Business Logistics Management PDF

Business Logistic Management Dr. Hesham Tolba 1-2 Business Logistics/Supply Chain—A Vital Subject The supply chain is simply another way of saying “the whole process of business.” Chapter 1 CR (2004) Prentice Hall, Inc.  A Busines...

Business Logistic Management Dr. Hesham Tolba 1-2 Business Logistics/Supply Chain—A Vital Subject The supply chain is simply another way of saying “the whole process of business.” Chapter 1 CR (2004) Prentice Hall, Inc.  A Business Philosophy A way of doing business with your customers and suppliers.  Introduction: More and more organizations worldwide want to develop products for global markets. At the same Time, they need to source material globally to be competitive. One of today's trends to solve this problem is outsourcing logistics or using third-party logistics (3PL) to manage complex distribution requirements. Organizations have developed strategic alliances with 3PL companies all over the world to manage their logistics operations network. These alliances are also known as logistics or supply chain outsourcing and contract logistics.  Origin Logistics: ▪ derived from French “logistique” from the Greek word “loger” or Logos (λόγος) ▪ Military science originated in USA ▪ Improved transportation, quartering and supply for troops, weapons & ammunition ▪ Played a vital role in US victory in WWII and the Gulf War  Steps of Logistics Development Phase I – Pre-business applications – Dating from the Napoleonic Wars – Refers to the technique of moving and quartering armies – quartermasters’ work – Still applied for the NATO Allied forces  Steps of Logistics Development, cont’d – Phase II – Logistics supports marketing-mix b) Trade-offs in marketing a) Utility of place, time and possession  Steps of Logistics Development, cont’d – Phase III – Logistics integrates processes throughout organizations Value chain Trade-offs  Incoterms (EXW, FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAF, DES, DEQ, DDU, DDP) Phase IV POD Phase IV – Supply chain management Logistics vs Supply Chain Management S2P P2P P2C D2D  Evolution of Supply Chain Management Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+ 1-10 Demand forecasting Purchasing Requirements planning Purchasing/ Production planning Materials Management Manufacturing inventory Warehousing Logistics Material handling Packaging Finished goods inventory Supply Chain Physical Supply Chain Management Distribution Management Distribution planning Order processing Transportation Customer service Strategic planning Information services Marketing/sales Finance  Supply Chain Schematic CR (2004) Prentice Hall, Inc. 1-5  Logistics Defined Logistics management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point- of-origin and the point-of-consumption in order to meet customers’ requirements. Council of Supply Chain Management Professionals 1-13 The Logistics/SC Mission Getting the right goods or services to the right place, at the right time, and in the desired condition at the lowest cost and highest return on investment. CR (2004) Prentice Hall, Inc. 7R Role of Logistics Mission The Immediate Supply Chain for an Individual Firm Transportation Transportation Customers Warehousing Information flows Factory Transportation Vendors/plants/ports Warehousing Transportation CR (2004) Prentice Hall, Inc. 1-2  Critical Customer Service Loop 1-16 Customer order processing (and transmittal) Transportation Customers Inventory or supply source CR (2004) Prentice Hall, Inc. 1-17 A Revised Strategy is Generating Great Top Management Interest Historical perspective of distribution: “The last frontier of cost economies” Peter Drucker, 1962 The contemporary view: Distribution is a new frontier for demand generation—a competitive weapon. Both views are now important! CR (2004) Prentice Hall, Inc. Scope of the Supply Chain for Most Firms Business logistics Physical supply Physical distribution (Materials management) Sources of Plants/ Customers supply operations Transportation Transportation Inventory maintenance Inventory maintenance Order processing Order processing Acquisition Product scheduling Protective packaging Protective packaging Warehousing Warehousing Materials handling Materials handling Information maintenance Information maintenance Focus firm’s internal supply chain 1-14 CR (2004) Prentice Hall, Inc. The physical supply channel refers to the time and space gap between a firm's immediate material sources and its processing points. the physical distribution channel refers to the time and space gap between the firm's processing points and its customers. Due to the similarities in the activities between the two channels. physical supply (more commonly referred to as materials management) and physical distribution comprise those activities that are integrated into business logistics. Business logistics management is also popularly referred to as supply chain management. Although it is easy to think of logistics as managing the flow of products from the points of acquisition to the customers,  Key Activities/Processes Primary - Setting customer service goals - Transportation - Inventory management - Location Secondary, or supporting - Warehousing - Materials handling - Acquisition (purchasing) - Protective packaging - Product scheduling - information flows & Order processing Primary Activities 1. Customer service standards Cooperate with marketing to a.a Determine customer needs and wants for logistics customer service b. Determine customer response to service c. Set customer service levels 2. Transportation a. Mode and transport service selection b. Freight consolidation c. Carrier routing d. Vehicle scheduling e. Equipment selection f. Claims processing g. Rate auditing 3. Inventory management’ a. Raw materials and finished goods stocking policies b. Short-term sales forecasting c. Product mix at stocking points d. Number, size, and location of stocking points e. Just-in-time, push, and pull strategies 4. Information flows and order processing,_ a. Sales order-inventory interface procedures b. Order information transmittal methods c. Ordering rules SUPPORT ACTIVITIES. Warehousing -: a) a. Space determination b) b. Stock layout and dock design c) c. Warehouse configuration d) d. Stock placement Materials handlines a) a. Equipment selection b) b. Equipment replacement policies c) c. Order-picking procedures d) d. Stock storage and retrie Purchasing a) Supply source selection b) Purchase timing c) Purchase quantities d) Protective packaging Design for a) a. Handling b) b. Storage c) c. Protection from loss and damage SUPPORT ACTIVITIES cont, Cooperate with production operations to a. Specify aggregate quantities b. Sequence and time production output Information maintenance a. Information collection, storage, and manipulation b. Data analysis c. Control procedures What has made logistics & supply chain so popular ? Globalization and Outsourcing Only 10-15% is being produced in Germany!  Globalization “The world has become one global village” The transition from general cargo to containers The performance of the transport industry has seen revolutionary improvements Costs per transported product  OUTSOURCING & TENDERING During the past few years, many companies have started to outsource activities and are starting to focus on their core activities, meaning a number of specific logistic duties will also be outsourced. This endeavour is not limited to transport, but can extend to such a degree that even a portion of the production activities will be outsourced. The decision to outsource however is not an easy one for shippers to make.  Outsourcing During acquisition, the logistic service provider, including the professional freight carrier, should be acutely aware of the shippers’ reservations regarding the outsourcing of distribution services. In most cases, tariffs are the most important consideration for shippers. The ability to provide additional services may become a valid argument when a professional carrier, who provides these services as a rule, is considered.  Outsourcing When the shipper cannot decide whether to outsource or not, there are a number of aspects to take into consideration that may provide assistance with the decision. These considerations are: Costs Risk Available Capacity Transport Capacity Quality Secrecy Available Knowledge Identity Service Manageability  Logistics Parties 4PL 3PL 2PL 1PL  First Party Logistics (1PL) – A First-party logistics provider (abbreviated 1PL) is a firm or an individual that needs to have cargo, freight, goods, produce or merchandise transported from a point A to a point B. The term first- party logistics provider stands both for the cargo sender and for the cargo receiver.  Second Party Logistics (2PL) A Second-party logistics provider (abbreviated 2PL) is an asset based carrier, which actually owns the means of transportation – shipping lines, which own, lease, or charter their ships, – airlines, which own, lease, or charter their planes, – truck companies, which own, or lease their trucks, – rail companies, which own their trains, – warehouse owners.  