Principles of Logistics Midterm Summary PDF

Principles of Logistics and SC Summary LSCM1001 Dr. Baris Gecit Globalization While the industrial revolution includes mechanization, steam engines and inventions, the second industrial revolution, called Industry 2.0, is based on Frederick W.Taylor's increase in mas...

Principles of Logistics and SC Summary LSCM1001 Dr. Baris Gecit Globalization While the industrial revolution includes mechanization, steam engines and inventions, the second industrial revolution, called Industry 2.0, is based on Frederick W.Taylor's increase in mass production, efficiency and quality. The third industrial revolution called Industry 3.0, on the other hand, has affected and shaped production in every aspect of the use of computers, smart phones, and the widespread use of the internet. With these developments, trade and industry have globalized. Globalization Industry 4.0, on the other hand, represents the further spread of this digitalization, the emergence of smart devices, in short, advanced digitalization. With these developments, the digitalization revolution took place in the 20th century. With the digital revolution, electronic commerce was formed and spread. International Trade International trade is the exchange of goods, services, and capital across international borders or territories. International Trade Key Points about International Trade: Goods and Services: International trade includes the trade of tangible goods (like cars, electronics, and clothing) as well as services (such as banking, insurance, and tourism). Imports and Exports: Imports are goods and services purchased by one country from another. Exports are goods and services sold by one country to another. For example, Japan exporting cars to Europe. Comparative Advantage: This economic theory explains how countries benefit from trade by specializing in producing goods where they have a relative efficiency, then trading for goods they International Trade Key Points about International Trade: Balance of Trade: The difference between the value of a country’s exports and imports. A positive balance (surplus) occurs when exports exceed imports, while a negative balance (deficit) occurs when imports exceed exports. Trade Agreements: Countries often enter into agreements that reduce barriers to trade, such as tariffs and quotas, to facilitate smoother and more cost-effective international trade. Global Supply Chains: Many products traded internationally are part of a global supply chain, where different stages of production are spread across various countries. Customs Customs play a vital role in international trade and logistics by enforcing laws and regulations at borders, ensuring compliance with trade standards, and facilitating the smooth movement of goods across countries. They help collect revenue through tariffs and duties, protect domestic markets from illegal and unsafe goods, and enhance national security by preventing smuggling and illegal activities. History of International Trade Industrial Revolution (18th-19th Century): Industrialization and Trade Expansion: The Industrial Revolution significantly boosted international trade by increasing the production capacity of goods and reducing costs through mechanization. The development of railways, steamships, and the telegraph allowed for faster and more efficient transportation and communication, facilitating global trade. Free Trade Movements: The late 19th century saw the rise of free trade movements, with some countries leading the way by reducing tariffs and promoting international trade through policies. Current Status of International Trade 1. Trade Volumes and Economic Impact: Increased Trade Volumes: Global trade volumes have grown significantly, with goods and services being traded on a scale never seen before. The value of global trade in goods alone has surpassed trillions of dollars annually, with services also becoming an increasingly important part of international trade. Economic Dependency: Countries are more economically interdependent than ever, relying on international trade for economic growth, employment, and access to resources. Current Status of International Trade 2. Challenges and Disruptions: Trade Wars and Protectionism: In recent years, trade wars, such as the U.S.- China trade conflict, have introduced uncertainty into global trade. Protectionist policies and tariffs have disrupted supply chains and increased costs for businesses and consumers. COVID-19 Pandemic: The COVID-19 pandemic has had a profound impact on international trade. Lockdowns and restrictions led to supply chain disruptions, shortages of goods, and delays in shipping. The pandemic highlighted the vulnerabilities of global supply chains and prompted some companies to rethink their logistics strategies. Environmental and Sustainability Concerns: There is growing awareness of the environmental impact of international trade, particularly in terms Growth of International Trade Since 1900-1980: International trade saw steady growth, punctuated by significant disruptions during World War I, the Great Depression, and World War II. The post-war period saw strong growth due to industrialization and the establishment of global trade institutions. 1980-2010: This period experienced rapid growth, driven by globalization, the rise of global supply chains, and the integration of emerging markets like China into the global economy. The 2008 financial crisis caused a sharp decline, but trade rebounded quickly. 