INTRODUCTION TO LOGISTICS AND

SUPPLY CHAIN MANAGEMENT

Prof. Jarosaw Witkowski, Phd
Vice -rector for International Cooperation
Wroclaw University of Economics
Komandorska Street 118/120, 53-345
Wroclaw, Poland
Tel. 0048713680151, Cell phone:
48501090903
E-mail: jwit@ae.jgora.pl

Lecture outline
1.Definition and main activities of business logistics
2. Trade-offs analyses
3. Idea of supply chains
4. Supply Chain Management matrix
5. Supply chain performance and efficiency
improvement (SCOR and GSCF models)
6. Japanese and European supply chain networks
7. Simple EOQ formula
8. Center of Gravity Technique

Logistics (according to CLM) 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
The mission of logistics is to get the right goods
or services to the right place, at he right time, and
in the desired condition and quantity in relation to
customers order

Main logistics activities and decisions:

cooperate with marketing to set customer
service levels,
facility location decisions,
transportation activities (eg. transportation
mode selection, vehicle scheduling, carrier
routing),
inventory management (inventory short -term
forecasting, planning and control, cooperate
with production to calculate EOQ, sequence and
time production ),
information collection and flows and order
processing,
warehousing and materials handling,
packaging and packing.

Cost- revenue trade- offs

Profits at different levels of customer
Revenue, costs, profit
service
Revenue

Logistics costs

85%

91%

95%

Customer service

Inventory costs trade- off

Inventory carring costs (space costs,
capital costs, inventory risk and
services costs)
Procurement costs (acquisition costs,
transportation costs, manufacturing
and handling costs)
Out of stock costs (lost sales and
back order costs)

Supply chain (since 80s of XXc.)

In broader sense SC is any combination of processes,
activities, relationships and pathways along which
products, services, information and financial transactions
move in and between enterprices (Gattorna 2006, p. 2)
In narrow sens SC is restricted to materials and
information flows from suppliers, through manufactures
and distribution centers to retailers and final customers
e.g. M. Christopher (2005) defines SC as a network of
connected and independent organizations mutually and
cooperatively working together to, control, manage and
improve the flow of materials and informations from
suppliers to end users.

Council
of
Supply
Chain
Management Professionals (former
Council of Logistics Management ):
Supply Chain Management is the
systemic, strategic coordination of
the traditional business functions
and the tactics across business
functions
within
a
particular
company and across businesses
within the supply chain for the
purposes of improving the longterm performance of the individual
companies and a supply chain as a
whole (CSCMP 2005).

According to the new definition

of CSCMP
SCM encompasses the planning and
management of all activities involved
in sourcing and procurement,
conversion, and all logistics
management activities (including
coordination and collaboration with
channel partners).
In essence SCM integrates supply
chain and demand management
within and across companies

GSCMF (Lambert and

others)
SCM is the integration of key business
processes from end user through
original supplier that provides
products, services and information
that add value for customers and other
stakeholders.
GSCMF vs. SCOR model (8 vs 5 key
processes)

Supply Chain Operations Reference Model

Global Supply Chain

Managgement Forum Model
(from 1996)

Customer Relationship Management

(key)
Demand Management
Order Fulfillement
Manufacturing Flow Management
Supplier Relationship Management (key)
Product Development
Commercialization
Returun Management

Based on the product relationship matrix

Cooper and Slagmulder (1999, p.10)
distinguished four key decisions and
activities areas in the integrated supply
chains, such as:
- configuration of product and network,
which covers the decisions concerning the
main rules of cooperation,
- formation of the production network,
mainly the choice of production facility and
warehousing locations as well as their
capabilities,
- product design with involvement the
research and development abilities of
suppliers,

The product- relationship SCM

matrix

Keiretsu and Kaizen as a source of the development of Supply Chain Management

in Japan

KEIRETSU

JIT

JIT

JIT

JIT

TQM

TQM

TQM

TQM

Kanban

Kanban

Kanban

Kanban

Supplier

Producer

Wholeseler

Kaizen

Retailer

The traditional role and place of small firms within

integrated supply chains was mostly limited):
- delivering raw- materials, parts or modules for
the final goods producers,
- delivering customer goods to wholesalers or
selling small quantities of this goods to the final
customers,
- providing transportation and forwarding
services,
- manufacturing goods and providing other
services for market niches which are considered
as not enough profitable for big companies (also
as a subcontractor),
- trading under well known brand name of large
distribution networks (franchising)

