Logistics Management

Dr. Jagathy Raj V. P.

Director and Senior Professor
School of Management Studies
Cochin University of Science and Technology
Kochi - 22
Every company dreams of
achieving the Seven R’s
Delivering
■ The right product, in
■ The right quantity, and
■ The right condition, at
■ The right place, at
■ The right time, for
■ The right customer, at
■ The right cost
 Logistics Management

Effective logistics Management alone can make this possible

● ITS ORIGINS BELONG TO MILITARY OPERATIONS RELATING TO THE COMPLETE

SYSTEM OF MOVING, SUPPLYING AND QUATERING TROOPS AND ALL THE
RESOURCES THEY NEED.

● IN TODAY’S HIGHLY COMPETITIVE INDUSTRIAL SCENARIO OF GLOBAL

COMPETITIVENESS, LOGISTICS HAS TRULY BECOME A STRATEGIC WEAPON AND
MOST IMPORTANT FACTOR IN THE SUPPLY CHAIN

► LOGISTICS COSTS CAN BE 6 - 7 % OF GROSS SALES FOR AN INDUSTRIAL

ORGANISATION , AND CAN GO UP TO 14 - 15 %. FOR SECTORS LIKE CEMENT AND
BULK MATERIALS.
 Just a thought!!!!

What is Logistics = Logical thinking + Statistics

The mission of Logistics Management

The needs of customers are satisfied through:

The co-ordination of the materials and information flows that extend from
the market place, through the firm and its operations and beyond that to
supplier.
 The challenge of Logistics Management

■ To achieve the goal of competitive advantage through both

cost reduction and service enhancement.

■ Organizations need to accelerate the movement through the

supply chain and to have more flexible Logistics systems and
this could be achieved through:

- Cutting short the pipeline (Unneeded inventory)

- Improve the pipeline visibility (Organizational barriers
removals, better coordination)
- Managing logistics as a system
The turbulent business environment

► High Uncertainty
► Rapid changes
► The demand for better quality products at lower
cost at a shorter supply lead time
► Short product life cycle
► Globalization of markets
► Formation of trade blocks
► Shifting of Manufacturing bases to lower labour
cost areas
► Global sourcing supplies
Logistics

■ In recent years, Logistics has received increased

management attention.

■ Corporations are using logistics as a competitive

weapon to meet the challenges of global competition and
turbulent business environment.
 Introduction

In today's highly competitive global marketplace, the pressure on

organizations to find new ways to create value and deliver it to their

customers grows ever stronger.

Consequently, many organizations in the last two decades, have moved

the logistics function to the center stage.

 Introduction – Cont ...
There has been a growing recognition that effective Logistics
Management (LM) throughout the firm and Supply Chain (SC) can
greatly assist in the goal of cost reduction and service enhancement.
The keys to success in LM require heavy emphasis on integration of
activities, cooperation, coordination and information sharing
throughout the firm and the entire supply chain, from suppliers to
customers.
The focus of modern business

■ Maximizing the ROI with service-cost performance as good as (or perhaps

better than) the competitor’s is the primary objective of any company
manufacturing and selling goods to meet customer needs
■ Satisfying the needs of the customer at least cost
■ Maximize the ROI
 Introduction
■ Previously we have to wait for long time for getting
premium goods
■ Twentieth Century – Due to Metamorphic environmental
transformation in the business world which results
■ Lot of growth opportunities as well more complicated
business problems threatening even survival on the
other.
■ Ex: Numerous cars, two wheelers etc
Introduction

Reasons - this is the outcome of

■ Heavy industrialization
■ Liberalization policy
■ Rapid innovation in the field of Science and
Technology followed by their easy transfer
■ Globalization of world market
Why the Increasing Interest?

■ Deregulation
■ Globalization
■ Technological breakthroughs
■ Environmental concerns
■ Performance impact
Deregulation

■ Transportation providers
■ Elimination of artificial barriers
■ Unrestricted markets
■ Multimodal solutions
■ Price, schedule, and terms flexibility
■ Buyers have greater freedom
■ Negotiate prices, terms, and conditions
■ Ownership issues

BUT…
 Deregulation (continued)

… with greater freedom comes new responsibilities

Key point
Logistics has evolved from
being a “tactical” area to a “strategic” one
 Environmental Concerns

Even while certain aspects of logistics have been

deregulated, other areas are being controlled more
stringently

⮚ Fuel efficiency
⮚ Pollution
⮚ Recovery, recycling, and reuse of packaging, containers, and
products
■ Technological breakthroughs
■ Performance impact
■ Globalization
GLOBALIZATION
Question: What is the truest definition of Globalization?
Answer: Princess Diana's death.
Question: How come?
Answer:
► An English princess
► with an Egyptian boyfriend
► crashes in a French tunnel,
► driving a German car
► with a Dutch engine,
► driven by a Belgian who was drunk
► on Scottish whisky,
► followed closely by Italian Paparazzi,
► on Japanese motorcycles;
► treated by an American doctor,
► using Brazilian medicines.
► This is sent to you by an Indian
► using Bill Gates's technology,
► and you're probably reading this on your computer,
► that uses Taiwanese chips,
► and a Korean monitor,
► assembled by Chinese workers
► in a Singapore plant,
► transported to you by Bangladeshi rickshaw-driver.

That, my friends, is Globalization!!!!!

 Introduction

► As a result consumers are becoming very selective and

conscious about their purchase decisions, especially
value for money and convenience.
► Distributors/retailers are also very conscious about their
ROI due to the availability of huge attractive trade
opportunities
 Introduction

► So in the competitive environment, it is important for every firm

to generate the highest level of customer satisfaction while
delivering the highest value to the shareholders.

