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Logistics is the function that is responsible for the movement of materials (and information) It is responsible for transport and storage of materials between suppliers and customers. It is a process of planning, implementing and controlling the flow and storage of goods, services and related information from point of origin to point of consumption.
Logistics is the function that is responsible for the movement of materials (and information) It is responsible for transport and storage of materials between suppliers and customers. It is a process of planning, implementing and controlling the flow and storage of goods, services and related information from point of origin to point of consumption.
Logistics is the function that is responsible for the movement of materials (and information) It is responsible for transport and storage of materials between suppliers and customers. It is a process of planning, implementing and controlling the flow and storage of goods, services and related information from point of origin to point of consumption.
1 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Course Objectives
Understand the definitions Logistics and Supply Chain Understand the concept and key points of Supply Chain Management. Understand how to manage Supply Chain and Logistics in real companies. Apply to a group project.
2 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes References Text book: Logistics - An Introduction to Supply Chain Management, Donald Waters, PALGRAVE MACMILLAN, 2003. Reference books: Supply Chain Logistics Management, Donald J. Bowersox, David J. Closs and M. Bixby Cooper, McGraw Hill, 2002. Lecture Notes: Logistics and Supply Chain Management
Grading Midterm Exam 30% Assignment 30% -Quiz, Home works 25% -Group Project 75% Final Exam 40% 3 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes
Chapter 1 Fundamentals of Logistics 4 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes
Learning Objectives DEFINE logistics and associated terms UNDERSTAND the role and structure of supply chains LIST different activities of logistics and understand the relationships between them DISCUSS the aims of logistics SHOW how logistics contributes to customer satisfaction RECOGNISE the importance of logistics to every organization. 5 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes 1. Basics Definition All organizations move materials. Manufacturers: raw materials finished goods. Definition of Logistics: Logistics is the function that is responsible for the movement of materials (and information). It is responsible for the transport and storage of materials between suppliers and customers. According to the Council of Supply Chain Management Professionals (CSCMP), a professional organization for Logistics and SCM professionals, logistics is defined as: the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from point of origin to point of consumption for the purpose of conforming to customer requirements 6 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes what is products?
What is products? Basic Definition (contd.) Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Basic Definition (contd.) Products: Goods (tangible) and Services (intangible) Operations: Operations include manufacturing, serving, transporting, selling, training, and so on. The main outputs are products. 8 - People - Buildings - Raw materials - Equipment - Information - Investment etc. . . INPUT OUTPUT OPERATIONS - Manufacture - Serve - Supply - Transport - Sell - Train etc - Goods - Services - Profit - Waste - Wages etc Fig. 1.2. Operations of a organization Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Basics Definition (contd.) LOGISTICS is the function responsible for the flow of materials from suppliers into an organization, through operations within the organization, and then out to customers.
9 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes 10 Inbound logistics: activities between external suppliers and the organization Outbound logistics: activities between external customers and the organization Operations within the organization: activities between internal suppliers and internal customers Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Link: http://www.youtube.com/watch?v=V4JRH3e4xrg&featur e=related
11 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes 2. THE SUPPLY CHAIN -Different names for these chains of activities and organizations. emphasize the operations, refer to the process; emphasize marketing, call it a logistics channel; look at the value added, call it a value chain,
see how customer demands are satised, call it a demand chain. -- -Here we are emphasizing the movement of materials and will use the most general term of supply chain.
A SUPPLY CHAIN consists of the series of activities and organizations that materials move through on their journey from initial suppliers to final customers. Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes 2. role and structure of supply chains Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Inbound logistics: activities between external suppliers and the organisation Outbound logistics: activities between external customers and the organisation Operations within the organisation: activities between internal suppliers and internal customers Fig. 1.5. Supply Chain Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes 15 Structure of the supply chain SUPPLY CHAIN = a series of activities and organizations that move materials from initial suppliers to final customers Upstream supply chain activities: involve initial supplier, third tier supplier, second tier supplier, first tier supplier Downstream supply chain activities: involve first tier customer, second tier customer, third tier customer, final customer Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes
16 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes 17 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Do you want to avoid supply chain?
EG: The market of vegetables the sugar and sugar cane, beet
Well , You can get answer from figure! Benefit from Supply Chain Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes 3. ACTIVITIES OF LOGISTICS 20 Procurement or purchasing. Inward transport or traffic management Receiving Warehousing or stores Stock control, Order picking and Materials handling. Outward transport Physical distribution management Recycling, returns and waste disposal Location and Communication 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 point of origin to point of consumption for the purpose of conforming to customer requirements (Council of Logistics Management (CLM) - http://cscmp.org/default.asp) Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Summary of logistics activities
Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Case Study NIKE logistics center http://www.youtube.com/watch?v=NkfHVYv5nUo&feature= related
How UPS Cargo Containers Work http://www.youtube.com/watch?v=MyeqlieHhi4
Simulation http://www.youtube.com/watch?v=_0UJ0lKnn_o&feature=r elated 22 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Organizing Logistics 23 Fig1.8. Organizing Logistics Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes 4. Aims of logistics When you buy an item, what kind of contents will be take into your consider?
Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Aims of Logistics Logistics is responsible for the ow of materials through a supply chain. This function is also called supply chain management.
