module-i- b-fundamentals of logistics & scm

8/9/2019 Module-I- B-Fundamentals of Logistics & SCM

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MODULE - I

Fundamentals of Logisticsand Supply Chain

Management

MODULE - I

Fundamentals of Logistics

and Supply Chain

Management



University of Tennessee

OUTLINE OUTLINE

x The Role of LogisticsThe Role of Logistics

x Integrated Logistics ManagementIntegrated Logistics Managementx Information ManagementInformation Management

x Implementing Logistics StrategyImplementing Logistics Strategy

x Supply Chain ManagementSupply Chain Managementx Issues and ChallengesIssues and Challenges



The Role of LogisticsThe Role of Logistics




Logistics Management Logistics Management

““That part of supply chain management whichThat part of supply chain management which

deals with the process of planning,deals with the process of planning,

implementing and controlling the efficient,implementing and controlling the efficient,effective flow and storage of goods, services,effective flow and storage of goods, services,

and related information from point of origin toand related information from point of origin to

point of consumption for the purpose of point of consumption for the purpose of

conforming to customer requirements.”conforming to customer requirements.”-- Council of Logistics Management-- Council of Logistics Management




MOVE MOVE Tangible goods still have to move (and be stocked)through space and time. . . new strategies and

methods must create new value.

movemove




Logistics Management

Demand

F

orecasting

P

urchasin

g

Inventory

Managem

ent

P

roduction

Management

D

istributio

n

Center

O

perations

Order

M

anagem

ent

Tran

sportation

Manage

ment

Customer

Service

logistics Cost Components

Weighted Average

Transportation 44.3%

Warehousing 19.9%

Inventory Carrying Cost 19.2%

Order Processing 6.5%

Other 6.0%

Administrative 4.1%

100%

logistics Cost Components

Weighted Average

Transportation 44.3%

Warehousing 19.9%

Inventory Carrying Cost 19.2%

Order Processing 6.5%

Other 6.0%

Administrative 4.1%

100%

Source: Herbert W. Davis & Co.

Transportation costsTransportation costs

comprise the singlecomprise the single

largest element in mostlargest element in mostphysical distributionphysical distribution

systemssystems


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Shared Services

Distribution

Planning

InventoryDeployment/Reduction

Basic Service

Delivery

Service

Value-AddedServices

Inter-Facility/Outbound Transportation

Management

WarehouseManagement

OutsourcingStrategy

DistributionNetwork

Configuration

Customer-Supplier Relation/Partnership

3rd Party ServiceProvider Relation/

Partnership

AssetManageme

nt

RevenueEnhanceme

nt

OperationalEfficiency

Planning/Operational Strategic

New LogisticsNew LogisticsT e

Excellence in distribution & transportation adds value at all levels.

T



1. Rationalize distribution networks

2. Outsource select processes

3. Explore shared facilities4. Understand supply chain tax

implications

5. Consolidate warehouses

6. Replace inventories with information

7. Reduce distribution cycle time

8. Implement demand-driven planning

New LogisticsNew LogisticsT e

To improve deployment & management of assets . . .

educecapital expenditures by

improving usage of fixed

assets

educeworking capital by

minimizing inventories



Drivers Behind Increase in Transportation

Expenditures

x Accelerating trend toward leaner, more flexible logisticsAccelerating trend toward leaner, more flexible logistics

networksnetworks

x

Less inventory in the pipelineLess inventory in the pipelinex Increasing demand for synchronized serviceIncreasing demand for synchronized service

x Increasing requirement for faster more reliableIncreasing requirement for faster more reliable

transportation service over longer distancestransportation service over longer distances

Pressure to reduce cost and improve service Pressure to reduce cost and improve service



Integrated Logistics

Management

Integrated Logistics

Management



Integrated LogisticsIntegrated Logistics

PRODUCT FLOWPRODUCT FLOW

x Physical SupplyPhysical Supply

x Manufacturing SupportManufacturing Support

x ProcurementProcurement

x Physical DistributionPhysical Distribution



Integrated Logistics (cont.)Integrated Logistics (cont.)