► So in such an erratic market place, firms need to put their best

effort towards formulating market oriented and customer
focused strategies
Introduction

► They are increasing their product portfolio

► Quick information sharing
► Prominent display, read and intact delivery
► 24 hours on-the-spot after sales service,
► Eagerness to sort out problems and complaints

in order to satisfy their consumers

with a difference than competitors.
 Introduction

► Additionally to generate the highest value to shareholders,

firms need to have cost-effective best market offering

► For this they need to have an improvement of productivity

and profitability by means of optimum utilization of
resources, avoiding idle time for any of them
 Introduction
■ To attain all of the above goals, firms have to offer
best quality product at a reasonably least price as and
when required, avoiding a stock-out situation which
has given impetus to the concept of Logistics
Management

■ It has ability to ensure a consistency in the quality,

tremendous cost saving potential and making goods
at the place of requirements in time
Business world has realized that in order to achieve
100% Customer Satisfaction they need to:
▪ Handle more customers and volume
▪ Give customers’ Choice and control
▪ Be more accessible
▪ Be innovative and incorporate new technologies
▪ Ensure commitment
▪ Deliver great service
▪ Generate revenues
▪ Lower costs
▪ Do things faster than competitors
▪ Personalize and provide more information and
▪ Address complex customer requests
Logistics
► US Air force Technical report(1981) defines this term as
the science of planning and carrying out the movement
and maintenance of forces – deals with
►Design and development, acquisition, storage, movement,
distribution, maintenance, evacuation and disposition of
materials
►Movement, evacuation and hospitalization of personnel.
►Acquisition or contruction, maintenance, operation, disposition
of facilities,
►Acquisition or furnishing of services

► Act as a supportive system which reflects the practical art

of moving armies and materials engaged in combat to
achieve the desires results
 Logistics

► In the Industrial and commercial world. Logistics has a

acquired wider meaning

► It covers activities for the material flow from the source to

the processing facilities, and subsequent distribution of
finished goods from there to the ultimate users.
 Independent Business Function

Manufact
uring

Inventor
y
Control

Sales

Procur
ement
Objectiv
e Distributi
Maximizatio Out Come
on
n Aggressive
of Profit by preaching
Sales Skill
volume
Limited Integrated Business

Manufact
uring
Manage
ment

Physical
Distributio
Material n and
Managem Sales
ent Managem
t
Output
Objective
Price –
based
Cost Control
competition
 Internal Integrated Business Function (Logistics Management)

Manufacturin
g
Managemen
t
Material
Manage Marketing
and OUTPUT
Objective ment
Distribution
Manageme Increased
Maximization nt Productivity
of profitable .
Sales Profitability
Values and and
Cost Reduction Market
Shares
External Integrated Business Function (SCM)
L
C
V O
U
E G
S
N I
T
D S
M Output
E T
E
Objective R I Customer
R
S C Values
Core S and Harmonics
Competency S Relations
Relationships
Evolution of Supply Chain Management
Supply Chain Schematic
 Logistics

■ Logistics is responsible for managing the acquisition, movement

and storage of materials, parts and finished goods (together with
related information flows) through an organization and its
marketing channels to meet customer expectations and the
company’s profit objective.
Logistics
► Logistics has been recognized not only as a group of important functions, but
as function that have important strategic impacts as well

► In the United States, annual expenditure on non-military logistics are

estimated as 11 percent of the Gross National Product.

► With logistics cost of 30 percent of goods sold, not uncommon for US

manufacturing firms potential saving in logistics coordination cannot be
ignored.

► Logistics strategy must be integrated with corporate strategy because

corporate strategy
 Logistics Management
The Council of Logistics Management defines
Logistics Management as:
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

It involves the integration of information, transportation,

inventory, warehousing, material handling, and packaging.
A Process view of Logistics Management
Flows in a Logistics System

■ Flow of Materials

■ Merchandise flow

■ Money flow

■ Information flow
 Logistics Management

■ Logistics Management is an integrating function which coordinates

and optimizes all logistics as well as integrates logistics activities
with other functions including marketing, sales, manufacturing,
finance and IT

■ It Includes the design and administration of system to control the

flow of materials, work-in-process and finished inventory to support
business unit strategy
Visual Representation of Integrated Logistics Management
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.
 Logistics Definitions
❖ Inventory:
■ Management of materials in motion and at rest

❖ Customer:
■ Getting the right product, to the right customer, in the right quantity, in
the right condition, at the right place, at the right time, and at the right
cost (called the dictionary “seven Rs of logistics”)
❖ International Society of Logistics:
■ The branch of military science having to do with procuring, maintaining,
utility/ value and transporting material, personnel, and facilities
❖ Council of Supply Chain Management
■ The art and science of management, engineering, and technical
activities concerned with requirements, design, and supplying and
maintaining resources to support objectives, plans, and operations
 Logistics Definitions
■ Component support:
■ Providing time and place utility/value of materials and products in support of
Functional management organization objectives
■ Common culture:
■ That part of the supply chain process that plans, implements, and controls the
efficient, effective flow and storage of goods, services, and related information from
point of origin to point of consumption in order to meet customer requirements
■ Functional Management:
■ Supply management for the plant (inbound logistics) and distribution
■ Management for the firm’s customers materials requirements, purchasing,
transportation, inventory management, warehousing, materials handling, industrial
packaging, facility location analysis, distribution, return goods handling, information
management, customer service, and all other activities concerned with supporting
the internal customer (manufacturing) with materials and the external customer
(retail stores) with product
Logistics Management

Logistics is the process of strategically managing

the procurement, Movement and storage of
materials, parts and finished inventory (and the
related information) through the organization and
its marketing channels in such a way that current
and future profitability are maximized through the
cost – effective fulfillment of order.
Logistics Management

Logistics Management refers to designing, developing,

producing and operating an integrated system which is

responds to customer expectations by making

available the required quantity of required quality

products as and when required to offer best customer

service at the least costs

Logistics Management

For Service Industry

►Defined as the process of coordinating non martial activities
necessary to the fulfillment of the service in a cost and customer
service effective manner

►It is an internal integration of interrelated managerial function to

ensure a smooth flow of raw materials from the point of inception to the
first product point, semi-finished goods within production process and
finished goods from the last point the point of consumption
49
50
 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.
Major features of For Logistics Management
► Smooth flow of all types of goods such as raw mareials, work-in-process
and finished goods
► Meeting customer expectations about product and related information
requirements
► Real time flow of information about products’ demand and availability
► Delivery of quality product in required quantity without excessive safety
stock
► Best possible customer service at the least possible cost
► Integration of various managerial functions for optimization of resources
► Movement and storage of goods in appropriate quantity
► Enhancement of productivity and profitability
Logistics

■ Logistics Usually Refers to Management of:

■ Movement of Materials Within Factory
■ Shipment of Incoming Materials From Suppliers
■ Shipment of Outgoing Products to Customers
Components
■ Inbound Logistics

■ Internal Logistics

■ Outbound Logistics
 Inbound Logistics
■ Sourcing and vendor selection for supply of raw materials and
manufacturing parts
■ Inbound transportation and procurement planning
■ Raw materials warehousing including consolidation
warehousing
■ Management of Inventory
■ Information system for effective support strategic alliances
with the supplies and transporters
Internal Logistics

