SCM and Logistics Dickson K W Chiu Ph

SCM and Logistics Dickson K. W. Chiu Ph. D, SMIEEE, SMACM Text: Ballou - Business Logistics Management, 5/E (Chapter 1) 1

Learning Objectives n n To familiarize with basic concepts of logistics and supply chain management To understand recent evolvement of logistics To understand the reasons for its recent growth in importance To understand the importance of IT in logistics Dickson Chiu 2006 2

Overview of Logistics and Supply Chain Management 3

Supply Chain Overview Transportation Warehousing Customers Information flows Factory Transportation Vendors/plants/ports Warehousing Transportation CR (2004) Prentice Hall, Inc. Dickson Chiu 2006 1 -2 4

Logistics vs Supply Chain Management Council of Logistics Management n “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. ” Handfield and Nichols n 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. CR (2004) Prentice Hall, Inc. Dickson Chiu 2006 5

Common Contemporary Logistics Terms n n n n n 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 => IT people have to deal with any related automation anyway Dickson Chiu 2006 6

The Logistics/SCM Mission n n 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. Product / Service Utility n n n Possession Utility - the value or usefulness that comes from a customer being able to take possession of a product Form Utility - in a form that can be used by the customer and is of value to the customer Place Utility - available where they are needed by customers Time Utility - available when they are needed by customers Logistics obviously help time and place utility Dickson Chiu 2006 7

Evolution of Supply Chain Management CR (2004) Prentice Hall, Inc. Dickson Chiu 2006 8

Supply Chain Schematic CR (2004) Prentice Hall, Inc. Dickson Chiu 2006 1 -5 9

A Revised Strategy is Generating Great Top Management Interest n n n Historical perspective of distribution (Peter Drucker, 1962): “The last frontier of cost economies” The contemporary view: Distribution is a new frontier for demand generation—a competitive weapon. Both views are important! Dickson Chiu 2006 10

Critical Customer Service Loop Dickson Chiu 2006 11

Physical Distribution Costs Category Percent of sales $/cwt. 3. 34% $26. 52 Warehousing 2. 02 18. 06 Order entry 0. 43 4. 58 Administration 0. 41 2. 79 Inventory carrying 1. 72 22. 25 7. 65% $67. 71 Transportation Total Add one-third for inbound supply costs Source: Herb Davis & Company CR (2004) Prentice Hall, Inc. Dickson Chiu 2006 Logistics cost are about 10% of sales w/o purchasing costs 12

Customer Service Performance Source: Herb Davis & Company Dickson Chiu 2006 13

Traditional Scope of the Supply Chain Business logistics Physical supply (Materials management) Sources of supply Physical distribution Plants/ operations • Transportation • Inventory maintenance • Order processing • Acquisition • Protective packaging • Warehousing • Materials handling • Information maintenance CR (2004) Prentice Hall, Inc. Customers • Transportation • Inventory maintenance • Order processing • Product scheduling • Protective packaging • Warehousing • Materials handling • Information maintenance Internal supply chain Dickson Chiu 2006 1 -14 14

Key Activities/Processes n Primary n n n Setting customer service goals Transportation Inventory management Location Secondary, or supporting n n n Warehousing Materials handling Acquisition (purchasing) Protective packaging Product scheduling Order processing Dickson Chiu 2006 15

Logistics Strategy and Planning n The objectives of logistics strategy n n Minimize cost Minimize investment Maximize customer service Levels of logistical planning n n n Strategic Tactical Operational Dickson Chiu 2006 16

The Logistics Strategy Triangle (4 problem areas) Customer service goals · The product · Logistics service · Information sys. CR (2004) Prentice Hall, Inc. Dickson Chiu 2006 17

Strategic, Tactical, and Operational Decision Making Decision area Strategic Tactical Operational Transportation Mode selection Seasonal equipment leasing Dispatching Inventories Location, Control policies Safety stock levels Order filling Order processing Order entry, transmittal, and processing system design Processing orders, Filling back orders Purchasing Development of supplier- Contracting, buyer relations Forward buying Expediting Warehousing Handling equipment selection, Layout design Facility location Space utilization Order picking and restocking Number, size, and location of warehouses CR (2004) Prentice Hall, Inc. Dickson Chiu 2006 18

