities in the Logistical Channel Customer service F Facility location decisions F Inventory management F Order management F Production scheduling F Returned products F Transportation management F Demand forecasting F Industrial packaging F Materials handling F Parts and service support F Procurement F Salvage and scrap disposal F Warehousing management F © 2008 Prentice Hall 21

Activities in the Logistical Channel Customer service F Facility location decisions F Inventory management Activities in the Logistical Channel Customer service F Facility location decisions F Inventory management F Order management F Production scheduling F Returned products F Transportation management F Demand forecasting F Industrial packaging F Materials handling F Parts and service support F Procurement F Salvage and scrap disposal F Warehousing management F © 2008 Prentice Hall 22

Activities in the Logistical Channel Customer service F Facility location decisions F Inventory management Activities in the Logistical Channel Customer service F Facility location decisions F Inventory management F Order management F Production scheduling F Returned products F Transportation management F Demand forecasting F Industrial packaging F Materials handling F Parts and service support F Procurement F Salvage and scrap disposal F Warehousing management F © 2008 Prentice Hall 23

Responsibilities of Logistics Managers FA specialist FA – Freight rates – Warehouse layouts – Responsibilities of Logistics Managers FA specialist FA – Freight rates – Warehouse layouts – Inventory analysis – Production – Purchasing – Transportation law generalist – Understands functional relationships – Relates logistics to other firm operations, suppliers, customers – Controls large expenditures © 2008 Prentice Hall 24

Logistics Careers F Most business organizations are potential employers F Logistics is the second-largest Logistics Careers F Most business organizations are potential employers F Logistics is the second-largest employment sector in the United States F The CEO of Wal-Mart began his Wal-Mart career in the logistics area! © 2008 Prentice Hall 25

Logistics Professionalism Professional Organizations Dedicated to Advancing the Professional Knowledge of their members: F Logistics Professionalism Professional Organizations Dedicated to Advancing the Professional Knowledge of their members: F Council of Logistics F Association for Management Transportation Law, Logistics, and Policy F Canadian Association of F Delta Nu Alpha Logistics Management F American Production and F International Society of Inventory Control Society Logistics F American Society of F Transportation Research Transportation and Forum Logistics F Warehousing and Education Research Council © 2008 Prentice Hall 26