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Introduction of Logistic

management

Dr. Rajesh Kr Singh


Associate Professor
DTU, Delhi
(Formerly Associate Professor, IIFT, Delhi)

1
Outline
What is a Supply Chain?
Importance of Logistic for SCM
Evolutions in Supply chain
Process View of a Supply Chain
Decision Phases in a Logistic management
Analyze logistics systems from several different
perspectives to meet different objectives.
Determine the total costs and understand the
cost tradeoffs in a logistics system

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Operations as a System

Production System

Conversion
Inputs Outputs
Subsystem

Control
Subsystem

3
4
1-5
BMW manufacturing network

6
Worldwide Configuration of BMW

The German automaker BMW employs 70,000 factory personnel at 23


sites in 13 countries to manufacture its vehicles.
Workers at the Munich plant build the BMW 3 Series and supply
engines and key body components to other BMW factories abroad.
In the U.S., BMW has a plant in South Carolina, which makes over 500
vehicles daily for the world market.
In Northeast China, BMW makes cars in a joint venture with Brilliance
China Automotive Holdings Ltd.
In India, BMW has a manufacturing presence to serve the needs of the
rapidly growing South Asia market.
BMW must configure sourcing at the best locations worldwide, in
order to minimize costs (e.g., by producing in China), access skilled
personnel (by producing in Germany), remain close to key markets (by
producing in China, India and the U.S.).
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Some Multinational Corporations
Company Home % Sales % Assets % Foreign
Country Outside Outside Workforce
Home Home
Country Country
Citicorp USA 34 46 NA
Colgate- USA 65 47 NA
Palmolive
Dow USA 54 45 NA
Chemical
Gillette USA 68 66 NA
Honda Japan 63 36 NA

IBM USA 59 55 51

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Some Multinational Corporations
Company Home % Sales % Assets % Foreign
Country Outside Outside Workforce
Home Home
Country Country

ICI Britain 78 50 NA

Nestl Switzerland 98 95 97

Philips Netherlands 94 85 82
Electronics
Siemens Germany 51 NA 38

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Reasons to Globalize Operations
Tangible
Reduce costs (labor, taxes, tariffs,
etc.)
Provide better goods and services
Attract new markets
Learn to improve operations
Intangible Attract and retain global talent

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The Immediate Supply Chain for an Individual Firm

Transportation Transportation
Warehousing Customers

Information
flows
Factory

Transportation

Vendors/plants/ports
Warehousing Transportation

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


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Supply Chain Illustration
12
Supply Chain Processes

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What is supply chain Management?

Supply chain management is a set of


approaches and practices to efficiently
integrate suppliers, manufacturers,
warehouses, and customers , for
improving the long-term performance
of the individual firms and the supply
chain as a whole in a cohesive and
high-performing business model
(Chopra and Meindl, 2001).

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Different Flows in SCM
Material Flow

manufacturerr
Supplier Retailer
Distributor

Source
Converter Consumers
Distributor
Supplier User

Value-Added Services

Funds/Demand Flow

Information Flow

Reuse/Maintenance/After Sales Service Flow

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Supply Chain Goals

Efficient supply chain management must


result in tangible business improvements. It
is characterized by a sharp focus on
Revenue growth
Better asset utilization
Responsiveness, flexibility
Cost reduction.

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Supply Chain Management
Underlying Principles

Compression (Planning/Manufacturing/Supply)
Conformance (Forecasts/Plans/Distribution)
Co-operation (Cross -Functional)
Communication (Real Time Data)

Reduce Overall Cycle Time : Improve Response


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Supply Chain Management: Success Stories

Dell: Inventory turn-over ratio of 58.7


compared to industry average of 12 (Net
Profitability of 5.3.%) ( Drop from 7.8% in 2006)
Wal-Mart: Inventory turn-over ratio of 9.9
compared to industry average of 5.5 ( Net
profitability of 3.5%)
Zara Corporation: Lead-time from new product
to stores is 15 to 20 days compared to industry
average of six months ( Net profitability of
11.3%)

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Importance of Supply Chain Management (Cont.)

SCM is critical factor for industries due


to
Proliferation in product lines or SKUs-SKU
is unit of variety
Shorter product life cycles
Higher level of outsourcing
Shift in power structure in the chain
Taxation structure driven location decision
Globalization of manufacturing

19
Revolutions in Supply Chain
The First Revolution (1910-1920)-The Ford Supply
Chain
Tightly integrated chain
The Second Revolution (1960-1970)-The Toyota
supply chain
Allowed the final assembly and manufacturing of key
components
Long term relationship with suppliers
The Third Revolution (1995-2000)-The Dell Supply
chain
Customers allowed to configure
Medium term relationship

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The Development Chain
Set of activities and processes associated with new product introduction.