■ Capacity Planning Operational planning Production planning

■ Materials Requirement planning
■ Shop floor control
■ Management of in-process inventory
■ Supporting material handling facilities planning and their
deployment etc
Out bound Logistics
► Outbound logistics system is concerned with the flow of
finished products from factory warehouse to the customers
through a distribution network comprising:
►The wholesalers
►Distributors
►Retailers
►Regional warehouses
►Transporters
►The inventory at all levels
►Sales order processing
►Sales return processing
►Accounts receivable realization and
►Counter flow of information from the customers to the factory
 Movement of Materials within Factories
Typical Locations From/To Which Material Is Moved:

Incoming Receiving
Receiving Quality
Warehouse
Warehouse
Vehicles
Vehicles Dock Control
Control

Work
Work Other Work Finished
Packaging
Packaging
Center Centers
Centers Goods

Shipping Outgoing
Outgoing
Shipping
Dock Vehicles
Vehicles
Logistics Operations

Pac
d ling ka
n gin
Ha g

Transportation
Scheduling
Production

Purchase
Dem

g s
sin er
and

es rd
Ma

oc e O
Sto emen
nag

Pr has
ck

rc
Pu
t

Wa
reh les
ous S a
in g

59
Value-Added Functions of Logistics

Production

Location Logistics Control

Tim
e

60
Management Areas
⮚ Transportation
⮚ Warehousing (and more generally, location)
⮚ Material handling
⮚ Packaging
⮚ Inventory management
⮚ Logistics information systems

(And some would put logistics service providers here

as well!)
62
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
Activities of Logistics
As materials move through an organization, the following activities are
normally included in Logistics:
■ Procurement or purchasing – material flow through an organization is
initiated when procurement sends a purchase order to a supplier.
■ Inward transport or traffic – moves materials from suppliers to the firm’s
receiving area.
■ Receiving – ensures materials delivered correspond to the order,
acknowledges receipt, unloads delivery vehicles, inspects materials for
damage and sorts them.
 Activities of Logistics – Cont...
■ Warehousing or stores – moves materials into storage, and takes
care of them until they are needed.
■ Stock control – sets inventory policies. Considers the materials to
store, overall investment, customer service, stock levels, order
sizes, and timing.
■ Order picking – finds and removes materials from stores to the
departure area.
■ Materials handling – moves materials, within short journeys, through
the operations within an organization.
Activities of Logistics – Cont...

■ Outward transport – takes materials from the departure area and

delivers them to customers.
■ Physical distribution management – delivers FGs to customers,
including outward transport. Is aligned to marketing and forms an
important link with downstream activities.
■ Recycling, returns and waste disposal – reverse logistics or
reverse distribution.
■ Location – moving materials nearer to place of need.

■ Communication – alongside flow of materials, logistics facilitates

flow of info.
Aims of Logistics
Logistics managers have two main aims:
i. Customer responsiveness - success of an organization depends
on its ability to satisfy customers.

ii. Move materials into, through, and out of their own organization
as efficiently as possible i.e focus on minimizing costs.
The challenge however is that outstanding customer service
requires more resources which come with higher costs.
Aims of Logistics ….. Contd.
⮚ Thus a realistic aim for Logistics is to balance the achievement of customer
satisfaction with the cost of achieving it.

⮚ This balance can be phrased in terms of perceived customer value.

⮚ Logistics adds value by making products available in the right place and at
the right time.

⮚ If a product is available at the place needed,

⮚ Logistics is said to have added place utility; if it is delivered at the right time,
Logistics has added time utility.
Importance of Logistics
■ Helps move a country's economy i.e it is an essential feature of all economic
activity.
■ Provides the wheels that help bring in and distribute goods and materials
within an economy.

There are few aspects of human activity that do not ultimately depend on the flow
of goods. Without Logistics, no materials move, no operations can be done, no
products are delivered, no customers served, and hence no economy.
Importance of Logistics – Cont...
⮚ Logistics is not only essential, but it is also expensive.
Organizations are known to reduce their overheads significantly,
but they are left with surprisingly high Logistics costs.
⮚ Being expensive, Logistics has impact on overall financial
performance.
⮚ Logistics affects customer satisfaction, operating costs, profit etc

⮚ Poor Logistics are the cause of roughly 50% of all customer

complaints. No organization can expect to prosper if it ignores
Logistics and organizing Logistics can give huge competitive
advantage.
 Importance of Logistics – Cont...
We can, then, summarize the importance of Logistics by saying that it:

⮚ is essential, as all organizations, even those offering intangible services,

rely on movement of materials.
⮚ is expensive, with costs often forming a surprisingly high portion of
turnover.
⮚ directly affects profits and other measures of organizational performance.
⮚ has strategic importance with decisions affecting performance over the
long term.
⮚ forms links with suppliers, developing mutually beneficial, long-term
trading relationships.
Importance of Logistics – Cont...
⮚ forms links with customers, contributing to customer
satisfaction and added value
⮚ has a major effect on lead time, reliability and other measures
of customer service
⮚ determines the best size and location of facilities

⮚ can be risky, because of safety, health and environmental

concerns
⮚ can encourage growth of other organizations – such as
suppliers and intermediaries offering specialized services
Pressures to improve Logistics
As well as potential savings, many other factors put pressure to
organizations to improve their Logistics:
⮚More knowledgeable customers, demand higher quality, lower costs
and better service.
⮚Fiercer competition & thus organizations must look at every
opportunity to remain competitive.
⮚Changes in retail markets e.g growth of 24-hour opening, home
deliveries, telephone & online shopping
⮚International trade continues to grow (EU, EAC, NAFTA)
⮚Recognition of the strategic importance of Logistics.
Pressures - Cont...
⮚ New operations e.g JIT, lean operations, time compression, flexible
manufacturing, mass customization, virtual operations & so on.
⮚ Turn from a product focus to a process focus. This needs
improvement in operations, including Logistics.
⮚ Considerable improvement in communication e.g EDI, EFT, e-
commerce etc
⮚ Outsourcing of peripheral activities (Logistics) and concentrating on
core operations.
⮚ Increased co-operation through alliances and partnerships. This is
important for Logistics, which is usually the main link between
organizations in a SC.
 Pressures – Cont...
⮚ Attitudes towards transport are changing, because of increased
congestion on roads, concerns about air quality and pollution, broader
environmental issues, privatization of rail services, deregulation of
transport, and a host of other changes.

N/B: There are many other pressures including uncertain market

conditions, political change, shortage of skilled staff, fluctuating
exchange rates, and so on.

How will(has) Logistics respond(ed) to these pressures?

History of Logistics
 Phases of Logistics Development
1. Workplace Logistics
 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.

78
 Phases of Logistics Development
2. Facility Logistics
 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.
 Phases of Logistics Development
3. Corporate Logistics
(Soda
Manufacturer)

81
 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.
 Phases of Logistics Development
Logistics
and
takes place
3. Corporate between
Logistics

Manufacturers Its factories Warehouses

Wholesalers Distribution Centers

Its distribution centers

Retailers Retail Stores
(DCs) 83
 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.
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 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).
 