INFORMATION FLOWINFORMATION FLOW

x Coordination flowsCoordination flows

xStrategic objectivesStrategic objectives

xCapacity constraintsCapacity constraints

xLogistical requirementsLogistical requirements

xForecastingForecasting



Integrated Logistics (cont.)Integrated Logistics (cont.)

INFORMATION FLOWINFORMATION FLOW

x Operational FlowsOperational Flows

xOrder managementOrder managementxOrder processingOrder processing

xDistribution operationsDistribution operations

x Inventory managementInventory management

xTransportationTransportation



Operating ObjectivesOperating Objectives

x Rapid responseRapid response

x Minimum varianceMinimum variance

x Minimum inventoryMinimum inventoryx Movement consolidationMovement consolidation

x QualityQuality

x Life-cycle supportLife-cycle support



Barriers to IntegrationBarriers to Integration

x Organizational structureOrganizational structure

x Measurement systemsMeasurement systems

x Inventory ownershipInventory ownershipx Information technologyInformation technology

x Knowledge transfer capabilityKnowledge transfer capability



Measuring PerformanceMeasuring Performance

Several different approaches may be used toSeveral different approaches may be used to

measure the functional performance of measure the functional performance of

logistics:logistics:

x cost criteriacost criteria

x

productivity criteriaproductivity criteriax service criteriaservice criteria




Measuring PerformanceMeasuring Performance

Firms evaluate logistics managers primarilyFirms evaluate logistics managers primarily

on the basis of three factors:on the basis of three factors:

x line management abilityline management ability

x problem-solving abilityproblem-solving ability

x

project management abilityproject management ability




“Best of the Best” Logistics

Firms


Firms

x Organizationally positioned to guideOrganizationally positioned to guide

logistics activities at all levels - strategic,logistics activities at all levels - strategic,

tactical, and operational;tactical, and operational;

x Internal integration has enabled theInternal integration has enabled the

development of operational excellence,development of operational excellence,

and boundary spanning relationships;and boundary spanning relationships;





Firms (cont.)


Firms (cont.)

x Demonstrated “agility” in terms of theDemonstrated “agility” in terms of the

firm’s competency with respect tofirm’s competency with respect to

relevancy, accommodation, and flexibility.relevancy, accommodation, and flexibility.

x Measured performance both internally andMeasured performance both internally and

externally.externally.



Information Management Information Management




Electronic CommerceElectronic Commerce

x Examples:Examples:

x Electronic data interchange (EDI) Electronic data interchange (EDI)

x e-mail e-mail x Electronic funds transfer Electronic funds transfer

x Electronic publishing Electronic publishing

x Shared databasesShared databasesx Internet / Web sites Internet / Web sites




A. The sender assembles the data using its own business application

system

B. This data is translated into an EDI standard format (i.e., transactionset)

C. The transaction set is transmitted either through a value added

network (VAN) or directly to the receiver's EDI translation system

D. The transaction set, in EDI standard format, is translated into files that

are usable by the receiver's business application system

E. The files are processed using the receiver's business application

system




Electronic Commerce LevelsElectronic Commerce Levels

x LEVEL 1LEVEL 1

One-way communicationOne-way communication

x

LEVELLEVEL 22Database accessDatabase access

x LEVEL 3LEVEL 3

Data exchangeData exchange

x LEVEL 4LEVEL 4

Sharing processesSharing processes




The Internet Changes

Everything!

The Internet Changes

Everything!

x The Internet is ubiquitous.The Internet is ubiquitous.

x The Internet is user friendly.The Internet is user friendly.

x The Internet is inexpensive.The Internet is inexpensive.

x The Internet is global.The Internet is global.




How Long Until Your

Company…...

How Long Until Your

Company…...

x Receives over 64% of its $8.5 billion inReceives over 64% of its $8.5 billion in

sales over the Internetsales over the Internet

x 70% of all technical support questions are70% of all technical support questions areasked over the Internetasked over the Internet

x 55% of its employee resumes come over 55% of its employee resumes come over

the Internetthe Internet

Cisco Systems, USA Today, Sept. 23, 1998 Cisco Systems, USA Today, Sept. 23, 1998



Implementing Logistics Strategy



If logistics managers do not understand

corporate strategy, they will not be ableto make decisions that are in the best

interest of the organization.

