Logistics & Supply Chain Management

Managing Supply Chains

• A supply chain encompasses all organizations and steps involved in producing and delivering a product to its final customers.
• Every business relies on various other entities for production and distribution, including suppliers of raw materials, parts, machinery, energy, labor, financial services, transportation, and retail outlets.

Logistics Flow Chart

• Logistics entails the planning, organization, and control of the flow of goods throughout their production stages and subsequent distribution to end users.
• Six key elements of logistics are: right product, right quantity, right condition, right place, right time, right price, and right customer.

Components of Logistics

• Logistics is the process of organizing and managing the movement of goods (unfinished, semi-finished, and finished) between businesses and the final consumer. This involves supply chain management as well as planning, organizing, and controlling the flow between production stages.

Managing Forward and Reverse Flows of Goods

• Forward logistics: The process of moving goods from the manufacturer to the end consumer, encompassing manufacturing, warehousing, distribution, and delivery.
• Reverse logistics: The process of moving goods from the end consumer back to the manufacturer or distribution center, including handling returns, refurbishment, recycling, and disposal.

Warehouses

• Warehouses are buildings used for storing goods by producers, exporters, wholesalers, and distributors.
• They often come equipped with specialized materials handling equipment like forklifts and cranes.
• Warehouses can be owned, rented, or leased, frequently located near transportation hubs (sea ports, airports, or railway stations) to enhance efficiency.
• Warehousing encompasses inbound and outbound goods flows.

Just-in-Time

• The Just-in-Time (JIT) inventory management system delivers goods only when they are needed in the production process. This strategy minimizes storage costs.

Impacts of Managing Warehouses on Profitability

• Storing only what is needed: Limited storage allows businesses to free working capital and invest in other areas.
• Storing large quantities of raw materials: Businesses can better prepare for increased demand by holding excess raw materials.
• Storing seasonal products: Warehouses bridge gaps in demand by storing items during lean times for use when demand rises.
• Grading and conditioning: Warehouses can prepare goods for sale by grading and conditioning them.
• Collateral for a loan: The goods stored can serve as collateral for a loan based on its dollar value.
• Minimizing risk: Perishable goods can be stored in optimal conditions to avoid damage. Goods can also be insured to protect against risks, such as fire, theft, or accidental damage.

Insuring Risks in Production, Storage & Distribution

• Businesses face various risks in production, storage, and distribution, such as vandalism, floods, fires, natural disasters, and theft.
• Effective logistics management includes contingency planning to mitigate these risks, such as installing generators, using multiple storage facilities, or utilizing external transportation services as needed.

Types of Transport and Logistics Insurance

• Various transport and logistics insurances include warehouse insurance, vehicle insurance, storage risk insurance, land and marine cargo insurance, and theft and accident insurance.

Flow of Information for Logistical Management

• Logistics managers use advanced information systems to track goods and operations.
• Key attributes of good logistics management include up-to-date, easily accessible, and accurate information on the flow of production materials, work-in-progress goods, and finished goods.

Activities in Supply Chain Operations

• Transformation of natural resources: Processing raw materials into usable parts and components for manufacturing.
• Movement & Storage of Raw Materials: Moving and storing received raw materials in secure and suitable locations.
• Processing of Raw Materials & Components into Finished Goods: Converting raw materials and components into finished goods.
• Storage of Work-in-progress & Finished Goods: Storing work-in-progress and finished goods in appropriate conditions and locations.
• Delivery of Finished Goods: Movement of finished goods from producers to final consumers via storage and distribution networks.

Process of Distribution

• Distribution is the process of getting the right product to the right customer in the right quantity and at the right time, while maximizing efficiency and minimizing cost.
• It ensures customers can purchase products when and where they want them.

Distribution Chains or Channels

• A distribution chain comprises all the entities involved in the transfer of goods from producers to consumers.
• Typically, goods move through intermediaries (wholesalers and retailers).

The Links in a Typical Distribution Chain

• The typical chain consists of the producer/manufacturer, wholesaler, retailer, and final consumer.

Wholesaler

• Wholesalers purchase goods in bulk from manufacturers, store them, and then break them down into smaller quantities for sale to retailers.
• This practice reduces storage costs and operational burdens for manufacturers and retailers.

Functions and Benefits of Wholesalers

• Wholesalers minimize large-scale storage costs for manufacturers.
• They facilitate product promotion to retailers.
• They provide a cost-effective means of warehousing goods.
• They offer one-stop shopping convenience for retailers.
• Wholesalers provide accessibility and locations for retailers and sometimes offer credit and transportation options.
• They provide feedback to manufacturers.

Retailer

• Retailers are businesses specializing in selling goods to consumers.
• Many large retailers operate multiple outlets and buy products from various suppliers, sometimes also offering online stores.

Functions and Benefits of Retailers

• Retailers generally stock a variety of goods.
• They are often geographically located closer to consumers.
• Retailers create opportunities for direct customer interaction and provide valuable purchase advice.
• They repackage goods into consumer-friendly formats.
• Credit options and delivery services are also aspects of retail function.

Alternative Distribution Channels

Different methods for distributing goods from manufacturers to customers, which include direct delivery to consumers and use of wholesale and retail intermediaries. Multiple approaches are available depending on the nature of the product and the business objective.

Channel #1: Manufacturer to Consumer

• The manufacturer directly sells to the customer.
• Businesses control pricing and sales volume.
• Examples include Internet sales, direct mail, and factory outlets.

Channel #2: Manufacturer to Retailer to Consumer

• The manufacturer sells to retailers who subsequently sell to customers. (One intermediary).
• Retailers control the volume of goods sold.
• Examples are Ulta Beauty and Forever21.

Channel #3: Manufacturer to Wholesaler to Consumer

• The manufacturer sells to wholesalers. Wholesalers sell to customers. (Two intermediaries).
• Wholesalers provide variety and bulk quantities at discounted pricing.
• Examples include Sam's Club.

Channel #4: Manufacturer to Wholesaler to Retailer to Consumer

• The manufacturer sells to wholesalers, who supply retailers. Retailers sell to customers. (Three intermediaries).
• Wholesalers provide large product quantities for smaller retailers.
• Examples include Kraft Foods and Sony.

Test questions covering key considerations in logistics and supply chain management. Topics include insurance, contingency planning, technology impact, and using stored goods as collateral.