The enterprise development and supply chain


21
The Foundations of Supply Chain
Management
Supplier management, supplier
Supply
evaluation, supplier certification,
Management
strategic partnerships
Demand management, MRP, ERP,
inventory visibility, JIT (lean production
Operations
& Toyota Production System), TQM (Six
Sigma)
Transportation management, customer
relationship management, distribution
Distribution network, perfect order fulfillment, global
supply chains, service response
logistics
Process integration, performance
Integration
measurement 22
Current Trends in Supply Chain Management

Expanding the Supply Chain


Firms are expanding partnerships and building
facilities in foreign markets
The expansion involves:
breadth- foreign manufacturing, office & retail sites,
foreign suppliers & customers
depth- second and third tier suppliers & customers

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Current Trends in Supply Chain Management (Cont.)

Increasing Supply Chain Responsiveness


Firms will increasingly need to be more
flexible and responsive to customer needs
Supply chains will need to benchmark
industry performance and meet and improve
on a continuous basis
Responsiveness improvement will come from
more effective and faster product & service
delivery systems

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Current Trends in Supply Chain
Management (Cont.)
The Greening of Supply Chains
- Producing, packaging, moving, storing, delivering
and other supply chain activities can be harmful to
the environment
Supply chains will work harder to reduce
environmental degradation
Large majority (75%) of U.S. consumers influenced
by a firms environmental friendliness reputation
Recycling and conservation are a growing
alternative in response to high cost of natural
resources

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Current Trends in Supply Chain Management-
Cont.
Reducing Supply Chain Costs
Cost reduction achieved through:
Reduced purchasing costs
Reducing waste
Reducing excess inventory, and
Reducing non-value added activities
Continuous Improvement through
Benchmarking- improve over competitors performance
Trial & error
Increased knowledge of supply chain processes

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SUCCESS FACTORS
Integration
Reduction of Uncertainty
Outsourcing/ Core Competency/ Strategic
Alliance
Flexibility/ Agility/ Lean

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Standard products Customized products
Market
demands

No
Available in
Stock

No
Yes High technology
Can be product/services
assembled
from stock
No
Yes Can be
produced using
available
design
No
Yes Existing designs
can be
modified

Yes
Can be
Make- Engineer- to - designed using
Make -to - Assemble-
available
stock to - order to-order order
Innovate- competence
to-order 5 Yes
1 2 3 4 6
Design 5New product/ Development of
Delivery Assembly Production modification and service design new competences
variants using available
competence

Increasing richness in flexibility requirements

Increasing need for management of flexibility

Increasing Need For Flexibility


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SUPPLY CHAIN DECISIONS

Strategic Resource Acquisition


Long Term Planning (1 Year ++)
Supply Chain Design

Production/ Distribution Planning


Planning Resource Allocation
Medium Term Planning (Qtrly, Monthly)

Shipment Scheduling
Operational Resource Scheduling
Short Term Planning (Weekly, Daily)

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Process View of a Supply Chain
Cycle view: processes in a supply chain are
divided into a series of cycles, each performed at
the interfaces between two successive supply
chain stages

Push/pull view: processes in a supply chain are


divided into two categories depending on
whether they are executed in response to a
customer order (pull) or in anticipation of a
customer order (push)
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Cycle View of Supply Chains
Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle

Manufacturer
Procurement Cycle
Supplier
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Customer Order Cycle
Involves all processes directly involved in
receiving and filling the customers order
Customer arrival
Customer order entry
Customer order fulfillment
Customer order receiving

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Replenishment Cycle
All processes involved in replenishing retailer
inventories (retailer is now the customer)
Retail order trigger
Retail order entry
Retail order fulfillment
Retail order receiving

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Manufacturing Cycle
All processes involved in replenishing distributor
(or retailer) inventory
Order arrival from the distributor, retailer, or
customer
Production scheduling
Manufacturing and shipping
Receiving at the distributor, retailer, or
customer
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Procurement Cycle
All processes necessary to ensure that materials
are available for manufacturing to occur
according to schedule
Manufacturer orders components from
suppliers to replenish component inventories
However, component orders can be determined
precisely from production schedules (different
from retailer/distributor orders that are based
on uncertain customer demand)
Important that suppliers be linked to the
manufacturers production schedule
35
Push/Pull View of Supply Chains
Procurement, Customer Order
Manufacturing and Cycle
Replenishment cycles

PUSH PROCESSES PULL PROCESSES

Customer
Order Arrives
36
Dell Supply Chain

Global suppliers Logistic centres Dell plants 3PL End


customers

Supplier-controlled (Push) Dell-controlled (Pull)


Suppliers of
peripherals

Dell Computers outperforming of the competition in terms of shareholder value


growth over more than two decades by over 3,000% using:
(a) Direct business model (b) Build-to-order strategy 37
Key Issues in Supply Chain Management

Distribution network and configuration


Inventory control
Production sourcing
Supply contracts
Distribution strategies
Strategic partnerships
Outsourcing
Product design
Information technology
Smart Pricing
Warehouse and logistic mangement 38
Forces Shaping Perspective of Logistics
Concept of supply chain

Cost pressure

Speed to market

Customer delight

Movement towards globalization

Time-place utility

Outsourcing

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Logistics Management

The process of strategically managing the movement and storage of


material, parts and finished goods from suppliers, through the firm to
the customers.
.....Council of Logistics Management
Logistics is the information based activity of material movement from
suppliers to manufacturer and finished goods to the customer.
.....Martin Christopher
Planning, implementing and controlling the physical flows of materials
and finished goods from point of origin to point of use to meet the
customers need at profit.
.....Philip Kotler

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Four Subdivisions of Logistics

Business logistics:
That part of the supply chain process that plans, implements, and controls the
efficient, effective flow and storage of goods, service, and related information
from point of use or consumption in order to meet customer requirements.