2010-2022: The post-crisis recovery was followed by slower growth, impacted by rising protectionism, trade tensions, and the COVID-19 pandemic, which caused a significant contraction in 2020. Trade rebounded in 2021, but challenges Current Status of International Trade International trade has evolved significantly over centuries, from ancient trade routes to the complex global supply chains of today. The 21st century has seen tremendous growth in international trade, driven by globalization, technological advancements, and the rise of emerging markets. However, this growth has also brought challenges, including trade disputes, supply chain disruptions, and environmental concerns. Logistics plays a crucial role in facilitating international trade by ensuring the efficient movement of goods across the globe. As international trade continues to evolve, so too will the logistics industry, adapting to new challenges and opportunities in a rapidly changing global landscape. Main Principles of Logistics Logistics is the backbone of modern supply chains, ensuring the efficient movement and storage of goods from the point of origin to the point of consumption. Introduction to Logistics 1 Transportation The movement of goods from one location to another, using various modes such as trucks, trains, ships, and planes. 2 Warehousing The storage and management of inventory, ensuring products are available when needed to meet customer demand. 3 Inventory Management Balancing supply and demand to minimize costs and optimize the flow of goods through the supply chain. Logistics is the strategic management of the flow of goods, information, and resources from the point of origin to the point of consumption. By effectively coordinating these key components, logistics ensures timely delivery, reduces costs, and enhances customer satisfaction. Definitions and Scope Logistics Supply Chain Scope The detailed coordination of The entire network of Logistics encompasses a a complex operation entities, activities, wide range of activities, involving the movement and information, and resources including procurement, storage of goods, resources, involved in creating and production, distribution, and and information from one distributing a product or reverse logistics, ensuring location to another. service, from raw materials the seamless flow of goods to the final consumer. and information throughout the supply chain. Logistics vs. Supply Chain Management Logistics Supply Chain Integration Management (SCM) Logistics focuses on the Effective Supply Chain individual activities within Supply Chain Management Management requires the the supply chain, such as takes a holistic approach, seamless integration of transportation, warehousing, integrating all the activities various logistics functions, and inventory management, from raw material enabling the optimization of to ensure the efficient procurement to final delivery the entire supply chain for movement and storage of to the customer, ensuring a greater efficiency and cost goods. seamless and efficient flow of savings. goods, information, and resources. Historical Evolution of Logistics Military Origins Logistics originated in military contexts, focusing on the efficient supply and movement of troops and equipment. Industrialization As industries and global trade expanded, logistics evolved to coordinate the flow of raw materials, production, and distribution of finished goods. Technological Advancements The development of container shipping, just-in-time (JIT) systems, and advanced information technology solutions has transformed modern logistics and supply chain management. Key Logistics Activities 1 Transportation The movement of goods from one location to another using various modes, such as trucks, trains, ships, and planes. 2 Warehousing The storage and management of inventory, ensuring products are available when needed to meet customer demand. 3 Inventory Management Balancing supply and demand to minimize costs and optimize the flow of goods through the supply chain. 4 Order Fulfillment The efficient processing and delivery of customer orders, ensuring accurate and timely product delivery. Logistics in Different Sectors Retail Logistics in the retail sector ensures product availability and efficient delivery to stores, enabling a seamless shopping experience for customers. Manufacturing Logistics in manufacturing coordinates the flow of raw materials, work-in- progress, and finished goods to optimize production schedules and minimize downtime. Services Logistics in the service industry manages the distribution of resources, such as personnel and equipment, to support the delivery of various services to customers. Competitive Advantage Term In general, competitive advantage refers to a condition or circumstance that allows a company, organization, or individual to outperform its competitors. It is what sets a business apart and gives it an edge in the market. Competitive advantage enables a company to generate more value for its customers, achieve superior performance, and sustain profitability over time. Competitive Advantage In Logistics In logistics, competitive advantage refers to the ability of a company to deliver goods and services more efficiently or effectively than its competitors. This advantage is typically achieved through factors such as: Cost leadership: Offering lower transportation, warehousing, or operational costs while maintaining or improving service quality. Speed and reliability: Delivering products faster and more consistently than competitors. Innovation: Implementing advanced technologies (e.g., automation, tracking systems) to improve supply chain efficiency. Customer service: Providing superior customer support, flexibility, and customization in delivery services. A competitive advantage in logistics helps a company strengthen its market position, improve customer  Transportation: An overview Transportation is the most visible logistic operation (approx 40-50 % of total Logistics cost) A good indicator to measure the Economic, Social & Commercial progress of a country. Modes of Transportation can be categorized as Roadways, Railways, Waterways, Airways, Pipelines & Ropeways. It facilitates production by moving the various means of production. Serves to link the facilities of the firm which are geographically distributed. It directly and indirectly accelerate employment.  