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

3
 Supply Chain Overview

Transportation Transportation Customers

Warehousing

Information
flows
Factory

Transportation

Vendors/plants/ports
Warehousing Transportation

CR (2004) Prentice Hall, Inc. 1-2

Dickson Chiu 2006 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
Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+

Demand forecasting

Purchasing

Requirements planning
Purchasing/
Production planning Materials
Management
Manufacturing inventory

Warehousing
Logistics
Material handling

Packaging

Finished goods inventory Supply Chain

Physical Supply Chain
Management
Distribution Management
Distribution planning

Order processing

Transportation

Customer service

Strategic planning

Information services

Marketing/sales

Finance
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006 SCM-8
 Supply Chain Schematic

CR (2004) Prentice Hall, Inc. 1-5

Dickson Chiu 2006 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.

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

Logistics cost
Add one-third for inbound supply costs are about 10% of
sales w/o
Source: Herb Davis & Company purchasing costs

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006 SCM-12
 Customer Service Performance
10 96
Order Cycle Time,
9 94 Days
92
8 Product
Availability--%
Days

90

%
7 orders
88 Product
6 Availability--%
86 line items
5 84
4 82
Source: Herb Davis & Company
19 2
19 4
19 6
20 8
20 0
02
9
9
9
9
0
19

Year
Dickson Chiu 2006 SCM-13
 Traditional Scope of the Supply Chain

Business logistics

Physical supply Physical distribution

(Materials management)

Sources of Plants/
Customers
supply operations
Transportation Transportation
Inventory maintenance Inventory maintenance
Order processing Order processing
Acquisition Product scheduling
Protective packaging Protective packaging
Warehousing Warehousing
Materials handling Materials handling
Information maintenance Information maintenance

Internal supply chain 1-14

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Dickson Chiu 2006 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
Storage fundamentals Transport Strategy
Inventory decisions Transport fundamentals
Purchasing and supply Transport decisions
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
Decision area Strategic Tactical Operational

Transportation Mode selection Seasonal equip- Dispatching

ment leasing

Inventories Location, Control policies Safety stock levels Order filling

Order Order entry, transmittal, Processing

processing and processing system orders, Filling
design back orders

Purchasing Development of supplier- Contracting, Expediting

buyer relations Forward buying

Warehousing Handling equipment Space utilization Order picking

selection, Layout design and restocking

Facility Number, size, and

location location of warehouses
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006 SCM-18
 Relationship of Logistics to
Marketing and Production

LOGISTICS
Sample
activities: MARKETING
PRODUCTION/ Transport Interface Sample
OPERATIONS Inventory
Interface activities: activities:
Sample activities: Order Customer
Quality control activities: Promotion
Product processing service Market
Detailed production
scheduling
scheduling Materials standards research
Plant Pricing Product
Equipment maint. handling
location Packaging
Capacity planning mix
Purchasing Retail Sales force
Work measurement
location management
& standards

Production-
logistics Marketing-
interface logistics
interface

Internal Supply Chain

CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006 SCM-19
 Relationship of Logistics to Marketing
Product

Promotion
Price

Place-Customer
service levels
Logistics

Inventory Transport
carrying costs costs

Lot quantity Warehousing

costs Order processing costs
and information
costs
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006 SCM-20
Relationship of Logistics to Production
Coordinates through scheduling and strategy
make-to-order
make-to-stock
An integral part of 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

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
Focus Scope
Company

Suppliers Customers

Suppliers Customers/
suppliers End users

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 Profit Increase
G&A G&A
Marketing Marketing

Logistics Increase
Logistics

Overhead Tariffs
Overhead
Materials
Materials

Labor Reduction
Labor
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006 SCM-26
Reality of SCM Scope

CR (2004) Prentice Hall, Inc.

Dickson Chiu 2006 SCM-27
The Multi-Dimensions of SCM

SUPPLY
CHAIN
MANAGEMENT

Activity and process

administration
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006 SCM-28
 Increasing Significance of Logistics
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
Globalization of trade
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
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