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SCM and Logistics

Dickson K.W. Chiu


PhD, SMIEEE, SMACM
Text: Ballou Business Logistics Management, 5/E (Chapter
1)
1

Learning Objectives

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

SCM-2

Overview of Logistics and


Supply Chain Management

Supply Chain Overview


Transportation

Warehousing

Transportation

Customers

Information
flows

Factory

Transportation

Vendors/plants/ports
Warehousing
CR (2004) Prentice Hall, Inc.

Transportation

Dickson Chiu 2006

1-2

SCM-4

Logistics vs Supply Chain


Management
Council of Logistics Management
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
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

SCM-5

Common 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

=> IT people have to deal with any related


automation anyway
Dickson Chiu 2006

SCM-6

The Logistics/SCM 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.

Product / Service Utility

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

SCM-7

Evolution of Supply Chain


Management

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-8

Supply Chain Schematic

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

1-5

SCM-9

A Revised Strategy is Generating


Great Top Management Interest

Historical perspective of distribution


(Peter Drucker, 1962):
The last frontier of cost economies

The contemporary view:


Distribution is a new frontier for demand
generationa competitive weapon.

Both views are important!


Dickson Chiu 2006

SCM-10

Critical Customer Service Loop

Customer order processing (and


transmittal)

Transportation
Customers
Inventory
or supply source

Dickson Chiu 2006

SCM-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

SCM-12

Customer Service Performance

Source: Herb Davis & Company

Dickson Chiu 2006

SCM-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

SCM-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
Dickson Chiu 2006

SCM-15

Logistics Strategy and Planning

The objectives of logistics strategy

Minimize cost
Minimize investment
Maximize customer service

Levels of logistical planning

Strategic
Tactical
Operational

Dickson Chiu 2006

SCM-16

The Logistics Strategy Triangle


(4 problem areas)
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

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-17

Strategic, Tactical, and Operational


Decision
Making Tactical
Decision
area Strategic
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

SCM-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

CR (2004) Prentice Hall, Inc.

MARKETING
Sample
activities:
Promotion
Market
research
Product
mix
Sales force
management

Marketinglogistics
interface

Internal Supply Chain


Dickson Chiu 2006

SCM-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

SCM-20

Relationship of Logistics to
Production

Coordinates through scheduling and strategy

An integral part of the supply chain

make-to-order
make-to-stock
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

Dickson Chiu 2006

SCM-21

Contemporary IT and Logistics

22

Wal-Mart Wins with Logistics

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

SCM-23

Logistics/SCM in Diverse Areas

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

SCM-24

Supply Chain is Multi-Enterprise


Conventional
Scope

Focus
Company
Suppliers

Customers
Customers/
End users

Suppliers
suppliers

Acquire

Convert

Distribute

Product and information flow

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-25

Effect on Logistics Foreign


Outsourcing
Domestic sourcing
Foreign sourcing
Profit
G&A
Marketing
Logistics
Overhead

Profit
G&A

Increase

Marketing
Logistics

Increase

Tariffs
Overhead

Materials
Materials
Labor
CR (2004) Prentice Hall, Inc.

Labor

Dickson Chiu 2006

Reduction

SCM-26

Reality of SCM Scope

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-27

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The Multi-Dimensions of SCM

SUPPLY
CHAIN
MANAGEMENT

on
ati

Activity and process


administration

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006

SCM-28

Increasing Significance of
Logistics
Costs are high

Customers are more demanding of the supply chain

Local vs. long distance supply


Globalization of trade

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

Generate revenue
Improve profit

Logistical lines are lengthening

Desire for quick response


Desire for mass customization

An integral part of company strategy

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

Time and place utilities

Dickson Chiu 2006

SCM-29

Contemporary IT Applications in
Logistics Focus of this Course

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

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

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

SCM-30

Some Useful Contemporary IT in


Logistics

eXtended Markup Language (XML)


Service-oriented architecture
Process integration and interaction management

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

SCM-31

Summary

32

Summary

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

SCM-33