Roadway s Benefits/ Advantages: – Door-to-door service – Flexibility – Reliability – Can reach remote locations – Speed Challenges: Multi point octroi Multi point police checks Unauthorized local levy Poor conditions of road Mostly unorganized  RAILWAYS Good for Larger loads, long distance transportation. Transport all types of goods-mostly the bulk items like Coal, Iron ore, Cement, Fertilizers, Petroleum, Heavy Machineries, Raw materials, Finished products, live cattle etc. High fixed cost due to infrastructure of railway tracks etc Variable cost reduces as compared to other modes Slow speed due to consolidation of wagons Monopoly Carrier Route / service limitations can be over come by multimodal transportation.  MODES OF TRANSPORTATION : AIRWAYS Fastest and less hazardous. Fixed cost is little low than other High variable cost due to fuel, maintenance, labour USED FOR  lightweight, high value and highly perishable items.  urgent delivery  critical maintenance  passenger, cargo etc Disadvantage Overall HIGH COST WEATHER DISTURBANCE Limited routs  MODES OF TRANSPORTATION Seaways  Used mostly for International trade.  Types-Tankers, Dry bulk carriers, Container ships and Special vessels  India has around 55 shipping companies with 510 ships  Major items are- crude oil and other petroleum products, Iron ores, Coal, Food grains etc  MODES OF TRANSPORTATION : Pipeline Utilized for fluids, sewages, gas, chemicals etc Privately owned or hired Advantage- Available all the time Lower variable or operating cost Large quantities in a single continuous shipment Protection provided by pipeline Disadvantage- Limited to routes Limited with respect to commodities Highest investment cost or fixed cost  Multimodal Transport Multimodal transport (also known as combined transport) is the transportation of goods under a single contract, but performed with at least two different means of transport; the carrier is liable (in a legal sense) for the entire carriage, even though it is performed by several different modes of transport (by rail, sea and road, for example)  Relative Opening Characteristics by Transportation Modes: Operating Rail Truck Water Pipeline Air Remarks Characteristics Speed 3 2 4 5 1 Air is the fastest Availability 2 1 4 5 3 Road is the best since they can drive from origin to destination Dependability 3 2 4 1 5 Pipeline ranks best-As the service is continuous and there is no stoppage due to traffic or congestion Capability 2 3 1 5 4 Sea is the best-Can handle all types and size of cargo Frequency 4 2 5 1 3 Pipeline is ranked best- As the movement is continuous Composite Score 14 10 18 17 16 Lowest rank is the Best- 7R’s of Logistics The Chartered Institute of Logistics & Transport UK (2019) defines them as: Getting the Right product, in the Right quantity, in the Right condition, at the Right place, at the Right time, to the Right customer, at the Right price. 1- Right Product While designing/manufacturing/selecting a product, the organization should look into potential issues that can arise during transportation. Product when designed properly will greatly facilitate logistics if they ensure a certain level of standardization in the product’s measurements during the design will make packaging, warehousing, product handling and transport considerably easier. 2- Right Customer The right customer is about finding the customer and creating an awareness about our product and services. The greatest challenge involved in this would be to identify the customer to be targeted. The solution to finding the right customer would be to do a market research. Managers must have knowledge about their target market. If the products are sold in the right 3- Right Price Pricing is imperative for the businesses as it is the factor that decides whether it has incurred profit or loss. The supply chain manager should research market trends and set competitive prices for the goods and services Good system for storing and updating the right prices ensures success in logistics management services. 4- Right Quality Sending right amount of products is also important in logistics. Coordinate with the manufacturing and delivery team to get the right quantity of products delivered to the customers. Production must be in a balance to cater the demand and must not make huge inventory cost. 5- Right Condition The right condition in logistics is about the safe delivery of the proposed product. The quality of the products should be maintained till the time it reaches the end user or the customer. The distribution strategy should be such that it is preserving the quality of the product without increasing the overhead costs. It is the duty of the supply team to ensure that the goods are stored 6- Right Time Time is a crucial factor in logistics. Even if everything else in the process is done accurately the entire process can fail if the timing is not right You must have the products on the shelves or in stock at the right time