 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.
 Phases of Logistics Development
5. Global Logistics
 

88
Integrated Logistics Management

Defined as the process of anticipating customer needs and wants

acquiring the capital, material, people. Technologies and

information necessary to meet those needs and wants, optimizing

the goods-or services, producing network to fulfill customer

requirements; and utilizing the network request in a timely way

 Goals of Logistics system

• Provide a Targeted Level of Customer

Service at the Least Cost.

• Maximize Profits, Not Sales.

The Value Chain (Porter[1985])
Integrated Logistics Management
► Integrated Logistics is viewed as a method to create a sustainable
competitive advantage over the company's competition

► Logistics strategy must be integrated with corporate strategy

because corporate strategy sets the basic requirement to the
Logistics system of a strategy
Integrated Logistics Management

► The logics process is becoming more demanding and complex,

so is the business environment in which the logistics has to
operate

► Highlights seven critical factors including that are contributing

to the complexity of logistics system operations
►Escalating customer demand
►Cycle time reduction
►Globalization
►Restructuring
►Supply Chain Partnerships
►Productivity pressures and
►Environmental awareness
Integrated Logistics Management

Revolution in Communication and Information Technologies

have opened new avenues for integrating raw material
supply, Manufacturing support and Physical distribution of
logistics
Relative Importance Depends on

■ Raw materials Sources and Volume

■ Capital Investment

■ Distribution Volume and Territory

Competitiveness depends on
■ Reducing raw materials input costs through sourcing and inbound
logistics optimization

■ Increasing throughput from the plant

■ Choice of cost – effective Technology

■ Reducing outbound Logistics cost

The following objectives are realized

■ Increased velocity of flow

■ Quick response

■ Reduced cost

■ JIT Supply

■ JIT Distribution
Need for integration
Through effective Management
■ Infrastructure
■ Machines
■ Process
■ Technology and
■ People
The two Dimensions of Logistics excellence

• Cost advantage :

Lower end-to-end delivered cost

• Value advantage :

Creating superior customer value through enhanced service

 Logistics excellence

High
Relative
Customer
Value

Low

High Low
Relative
Delivered Cost
Gaining Competitive Advantage through Logistics
 Important Logistics Activities and Their Relations
to Key Business Goals

Logistics has been recognized not only as a group of important functions,

but as functions that have important strategic impacts as well
Logistics impact on operating income

Income statement Logistics variable

Net sales Customer service
Purchasing strategy
Costs of goods sold
Capacity scheduling and control
Order processing
Transportation
Selling and administration Warehousing
expense
Inventory control
Packaging
Interest expense Income Support activities
before tax Inventory carrying cost
 Logistics impact on the balance sheet
Balance sheet Logistics variable
Assets
Cash Order cycle time
Order completion rate
Receivables Invoice accuracy

Inventories Inventory
Property, plant and Distribution facilities and equipment
equipment Plant and equipment
Liabilities
Current liabilities Purchase order quantities

Debt
Financing options for inventory Plant
Equity and equipment
Routes to improved shareholder value

Boost shareholder value

Raise return on capital

Net income increase Capital reduction

Cost
Revenue growth Working capital Fixed assets
optimisation

Innovation Sourcing Inventory Network

Customer relationship Productio Receivable Facilities
management
n s Real
Integrated supply
Logistics Payables estate
chain
 Logistics and Economic value added
Material
Material &
&
Purchase
Purchase Sales
Sales
ss
Net
Net
+
operating
operating
Labour
Labour profit
profit
Cost
Cost of
of
+ sales
sales
Overhead
Overhead
ss Economic
Economic
value
value
Cost
Cost of
of added
added
debt
debt
True
True cost
cost
Inventory
Inventory of
of capital
capital
Cost
Cost of
of
equity
equity Capital
Capital
+
Net
Net Net
Net charge
charge
x
receivable
receivable working
working
ss capital
capital Capital
Capital
employed
employed
+ +
Fixed
Fixed
Cash
Cash assets
assets
Strategic Logistics Planning

■ Strategic logistics planning is essentially concerned with the

deployment and management of logistics resources to met the
desired cost effective service performance of the system

■ This may involve, number and location of warehouses, mode and

carrier selection, Inventory positioning, inventory planning, sub
contracting of services, sourcing, equipment and facilities planning,
order management and Information systems planning etc
 Strategic Logistics Planning
■ This is also includes such decisions as location and capacities of
company owned plants and warehouses, acquisition or long term hiring
of carriers like ships barges, trucks etc, acquisition of martial handling
system and facilities, balancing facilities to maximize throughput and
flexibility and introduction of system to help, reductions in response
time and in process inventory

■ Choice of supply, transport mode, strategic alliance with both suppliers

and customers also form parts of these strategic logistics planning
process.
Strategic Logistics Planning

The process of strategically managing the acquisition, movement and

storage of materials, parts, finished goods inventory, and related
information flows through the organization and its marketing channel in
such a way that current and future profitability is maximized through the
cost-effective fulfillment of orders.
Main objectives of logistics planning are:
► Cost reduction: - This strategy is directed towards minimizing the variable costs
associated with the movement and storage. The best strategy is to evaluate the
alternative courses of action and select the optimum one keeping profit
maximization as the prime goal in mind.
► Capital reduction: - This strategy is directed towards minimizing the level of
investment in the logistics system.
► Service improvements: - This strategy recognizes that the revenue is a function of
the logistics service provided and develops an effective service strategy that is
different from the one provided by competitors.

Logistics has significant impact on these important

corporate performance objectives
Strategic Logistics Planning

► Maximizing the ROI with service-cost performance as good as (or

perhaps better than) the competitor’s is the primary objective of any
company manufacturing and selling goods to meet customer needs
 The logistics planning is particularly crucial
to those industries

■ Volume of raw materials and finished goods handled is very high

and freight including handling cost constitutes a significant portion
of the sales price.

■ Capital intensive manufacturing technology that requires high

capacity utilization to spread capital cost over larger volume

■ Asset deployment in raw materials procurement and finished

goods distribution is considerable.
Logistics planning includes
■ Supply Chain Planning
■ Shipment Planning
■ Transport System Planning
■ Vehicle Routing and Scheduling
■ Warehousing
A sound strategic logistics plan for a
manufacturing company must aim at:
■ Minimizing the landed cost of inputs through strategic sourcing,
consolidation warehousing and carrier selection

■ Minimizing the procurement lead time and raw materials inventory

through better information and procurement systems.

