1 marketing and logistics product order processing and information inventory place/customer service...
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1
Marketing and Logistics
Product
Order processing and information
Inventory
Place/customer service levels
PromotionPrice
Procurement Warehousing
Transportation
LO
GIS
TIC
SM
AR
KE
TIN
G
2
Logistics Operations
Demand
Transportation
Stock
Managem
ent Purchas
e Ord
ers
Proce
ssing
Handling Packaging
Purc
hase
Sales
ProductionScheduling
Warehousing
4
Evolution of Logistical Integration, 1960-2000
Demand Forecasting
Purchasing
Requirements Planning
Production Planning
Manufacturing Inventory
Warehousing
Materials Handling
Packaging
Inventory
Distribution Planning
Order Processing
Transportation
Customer Service Strategic Planning
MaterialsManagement
PhysicalDistribution
LogisticsSupply ChainManagement
Information Technology
Marketing
1980s
1990s
2000s
5
The goal of supply chain management
“To manage upstream and downstream relationships with
suppliers and customers in order to create enhanced value in the final
market place at less cost to the supply chain as a whole.”
6
Changes in Global Trade Flows
Industrial Pole
Before 1990 After 1990
Developed Countries
Developing Countries
Developed Countries
Developing Countries
Flows of merchandises Flows of raw materials
7
Maritime Routes and Strategic Locations
SuezHormuz
PanamaMalacca
Bosporus
Magellan
Good Hope
Gibraltar
Bab el-Mandab
8
Major Economic Blocs, 2005
EU
EU Expansion
NAFTA
Mercosur
Andean Pact
ASEAN
EFTA
CAFTA
Caricom
Central America Europe
9
Levels of Economic Integration
Free trade between members: NAFTA, Mercosur, ASEAN (partial)
Free Trade
Common external tariffsCustoms Union
Factors of production move freely between members
Common Market
Common currency, harmonized tax rates, common monetary and fiscal policy: EU (partial)
Economic Union
Common governmentPoliticalUnion
Leve
l of i
nteg
ratio
n
Complexity
10
Global Exports of Merchandises, 1963-2003
0%
20%
40%
60%
80%
100%
1963 1975 1990 1994 2000 2003
Manufactured products
Mineral products
Agricultural products
11
Trade as Share of GDP
Less than 20%
20% to 40%
40% to 60%
60% to 100%
100% to 150%
More than 150%
Not Available
12
A B
Rail
Origin Destination
Transport Chain
Maritime Road
International Trade
Transshipment
International Trade and Transportation Chains
A B
Assembly Disassembly
Trade barrier
Customs
13
Average Tariffs after the Uruguay Round (%)
0 10 20 30 40 50 60 70
All industrial products
Textiles & clothing
Mineral products
Transport equipment
Fish & fish products
Leather, footwear & travel goods
Chemical & photographic supplies
Electrical machinery
Other manufactured articles
Wood, paper & furniture
Nonelectrical machinery
Metals
Reduction
Tariff
15
Complexity of the Supply Chain
FactoryDistribution center
Representative
National
International
National Supply Chain Multinational Supply ChainSimple Complex
High-throughputDC
16
Share of Containerized Cargo in Global Trade, 1980-2000
0
100
200
300
400
500
600
700
800
1980 1985 1990 1995 2000
Mill
ion
tons
Containerized Cargo
Other General Cargo
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Product Life CycleS
ales
Stage 1 Stage 2 Stage 3
Monopoly Competition
Research anddevelopment
Maturity Decline
First competitors Mass production
Innovating firm
Competitors
Growth
Stage 4
PromotionIdeaDecline ofproduction
18
Product Life Cycle of a Television, 1960-1996
0
2
4
6
8
10
12
1960 1980 1990 1996
Year
s
Low
Medium
High
19
Shorter life cycles make timing crucial
Sales
Time
• Less time to make profit• Higher risk of obsolescence
Market
Late Entrant
ObsolescentStock
20
The role of cash in creating shareholder value
“the value of a company is determined by the discounted value of the cash that can be
taken out of the business during its remaining life”
Warren Buffet
21
Logistics impact on operating income
Logistics variable
Customer service
Purchasing strategy
Capacity scheduling and control
Order processing
Transportation
Warehousing
Inventory control
Packaging
Support activities
Inventory carrying cost
Income statement
Net sales
Costs of goods sold
Selling and administration expense
Interest expenseIncome before tax
22
Logistics impact on the balance sheet
Logistics variable
Order cycle time
Order completion rate
Invoice accuracy
Inventory
Distribution facilities and equipment
Plant and equipment
Purchase order quantities
Financing options for inventory Plant and equipment
Balance sheetAssets
Cash
Receivables
Inventories
Property, plant and equipment
LiabilitiesCurrent liabilities
Debt
Equity