to cater to the demand if the product demand is not met at the right time it might be lost to competition 7- Right Place The managers can develop a robust delivery system with location tracking so that both the customers and the providers can track the exact location of the product and get it delivered to the right place Overview of Logistics Tools In today's dynamic business environment, effective logistics management is crucial for organizations to gain a competitive edge. This presentation will provide an overview of the key logistics tools and techniques that can help optimize operations, reduce costs, and enhance customer satisfaction. Overview of Logistics Tools Inventory Management Transportation Warehouse Tools Management Systems Management Systems (TMS) (WMS) These tools help WMS technologies automate organizations manage their TMS solutions enable and optimize warehouse inventory levels, optimize efficient planning, execution, operations, from receiving replenishment, and reduce and optimization of and storage to order picking holding costs. Techniques like transportation activities. Key and shipping. These systems Just-In-Time (JIT), Economic features include route enhance inventory visibility, Order Quantity (EOQ), and optimization, carrier improve workflow efficiency, ABC Analysis are commonly selection, load planning, and and enable real-time tracking used to streamline inventory freight auditing to minimize and monitoring of warehouse processes. transportation costs and activities. improve delivery times. Inventory Management Techniques 1 Just-In-Time (JIT) 2 Economic Order 3 ABC Analysis Quantity (EOQ) A strategy that aligns raw A method of categorizing material orders with A mathematical model inventory into three production schedules, that determines the classes (A, B, C) based on reducing inventory optimal order quantity to their importance and holding costs by receiving minimize total inventory value, allowing goods only when needed. costs, balancing ordering organizations to focus This requires accurate and holding costs to resources on the most demand forecasting, ensure efficient inventory critical items and improve reliable suppliers, and levels. inventory management efficient production efficiency. processes. Safety Stock 4 Additional inventory held to reduce the risk of stockouts due to demand variability, providing a buffer to improve service levels and customer satisfaction. Transportation Management Systems (TMS) Route Planning Carrier Selection Optimizing transportation routes to minimize Evaluating and selecting the most suitable distances, travel time, and fuel consumption. carriers based on cost, performance, and reliability. Freight Auditing Real-Time Tracking Automating the process of reviewing and Providing visibility into the status and location validating freight invoices to ensure accuracy of shipments, enabling better decision-making and reduce costs. and customer communication. Warehouse Management Systems (WMS) Definition Key Functions Benefits Warehouse Management WMS solutions typically By implementing a WMS, Systems (WMS) are include features such as organizations can advanced software real-time inventory experience significant solutions designed to tracking, automated order improvements in optimize warehouse picking and packing, and warehouse efficiency, operations and inventory labor management tools to reduced errors, and management. These ensure efficient use of enhanced inventory systems provide warehouse resources. accuracy, ultimately comprehensive control leading to better customer over all aspects of the service and cost savings. warehousing process, from receiving and putaway to order fulfillment and Inbound Logistics Inbound logistics are all about moving raw materials, supplies, or finished goods into a supply chain. Through inbound logistics, a business secures its supply — that is, it obtains the products (or the materials to make the products) that it will eventually sell. The logistics processes that transport raw materials, inventory, or supplies from a supplier and into a business’s warehouse, distribution center, fulfillment center, or retail store are all considered inbound logistics. Outbound Logistics Outbound logistics Outbound logistics are all about moving finished inventory out of a supply chain — that is, moving inventory out of storage, fulfilling orders, and delivering those orders to end customers. Any logistics process involved in order confirmation, fulfillment (including picking and packing), shipping, last-mile delivery, customer service, and troubleshooting qualifies as an outbound logistics process. Inbound vs Outbound Logistics Inbound and outbound logistics processes also move and deliver different goods to different parties. Inbound logistics processes move inventory, raw materials, or supplies from a supplier to a business; outbound logistics, on the other hand, move finished products from a business to the end customer or user. E-Commerce and Logistics Ecommerce logistics refers to the processes of storing and shipping inventory for an online store or marketplace. Ecommerce logistics starts with moving inventory from the manufacturer and lasts until it arrives at the end customer’s destination. This includes inventory management, picking, packing, and shipping of online orders. With so many millions of packages shipped across the country on any given day, it’s vital that systems are in place to keep them on track and make sure they’re delivered to the right place on time. E-Commerce and Logistics Digital fulfillment is one of the most critical pieces of ecommerce