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Logistics and Supply Chain Management, development of concepts. [The

Management of Business Logistics by Coyle, Bardi, Langley Page # 13] 1950s, first post war decade

• Decade of awareness• Importance of physical movement of

materials to customers • Focus on costs of these activities

• Idea of total cost: Total cost and its components

• Importance of mode of transport

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1960s – Electronics era

• Emergence of Physical Distribution Management

• Integration of activities of outbound logistics

• Information as an important element of Physical Distribution Management

• Impact of electronics on information

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1970s • Integration of some aspects of financial

subsystem – recovery, cash flow• Focus on activities of inbound logistics until

considered to be vendors’ concern

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1980s • Concept of Logistics as a management function,

internally integrating all activities of inbound and out bound logistics

• Focus on logistical operations• Application of TQM, TPM & JIT philosophies

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1990s Gradually concept is encompassing entire value

chain as Supply Chain Management due to external integration

• Henry Ford’s [early 1890s] concept of mutual dependence of firms in a value chain

• Idea of control on entire supply chain for improving product delivery

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Supply Chain Management • Scope - Source of raw materials to end user - all upstream & downstream organizations & linkages

• Concept of supply chain as a pipe line• How is this created in business? - External

integration

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• Main objective - Supply chain profitability by value creation

• Focus - End User• Origin - extension of scope of logistics

management• A set of several subsets

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• Definition - Management of upstream and down

stream relationships with suppliers and customers

to deliver superior customer value at less cost to

the supply chain as a whole - Ref to Bardi

page#15

How SCM creates value?

• Breaking the organizational barriers

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• Sharing of sales information in real time

• Inventory visibility

• Reduces inventories by reducing uncertainties

• Compresses value chain by slashing lead-times

thereby quickening cash flow

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Subdivisions of logistics management [The Management of Business Logistics by Coyle,

Bardi, Langley Page # 39]Business Logistics

• Procuring, moving and storing of R/M and transporting, warehousing and distribution of F/G

• Facilitation of relevant manufacturing and marketing

• Making finished goods available to the customers in the market

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• Procuring, moving and storing of agricultural

products• Providing competitive edge in commodities

market Event logistics - The net work 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

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Service logistics - the acquisition, scheduling

and management of the facilities/assets, personnel

and materials to support and sustain a service

operation Military logistics - 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

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Logistical mission

[Logistics & SCM by Martin Christopher, Page

# 13, L/M by Bowersox Page #9]

• Achievement of business objectives at minimum

logistical cost [delivering- QCD expectations of

customers at minimum logistical costs, i.e. creating

customer value at minimum cost

• Set of goals to be achieved at a particular type of

market responsive to competition

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• Mission focus is on out put of the system• Logistics Mission is achieved by ‘single plan’

for the entire organization • Mission of logistics is providing a means by

which customer satisfaction is achieved

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AHigh value

BBrittle

CLow value

Customer service goals [QCD]At market type A

Customer service goals [QCD]At market type B

Customer service goals [QCD]At market type C

Transp

Warehouse

M/H

Functional Inputs to Logistical Management SINGLE PLAN

LOGISTICAL MISSION

Inventory Mgt

Packg

Info

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Inbound logistics• Procurement operations in procurement cycle• potential avenues for reducing systems costs

• value of inventory is low• trade off between cost of maintaining inventory in

transit and low cost transport exists• Input Intensive? Output Intensive?

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Inbound logistics - continued

Sourcing

Order placement & expediting

Vendor (Supplier)

Transportation

Receiving

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Outbound Logistics

• Value added goods are to be made available in

the market distributed through the network of

warehouses and retailers’ shops

• Value of the inventory is very high as during

conversion value is added

• Input Intensive? Output Intensive?

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Outbound Logistics - continued

Customerorder

Ordertransmission

Orderprocessing

Orderselection

Ordertransportation

Customerdelivery

Activities in distribution performance cycle

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Logistical cost analysisConventional Approach

• Focus on function• Conventionally costs of logistical functions are

apportioned • Impact of decisions at function level on the

system is not considered • Cost information tends to get hidden [pushed

under the carpet] out of fear that it may highlight functional weakness

• Cost in no man’s land is never owned

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• Cost cutting is fragmented so doesn’t reduce system cost

• Customer dissatisfaction, competitive edge is lost by the organization

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Total cost approachModern approach to logistical costing

• Focus on reduction of cost of output of the system [product delivery to customer]

• Provides competitive edge to the company• Reveals several trade off points in the system &

further areas of improvement Transportation - Inventory

Warehousing – Customer serviceFTL/LTL and cost of transportation

FTL/LTL and cost of inventory

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Mission based costing [budgeting approach] in logistics

• Input focused costing Vs Output focused costing• Mission goals and costs are set