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Routes to improved shareholder value
Boost shareholder value
Raise return on capital
Net income increase
Revenue growth
Innovation
Customer relationshipmanagement
Integrated supply chain
Cost optimisation
Capital reduction
Working capital
Inventory
Receivables
Payables
Fixed assets
Sourcing
Production
Logistics
Network
Facilities
Real estate
Source : Mercer Management Consulting
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Logistics and economic value added
LabourLabour
Material &PurchasesMaterial &Purchases
OverheadsOverheads
Netreceivables
Netreceivables
InventoryInventory
CashCash
Cost ofsales
Cost ofsales
SalesSales
Netoperating
profit
Netoperating
profit
Cost ofdebt
Cost ofdebt
Cost ofequity
Cost ofequity
Net workingcapital
Net workingcapital
FixedassetsFixedassets
CapitalemployedCapital
employed
True costof capitalTrue costof capital
CapitalchargeCapitalcharge
Economicvalueadded
Economicvalueadded
+
+
+
+ +
x
25
Total Freight Costs for Imports in World Trade (% of Total Costs)
0 2 4 6 8 10 12 14
Word
Developed Countries
Developing Countries
Africa
America
Asia
Europe
Oceania
2000
1990
26
Market Share by Freight Transport Mode, Western Europe, 1980-2002 (in ton-km)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1980 1985 1990 1995 2000 2002
Inland Waterways
Road
Rail
27
Logistical Improvements, Manufacturing Sector, 1960-2000
0
2
4
6
8
10
12
14
16
18
20
1960s 1970s 1980s 1990s 2000s
% o
f GDP
0
5
10
15
20
25
30
35
40
Days
Logistics Costs (% GDP)
Inventory Costs (% GDP)
Cycle Time Requirements (days)
28
Worldwide Logistics Costs
39%
27%
24%
6%4%
Transportation
Warehousing
Inventory Carrying
Order Processing
Administration
29
Logistics Costs and Economic Development
Agriculture Mining Industry Services Information
Log
isti
cs C
osts
/ G
NP
Economic Development
United StatesJapan
Singapore
Argentina
Kenya
Brazil Poland
Ukraine
Belgium
Canada
30
Logistical Cost Trade-off
storage costs
inventory costs
transport costs
total distribution costs
cost
no. of warehouses
31
From Push to Pull Logistics
Supplier Supplier Supplier
Manufacturer
Customer
Distributor
Supplier Supplier Supplier Supplier
Supplier Supplier Supplier
Manufacturer
Distributor
Customer
3PL
Returns / Recycling Point-of-sale data
Freight flow
Push Pull
32
Average Order Lead Times of European Manufacturers, Wholesalers, and Retailers
0
5
10
15
20
25
30
1985 1990 1995 2000 2005
Days
33
Changes in the Relative Importance of Logistical Functions
in Distribution Systems
0% 20% 40% 60% 80% 100%
Supply Driven
Demand Driven
Inventory
Transport System
Information System
34
Conventional and Contemporary Arrangement of Goods Flow
Raw Materials & Parts Manufacturing Distribution
RawMaterials
Storage NationalDistribution
RegionalStorage
LocalDistribution
Retailers
Supply Chain Management
RawMaterials
DistributionCenter
RetailersManufacturing
Cu
sto
mers
Cu
sto
mers
Conventional
Contemporary
Material flow (delivery)
Information flow (order)
Core component
35
The Global Car Production Network
Ford
Jaguar Land Rover
Volvo Aston Martin
Mazda Isuzu Suzuki
GM
Vauxhall Opel
Daewoo Saab
VAG
Bentley Skoda
Seat AudiVW
Dailmer Chrysler
Mercedes Benz
Chrysler Jeep
Fiat
Lancia Maserati
Ferrari Alfa Romeo
Toyota
Daihatsu
Porsche
Nissan Renault
Hyundai
PSA
Peugeot
Citroen
BMW
Rolls Royce
Mitsubishi
HondaEquity ownershipJoint ventureEquity relationshipFunctionally integrated group
36
The Automobile Supply Chain
Supplyingindustries
Steel and other metals
Rubber
Electronics
Plastic
Glass
Textiles
Bodies
Components
Engines and transmissions
Final Assembly
Manufacture and stamping of body
panels
Body assembling and painting
Manufacture of mechanical and electrical components (wheels, tires, seats, breaking
systems, windshields, exhausts, etc.)
Forging and casting of engine and transmission
components
Machining and assembly of engines and transmissions
Consumer market
37
Cereals Supply Chain
Farm
Wood Pulp Mfg
Processing Facility
Packaging
Label Mfg
Converter Distributor Store
Packaged Cereal
Packaged Cereal
Grain
Wood Pulp
Paperboard
LabelsWood Pulp
Cereal
Distribution and Retailing
ManufacturingExtraction
39
Ten Largest Global Logistics Service Providers
0 5 10 15 20 25 30 35 40 45 50
GEODIS
Schenker
TNT Post Group
Deutsche Bahn Cargo
NFC/Exel
Kuhne & Nagel
Danzas
Maersk Moeller
Panalpina
Deutsche Post FrachtEmployees (thousands)
Revenue (Billion $US)
40
Forward and Reverse Distribution
Con
su
mers
Producers Distributors
CollectorsRecyclers
Forward ChannelReverse Channel
Su
pp
liers
41
Characteristics of Large-scale Distribution Centers
Size Larger More throughput and less warehousing.
