Supply Chain Management 11e Chapter 3 PDF

Supply Chain Management, 11e Chapter 3: Role of Logis...

Supply Chain Management, 11e Chapter 3: Role of Logistics in Supply Chains ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1  Discussion Outline Value-added roles of logistics Key logistics activities Macro perspective on logistics Micro dimension of logistics Logistics and systems analysis ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2 What means logistics management based on your understanding? ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3  What Is Logistics? Logistics can be viewed as part of organizational management with four major subdivisions. 1. Business Logistics. Part of supply chain that plans, implements, and controls the flow and storage of goods, services, and related information. 2. Military Logistics. Design and integration of all aspects of support for the operational capability of the military forces and their equipment. 3. Event Logistics. Network of activities, facilities & personnel required to organize, schedule & deploy the resources for an event to take place and withdraw after the event. 4. Service Logistics. Acquisition, scheduling & management of facilities, assets, personnel & materials to support a service operation & business. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4  Value-added Roles of Logistics Five Principal Types of Economic Utility Economic Utility  Time  Form  Possession  Quantity  Place ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5  Value-added Roles of Logistics Five Principal Types of Economic Utility Form or Transformation Utility: refers to the value added to the goods through a manufacturing or assembly process. Example? ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6  Value-added Roles of Logistics Five Principal Types of Economic Utility Place Utility: by moving goods from production points to markets where demand exists. Example? ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7  Value-added Roles of Logistics Five Principal Types of Economic Utility Time Utility: not only must goods and services be available where customers need them but also at the time when customers need them. Example? ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8  Value-added Roles of Logistics Five Principal Types of Economic Utility Quantity Utility: Today’s global competition requires that products not only be delivered on time to the correct destination but also be delivered in the current quantities to minimize inventory cost and prevent stockouts. Example? ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9  Value-added Roles of Logistics Five Principal Types of Economic Utility Possession Utility: primarily created through the basic marketing activities related to the promotion and sales of products and services. Example? ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10  Value-added Roles of Logistics Generally, production/manufacturing activities are credited with providing form utility; logistics activities with time, place, and quantity utilities; and marketing activities with possession utility. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11  Key Logistics Activities? ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12  Key Logistics Activities 1. Transportation 8. Production planning & scheduling 2. Storage 9. Procurement 3. Industrial packaging 10. Customer service 4. Materials handling 11. Plant & warehouse site location 5. Inventory control 12. Others* 6. Order fulfillment * Others include parts and service support, return goods handling, and 7. Demand forecasting salvage and scrap disposal. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13 Macro Perspective on Logistics ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14  Logistics in the Economy: A Macro Perspective  The overall cost of logistics on a macro basis increases with growth in the economy.  In other words, if more goods and services are produced, total logistics cost will increase. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15 Macro Perspective on Logistics U.S. Business Logistics Costs Source Figure 3.2: Reproduced with permission from Council of Supply Chain Management Professionals. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16  Macro Perspective on Logistics U.S. Logistics Costs as Percent of GDP ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17  Macro Perspective of Logistics U.S. Business Logistics Costs – 2018 (1 of 2) US business logistics costs ($ billion) 2018 YoY 18/17 5-yr. CAGR Transportation costs Full truckload 296.1 7.6% 3.6% Less-than-truckload 71.8 8.3% 3.5% Private or dedicated 300.9 13.1% 7.1% Motor carriers 668.8 10.1% 5.1% Source: CSCMP’s 30th Annual State of Logistics Report, 2019 Parcel 104.9 8.7% 8.0% Carload 61.4 7.2% −0.6% Intermodal 27.0 28.7% 8.1% Rail 88.4 12.9% 1.6% Air freight (includes domestic, import, export, cargo, and express) 76.5 9.2% 3.8% Water and ports (includes domestic, import, and export) 45.7 12.8% 1.5% Pipeline 53.0 12.7% 12.7% Subtotal 1,037.4 10.4% 5.1% ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18  Macro Perspective of Logistics U.S. Business Logistics Costs – 2018 (2 of 2) US business logistics costs ($ billion) 2018 YoY 18/17 5-yr. CAGR Inventory carrying costs Storage 153.1 3.2% 3.0% Source: CSCMP’s 30th Annual State of Logistics Report, 2019 Financial cost (WACC × total business inventory) 192.5 26.0% 3.0% Other (obsolescence, shrinkage, insurance, handling, others) 148.1 14.8% 3.0% Subtotal 493.7 14.8% 3.0% Other costs Carriers’ support activities 52.3 10.3% 4.5% Shippers’ administrative costs 52.1 2.8% 5.3% Subtotal 104.4 6.4% 4.9% Total US business logistics costs 1,635.46 11.4% 4.4% ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19  Micro Dimensions of Logistics Logistics Interface with other functional areas Factors affecting cost & importance of logistics ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20  Logistics in the Firm: The Micro Dimension  The micro dimension of logistics examines the relationship between logistics and other functional areas in an organization – marketing, manufacturing or operations, finance and accounting and others.  Logistics focuses on processes that cut across traditional functional boundaries, particularly in today’s environment with emphasis on the supply chain. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21  Micro Dimensions of Logistics Logistics Interfaces with Other Functional Areas Manufacturing Marketing (4 Ps – Marketing Mix) Length of the production run Price (e.g. purchase quantity Available quantity of raw material and discounts) component Product (e.g. size, shape, weight, Industrial packaging packaging) Pull and push system Promotion Place (distribution channel selection) Logistics Finance Accounting Inventory Cost information for analysis of Warehouses & transportation fleet alternative logistics options owned and/or outsourced Supply chain tradeoffs and Customer service performance measurement https://www.youtube.com/watch?v=yQHZbMd4ydk&t=158s Manufacturing: Push or Pull? ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22  Micro Dimensions of Logistics (1 of 5) Factors Affecting Cost & Importance of Logistics 1. Competitive relationships 2. Order cycle length 3. Substitutability 4. Inventory effect 5. Transportation effect 6. Product-related factors 7. Spatial relationships ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23  Micro Dimensions of Logistics (2 of 5) Factors Affecting Cost & Importance of Logistics Competitive Order Cycle Length Substitutability Relationships Customer service can Shorter order cycles Customer service is be a very important reduce the inventory important for highly form of competition. required by the substitutable products customer. to reduce lost sales cost. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24  Micro Dimensions of Logistics (3 of 5) Factors Affecting Cost & Importance of Logistics Inventory Effect Transportation Effect Spatial Relationships Increasing inventory Cost of lost sales can The location of fixed costs can reduce the be reduced by points in the logistics cost of lost sales. spending more on system with respect to transportation service demand and supply to improve customer points are very service. important to transportation costs. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25  Micro Dimensions of Logistics (4 of 5) Factors Affecting Cost & Importance of Logistics Product-related Factors Dollar value. The product’s dollar value typically affects warehousing costs, inventory costs, transportation costs, packaging costs, and even materials-handling costs. Density. Weight/space ratio affects transportation and warehousing costs. As density increases for a product, its transportation and warehousing costs tend to decrease. Susceptibility to damage. The greater the risk of damage to a product, the higher the transportation and warehousing cost. Special handling requirements. Need for special handling (e.g. refrigeration, heating, or strapping) will usually increase warehousing, transportation, and packaging costs. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26  Class activities: Spatial Relationships Company A: shipping cost for material 1 is 0.4, material 2 is 0.5, production cost is 8.5, marketing cost is 1.15 Company B: shipping cost for material 1 is 0.6, material 2 is 0.75, production cost is 7, marketing cost is 3.5 You are a machine shop owner, based on your target marketing location, you got two quotations for the customized metal part, please work in group and decide which company will you select as your supplier, and explain why? ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27  Micro Dimensions of Logistics (5 of 5) Factors Affecting Cost & Importance of Logistics Spatial Relationship Example Source Figure 3.11: Center for Supply Chain Research, Penn State University. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28 Logistics and Systems Analysis ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29  Logistics and Systems Analysis Short-run and Long-run Analysis Short-run or Static Analysis Concentrates on a specific point in time or level of production output. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 30  Logistics and Systems Analysis Short-run and Long-run Analysis Long-run or Dynamic Analysis System 1 Examines a Total Cost = Fixed Cost + Variable Cost/Unit logistics system × Number of Units y = $4,200 + $0.0315x over a long time System 2 period or range y = $4,800 + $0.0230x of output. Tradeoff point $4,800 + $0.0230x = $4,200 + $0.0315x 600 = 0.0085x x = 70,588 pound ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 31 Logistics and Systems Analysis Short-run and Long-run Analysis Long-run or Dynamic Analysis Examines a logistics system over a long time period or range of output. Which system is better? ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 32 Logistics and Systems Analysis Short-run and Long-run Analysis Long-run or Dynamic Analysis Examines a logistics system over a long time period or range of output. Which system is better? In this case, the organization is better off using System 1 at output levels up to 70,587 pounds. System 2 is less expensive at output levels greater than 70,588. At an output level of 70,588 pounds, both systems produce the same total costs ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 33  Logistics and Systems Analysis Approaches to Analyzing Logistics Systems The analysis of logistics systems may require different views or perspectives of logistics activities. Materials management vs. physical distribution − Examine logistics as inbound vs. outbound logistics. Cost centers − Examine logistics activities as cost centers, allowing tradeoffs between them to be analyzed. Nodes vs. links − Examine nodes (fixed spatial points where goods stop for storage or processing) vs. links (transportation network that connect the nodes in the logistics system). Logistics channels − Examine supply chain of network organizations engaged in transfer, storage, handling, communication, and other functions that contribute to product flow. https://www.youtube.com/watch?v=Ox05Bks2Q3s Amazon Warehouse Order Picking Robots ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 34  Logistics and Systems Analysis Approaches to Analyzing Logistics Systems The analysis of logistics systems may require different views or perspectives of logistics activities. Cost centers − Examine logistics activities as cost centers, allowing tradeoffs between them to be analyzed. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 35  Logistics and Systems Analysis Approaches to Analyzing Logistics Systems The analysis of logistics systems may require different views or perspectives of logistics activities. Cost centers − Examine logistics activities as cost centers, allowing tradeoffs between them to be analyzed. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 36  Logistics and Systems Analysis Approaches to Analyzing Logistics Systems The analysis of logistics systems may require different views or perspectives of logistics activities. Nodes vs. links − Examine nodes (fixed spatial points where goods stop for storage or processing) vs. links (transportation network that connect the nodes in the logistics system). ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 37  Logistics and Systems Analysis Approaches to Analyzing Logistics Systems The analysis of logistics systems may require different views or perspectives of logistics activities. Logistics channels − Examine supply chain of network organizations engaged in transfer, storage, handling, communication, and other functions that contribute to product flow. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 38  Summary Logistics adds place, time, and quantity utilities to products and enhances the form and possession utilities added by manufacturing and marketing. Key logistics activities are transportation, inventory, warehousing, materials handling, industrial packaging, customer service, and forecasting. On a macro basis, logistics-related costs have helped the U.S. economy maintain its competitive position on a global basis. On a micro basis, logistics interface with other functional areas which aids in making organizations more efficient and effective. The cost of logistics systems can be affected by market competition, spatial relationship of nodes, and product characteristics. Four approaches to analyzing logistics systems are: materials management vs. physical distribution, cost centers, nodes vs. links, and distribution channels. ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 39