If logistics managers do not understand

corporate strategy, they will not be ableto make decisions that are in the best

interest of the organization.




The Hierarchy of Planning The Hierarchy of Planning

StrategicStrategic TacticalTactical OperationalOperational

____________________________________ ____________________________________

What is the organization’s overall customer serviceWhat is the organization’s overall customer service

strategy and what should it be?strategy and what should it be?

What are the best opportunities for cost reduction inWhat are the best opportunities for cost reduction in

the organization’s logistics system?the organization’s logistics system?

What are the core competencies of the logisticsWhat are the core competencies of the logistics

function, I.e. which activities should befunction, I.e. which activities should be

outsourced?outsourced?




The Strategic Issues and

Challenges


Challenges

x How to help the firm and its customers deal with bigHow to help the firm and its customers deal with big

changes -- globalization, restructuring, competitionchanges -- globalization, restructuring, competition

x How to improve profitability (growth) and value creationHow to improve profitability (growth) and value creation- for the firm and its customersfor the firm and its customers

x How to raise the performance of all services toHow to raise the performance of all services to

competitive advantage levelscompetitive advantage levels

x How to integrate/leverage logistics within the firm andHow to integrate/leverage logistics within the firm and

the supply chainthe supply chain



Supply Chain Management Supply Chain Management



The supply chain encompasses

all activities associated with the

flow and transformation of goods

from the raw materials stage,through to the end user, as well

as the associated information

flows.

The supply chain encompasses

all activities associated with theflow and transformation of goods

from the raw materials stage,through to the end user, as well

as the associated information

flows.




How to Achieve Profitable Growth

and Value Creation*

How to Achieve Profitable Growth

and Value Creation*

i

ProfitableGrowth

Working

CapitalEfficiency

TaxMinimization

Fixed Capital

Efficiency

Cost Minimization

Value

Time

* Based on “Supercharging Supply Chains,” a new book by E&Y/J. Wiley, Inc.




Stages of Supply Chain

Development


Development

x STAGE 1 - FundamentalsSTAGE 1 - Fundamentals

Focus on qualityFocus on quality

x STAGE 2 - Cross Functional TeamsSTAGE 2 - Cross Functional TeamsServe our customersServe our customers

x STAGE 3 - Integrated EnterpriseSTAGE 3 - Integrated Enterprise

Drive business efficiencyDrive business efficiency





Development (cont.)


Development (cont.)

x STAGE 4 - Extended Supply ChainSTAGE 4 - Extended Supply Chain

Create market valueCreate market value

x STAGE 5 - Supply Chain CommunitiesSTAGE 5 - Supply Chain CommunitiesBe a market leader!Be a market leader!




Functional and Process Perspective

ORDER - TO - DELIVERY PROCESS

SUPPLY CHAIN PROCESS

Procuremen

t

DistributionManufacturing Logistics




Supply Chain ProcessSupply Chain Process

Integrated , coordinated network of valueIntegrated , coordinated network of value

delivering business processes that procure rawdelivering business processes that procure raw

materials, transform them into final products,materials, transform them into final products,

services and delivers the product to the customersservices and delivers the product to the customers

x ProcurementProcurement

x Manufacturing/assemblyManufacturing/assembly

x Inbound logisticsInbound logistics

x WarehousingWarehousing

x DistributionDistribution

x Outbound logisticsOutbound logistics




Why study Supply Chains ? Why study Supply Chains ?

x

Supply chains are ubiquitous: youSupply chains are ubiquitous: youcould consider every product or could consider every product or service to have its own supply chain.service to have its own supply chain.

x Companies world-wide are spendingCompanies world-wide are spending

trillions of rupees on SCMtrillions of rupees on SCMx Backbone of E-businessBackbone of E-businessx Wholesome mix of industrialWholesome mix of industrial

engineering, mathematics, computer engineering, mathematics, computer science, and managementscience, and management




Examples of Supply ChainsExamples of Supply Chains

in Indiain India

Examples of Supply ChainsExamples of Supply Chains

in Indiain India

Automotive - Telco, ALL, Mahindra, MarutiAutomotive - Telco, ALL, Mahindra, Maruti