■ Increasing the productivity of the manufacturing unit through appropriate

choice of technology, balancing of facilities and optimization of internal
logistics support including material handling facilities
Contd……
A sound strategic logistics plan for a
manufacturing company must aim at:
■ Decreasing the finished goods inventory through reduced
manufacturing response time.

■ Minimizing the assets including inventory deployed in the

distribution channel

■ Minimizing the delivery lead-time through efficient customer

response, quick response logistics and customer specific
support services.
Logistics Management Decisions

The level of investment and the periods over which the

benefits from an investment in logistics system is realized

► Strategic logistics decisions

► Tactical logistics decision

► Operational logistics decisions

Strategic Logistics Decisions
■ Strategic network optimization, including the number, location, and size of
warehouses, distribution centers and facilities.

■ Strategic partnership with suppliers, distributors, and customers

■ Product design coordination so that new and existing products can be

optimally integrated into the supply chain, load management

■ Information Technology infrastructure to support supply chain operations.

■ Where-to-make and what-to-make-or-buy decisions

■ Aligning overall organizational strategy with supply strategy.

 Tactical logistics decision
■ Sourcing contracts and other purchasing decisions.
■ Production decisions including contracting, locations, scheduling, and
planning process definition.
■ Inventory decisions including quantity, location, and quality of inventory.
■ Transportation strategy including frequency, routes, and contracting.
■ Benchmarking of all operations
■ Milestone payments
Operational logistics decisions
⚫ Daily production and distribution planning
⚫ Production scheduling for each manufacturing facility in the supply chain (minute by
minute).
⚫ Demand planning and forecasting , coordinating the demand forecast of all
customers and sharing the forecast with all suppliers.
⚫ Sourcing planning , including current inventory and forecast demand, in collaboration
with all suppliers.
⚫ Inbound operations-transportation from suppliers and receiving inventory.
⚫ Production operations
⚫ Outbound operations--fulfillment activities and transportation to customers.
⚫ Order promising, accounting for all constraints in the supply chain, including all
suppliers, manufacturing facilities, distribution centers, and other customers.
Logistics Management Decisions

∙ Supply chain design

Strategic ∙ Resource acquisition
∙ Broad scope, highly aggregated data
∙ Long-term planning horizons(1year+1)

∙ Production/distribution planning
∙ Resource allocation
Tactical ∙ Medium-term planning horizons
(monthly, quarterly)

∙ Shipment routing and scheduling

∙ Resource routing and scheduling
Operational ∙ Narrow scope, detailed data
∙ Short-term planning horizons (daily,
real-time)
 Logistics Application Areas by Modeling Views

Planning Supply chain Transportation Shipment

Vehicle routing Warehousing
Horizons planning planning planning

▪fleet sizing ▪warehouse

▪Site location ▪outsourcing
▪site location ▪service day layout
Strategic ▪Capacity sizing
▪fleet sizing
▪bid analysis
balancing ▪material handling
▪sourcing ▪fleet sizing
▪frequency analysis design

▪storage
▪production ▪routing strategy ▪consolidation
▪routing strategy allocation
Tactical planning ▪network strategy
▪zone alignment ▪order picking
▪sourcing alignment ▪mode strategy
strategies

▪MRP, DRP, ▪shipment

Operational ERP ▪load matching
dispatching
▪vehicle dispatching ▪order picking
 Strategic, Tactical, and Operational Decision Making
Decision Area Strategic Tactical Operational

Seasonal equipment
Transportation Mode selection Dispatching
leasing

Inventories Location, Control policies Safety stock levels Order filling

Order entry, transmittal, Processing

Order
and processing system orders, Filling
processing
design back orders

Development of supplier
Contracting,
Purchasing buyer Expediting
Forward buying
relations

Handling equipment Order picking

Warehousing Space utilization
selection, Layout design and restocking

Facility Number, size, and

location location of warehouses
Logistics Modeling
 Logistics Models

Analytical Models
■ Distribution network Optimization
■ Berth Planning at Naval station
■ Transportation
■ Supply chain of fine chemicals
■ Facility location formulation
■ Heuristics
■ Distribution and Materials Management
■ Material Flow on a site-by-site basis
■ Modeling buyer-supplier relation
Logistics Models
Simulation
►Production distribution analysis
►Assembly line operations
►Marketing logistics
►Complex rail network
►Transportation
Composite
►Selection of location
►Throughput from transportation system
►Ship Cargo Operation
►Intermodal container Operation
Limitations of Available Models
Analytical Models
► Distribution Focus
► Linear or Integer Programming Models
► Deterministic
► Static
► Too complex to establish and solve

Heuristics Models
► Intuitive
► Deterministic
► Optimality not ensured
► Distribution Focus
Limitations of Available Models

Simulation
■Do not ensure Optimality
■Scenario Evaluation
■Simple Systems
■No focus on Technology Option Selection
■No focus on Parameter Optimization
Limitations - Optimization Models
■ Many optimization models assume that relationships in the system are linear.
■ Although it is possible to incorporate feedback in optimization models, yet
optimization model, ignore most of the feedback effects to minimize
complexity.
■ Many optimization models are static.
■ From the viewpoint of the model user, the optimization models are large,
cumbersome and complex.
■ Most of the optimization models have single objective function. In real life,
management is faced with a vector of objectives.
■ Many optimization problems require use of integer or mixed integer
programming models that are difficult to use for large problems.
Limitations - Econometric Models
■ Econometric models assume availability of perfect information and equilibrium
in the market economy. They ignore such complexities of real world as:
dynamic processes, disequilibrium and the physical delays between action and
results.

■ Models use the historical data to find the parameter values. Such estimation
techniques reveal only the degree of past correlation between the variables.
Such correlation cannot accurately represent the dynamic future.

■ Econometric models ignore soft variables and immeasurable quantities. At

best, these variables are handled with proxy variables.

■ Causal relationships between model variables and feedback are not

considered. The feedback relationships between environmental, social
demographic factors are usually as important as economic influences.
Limitations - Simulation Models

► The major weakness in the simulation models, as opposed to optimization

model, is that they do not ensure optimality.

► It takes considerable time and effort to generate and to evaluate large

number of alternatives.

► It is generally not easy to modify the model to allow the inclusion of a new
phenomenon without completely restructuring the model.

