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Business Logistics/Supply
ChainA Vital Subject
The supply chain is simply another way of
saying the whole process of business.
Chapter 1
CR (2004) Prentice Hall, Inc.
Warehousing
Warehousing
Transportation
Transportation
Vendors/plants/ports
Transportation
Factory
Transportation
Customers
Information
flows
The Immediate Supply Chain for an Individual Firm
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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
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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
Supply Chain
Management
Supply Chain
Management
Logistics
Purchasing/
Materials
Management
Physical
Distribution
Activity fragmentation to 1960
Activity Integration 1960 to 2000 2000+
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
Supply Chain
Management
Supply Chain
Management
Logistics
Purchasing/
Materials
Management
Physical
Distribution
Activity fragmentation to 1960
Activity Integration 1960 to 2000 2000+
Evolution of Supply Chain Management
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Supply Chain Schematic
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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.
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A Revised Strategy is Generating
Great Top Management Interest
Historical perspective of distribution:
The last frontier of cost economies

The contemporary view:
Distribution is a new frontier for demand
generationa competitive weapon.

Peter Drucker, 1962
Both views are
now important!
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Customers
Transportation
Inventory
or supply source
Customer order processing (and
transmittal)
Customers
Transportation
Inventory
or supply source
Customer order processing (and
transmittal)
Critical Customer Service
Loop
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Category Percent of sales $/cwt.
Transportation 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
Total 7.65% $67.71
Physical Distribution Costs
Add one-third for inbound supply costs
Source: Herb Davis & Company
Logistics cost
are about 10% of
sales w/o
purchasing costs
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4
5
6
7
8
9
10
1
9
9
2
1
9
9
4
1
9
9
6
1
9
9
8
2
0
0
0
2
0
0
2
Year
D
a
y
s
82
84
86
88
90
92
94
96
%
Order Cycle Time,
Days
Product
Availability--%
orders
Product
Availability--% line
items
Customer Service Performance
Source: Herb Davis & Company
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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

An integral part of company strategy
Generate revenue
Improve profit

Logistical lines are lengthening
Local vs. long distance supply

Logistics is a key to trade and an increased standard of living
Law of comparative economic advantage applies

Logistics adds value
Time and place utilities
Significance of Logistics
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Costs are lower than K-Mart or
Target Stores
CEO is a former logistician
Wal-Mart is the largest retailer in
the world!
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Effect on Logistics Foreign Outsourcing
Profit
G & A
Marketing
Logistics
Overhead
Materials
Labor
Profit
G & A
Marketing
Logistics
Overhead
Materials
Labor
Tariffs
Increase
Reduction
Increase
Domestic sourcing Foreign sourcing
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Scope of the Supply Chain for Most Firms
Physical distribution
Physical supply
(Materials management)
Business logistics
Sources of
supply
Plants/
operations
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
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Primary
- Setting customer service goals
- Transportation
- Inventory management
- Location

Secondary, or supporting
- Warehousing
- Materials handling
- Acquisition (purchasing)
- Protective packaging
- Product scheduling
-
Order processing
Key Activities/Processes
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Focus
Company
Suppliers
Suppliers
suppliers
Customers
Customers/
End users
Acquire Convert Distribute
The Supply Chain is Multi-Enterprise
Product and information flow
Scope in
reality
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Reality of SC Scope
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SUPPLY
CHAIN
MANAGEMENT
Activity and process
administration
The Multi-Dimensions of SC
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Transport Strategy
Transport fundamentals
Transport decisions
Customer
service goals
The product
Logistics service
Ord. proc. & info. sys.
Inventory Strategy
Forecasting
Inventory decisions
Purchasing and supply
scheduling decisions
Storage fundamentals
Storage decisions
Location Strategy
Location decisions
The network planning process
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Transport Strategy
Transport fundamentals
Transport decisions
Customer
service goals
The product
Logistics service
Ord. proc. & info. sys.
Inventory Strategy
Forecasting
Inventory decisions
Purchasing and supply
scheduling decisions
Storage fundamentals
Storage decisions
Location Strategy
Location decisions
The network planning process
Study Framework
The focus is
here
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Customer
service goals
The product
Logistics service
Information sys.
Inventory Strategy

Forecasting

Storage fundamentals

Inventory decisions

Purchasing and supply

scheduling decisions

Storage decisions
Transport Strategy

Transport fundamentals

Transport decisions
Location Strategy

Location decisions

The network planning process

The Logistics Strategy Triangle
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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
Interface
activities:

Product
scheduling

Plant
location

Purchasing
MARKETING
Sample
activities:

Promotion

Market
research

Product
mix

Sales force
management
Interface
activities:

Customer
service
standards

Pricing

Packaging

Retail
location
Production-
logistics
interface
Marketing-
logistics
interface
Relationship of Logistics to
Marketing and Production
Internal Supply Chain
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Relationship of Logistics to Marketing
Product
Price
Promotion
Place-Customer
service levels
Inventory
carrying costs
Lot quantity
costs
Order processing
and information
costs
Transport
costs
Warehousing
costs
L
o
g
i
s
t
i
c
s

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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
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Logistics/SC in Diverse Areas
Manufacturingmost common
Environmentcausing restrictions
Serviceemerging opportunities
Non-profitslittle explored
Militarylong history
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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