logistics, which includes: Inventory management Warehousing and storage Order fulfillment, or the picking, packing, and shipping orders E-Commerce and Logistics Looking back 30-40 years ago, there was a relatively straight line between suppliers and retailers. As ecommerce has grown and become a worldwide channel, it’s become much more complex across inbound and outbound logistics processes. There are now more moving parts and middlemen who help ensure products reach customers. The task to organize logistics processes is even more challenging for entrepreneurs launching a B2B ecommerce channel as the journey gets split into two parts: from manufacturers to retailers and from retailers to end E-Commerce and Logistics 1. Suppliers Suppliers or manufacturers are those who have inventory ready to ship to a business destination. They manufacture the products and ship them to fulfillment or logistics centers once a purchase order has been placed. 2. Fulfillment centers Fulfillment centers are the large warehouses that hold inventory close to the end consumer, so each order is picked, packed, and shipped as soon as it’s placed to ensure a speedy delivery. Fulfillment centers can be owned or leased by an ecommerce business, or by a third-party logistics service provider (3PL) company who is a professional retail fulfillment company that performs services for many brands. E-Commerce and Logistics 3. Distribution hubs Large ecommerce retailers have their products in multiple locations throughout the US or the world for both direct-to-consumer (DTC) and B2B orders. Rather than keeping all your inventory in one location, which can lead to longer delivery times and more expensive shipping costs, splitting inventory allows for quicker shipping of DTC orders. You may choose to use a separate facility for B2B ecommerce orders, which require different fulfillment processes from DTC orders. The differences include packaging requirements, ecommerce warehousing needs, and ultimate shipping destinations and customer types. E-Commerce and Logistics 4. Sorting facilities Facilities that sort items are usually for large-scale ecommerce shops that are moving bulk quantities of many SKUs. 5. Carriers Shipping carriers handle the transportation of products to their destination. Common US carriers include FedEx, UPS, USPS, and DHL and typically transport packages via truck and plane. Future of Logistics Logistics is undergoing significant changes as businesses and consumers demand faster, more efficient, and environmentally friendly ways to move goods. Here are some key trends shaping the future of the industry: Future of Logistics Automation and Robotics: From warehouse automation to delivery drones, the use of technology is making processes faster and more reliable. Robots can pick and pack items, while autonomous vehicles and drones are being tested for delivering products right to your door. Future of Logistics Sustainability: As concerns about the environment grow, logistics companies are focusing on reducing their carbon footprint. This includes using electric delivery vehicles, optimizing routes to save fuel, and adopting more sustainable packaging. Future of Logistics E-commerce Boom: The explosion of online shopping has created new challenges and opportunities for logistics. Companies are investing heavily in improving delivery speed, offering same- day or even next-hour services, and innovating to ensure customers can get their packages when and where they want them. Future of Logistics Flexible Supply Chains: The recent disruptions caused by the pandemic have shown how important it is to have flexible supply chains. Companies are diversifying suppliers and increasing local production to ensure they can keep goods flowing even during global crises. Future of Logistics Last-Mile Innovation: The last leg of delivery, from the warehouse to the customer, remains the most complex and expensive part of the logistics process. New solutions like bike couriers, smart lockers, and crowdsourced delivery networks are emerging to make last-mile delivery faster and more cost-effective. Future of Logistics Changing Consumer Expectations: With the rise of online shopping, customers expect more options and convenience. They want faster shipping, more flexible delivery windows, and real-time tracking of their orders, pushing companies to innovate and improve their services. Future of Logistics Urbanization and Smart Cities: As more people move into cities, urban logistics will face new challenges, like traffic congestion and limited space. Cities are becoming smarter with better infrastructure and technology that will support more efficient deliveries, including designated delivery zones and automated systems. Future of Logistics Reverse Logistics: The rise of e-commerce has led to a surge in returns, making reverse logistics (handling returned goods) a critical aspect of the supply chain. Companies are improving how they manage returns, focusing on speed and reducing waste, with some even adopting "circular" business models that recycle or refurbish returned goods. Future of Logistics Personalization: Logistics companies are also looking into more personalized delivery options to cater to individual preferences. This might include scheduling deliveries at times that fit people's busy lives or offering more convenient drop-off locations. Future of Logistics Collaboration: In the future, we will likely see more collaboration between logistics providers. Companies might share warehouses, transportation, and other resources to cut costs, improve efficiency, and reduce their environmental impact.