► In general, rigid structural requirements of the simulation models prove to

be restrictive in the analysis of real-life systems.
The Major Elements of Logistics Composite Modeling Analysis
Characteristics of a Complex system
► Presence of several manufacturing stages in series and parallel

► Manufacturing stages having variable (probabilistic) operation times

► Breakdown and repairs for different stages

► The operating parameter of each stage affecting the output of that

stage and other stages linked with it
► Linking of different manufacturing stages by material handling
equipment
► Absence of buffers in process

► Presence of common facilities used by more than one process having

their own operation cycle failure and maintenance.
The Logistics Models must consider:

► The temporal dimensions must be included. Information,

inventories, and customer service are time-dependent, as are
the mode performance and demand rates in a logistics system.
► The model should have capability to explicitly incorporate spatial
dimensions of logistics.
► The model should have a multiple product capability;
► Multiple echelons should be included;
► The model should have the ability to incorporate linear and
nonlinear relationship amongst the variables;
Contd….
The Logistics Models must consider:
► The model should explicitly consider production, transport
mode, warehouse, materials handling equipment capacities
etc.

► The model should have the ability to incorporate the

stochastic nature of logistics activities.

► Linkage between stages

► Breakdown of stages

► Dynamic effects of weather and handling capacities

Logistics decisions for complex systems

■ Logistics decisions for complex systems, require temporal

integration that covers planning horizons of several years to a day
and spatial integration that covers the entire supply chain from
suppliers to the ultimate customers
 Traditional Scope of the Logistics
Business logistics

Physical Physical
(Materials
supplymanagement) distribution
Sources of Plants
Customers
suppl operations
/
y
• Transportation • Transportation
• Inventory maintenance • Inventory maintenance
• Order processing • Order processing
• • Product
•Acquisition
Protective •scheduling
Protective
•packaging
Warehousing •packaging
Warehousing
• Materials • Materials
•handling
Information maintenance •handling
Information maintenance

Internal supply chain

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

Logistics Strategy and Planning

■ The objectives of logistics strategy

■ Minimize cost
■ Minimize investment
■ Maximize customer service

■ Levels of logistical planning

■ Strategic
■ Tactical
■ Operational
The Logistics Strategy Triangle
(4 problem areas)

Customer
service goals
∙ The product
∙ Logistics service
∙ Information sys.
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 ∙ 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

 Relationship of Logistics to Marketing

Product
Marketin

Promotion
Price
g

Place-Customer
service levels

Inventory Transport
Logistic

carrying costs costs

s

Lot quantity Warehousing

costs Order processing costs
and information
costs
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
Logistics Activity Framework

*
Logistics Activity Framework

144
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.).
Logistics Activity Framework

146
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
Logistics Activity Framework

148
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
Logistics Activity Framework

150
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
Logistics Activity Framework

152
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
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 are
Add one-third for inbound supply costs about 10% of
sales w/o
Source: Herb Davis & Company purchasing costs
Worldwide Logistics Costs
 Logistics Costs
Total Cost ($ % of Logistics
Cost Category % of Sales
Billion Costs

Transportation $590 5.9% 58.4%

Warehousing $78 .8% 7.9%

Inventory $299 3.0% 29.7%

Admin. $39 0.4% 4.0%

Total $1,006 10.1% 100.0%

Logistics costs are estimated about 10% of sales

Source: Delaney, R. - Cass Logistics Annual State of Logistics report,

Logistics in the Manufacturing Firm

■ Profit 4%
Profit

■ Logistics Cost 21%

Marketing
■ Marketing Cost 27% Cost

■ Manufacturing Cost 48%

Manufacturing
Cost
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
Contemporary IT Applications in Logistics

► 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
Some Useful Contemporary IT in Logistics
► eXtended Markup Language (XML)
► Service-oriented architecture
► Process integration and interaction management (eg. ERP)
► Exceptions, alerts, and relationship management in logistics
► Information integration
► Facilitating decision support
► Mobile Technologies
► Radio Frequency Identification (RFID), NFC
► Block chain
► Robotics and RPA
► AI and Machine learning
► VR and AR
► GIS and GPS
► Automated Vehicles
The key is to achieve information and process integration for efficient and effective
decision support.
 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.
 Vertical Integration

Vertical Integration Examples of Vertical Integration

Raw material
(suppliers) Iron ore Silicon Farming

Backward
integration Steel

Current Integrated
transformation Automobiles Flour milling
circuits

Distribution
Forward integration systems Circuit boards

Finished goods Computers

(customers) Dealers Watches Baked goods
Calculators
Vertical
Integration

� Developing the ability to produce goods or service previously

purchased

� Integration may be forward, towards the customer, or backward,

towards suppliers

� Can improve cost, quality, and inventory but requires capital,

managerial skills, and demand

� Risky in industries with rapid technological change

 Shifts of Logistical Operations in the Internet economy

Traditional logistics E-logistics

Orders Predictable Variable

Order cycle time Weekly Daily or hourly

Customer Strategic Broader base

Customer service Reactive, rigid Responsive, flexible

Replenishment Scheduled Real-time

Distribution model Supply-driven (push) Demand-driven (pull)

Demand Stable, consistent More cyclical

Shipment type Bulk Smaller lots

Destinations Concentrated More dispersion

Warehouse reconfiguration Weekly or monthly Continual, rules-based

International trade compliance Manual Automated

What Has Made Logistics So Popular?
 Why Supply Chain Management?

1950-1980s Manufacturing
•50 years ago, U.S. is the only country
that can manufacture cars.
•You buy a car from GM, all the money will
go to the GM.
1980-2000s Supply Chain Management
•Today, foreign parts and labors are much
cheaper than that in US.
•You buy a car from GM, only a portion of
money will go to the GM.
Globalization and Outsourcing
Only 10-15%
is being produced
in Germany!
Mass Customization
■ Production of personalized or custom-
tailored goods or services to meet consumers'
diverse and changing needs at near mass
production prices
IT Development
 Cross-Docking Distribution Center
Distribution Center Before Cross-Docking

Suppliers
Suppliers

LT
L

Customers
Receiving

Sorting
After Cross-Docking
Shipping
Suppliers

T
L Cross-Docking
DC
T
L

Customers
Cross-Docking

What about supply / demand

mismatches?
 Break-Bulk
Like cross-docking, but usually refers to a single source
Hub-and-Spoke Systems
 Postponement

“ Postponement is done by properly designing the product

structure and the manufacturing and supply chain process so
that one can delay the point in which the final customization of the
product is
to be configured “
 Postponement

Make Make Store

Store Fulfill Fulfill

Example: Dell, Benetton, New concept of paint

 Delayed Customization
Production of standard components and subassemblies, which are held
until late in the process to add differentiating features

Before

Production Storage ShippingStorage

After
Postponement Evaluation

Benefits:
•Increased sales
•Lower inventory holding cost
•Lower obsolescence cost