Facility One storey; Separate loading and unloading bays
Sorting efficiency.
Land Large lot Parking space for trucks; Space for expansion.
Accessibility Proximity to highways Constant movements (pick-up and deliveries) in small batches; Access to corridors and markets.
Market Regional / National Less than 48 hours service window.
IT Integration Sort parcels; Control movements from receiving docks to shipping dock; Management systems controlling transactions.
42
Cross-Docking Distribution Center
Suppliers
Customers
Receiving
Shipping
Sorting
Distribution Center Before Cross-Docking
LTL
Suppliers
Customers
After Cross-Docking
TL
TL
Cross-Docking DC
43
National Semiconductors, Supply Chain, 1993, 2001, 2005
Wafer Fabrication Assembly & Testing Distribution Center
South Portland (Maine)
Salt Lake City (UT)
Santa Clara (CA)
Arlington (TX)
Greenock (Scotland)
Migdal Haemek (Israel) Cebu (Philippines)
Bangkok (Thailand)
Penang (Malaysia)
Melaka (Malaysia)
Toa Payoh (Singapore)
Santa Clara
Swindon (UK)
Tokyo
Hong Kong
South Portland
Regional Distribution Centers (1993)
South Portland (Maine)
Salt Lake City (UT)
Santa Clara (CA)
Arlington (TX)
Greenock (Scotland) Cebu (Philippines)
Bangkok (Thailand)
Penang (Malaysia)
Melaka (Malaysia)
Toa Payoh (Singapore)
Global Distribution Center (2001)
Singapore (GDC)
Singapore (GDC)
South Portland (Maine)
Arlington (TX)
Greenock (Scotland)
Supply Chain Rationalization (2005)
Suzhou (China)
Melaka (Malaysia)
Toa Payoh (Singapore)
Cu
sto
mers
44
Gaining competitive advantage
“A business is profitable if the value it creates exceeds the cost of performing the value activities. To gain competitive advantage over its rivals, a company must either perform these activities at a lower cost or perform them in a way that leads to differentiation and a premium price (more value).”
Michael Porter
45
Achieving an integrated supply chain
Stage One: BaselineMaterialflow
Customerservice
MaterialControl
Purchasing Production Sales Distribution
Stage Three: Internal IntegrationMaterialflow
Customerservice
ManufacturingManagement
MaterialsManagement Distribution
Stage Two: Functional IntegrationMaterialflow
Customerservice
ManufacturingManagement
MaterialsManagement
Distribution
Stage Four: External IntegrationMaterialflow
Customerservice
Internal SupplyChain
Suppliers Customers
46
The two dimensions of supply chain excellence
• Cost advantage :
Lower end-to-end delivered cost
• Value advantage :
Creating superior customer value through enhanced service
48
Gaining competitive advantage through logistics
Value Advantage
Logistics Leverage Opportunities:• Tailored service• Reliability• Responsiveness, etc
Cost Advantage
Logistics Leverage Opportunities:• Capacity utilisation• Asset turn• Schedule integration
49
How long is the logistics pipeline?
CumulativeLead-Time
(Procurementto Payment)
Raw Material Stock
Sub-Assembly Stock
Intermediate Stock
Product Assembly
Finished Stock at Central Warehouse
In-Transit
Regional Distribution Centre Stock
Customer Order Cycle (Order-Cash)
50
Logistics and E-commerce
Retailer
Supply chain
E-Retailer
Customers Customers
Supply chain
Warehousing
Warehousing
Tra
dit
ion
al Log
isti
cs
E-L
og
istic
s
51
Shifts of Logistical Operations in the Internet economy
Traditional logistics E-logistics
Orders Predictable Variable
Order cycle time Weekly Daily or hourly
Customer Strategic Broader base
Customer service Reactive, rigid Responsive, flexible
Replenishment Scheduled Real-time
Distribution model Supply-driven (push) Demand-driven (pull)
Demand Stable, consistent More cyclical
Shipment type Bulk Smaller lots
Destinations Concentrated More dispersion
Warehouse reconfiguration Weekly or monthly Continual, rules-based
International trade compliance Manual Automated
52
Producer and Buyer-driven Commodity Chains
Manufacturers DistributorsRetailers and
Dealers
Producer-driven
Domestic and foreign subsidiaries and subcontractors
Buyer-driven
Factories
Traders
OverseasBuyers
BrandedManufacturers
Retailers
BrandedMarketers
International National
53
Producer-Driven and Buyer-Driven Global Commodity Chains
Producer-Driven Commodity Chains Buyer-Driven Commodity Chains
Drivers of Global Commodity Chains
Industrial Capital Commercial Capital
Core Competencies Research & Development; Production Design; Marketing
Barriers to Entry Economies of Scale Economies of Scope
Economic Sectors Consumer Durables; Intermediate Goods; Capital Goods
Consumer Nondurables
Typical Industries Automobiles; Computers; Aircraft Apparel; Footwear; Toys
Ownership of Manufacturing Firms
Transnational Firms Local Firms, predominantly in developing countries
Main Network Links Investment-based Trade-based
Predominant Network Structure
Vertical Horizontal