LOGISTICS is the time-related positioning of resources, or the strategic management of the total supply chain The SUPPLY-CHAIN is a sequence of events intended to satisfy a customer.
The overall AIM OF LOGISTICS is to achieve high customer satisfaction. It must provide a high quality service with low or acceptable costs. 25 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes 26 profits earne Assets asse d Re ts turn on = employed Stocks, money etc. Property, Equipment, Plant, etc. Current Assets Fixed Assets
Assets Importance of Logistics Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes 27 profits earne Assets asse d Re ts turn on = employed Customer Satisfaction Operating Costs Product Features Sales Profit Margin Price Profit Importance of Logistics (cont.) Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Example: ABC currently has sales of $ 20 mil. a year, with a stock level of 35% of sales. Annual holding cost for the stock is 20% of value. Operating costs are $8 mil./ year and other assets are valued at $15 mil. What is the current return on assets? How does this change if stock levels are reduced to 25% of sales?
Solution: Taking costs over a year, the current position is: Cost of stock = stock holding cost = (20 0.35) 0.2 = 1.4 mil./year Total costs = operating cost + cost of stock = 8 + 1.4 = 9.4 mil./year Profit = sales total costs = 20 9.4 = 10.6 mil. /year Total assets = other assets + stock = 15 + (20 0.35) = 22 mil.
Return on assets = profit / total assets = 10.6 / 22 = 0.4818 (48.18%) 28 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes The new position with stock reduced to 25% of sales has: ??? Cost of stocks = 20 0.25 0.2 = 1 mil. /year Total costs = 8 + 1 = 9 mil. /year Profit = 20 9 = 11 mil./year Total assets = 15 + (20 0.25) = 20 mil. Return on assets = 11 / 20 = 0.55 or 55%
Reducing stocks gives lower operating costs, higher profit and a significant increase in Return on Asset (ROA).
29 Example (cont.): Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Development of logistics pressures to the use of logistics Changes of Customers. Changes of Competition Other changes in retail markets International trade continues to grow. Organizations become to outsource peripheral activities and concentrate on their core operations. Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Current trends Improving communication Electronic data interchange (EDI) Electronic point-of-sales data (EPOS) e-purchasing of e-procurement
Support of EDI: Item coding (often bar-coding) Electronic Fund Transfer (EFT)
31 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Current trends Improving customer service Lower lead-times synchronized material movement mass customization Other significant tendencies Globalization Reduced number of suppliers Concentration of ownership Outsourcing. Make or Buy. 32 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Current trends Other significant tendencies Cross-docking Direct delivery Stock reduction methods Increasing environmental concerns More collaboration along the supply chain
Three important themes for logistics consider LEANNESS, AGILITY and INTEGRATION. Ideally, logistics should aim for all three of these 33 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Current themes LEAN Logistics faster deliveries, reduce stock levels, reduce handling, lower costs, reduce waste etc. AGILE Logistics flexible and responsive, customized service, respond quickly to a changing demand. INTEGRATION Logistics co-operate with other organizations 34 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Summary Every organization creates products to satisfy customer demand. The operations that create these products need an effective and efficient flow of materials. In this sense, materials are all the goods and services needed to create products. Logistics is the function that is responsible for the flow of materials into, through and out of an organization. Materials move through a series of related activities and organizations between initial suppliers and final customers. These form a supply chain. Each product has its own supply chain. There are many possible structures for supply chains, but the simplest view has materials converging on an organization through tiers of suppliers, and products diverging through tiers of customers. Logistics consists of a series of related activities. These range from procurement at the beginning of operations, through to physical distribution at the end. 35 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Summary (cont.) An overall aim for logistics is to achieve high customer satisfaction or perceived product value. This must be achieved with acceptable costs. Every organization depends on the movement of materials, and the way this is done affects costs, profits, relations with suppliers and customers, customer service, and virtually every other measure of performance. There are a lot of pressures for improving logistics. Current trends are: Improving communication, Improving customer service, some other significant tendencies. Current themes: LEAN logistics, AGILE logistics, INTEGRATION logistics. 36 Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Quiz 01 Prob.01 ABC currently has sales of $ 20 mil. a year, with a stock level of 35% of sales. Annual holding cost for the stock is 20% of value. Operating costs are $8 mil./ year and other assets are valued at $15 mil. What is the current return on assets? How does this change if stock levels are reduced to 25% of sales?
Prob.02 Draw a Supply Chain for Bottle of water Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Homework 01 (Due: next class) 5. The cost of logistics varies widely from organization to organization. What factors affect these costs? Are the costs fixed or can they be controlled?
6. How could you find the best balance between service level and costs?
Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes Production Inventory & Warehousing Transportation Customers Manufacturers Suppliers Material Transportation Fig. 1.3. Logistics Network Transportation Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes 40 In practice, most organizations get materials from many different suppliers, and sell products to many different customers. The supply chain converges as raw materials move in through the tiers of suppliers, and diverges as products move out through tiers of customers. A manufacturer might see sub-assembly providers as rst tier suppliers, component makers as second tier suppliers, materials suppliers as third tier suppliers, and so on. It might see wholesalers as rst tier customers, retailers as second tier customers, and end users as third tier customers .