Aerospace - ADA, HALAerospace - ADA, HAL

Chemicals - Asian Paints, Apollo tyres, RelianceChemicals - Asian Paints, Apollo tyres, Reliance

Apparel - Madura Coats, RelianceApparel - Madura Coats, RelianceFood - Cadbury, Parle, Amul Products, HLL/ UILFood - Cadbury, Parle, Amul Products, HLL/ UIL

Consumer durables – HLL/UIL, P & GConsumer durables – HLL/UIL, P & G

Forest Products - PapermillsForest Products - Papermills

Construction - L & TConstruction - L & T

Pharmaceutical - Ranbaxy, GlaxoPharmaceutical - Ranbaxy, Glaxo

ElectromechanicalElectromechanical – – Kirloskar, L & TKirloskar, L & T

Tooling - HMT, Widia, MicoTooling - HMT, Widia, Mico

PC/ Computer - IBM, WIPRO, HCL, IntelPC/ Computer - IBM, WIPRO, HCL, Intel




Supply Chain BuildingSupply Chain Building

BlocksBlocks

Supply Chain BuildingSupply Chain Building

BlocksBlocks

StructuralStructural LogicalLogical IT / ITECIT / ITEC

InformationalInformational




Structural Building BlocksStructural Building Blocks

x SuppliersSuppliers

x Manufacturing / Assembly PlantsManufacturing / Assembly Plants

x WarehousesWarehouses

x Distribution CentersDistribution Centers

x Retailers / CustomersRetailers / Customers

x Logistics NetworkLogistics Network

x

Inbound Inbound

x Outbound Outbound

x Customers OrdersCustomers Orders




Suppliers

(International)1.2 Million PC/Yr.

Glasgow U.K.

Warehouse

Port

PC Assembly

Plant

13 Transshipment

Points (TPs) in Europe

Country-wide

Distribution

Centers (DCs)

Retailers

Example of a Typical Supply Chain: IBM Europe PC Supply Chain

http://images.google.co.in/imgres?imgurl=www.objectwarehouse.com/images/splash/warehouse.gif&imgrefurl=http://www.objectwarehouse.com/&h=141&w=163&prev=/images%3Fq%3Dwarehouse%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF-8%26oe%3DUTF-8%26sa%3DN

http://images.google.co.in/imgres?imgurl=www.beammacktrucks.com/truck.jpg&imgrefurl=http://www.beammacktrucks.com/&h=222&w=278&prev=/images%3Fq%3Dtruck%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF-8%26oe%3DUTF-8





http://images.google.co.in/imgres?imgurl=www.moc.noaa.gov/al/photos/ship.jpg&imgrefurl=http://www.moc.noaa.gov/al/photos/photos2.htm&h=427&w=640&prev=/images%3Fq%3Dship%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF-8%26oe%3DUTF-8







http://images.google.co.in/imgres?imgurl=www.lot-co.mksat.net/img/pic/dbsp_main.jpg&imgrefurl=http://www.lot-co.mksat.net/dbsp.html&h=198&w=298&prev=/images%3Fq%3Dsea%2Bport%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF-8%26oe%3DUTF-8


http://images.google.co.in/imgres?imgurl=www.atp.nist.gov/eao/sp950-1/autobody01.jpg&imgrefurl=http://www.atp.nist.gov/eao/sp950-1/abc.htm&h=360&w=360&prev=/images%3Fq%3Dassembly%2Bplant%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF-8%26oe%3DUTF-8%26sa%3DN

http://images.google.co.in/imgres?imgurl=www.cubic.com/cds/_Ops-Mfg%2520Web%2520Page/ops_mfg/home_pg/photos/supplier-photo-1.jpg&imgrefurl=http://www.cubic.com/cds/_Ops-Mfg%2520Web%2520Page/ops_mfg/home_pg/photos/&h=225&w=295&prev=/images%3Fq%3Dsupplier%26start%3D40%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF-8%26oe%3DUTF-8%26sa%3DN