Military logistics:
The design and integration of all aspects of support for the operational
capability of the military forces (deployed or in garrison) and their equipment
to ensure readiness, reliability, and efficiency.

Event logistics:
The network of activities, facilities, and personnel required to organize,
schedule, and deploy the resources for an event to take place and to
efficiently withdraw after the event.

Service logistics:
The acquisition, scheduling, and management of the facilities/assets,
personnel, and materials to support and sustain a service operation or
business.

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Value-Added Roles of Logistics
The five principal types of economic utility which add value to a product or service
are:
Form
Time
Place
Quantity
Possession

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Pervasiveness of Logistics

Logistics for 30 mts Pizza

Dabbawalas of Mumbai

Laundry service in a five star hotel

Indian Postal Service

Gulf War in 1991

Public distribution system (FCI)

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Logistics Chain

S C

U U

P S

P T
Buy Make
L
Deliver O
(Procurement (Processing (Distribution)
I M
) )
E E

R R

S S

Inbound Process Outbound


Logistics Logistics Logistics

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Logistics Chain
Inbound logistics
Operation preceding manufacturing. This includes movement of raw
materials and components from supplier to the plant.

Process logistics
Operations directly related to processing. This includes storage and
movement of raw materials and components within the factory
premises as per the manufacturing schedule.

Outbound logistics
Operations following the manufacturing. This includes warehousing,
transportation and inventory management of finished goods.

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Distribution of Logistics Cost

Transportation 12%
Inbound logistics Storage and 8%
Inventory 8%
Transportation 2%
Process logistics Storage 5%
Transportation 33%
Storage and 15.50%
Inventory 6.50%
Outbound
logistics Order processing 10%

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Logistics Integration

S C
Material flow
U U

P S

P T
Procurement Processing Distribution
L O

I M

E E
Information flow
R R

S S

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Logistics Mix

Warehousing
Depot location, storage system, material handling, unitization and
packaging
Transportation
Mode decision and scheduling
Inventory
Service level planning and MRP
Information
Order processing and demand forecasting

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Logistics Decision Levels
Strategic Level
Customer service

Structural Level
Channel design
Network strategy

Functional Level
Warehousing design
Freight management
Inventory control
Implementation Level
Policies and procedures
Information flow
Facilities and equipment
Organization and change management
Source: Anderson Consultants
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Objectives of Logistics Management

Inventory reduction

Reliable and consistent delivery performance

Freight economy

Minimum product damages

Quick response

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Logistics Activities

Transportation
Warehousing and storage
Industrial packaging
Materials handling
Inventory control
Order fulfillment
Demand forecasting
Production planning/scheduling
Procurement
Customer service
Facility location
Return goods handling
Parts and service support
Salvage and scrap disposal
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Logistics: Macro Level Growth
Variables
Country's economic growth

Government policies for trade development

Regulatory environment

Transportation Infrastructure

Warehousing and cold chain network

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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. 1-53
Supply Chain Schematic

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


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The Logistics/SC Mission

CR (2004) Prentice Hall, Inc. 1-55


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
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 1-56
Costs are lower than K-Mart or
Target Stores
CEO is a former logistician
Wal-Mart is the largest retailer in
the world!

CR (2004) Prentice Hall, Inc. 1-57


Scope of the Supply Chain for Most Firms
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

Focus firms internal supply chain


CR (2004) Prentice Hall, Inc. 1-14
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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
CR (2004) Prentice Hall, Inc. 1-59
The Logistics Strategy Triangle
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. 1-60


Relationship of Logistics to Marketing
and Production
LOGISTICS
Sample
activities: MARKETING
PRODUCTION/ Transport
OPERATIONS Interface Sample
Interface Inventory activities:
Sample activities: activities:
activities: Order Customer Promotion
Quality control
Product processing service Market
Detailed production
scheduling Materials standards research
scheduling Plant Pricing
Equipment maint . handling Product
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. 1-21
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Relationship of Logistics to Marketing
Product

Promotion
Price

Place-Customer
service levels

Inventory Transport
Logistics

carrying costs costs

Lot quantity Warehousing


costs Order processing costs
and information
costs
CR (2004) Prentice Hall, Inc. 1-22
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The impact that logistics can have upon return on assets (ROA)
or return on investment (ROI) is very significant

ROA is defined as follows:

ROA = Revenue - Expenses/Assets Or


ROA = Gross Profit/Assets

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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 1-66
THANKS

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