Relationship of Logistics to Marketing and Production PRODUCTION/ OPERATIONS Sample activities: · Quality control · Detailed production scheduling · Equipment maint. · Capacity planning · Work measurement & standards Interface activities: · Product scheduling · Plant location · Purchasing LOGISTICS Sample activities: ·Transport · Inventory · Order processing · Materials handling Interface activities: · Customer service standards · Pricing · Packaging · Retail location Productionlogistics interface MARKETING Sample activities: · Promotion · Market research · Product mix · Sales force management Marketinglogistics interface Internal Supply Chain CR (2004) Prentice Hall, Inc. Dickson Chiu 2006 19

Marketing Relationship of Logistics to Marketing Product Promotion Price Logistics Place-Customer service levels Transport costs Inventory carrying costs Lot quantity costs CR (2004) Prentice Hall, Inc. Order processing and information costs Dickson Chiu 2006 Warehousing costs 20

Relationship of Logistics to Production n Coordinates through scheduling and strategy n n n An integral part of the supply chain n make-to-order make-to-stock Affects total response time for customers Shares activities such as inventory planning Costs are in tradeoff n n n Production lot quantities affect inventory levels and transportation efficiency Production response affects transportation costs and customer service Production and warehouse location are interrelated Dickson Chiu 2006 21

Contemporary IT and Logistics 22

Wal-Mart Wins with Logistics n n n Costs are lower than K-Mart or Target Stores CEO is a former logistician Wal-Mart is the largest retailer in the world! Dickson Chiu 2006 23

Logistics/SCM in Diverse Areas n n n Manufacturing - most common Service - emerging opportunities Environment - causing restrictions Non-profits / Government - little explored Military - long history Note the global evolvement into a service-oriented economy! Dickson Chiu 2006 24

Supply Chain is Multi-Enterprise Conventional Scope Focus Company Suppliers Customers/ End users Supplier’s suppliers Acquire Convert Distribute Product and information flow CR (2004) Prentice Hall, Inc. Dickson Chiu 2006 25

Effect on Logistics Foreign Outsourcing Domestic sourcing Foreign sourcing Profit G&A Profit Increase G&A Marketing Logistics Overhead Increase Tariffs Overhead Materials Labor CR (2004) Prentice Hall, Inc. Labor Dickson Chiu 2006 Reduction 26

Reality of SCM Scope CR (2004) Prentice Hall, Inc. Dickson Chiu 2006 27

al rdi n oo l) c na n tio ina ord co SUPPLY CHAIN MANAGEMENT on ti iza an Int (In er-fu tra nct -or ion ga niz al ati o org er. Int ati on The Multi-Dimensions of SCM Activity and process administration CR (2004) Prentice Hall, Inc. Dickson Chiu 2006 28

Increasing Significance of Logistics n Costs are high n n n Customers are more demanding of the supply chain n n Local vs. long distance supply Globalization of trade Logistics is a key to trade and an increased standard of living n n Generate revenue Improve profit Logistical lines are lengthening n n Desire for quick response Desire for mass customization An integral part of company strategy n n 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 Law of comparative economic advantage applies Logistics adds value n Time and place utilities Dickson Chiu 2006 29

Contemporary IT Applications in Logistics – Focus of this Course n n Tremendous technological advances in past decades Logistics management relies on analysis over massive information from heterogeneous sources Disparate business functions in service-oriented economy Internet and mobile technologies has further improved logistical effectiveness and efficiency n n n Enabled logisticians and management to make timely, informed, and accurate decisions but create new dimensions of complexity IT people work closely with logistician and management n n n Understand complex requirements Choose the right technology and design appropriate IT infrastructures, architectures, and systems Explain how contemporary IT can help to others Dickson Chiu 2006 30

Some Useful Contemporary IT in Logistics n n n e. Xtended Markup Language (XML) Service-oriented architecture Process integration and interaction management n n n Exceptions, alerts, and relationship management in logistics Information integration Facilitating decision support Mobile technologies Radio Frequency Identification (RFID) => The key is to achieve information and process integration for efficient and effective decision support. Dickson Chiu 2006 31

Summary 32

Summary n n n The logistic process plans, implements, controls the flow and storage of goods, services, and related information between the point of origin and the point of consumption to satisfy customer requirements Logistics addresses the time utility & place utility out of the four economic utilities Logistics becomes more important and complex because of new requirements of the service-oriented economy, disparate business functions, and the impact of various contemporary IT Logistics involves the interaction with multiple departments within a company as well as now also across business partner organizations and customers Application of contemporary IT, especially information and process integration for efficient and effective decision support, is a critical success factor and therefore the focus of this course. Dickson Chiu 2006 33