Costs:
• Direct cost increases caused by product or
process redesign
• Indirect cost increases
Optimal Preconditions for Postponement
⚫⚫ Demand
⚫⚫ Fluctuation
⚫⚫ Unpredictability
⚫⚫ Differentiation
⚫⚫ Negative correlation

⚫⚫ Product
⮚High product value
⮚High customisation
Optimal Preconditions for Postponement

Production
•Balanced capabilities
•Availability and quality of the suppliers
•Availability of IT systems
 Postponement

Coca Cola syrup Customer A

Bulk food products, Postponement
paints, etc.
Assembly, Customer B
Packaging,
⇨ high volumes Labeling, etc.
⇨ containers Customer C

Minimizes risk
Minimizes inventory (how?)
 Spot Stock

Region 1

Region 2

Region 3
Time sensitive, seasonal items
Often temporary, public storage
Disintermediation -- Reducing one or more steps in a supply chain
by cutting out one or more intermediaries

Channel Assembly -- have distributor assemble products from

components

Drop Shipping -- Supplier sends directly to the store, not to

store’s warehouse

Blanket orders -- Long-term pledge to buy certain amount,

shipped quickly
 Assortment
Broad product line and good inventory control key to success

Supplier Customer A
E

Assortment
Warehouse
Supplier Customer B
F
Supplier
G Customer C
Supplier
H Customer D
 Information Systems
■ Decision support tools
■ Real-time simulation and optimization
■ Location selection
■ Cost estimations
■ Precise coordination of multimodal solutions
■ Execution systems
■ Global positioning systems
■ Bar-coding applications
■ RFID on the horizon as replacement (NYK Logistics)
 Unitization
■ Unit loads
■ Transport and handling efficiencies
■ Non-rigid containers
■ pallets and unit load platforms
■ ropes, steel, shrink and stretch wrap
■ Rigid containers
■ Maximum protection (Viper windshield frame)
■ Standard sizes?
■ Recycling?
Material Handling and Packaging
Packaging Implications

■ Transportation
■ Class segmentation
■ Damage protection
■ Material handling and warehousing
■ Storage requirements
■ Unitization
■ Container recycling
■ Ease of handling
 Logistics Strategy Choices
Performance Dimension Transportation Mode Warehousing System

Direct Ship, Assortment, Spot

Delivery Reliability Highway, Air
Stock

Direct Ship, Assortment, Spot

Delivery Speed Air, Highway
Stock

Mix Flexibility Highway, Air, Rail Assortment, Spot Stock

Design Flexibility Highway, Air Postponement

Direct Ship, Assortment, Spot

Volume Flexibility Highway, Air
Stock

Consolidation, Cross-Docking,
Cost Rail, Water, Pipeline, Highway
Hub-and-Spoke
 Reverse Logistics
■ Reverse logistics is not simply a matter of
“driving the truck the opposite way”.

■ Reverse Logistics: From Trash to Cash

Reverse Logistical Competency is the Result of Worldwide

Attention Towards Environmental & Ecological Problems
Definitions
✔ Logistics (Forward)
“Process of planning, implementing and controlling the efficient, cost-effective
flow of raw materials, in-process inventory, finished goods and related
information from the point of origin to the point of consumption for the purpose
of conforming to customer requirements”
- Council of Logistics, 1988 -

✔ Reverse Logistics
“Process of planning, implementing and controlling the efficient, cost-effective
flow of raw materials, in-process inventory, finished goods and related
information from the point of consumption to the point of origin for the purpose
of recapturing value or proper disposal”
- Rogers and Tibben-Lembke -
 Reverse Logistics Activities
✔ Handling of returned
merchandise
■ Damage
■ Seasonal inventory
■ Resell via outlet
■ Salvage of outdated products
■ Stock–balancing returns

✔ Recycling and reuse

■ Material reuse
■ Remanufacturing / refurbishing

✔ Hazardous materials disposition

The Reverse Logistics Process
 Size of Reverse Logistics
“Reverse logistics costs in the United States are estimated to be approximately
4% of total U.S. logistics costs”
- ROGERS, D., Reverse Logistics Challenges, 2002 -
- Roughly $47 billions in 2006

“It is estimated that reverse logistics costs account for almost 1% of the total
United States gross domestic product”
- MOORE, R., Reverse logistics: The least used differentiator, 2006.
- Roughly $132 billions in 2006

“The Center for Logistics Management at the University of Nevada

conservatively estimates that 6% of all goods may be returned, but concedes
that the true number may be closer to 8%”
- MOORE, R., Reverse logistics:
The least used differentiator, 2006.
 Reasons for Reverse Logistics

• Return of Goods from Customer for Non Performance

• Short Term Rental Returns

• Returns Sent to Manufacturer for Repairs / Re-filling

• Reusable Containers / Packages

• Return of Inputs not Used By Manufacturer / Goods not Sold by Distributors

• Exchange of New Product for the Old Ones

• Goods Sent for Up- Gradation / Modification

• Recycling of Product
Return Percentages
 Forward and Reverse Distribution

Distributor
Producers
s

Consumers
Suppliers

Recyclers Collectors

Forward Channel
Reverse Channel
Consolidation
 Stockpiling
• Useful for seasonal storage such as:
- Blankets and Knitting wool are produced year round and primarily
sold during a very short marketing period.
- Agricultural products are harvested at specific times with
subsequent consumption throughout the year.
• In both the above situations, stockpiling becomes necessary to
support the marketing efforts.
• Stockpiling provides for a buffer inventory allowing for a balance
between the availability of materials and the market demand.
Just-in-Time Manufacturing

JIT
JIT
A process that redefines and
simplifies manufacturing by
reducing inventory levels and
delivering raw materials at the
precise time they are needed
on the production line.
Benefits of JIT

▪ For manufacturers: reduces raw material

inventories; immediate shipping of products
▪ For suppliers: daily or hourly deliveries rather
than weekly
▪ For customers: lower costs; shorter lead
times; products tailored to customer needs
Rapid/Quick Response (QR):
■ Originated in Fashion industry (‘80s)

■ Consumer drives channel – ship quickly on demand, like ECR

■ Involves keeping manufacturing flexible as to what and how much to

make.

■ More common when “consumers don’t know what they need until

they ‘try it’”.

■ Often needed for perishables (fashionables) that require consumer

reactions vs. ECR for commodities (toothpaste).

Manufacturer Storage with Direct Shipping

Manufacturer

Retailer

Customers

Product Flow
Information Flow
Source: Chopra and Meindl
Logistics

Logistics consists of those activities that focus on getting

the right amount of the right products to the right place at

the right time at the lowest possible cost.

