Strategic Logistics Management

Transportation Functionality & Role

• Functionality– Product Movement– Product Storage– Vein and Arteries of the Supply Chain

• Principles– Economy of Scale – Larger / Fuller the better– Economy of Distance – Telescopic or Tapering

Role of Warehousing• Balancing Product Supply and Customer Demand• “Necessary Evils” prior to and during World War II• Large Warehouses order of the day • Free Markets ushered the change from large and

nation-wide warehouses to strategically located warehouse

• Warehouses have become a part of Business Strategy• Warehousing Inbound (JIT / VMI Perspective)• Warehouse Outbound (part of mktg strategy)• From a Static Storage Location to an active and

bustling and functional replenishment and value-added facility

Warehouse Functionality

• 5 basic economic benefits• Consolidation and Break-bulk• Assortment• Postponement• Stockpiling• Reverse Logistics

Warehouse Functionality

• Service Benefits• Spot-Stocking• Full Line Stocking• Production Support•Market Presence

Warehousing – Other Points

• Handling – Receiving, In-Storage Handling, Shipping

• Storage– Inventory Velocity, Active & Extended Storage

• Private • Public• Contract

Evaluation of Logistics Performance

• Measurement System Objectives– Monitoring – Control– Directing– Improving Shareholder Value• Operational Excellence

– Increased Customer Accommodation n Lower Cost of Service

• Asset Utilization– 2 types of logistics assets – Working Capital / Investments

Performance Measurement Functional Perspective

• Cost• Total Cost, Cost/Unit, Cost of Damage, Cost of Back Order

• Customer Service• Fill Rate, Stockouts, Complete Orders, Delivery Consistency

• Quality• Damage Frequency, No of Credit Claims, No of Customer Returns

• Productivity• Unit shipped/employee, equipment downtime, Orders per Sales

Representative• Asset Management

• Inventory Turns, Return on Investment, ABC (Inv Classification)• Comprehensive Metrics

• Cash-to-Cash Cycle, Inventory No of Days, Dwell Time, Total SCM Cost, On-Time In Shelf Present

Drawbacks of Traditional Accounting Systems

• More is better• Very broad idea of Logistics Costs in

Profitability Reports• Segmental Profitability are based on allocation

than capturing actual cost incurred• Fixed Costs are allocated based on “Full Cost”

basis

Drawback of Traditional Accouting Systems

• Accounting Systems are designed to report aggregate effects of firms’ operations to its stockholders, creditors and government

• Accounting Costs are computed to provide a historical record of company’s operations

• All of the firms costs are allocated to company’s business segments• Accounting systems record marketing and logistics costs in an

aggregated manner and seldom segment them in terms of the process owner

• Profitability does not reveal a segment’s profitability but in an aggregate manner – CEOs fear that accurate cost info may reveal the Company’s variable cost structure to the market/competition/customers

• In most Standard Cost Systems, Fixed Costs are treated on par with Variable Costs and this masks the behaviour of fixed costs

Activity Based Cost Identification

• First Trace Costs to Activities Performed• Activities related to a Specific Product or

Customer Segments• Allocation of Sales Order Processing Expense

example to different Customers• Use ABC to determine Customer Profitability

and more effectively manage operations

Perfect Order

• Perfect Order is that Customer Order where all activities from Order Entry to Receipt at Customer Site has been done to perfection or “First Time Right”.

• No or % of Perfect Orders to the total number of Orders is a measure of Quality.

• Typically very sophisticated firms achieve between 60 to 70% Score on this index.

Unit 5

• Integration of Supply Chain Activities• Stages of Functional Integration• Storehouse Operation and Control• Objectives of Stores Function• Location and Layout• Classification and Codification of Inventory• Methods of Store-keeping• Stores Accounting