Fundamentals of Logistics and Supply Chain Management

1. Dr. Mary Collins Holcomb Associate Professor November 16th and 18th, 1999 Fundamentals of Logistics and Supply Chain Management

2. Agenda • The Role of Logistics • Integrated Logistics Management • Information Management • Implementing Logistics Strategy • Supply Chain Management • Issues and Challenges

3. The Role of Logistics

4. Logistics Management “That part of supply chain management which deals with the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.” -- Council of Logistics Management

5. move MOVE move Tangible goods still have to move (and be stocked) through space and time. . . new strategies and methods must create new value.

6. Order Management DistributionCenterOperations Transportation Management Production Management Demand Forecasting CustomerService Inventory Management Purchasing logistics Cost Components Weighted Average Transportation 44.3% Warehousing 19.9% Inventory Carrying Cost 19.2% Order Processing 6.5% Other 6.0% Administrative 4.1% 100% Source: Herbert W. Davis & Co. Logistics Management Transportation costs comprise the single largest element in most physical distribution systems

7. Outsourcing Strategy Distribution Network Configuration Delivery Service Customer-Supplier Relation/Partnership Value-Added Services Distribution Planning Warehouse Management 3rd Party Service Provider Relation/ Partnership Inter-Facility/ Outbound Transportation Management The New Logistics Excellence in distribution & transportation adds value at all levels. Asset Management Inventory Deployment/ Reduction Shared Services Basic Service Revenue Enhancement Operational Efficiency Planning/Operational Strategic

8. The New Logistics To improve deployment & management of assets . . . Reduce capital expenditures by improving usage of fixed assets 1. Rationalize distribution networks 2. Outsource select processes 3. Explore shared facilities 4. Understand supply chain tax implications 5. Consolidate warehouses 6. Replace inventories with information 7. Reduce distribution cycle time 8. Implement demand-driven planning Reduce working capital by minimizing inventories

9. Drivers Behind Increase in Transportation Expenditures • Accelerating trend toward leaner, more flexible logistics networks • Less inventory in the pipeline • Increasing demand for synchronized service • Increasing requirement for faster more reliable transportation service over longer distances Pressure to reduce cost and improve service

10. Integrated Logistics Management

11. Integrated Logistics PRODUCT FLOW • Physical Supply • Manufacturing Support • Procurement • Physical Distribution

12. Integrated Logistics (cont.) INFORMATION FLOW • Coordination flows • Strategic objectives • Capacity constraints • Logistical requirements • Forecasting

13. Integrated Logistics (cont.) INFORMATION FLOW • Operational Flows • Order management • Order processing • Distribution operations • Inventory management • Transportation

14. Operating Objectives • Rapid response • Minimum variance • Minimum inventory • Movement consolidation • Quality • Life-cycle support

15. Barriers to Integration • Organizational structure • Measurement systems • Inventory ownership • Information technology • Knowledge transfer capability

16. Measuring Performance Several different approaches may be used to measure the functional performance of logistics: • cost criteria • productivity criteria • service criteria

17. Measuring Performance Firms evaluate logistics managers primarily on the basis of three factors: • line management ability • problem-solving ability • project management ability

18. “Best of the Best” Logistics Firms • Organizationally positioned to guide logistics activities at all levels - strategic, tactical, and operational; • Internal integration has enabled the development of operational excellence, and boundary spanning relationships;

19. “Best of the Best” Logistics Firms (cont.) • Demonstrated “agility” in terms of the firm’s competency with respect to relevancy, accommodation, and flexibility. • Measured performance both internally and externally.

20. Information Management

21. Electronic Commerce • Examples: • Electronic data interchange (EDI) • e-mail • Electronic funds transfer • Electronic publishing • Shared databases • Internet / Web sites

23. Electronic Commerce Levels • LEVEL 1 One-way communication • LEVEL 2 Database access • LEVEL 3 Data exchange • LEVEL 4 Sharing processes

24. The Internet Changes Everything! • The Internet is ubiquitous. • The Internet is user friendly. • The Internet is inexpensive. • The Internet is global.

25. How Long Until Your Company…... • Receives over 64% of its $8.5 billion in sales over the Internet • 70% of all technical support questions are asked over the Internet • 55% of its employee resumes come over the Internet Cisco Systems, USA Today, Sept. 23, 1998

26. Implementing Logistics Strategy

27. If logistics managers do not understand corporate strategy, they will not be able to make decisions that are in the best interest of the organization.

28. The Hierarchy of Planning Strategic Tactical Operational ____________________________________ What is the organization’s overall customer service strategy and what should it be? What are the best opportunities for cost reduction in the organization’s logistics system? What are the core competencies of the logistics function, I.e. which activities should be outsourced?

29. The Strategic Issues and Challenges • How to help the firm and its customers deal with big changes -- globalization, restructuring, competition • How to improve profitability (growth) and value creation - for the firm and its customers • How to raise the performance of all services to competitive advantage levels • How to integrate/leverage logistics within the firm and the supply chain

30. Supply Chain Management

31. The supply chain encompasses all activities associated with the flow and transformation of goods from the raw materials stage, through to the end user, as well as the associated information flows.

32. How to Achieve Profitable Growth and Value Creation* i Cost Minimization ProfitableGrowth TaxMinimization Value WorkingCapitalEfficiency Fixed CapitalEfficiency Time • * Based on “Supercharging Supply Chains,” a new book by E&Y/J. Wiley, Inc.

33. Stages of Supply Chain Development • STAGE 1 - Fundamentals Focus on quality • STAGE 2 - Cross Functional Teams Serve our customers • STAGE 3 - Integrated Enterprise Drive business efficiency

34. Stages of Supply Chain Development (cont.) • STAGE 4 - Extended Supply Chain Create market value • STAGE 5 - Supply Chain Communities Be a market leader!

35. Supply Chain Cost Categories • Manufacturing • Purchased materials, labor, equipment charge, and supplier’s margin • Movement • Transportation, inventory in the pipeline (cycle), safety stock, and duty • Incentives and subsidies

36. Supply Chain Cost Categories(cont.) • Intangibles • Quality, product adaptation or performance, coordination • Overhead • Total current landed costs • Long-term • Productivity and wage changes, exchange rates, product design, and core competencies

37. “Sluggish” Supply Chains • Lack of synchronization in materials management • Ambiguous goals and objectives • Poorly designed procedures and forms • Outdated technology • Lack of information

38. “Sluggish” Supply Chains • Poor communication • Limited coordination • Limited cooperation • Lack of / ineffective training

39. The Strategic Issues and Challenges • How to help the firm and its customers deal with big changes -- globalization, restructuring, competition • How to improve profitability (growth) and value creation - for the firm and its customers • How to raise the performance of all services to competitive advantage levels • How to integrate/leverage logistics within the firm and the supply chain