Logistics Management

Logistics management is the practice of organizing the

cost-effective flow of raw materials,
in-process inventory, finished goods, and related
information from point of origin to point of consumption to
satisfy customer requirements.

1-
219
Supply Chain

A supply chain consists of a sequence of firms that

perform activities required to create and deliver a good or

service to consumers or industrial users.

Supply Chain Management

Supply chain management is the integration

and organization of information and logistic
activities across firms in a supply chain for the
purpose of creating and delivering goods and
services that provide value to consumers.
Electronic Data Interchanges (EDIs)

Electronic data interchanges (EDIs) combine

proprietary computer and telecommunication
technologies to exchange electronic invoices, payments,
and information among suppliers, manufacturers, and
retailers.
Total Logistics Cost

Total logistics cost consists of expenses associated

with transportation, materials handling and warehousing,
inventory, stockouts (being out of inventory), order
processing, and return goods handling.
Customer Service

Customer service is the ability of logistics management

to satisfy users in terms of time, dependability,

communication, and convenience.

Quick Response

Quick response, in inventory management systems, are

designed to reduce the retailer’s lead time for
receiving merchandise which then lowers
a retailer’s inventory investment, improves customer
service levels, and reduces logistic expenses. Also called
Efficient Consumer Response(ECR).
Efficient Consumer Response

Efficient consumer response, in inventory management

systems, are designed to reduce the retailer’s lead
time for receiving merchandise which
then lowers a retailer’s inventory investment, improves
customer service levels, and reduces logistic expenses.
Also called quick response.
 Tailored Logistics

■ Each Logistically Distinct Business (LDB) will have distinct

requirements in terms of
■ Inventory
■ Transportation
■ Facility
■ Information
Key: How to gain efficiencies while tailoring logistics?
 Tailored Logistics

■ Each Logistically Distinct Business (LDB) will have distinct

requirements in terms of
■ Inventory
■ Transportation
■ Facility
■ Information
Key: How to gain efficiencies while tailoring logistics?
 Landed Cost

■ Total cost of producing, storing, and transporting a product to the

site of consumption or another port

Vendor-Managed Inventory (VMI)

Vendor-managed inventory is an inventory-

management system whereby the supplier determines
the product amount and assortment a customer (such as
a retailer) needs and automatically delivers the
appropriate items.
 Logistics and Security
■ After the terrorist attacks of 2001, companies have to deal with
the fact that the pace of international transactions has slowed
down and that formerly routine steps will now take longer.
■ Logistics systems and modern transportation systems are often
the targets of attacks.
■ The need to institute new safeguards for international shipments
will affect the ability of firms to efficiently plan their international
shipments.
Logistics and the Environment

■ Since environmental laws and regulations differ across the

globe, the firm’s efforts need to be responsive to a wide variety
of requirements.
■ Reverse distribution systems are instrumental in ensuring that
the firm not only delivers the product to the market, but also can
retrieve it from the market for subsequent use, recycling, or
disposal.
■ Companies need to learn how to simultaneously achieve
environmental and economic goals.
 Logistics and the Environment
Reverse Distribution
■ “a system responding to environmental concerns
that ensures a firm can retrieve a product from
the market for subsequent use, recycling, or
disposal”
 Owning Versus Outsourcing

■ Does the firm’s volume justify a private system?

■ Would ownership limit firm’s ability to respond to marketplace
changes?
■ Is logistics a core competency?
■ Are outsource capabilities are available?
 Transportation “Outsources”
■ Common (public) carriers
■ Published rates and schedules
■ “Nondiscriminatory” pricing
■ Increased flexibility to partner
■ Contract carriers
■ Service for select customers
■ Unlimited number of customers
■ Third-Party Logistics Providers (3PLs)
■ Service firms specializing in logistics for other companies
Measuring Performance
■ Perfect Order
■ Delivered on time
■ Shipped complete
■ Invoiced correctly
■ Undamaged in transit
■ Landed Costs
■ Packing
■ Insurance
■ Customs, other fees
■ Warehousing
■ Transportation
■ Documentation
 Reverse logistics

■ Reverse logistics is the process of reclaiming recyclable

and reusable materials, returns, and reworks from the point

of consumption or use for repair, remanufacturing or

disposal. This practice reduces waste in landfills and lowers

company operating costs.

 Reverse Logistics Systems

■ Customer returns
■ Warranty failures
■ Incorrect or damaged orders
■ Repair and remanufacture process support
■ Recycling (increasing importance!)
Logistics Decision Models
■ Weighted Center of Gravity Method
■ Optimization
■ Assignment Problem
 Optimization
■ Requires an objective function to be maximized or minimized.
■ Decision variables — values to be manipulated to affect outcome
of objective function
■ Constraints — limits set on range of decision variables to be
used or on other aspects of the solution possible
 Assignment Problem
■ Specialized optimization model.
■ Decision variables are the shipment quantities
■ Known values are demand, capacity, and shipping cost between
warehouses
■ Constraints:
■ Sum of shipments from a warehouse cannot exceed its
capacity
■ Sum of shipments to meet demand must be greater than or
equal to the demand
■ Sum of shipments from each warehouse must be greater
than or equal to zero
 Centralized Logistics Management
■ In international logistics, the existence of a headquarters staff
that retains decision-making power over logistics is important.
■ To avoid internal problems, both headquarters staff and local
management should report to one person.
■ This individual can contribute an objective view when inevitable
conflicts arise in international logistics coordination.
 Decentralized Logistics Management

■ When a firm serves many diverse international markets, total

centralization might leave the firm unresponsive to local adaptation
needs.

■ If each subsidiary is made a profit center in itself, each one carries the
full responsibility for its performance.

■ Once products are within a specific market, increased input from local
logistics operations should be expected and encouraged.
 Outsourcing Logistics Services
■ The systematic outsourcing of logistics capabilities is a
third option.

■ By collaborating with transportation firms, private

warehouses, or other specialists, corporate resources can
be concentrated on the firm’s core product.

■ One-stop logistics allows shippers to buy all the

transportation modes and functional services from a
single carrier.

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Reasons why companies often Outsource Logistics

■ Improve services & Increase flexibility

■ Reduce costs: Econmies of scale and scope
■ Avoid capital investment & convert logistics from capital to
expenditure
■ Logistics is a non-core activity, concentrate on core
competencies
■ Reduce labour costs
■ Logistics service providers offer greater logistics expertise
 Problems with Outsourcing

■ Loss of control over distribution network

■ Loss of management expertise in logistics

■ Loss of direct contact with customer!

■ Increasing risk of service failure

■ Tendency to underestimate core competences

■ Dependency on contractors