Logistics

Definition
“Logistics…
plans, implements, and controls
the efficient, effective forward and reverse flow and
storage of goods, services, and related information
between the point of origin and the point of
consumption in order to meet customers'
requirements”

Council on Logistics Management

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 Logistics vs. Supply Chain Management
What is the difference?
• A Supply chain is the network of:
• facilities (warehouses, factories, terminals, ports, stores, homes)
• vehicles (trucks, trains, planes, ships)
• logistics information systems
connecting suppliers’ suppliers with its customers’ customers.

• Logistics is:
• “what happens in the supply chain”
• “putting the right material in the right place at the right time“
• it provides much of the Supply Chain’s value-added.

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 Phases of Logistics Development
1. Workplace Logistics
Definition:
• the flow of material at a single workstation.

Objective:
• to streamline the movements of an individual working at a
machine or assembly line.

Origins:
• Principles developed by fathers of Industrial Engineering
during and after WWII.
• Also known as: Ergonomics.
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 Phases of Logistics Development
2. Facility Logistics

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 Phases of Logistics Development
2. Facility Logistics
Definition:
• the flow of material between work stations within the four
walls of a facility (interworkstation, intra facility).
• Facility can be a factory, terminal, warehouse, distribution
center (DC).
Origins:
• developed in mass production assembly lines in 1950’s,
60’s and 70’s.

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 Phases of Logistics Development
3. Corporate Logistics
(Soda Manufacturer)

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 Phases of Logistics Development
3. Corporate Logistics
Definition:
• the flow of material and information between the facilities
and processes of a corporation. (inter workstation, inter-
facility, intra-corporate).

Objective:
• Develop and maintain a profitable customer service policy
while maintaining and reducing total logistics cost.

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 Phases of Logistics Development
Logistics
3. Corporate
Logistics takes place and
between

Manufacturers Its factories Warehouses

Wholesalers Distribution Centers

Its distribution
Retailers Retail Stores
centers (DCs)
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 Phases of Logistics Development
4. Supply Chain Logistics

Supplier Manufacturer Wholesaler Retailer Customer

Supply chain is optimized when material,

information and money flow simultaneously,
in real time, and paperless.

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Adapted from:Frazelle, Edward “Supply Chain Strategy” McGraw Hill 2002.
 Supply Chain Stages
SC: Supplier to Consumer
MC: Manufacturer to Consumer
WC: Wholesaler to Consumer

Supplier Manufacturer Wholesaler Retailer Customer

Supplier Manufacturer Wholesaler Retailer Customer

Supplier Manufacturer Wholesaler Retailer Customer

SW: Supplier to Wholesaler

SR: Supplier to Retailer
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MR: Manufacturer to Retailer
 Phases of Logistics Development

4. Supply Chain Logistics

Definition:
• the flow of material, information and money
between corporations (interworkstation,
interfacility, intercorporate, and intrachain).

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 Phases of Logistics Development
5. Global Logistics
Definition:
• The flow of material, information, and money
between countries.
• Connects suppliers’ suppliers with its customers’
customers internationally.
• Much more complicated than domestic logistics
given the many languages, laws, currencies, time
zones, cultures, etc.
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 Phases of Logistics Development
5. Global Logistics

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What Activities take place in Logistics?
Activities
1. Customer Response
2. Inventory Planning &
Management (IP&M)
3. Supply
4. Transportation
5. Warehousing /
DC Operations

Each of these requires:

- Measures and Goals
- Process Design
- Information System Requirements
- Organizational Development
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Logistics Activity Framework

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Logistics Activity Framework

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 Logistics Activities
1. Customer Response

Involves:
• Developing / Maintaining a Customer Service Policy*
• Order Entry
• Order Processing
• Invoicing / Collections
• Monitoring Customer Satisfaction
(* the contract between the logistics organization and the customer, defining
service targets, such as fill rates, response times, min. order quantities, terms and
conditions for returns, etc.).

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Logistics Activity Framework

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 Logistics Activities
2. Inventory Planning &
Management
Goal:
• determining / maintaining the lowest inventory levels
possible that will meet Customer Service Policy
requirements.
Involves:
 Forecasting
 Order Quantity Engineering
 Replenishment planning
 Inventory deployment
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Logistics Activity Framework

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 Logistics Activities
3. Supply

Goal:
• Minimize total acquisition cost
(TAC) while meeting availability, response time and
quality requirements

Involves:
• Developing / Maintaining a Supplier Service Policy
• Sourcing (of supplies)
• Supplier integration
• Purchase Order processing
• Buying and Payment 24
Logistics Activity Framework

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 Logistics Activities
4. Transportation
Links sources of supply with customers.

Goal:
• Link all pick-up and deliver-to points within the response time
requirements and transportation limitations at the lowest possible
cost.

Involves:
• Network design & optimization
• Shipment Management
• Fleet and Container Management
• Carrier Management
• Freight Management
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Logistics Activity Framework

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 Logistics Activities
5. Warehousing (DC Operations)

Goal:
• To minimize the cost of labor, space and equipment in the
warehouse while meeting cycle time and shipping accuracy
and storage capacity requirements.
Involves:
• Receiving
• Putaway
• Storage
• Order Picking
• Shipping
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 Logistics involves Optimization
Optimization is a key ingredient in Logistics
Master Planning
In general, we optimize:

- Customer Service Policy (CSP)

- purchase order quantities
- product sources (which one is best)
- location of DCs
- product placement in the warehouse

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 Logistics involves Optimization
Example
If we want to optimize CSP, we would address the
Total Logistics Costs
( = inventory cost + response time cost + lost sales cost)

MIN Total Logistics Costs

Subject to
• Inventory Availability > Customer Service Inventory Target
• Response time < Customer Service Response time Target

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Logistics Activity Profiling and Data Mining

What is Data Mining?

• The process of automatically searching large volumes of
data for patterns using tools such as classification,
association rule mining, clustering, etc..
• A class of database applications that look for hidden
patterns in a group of data that can be used to predict
future behavior.
• True data mining software doesn't just change the
presentation.
• Actually discovers previously unknown relationships
among the data.

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 Logistics Activity Profiling and Data Mining

What is Profiling?
Definition
The systematic analysis of item and order activity
used to:
· quickly identify root cause of material/information flow
problems.
· Identify opportunities for improvement.
· Provide basis for decision making.
· First step in logistics master planning.
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 Logistics Activity Profiling and Data Mining

What is a Profile?
• A snapshot or picture of an aspect of a
logistics activity.
• Many different profiles will be needed to
fully characterize and re-engineer the logistics
enterprise.
• Provides basis for decision making.
• First step in logistics master planning.
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 Logistic Activity Profiles
Definition - SKU
• The abbreviation for Stock Keeping Unit.

• An SKU is an individual item or part, a unit of inventory that is

carried as a separate identifiable unit, and is typically
represented by a UPC.

• i.e. A box of 100 ball point pens, although containing the same
unit, is a different SKU from a single ball point pen.

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