Third Party Logistics (3PL) – A firm provides multiple logistics services for use by customers. Preferably, these services are integrated, or bundled together, by the provider. – Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding. Third Party Logistics (3PL), cont’d Third-party logistics providers freight forwarders courier companies other companies integrating & offering subcontracted logistics and transportation services  Fourth Party Logistics (4PL) A Fourth-party logistics provider (abbreviated 4PL), lead logistics provider, or 4th Party Logistics provider, is a consulting firm specialized in logistics, transportation, and supply chain management. NON-ASSET BASED! 1-36 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 Add one-third for inbound supply costs are about 10% of sales w/o Source: Herb Davis & Company purchasing costs CR (2004) Prentice Hall, Inc.  Customer Service Performance 1-37 10 96 Order Cycle Time, Days 9 94 92 Product 8 Availability--% Days 90 orders % 7 88 Product 6 Availability--% 86 line items 5 84 4 82 19 2 19 4 19 6 20 8 20 0 02 9 9 9 9 0 19 Year Source: Herb Davis & Company CR (2004) Prentice Hall, Inc.  Significance of Logistics 1-38 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 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 1-39 Costs are lower than K-Mart or Target Stores CEO is a former logistician Wal-Mart is the largest retailer in the world! CR (2004) Prentice Hall, Inc.  Effect on Logistics Foreign Outsourcing 1-40 Domestic sourcing Foreign sourcing Profit Profit Increase G&A G&A Marketing Marketing Logistics Increase Logistics Overhead Tariffs Overhead Materials Materials Labor Reduction Labor CR (2004) Prentice Hall, Inc.  The Supply Chain is Multi-Enterprise 1-41 Scope in reality Focus Company Suppliers Customers Supplier’s Customers/ suppliers End users Acquire Convert Distribute Product and information flow CR (2004) Prentice Hall, Inc.  Reality of SC Scope 1-42 CR (2004) Prentice Hall, Inc.  The Multi-Dimensions of SC 1-43 SUPPLY CHAIN MANAGEMENT Activity and process administration CR (2004) Prentice Hall, Inc. 1-44 Study Framework Inventory Strategy Forecasting Transport Strategy Inventory decisions Transport fundamentals CONTROLLING Purchasing and supply ORGANIZING Transport decisions Customer PLANNING scheduling decisions Storage fundamentals service goals Storage decisions The product Logistics service Ord. proc. & info. sys. Location Strategy Location decisions The network planning process The focus is here CR (2004) Prentice Hall, Inc. 1-45 The Logistics Strategy Triangle Inventory Strategy Forecasting Storage fundamentals Transport Strategy Inventory decisions Transport fundamentals Purchasing and supply Transport decisions scheduling decisions Customer Storage decisions service goals The product Logistics service Information sys. Location Strategy Location decisions The network planning process CR (2004) Prentice Hall, Inc.  Relationship of Logistics to Marketing and Production LOGISTICS Sample activities: MARKETING PRODUCTION/ Transport OPERATIONS Interface Sample Interface Inventory activities: Sample activities: Order activities: activities: Customer Promotion Quality control Product processing service Market Detailed production scheduling scheduling Materials standards research Plant Pricing Product Equipment maint. handling location Packaging Capacity planning mix Purchasing Retail Sales force Work measurement location management & standards Production- logistics Marketing- interface logistics interface Internal Supply Chain CR (2004) Prentice Hall, Inc. 1-21  Relationship of Logistics to Marketing Product Promotion Price Place-Customer service levels Transport Logistics Inventory carrying costs costs Lot quantity Warehousing costs Order processing costs and information costs CR (2004) Prentice Hall, Inc. 1-22 1-48 Relationship of Logistics to Production Coordinates through scheduling and strategy— make-to-order or make-to-stock An integral part of the 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 CR (2004) Prentice Hall, Inc. 1-49 Logistics/SC in Diverse Areas Manufacturing—most common Environment—causing restrictions Service—emerging opportunities Non-profits—little explored Military—long history CR (2004) Prentice Hall, Inc.  Contemporary Logistics Terms Value stream/logistics process 1-50 Quick response and flexible manufacturing Mass customization Supply chain management/ collaborative logistics Reverse logistics Service logistics Continuous replenishment Lean logistics Integrated logistics 2-51 Logistics/Supply Chain Strategy and Planning “If you don’t know where you want to go, any path will do.” Chapter 2 CR (2004) Prentice Hall, Inc. Logistics strategy and planning ❑Focused on planning and the decision making that leads to good logistics plans that contribute to the financial goals of the firm.  