Table:
The directions of SMEs changes as a links in supply chains and
Scope of changes in Hierarchical supply
Polycentric supply
networks
SMEs
chains
network
Competences and skills Narrow in particular

technological or

functional areas

Flexibility
Low or middle
Role of small retailers
Low and passive
Key intermediary
Wholesaler or large

retail network

Dominant logistics
Self- or combinedservices model
service model

Small truck companies Large number of

independent firms

Source: Authors own discription

Wide based on process

orientation, ability to
performance
evaluation and
outsourcing
Middle or high
Increasing and active
Brokers or third party
logistics providers
Public logistics service
providers

Subcontractors
dependent on market
leaders

New vs. Traditional logistics

Integration (within organizational
structures, computer systems, supply
chain and network)
Strategic approach
Outsourcing
Globalization and virtualization
Customer orientation
City logistics and non- conventional
applications

EOQ simple formula (Harris,

Wilson)
Economic order quantity formula helps
to find the optimal number of units
which should be ordered or made in
order to minimize the total inventory
costs
Developed in 1913 by Harris and applied
in industry by Wilson
Many disadvantages and several
extensions

Main assumptions
(disadvatages) of EOQ formula
Demand and ordering cost are constant
Maximum inventory is equal to order
quantity,
new order is delivered when the inventory is
zero
Lead time is fixed
No discount is avaliable for bigger orders
Replenishment is delivered at once
Lack of inflation

The required parameters to

calculate EOQ:

D demand quantity (units per year, month, day)

P purchase cost per each item
S fixed cost per order
i inventory carring cost rate related to capital
invested in inventory
Q order quantity
D/Q number of orders

How to calculate EOQ based on

total cost function?
Total cost of inventory TC= inventory
carring cost + procurement cost
QxPxi
sxD
TC =
------------ + ------- min
2
Q
2xDx s
Q=

--------Pxi

Facility location factors:

A.Weber, Polander, Thunen classical theories

Labour cost, land cost, transportation

cost
Aviability and cost of materials, energy,
water
Socio- economic factors (taxes, political
stability, import and export restrictions,
enviromental regulations, quality of life,
etc.)

Analytical techniques for

facility location decisions:
Heuristic approach (e.g. factor rating
by weights reflecting the importance
of each factor)
Simulation models
Cost- benefit analisis
Center of gravity technique

Center of gravity (to find single

location that minimizes of
transportation cost)

How to calculate the

coordinates for CX and CYthe
new facility location?(Ballu,
p.487)
Parameters:

Vi volume at point i
Ri transportation rate to or from point i
Xi and Yi coordinates of existing locations
Vi Ri Xi
Vi Ri Yi
CX = -------------------CY= ------------ Vi Ri
Vi Ri

Assumptions (disadvantages)
of center of gravity technique
Transportation rate is a linear
function of transported volume
(units, tons, etc.) and the traveling
distance,
It doeset consider real traveling
distance which is depended on the
roads availability

References:

[1] Ballu R.H.: Business logistics management, Prentice Hall

International, New Jersey 1999
[2] Christopher M.: Logistics and Supply Chain
Management. Creating Value Adding Networks, Prentice
Hall 2005
[3] Gattorna J.: Living Supply Chains. How to Mobilize the
Enterprise Around Delivering What Your Customers Want,
Prentice Hall, 2006
[4] SCOR model http://supply-chain.org/
[5] CSCMP Supply Chain Management Definitions ,
www.cscmp.org
[6] Cooper R., Slagmulder R.: Supply Chain Development for
the Lean Enterprise Inter- organizational Cost
Management, Productivity Press Portland 1999
[7] Witkowski J.: Zarzdzanie acuchem dostaw. Koncepcje,
procedury, dowiadczenia, PWE, Warszawa 2010