• Functional inputs are worked out to meet the system deliverables

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15 45 10

5 35 10

Mission A

Mission B

Mission C

Customer service goals [QCD] At market type A

Customer service goals [QCD] At market type B

Customer service goals [QCD] At market type C

transportation

Ware housing

Functional Inputs to Logistical Management

5 20 10

C1 =Rs. 25/-

C1 =Rs. 100/-

C1 =Rs. 30/-

Rs.155/- 70 50 35

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Activity Based CostingAll logistical activities involved in product delivery are identified and resource consumption is calculated

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Interface with marketing

PRICE

PRODUCT

PROMOTION

PLACE

LOGISTICS

MARKETING

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Interface with marketing• A common wall,surface or area with another

body, concept or function - area of common interest or concern

• Four Ps of marketing and logistical interface• Price - marketing can re offer the price to beat the competition with superior logistical support

• Product & Packaging- size shape & weight/volume ratio of the product has major

impact on logistical cost# Gillette story of floor displays

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Promotion - promotional strategies of marketing need to be decided by working closely with

logistics# Push/Pull strategy

Place - whether to distribute through wholesalers or through retailers is a marketing decision with

impact on logistics# wholesalers’ demand & retailers’ demand

Customer Service - another area of interface between marketing & logistics

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Interface with operations

SHORT RUNS

SEASONAL DEMAND

SUPPLY SIDE INTERFACE

PACKAGING

LOGISTICS

OPERATIONS

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Interface with operations * Short production runs

• Very strong logistical support is needed to operate Just In Time

• Short runs lead to inventory reduction* Seasonal demand

• Inventory should be mutually accepted * Supply side interface

• Prevent shortages* Packaging

• Protective packaging• Third party alternatives

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Role of planning in logistics management• Role of planning is central to logistics

management Mission of logistics is to achieve

desired levels of service and quality at lowest possible cost.

Logistics makes one plan, that replaces traditional concept of planning in pockets

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“C” customers Look for value [benefit] at lowest price

“C” company By effective utilization of assets tries to create and offer value to customers

“C” competition By effective utilization of assets tries to create and offer value to customers

Value Value

Cost differentials

Importance of 3Cs & Logistics

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SERVICE LEADER

OK OK

SERVICE & COST LEADER

HAPPY HAPPY COMPANY

SAD

COST LEADER OK

C O S T

S E R V I C E

Whom shall I buy from?

CUSTOMER

HIGH

LOW

LOWHIGH

What can Logistics do?

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Attributes of Logistics Department# Scope is wide spread- functions of logistics are spread across various stages of value chain in the

organization# Provides interface between marketing and

customers, marketing and operations, operations and supplier

# Provides competitive edge to business in the current environment

# Handles flow of information and materials# Large avenue for cost reduction

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# Cost advantage and value advantage through logistics

Cost advantage through logistical cost reduction

Value advantage through superior customer service

# Value added role of logistics in delivering utility valueForm utilityTime utilityPlace utility

Possession utility

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PRODUCTION Form Utility

MARKETINGPossession Utility

LOGISTICSPlace & Time Utility

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Integrated Logistics Integrated logistics is a result of evolution

Factors responsible for the evolutionConsumer awareness 1960s

Introduction of computer 1960sGlobal recession of 1970s & 1980s

JIT manufacturing 1980sIntegrated logistics evolved from the status of “economy’s dark continent” in early 1960s to a

crucial management function of today

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Evolution is a result of following significant developments

Internal integrationSingle plan concept

Integration with other management functionsIntegration of Logistics [infrastructures] of

Services and Products - Infrastructure for logistics of product & infrastructure for logistics of service

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Logistical competency What is logistical competence?

Capability (required standards) for performing logistical functions Internal integration

Integration with logistical managementCoordinating information and inventory flows in

logistical network What is Logistical competency?

Level of performance of logistical functionsRelative assessment to ascertain competence

to perform logistical functions

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It is a strategy to provide a superior service at a total cost below industry average

Its aim is to view how logistics can be exploited as a core competency so that it fits into a firm’s

overall strategic positioningPerforming integrated logistics

Definition: Logistical Competency is the relative assessment of a firm’s capability to provide

competitively superior customer service at the lowest possible total cost

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Inventory flow

Physicaldistribution

Manufacturingsupport Procurement

Information flow

Customer Suppliers

Logistical competency

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particulars Logistics management

Supply chain management

Scope Inbound logistics, in process inventory, outbound logistics

All players in the supply chain from raw material source to finished product consumer, vendors, their vendors, supplier organization [shipper], Warehouses, service providers, customers, their customers

How this is created in business?

By internal integration of logistics functions handled by various management functions within organization

By external integration of roles of various players in the supply chain.

Main objective Logistics cost reduction by integrating resources across the pipeline

Supply chain profitability by value creation.

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focus L/M tries to take the product to the consumer at minimum logistical cost. Hence it is supply driven.

SCM focuses on value creation in the supply chain. Hence this is customer focused or demand driven.

definition Logistics is the process of strategically managing procurement and storage of material , part and finished inventory [and related information flow] through organization and its marketing channels in such a way that current and future profits are maximized through cost effective fulfillment of order

Management of upstream and down stream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole.

Origin

A very old concept in military planning.

As a logical extension of logistics management