Visioning Definitive Objectives of the firm process plans Functional Corporate strategy strategy  Corporate Strategy Strategy is the process whereby plans are formulated for positioning the firm to meet its objectives. Strategy formulation begins with defining a corporate strategy. This involves: a.Assessing needs, strengths, and weaknesses of the 4 major components: - customers - suppliers - competitors - the company itself b."Visioning" where counter -intuitive, unheard of, and unconventional strategies are considered. Corporate strategies are converted to more specific strategies for the various functional areas of the firm such as logistics. CR (2004) Prentice Hall, Inc.  Corporate to Functional Strategic Planning Corporate External factors strategic plan Economic Regulatory Technological Competitive Marketing general visioning strategies need to be converted into more definitive plans. With a clear understanding of the firm's Manufacturing costs, financial strengths and weaknesses? market share Finance position, asset base and deployment, external environment, competitive forces, and employee skills. a Logistics selection is made from alternative strategies that evolve from threats and opportunities facing the firm. These Functional strategic plans strategies now become more specific directions as to how the vision will be accomplished  The objectives of logistics strategy are: - Minimize cost - Minimize investment - Maximize customer service Use Logistics Levels of logistical planning: ROLA Strategy - Strategic - Tactical - Operational The 4 problem areas of supply chain planning - Customer service levels - Facility location Recall the - Inventory decisions logistics strategy - Transportation decisions triangle When to plan? - No distribution network currently exists. - There has been no re-evaluation in 5 years. - When costs are changing rapidly, especially transport & inventory. - When markets have shifted. - When current distribution economics encourage shifts. - When there has been a major policy shift in logistics such as in price, customer service, or investment level.  Logistics’ Objective Maximize return on logistics assets (ROLA) Costs of Logistics’ logistics contribution operations to sales ROLA =Revenue −Costs Assets Investment in logistics assets Inventory Strategy Forecasting Storage fundamentals Transport Strategy Inventory decisions Transport fundamentals Purchasing and supply Transport decisions scheduling decisions Customer Storage decisions service goals The product Logistics service Information sys. Location Strategy Location decisions The network planning process  Flow of Logistics Planning Individual Link of Logistics System Business goals and strategies Facility location Operations strategy Inventory management Customer service Information systems requirements Material handling Traffic and transportation Planning and control methods Integrated logistics planning Organization Design of integrated logistics management system Overall performance measures  Logistics planning 1.Level of planning 2.Major planning areas 3.Conceptualizing the logistics planning problem 4.When to plan BOX 2.1 Xerox,lvith its copier patents running out, would no longer have a differentiated product in the marketplace, so it adopted the strategy to be number one in field service. StarKist Foods adopted a supply-side strategy of buying and packing all the tuna that its own fleet and its contracted fleets of fishermen could catch. This would help it be the dominant packer in the tuna business Strategic, Tactical, and Operational Decision Making Decision area Strategic Tactical Operational Transportation Mode selection Seasonal equip- Dispatching ment leasing Inventories Location, Control policies Safety stock levels Order filling Order Order entry, transmittal, Processing processing and processing system orders, Filling design back orders Purchasing Development of supplier- Contracting, Expediting buyer relations Forward buying Warehousing Handling equipment Space utilization Order picking selection, Layout design and restocking Facility Number, size, and location location of warehouses  The Hierarchy of Planning Type Time Focus Level of detail Level of frame integration Strategic More than Competition, Few financials, Integrated- one year resources, more goal oriented corporate & Stakeholder supply chain s Tactical > Event Somewhat financially Integrated- oriented functional Operational Day-to- Efficiency Heavy financial Functional day, Freight classification of items >Rate tables of tariffs −Contract rates −Drayage (local delivery) Commodity and contract rates −Specific rates for given shipment sizes for specific products moving between designated points Special service charges −Extra charges −Stop-off privilege example Private carrier costing CR (2004) Prentice Hall, Inc.