Logical Building Blocks

OPERATIONAL

TACTICAL

STRATEGIC

ProcurementDistributionManufacturing Logistics

Logistics




Order/ Product Flow through Supply Chain Functions

Order Management Channel A

Channel B Customer

Channel CProduct

DistributionManufacturing

Demand PlanningSupply PlanningPart Supply

Orders

Demand

Forecast

Component

Requirement

Parts ProductionPlans

Products Products

Orders

Products

Products

Orders

Orders




Examples of DecisionsExamples of Decisions

x Supplier Selection (Tactical)Supplier Selection (Tactical)x Plant Location (Strategic)Plant Location (Strategic)

x Product Line Selection (Strat.)Product Line Selection (Strat.)

x Inventory Control (Tactical)Inventory Control (Tactical)x Production Scheduling (Ops)Production Scheduling (Ops)

x Dynamic routing (Ops)Dynamic routing (Ops)

x MTO vs MTS vs BTO (Strat.)MTO vs MTS vs BTO (Strat.)




Mathematical ModelsMathematical Models

x Optimization Models (LP, ILP, MILP, CO, DP)Optimization Models (LP, ILP, MILP, CO, DP)

x Stochastic Models (Markov chains, QueuingStochastic Models (Markov chains, Queuing

networks, etc.)networks, etc.)

x Statistical ModelsStatistical Models

x Game TheoryGame Theory

x SimulationSimulation

x

Machine learningMachine learningx Auctions and Mechanism DesignAuctions and Mechanism Design

I f i B ildi Bl kI f ti B ildi Bl k




Information Building BlocksInformation Building Blocks

x IT : MRP, ERP, EDIIT : MRP, ERP, EDI

x Internet TechnologiesInternet Technologies

x Sensor NetworksSensor Networksx E-Commerce, E-MarketsE-Commerce, E-Markets

x E-CRME-CRM

x Decision Support SoftwareDecision Support Softwarex StandardsStandards




Key Problem in SCM Key Problem in SCM

Design a supply chain networkDesign a supply chain networkthat delivers high qualitythat delivers high quality

products to the right customersproducts to the right customers

at the right time at minimum costat the right time at minimum cost




Supply Chain Cost CategoriesSupply Chain Cost Categories

x ManufacturingManufacturing

x Purchased materials, labor, equipment charge, Purchased materials, labor, equipment charge,

and supplier’s marginand supplier’s marginx MovementMovement

x Transportation, inventory in the pipelineTransportation, inventory in the pipeline

(cycle), safety stock, and duty(cycle), safety stock, and duty

x Incentives and subsidiesIncentives and subsidies




Supply Chain Cost Categories

(cont.)

Supply Chain Cost Categories

(cont.)

x IntangiblesIntangibles

x Quality, product adaptation or performance,Quality, product adaptation or performance,

coordinationcoordinationx OverheadOverhead

x Total current landed costsTotal current landed costs

x Long-termLong-term

x Productivity and wage changes, exchange rates, Productivity and wage changes, exchange rates,

product design, and core competencies product design, and core competencies




“Sluggish” Supply Chains“Sluggish” Supply Chains

x Lack of synchronization in materialsLack of synchronization in materials

managementmanagement

x

Ambiguous goals and objectivesAmbiguous goals and objectivesx Poorly designed procedures and formsPoorly designed procedures and forms

x Outdated technologyOutdated technology

x

Lack of informationLack of information




“Sluggish” Supply Chains“Sluggish” Supply Chains

x Poor communicationPoor communication

x Limited coordinationLimited coordination

x Limited cooperationLimited cooperationx Lack of / ineffective trainingLack of / ineffective training




Challenges


Challenges

x How to help the firm and its customers deal with bigHow to help the firm and its customers deal with big

changes -- globalization, restructuring, competitionchanges -- globalization, restructuring, competition

x How to improve profitability (growth) and value creation -How to improve profitability (growth) and value creation -

for the firm and its customersfor the firm and its customers

x How to raise the performance of all services toHow to raise the performance of all services to

competitive advantage levelscompetitive advantage levels

x How to integrate/leverage logistics within the firm and theHow to integrate/leverage logistics within the firm and thesupply chainsupply chain

module-i- b-fundamentals of logistics & scm

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