Logistics and supply chain management part i an introduction
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Logistics and Supply Chain Management Part I An Introduction. ESI 4554 ISE Senior Design. Logistics. Definition “Logistics… plans, implements, and controls

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Logistics and supply chain management part i an introduction

Logistics and Supply Chain ManagementPart IAn Introduction

ESI 4554

ISE Senior Design


Logistics

Logistics

Definition

“Logistics…

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 on Logistics Management


Logistics1

Logistics

Definition

  • The flow ofmaterial, informationand moneybetween consumers and suppliers.

  • In 1990-96:

    • Freight Transportation$352, $455 Billion

    • Inventory Expense$221, $311 Billion

    • Administrative Expense$27, $31 Billion

    • Logistics related activity 11%, 10.5% of GNP.


Logistics costs

Logistics Costs

Logistics costs are estimated about 10% of sales

Source: Delaney, R. - Cass Logistics Annual State of Logistics report, 2001


Logistics in the manufacturing firm

Logistics in the Manufacturing Firm

  • Profit4%

  • Logistics Cost21%

  • Marketing Cost27%

  • Manufacturing Cost48%

Profit

Logistics

Cost

Marketing

Cost

Manufacturing

Cost


Logistics vs supply chain management

Logistics vs. Supply Chain Management

What is the difference?

  • A Supply chain is the network of:

    • facilities (warehouses, factories, terminals, ports, stores, homes)

    • vehicles (trucks, trains, planes, ships)

    • logistics information systems

      connecting suppliers’ suppliers with its customers’ customers.

  • Logistics is:

    • “what happens in the supply chain”

    • “putting the right material in the right place at the right time“

    • it provides much of the Supply Chain’s value-added.


Flows in a supply chain

Flows in a supply chain

Information

Product

Funds

Supply Chain


History of logistics

History of Logistics

  • Private industry starts evolving since the 1940’s.

  • Military were the only ones to using the term (1950’s, 60’s)

  • No true concept of the term in the private industry.

  • Companies had departments, such as material housing, warehousing, machining, etc.


History of logistics1

History of Logistics

Adapted from:Frazelle, Edward “Supply Chain Strategy” McGraw Hill 2002.


Phases of logistics development

Phases of Logistics Development

1. Workplace Logistics


Phases of logistics development1

Phases of Logistics Development

1. Workplace Logistics

Definition:

  • the flow of material at a single workstation.

    Objective:

  • to streamline the movements of an individual working at a machine or assembly line.

    Origins:

  • Principles developed by fathers of Industrial Engineering during and after WWII.

  • Also known as: Ergonomics.


Phases of logistics development2

Phases of Logistics Development

2. Facility Logistics


Phases of logistics development3

Phases of Logistics Development

2. Facility Logistics

Definition:

  • the flow of material between work stations within the four walls of a facility (interworkstation, intra facility).

  • Facility can be a factory, terminal, warehouse, distribution center (DC).

    Origins:

  • developed in mass production assembly lines in 1950’s, 60’s and 70’s.


Phases of logistics development4

Phases of Logistics Development

(Soda Manufacturer)

3. Corporate Logistics


Phases of logistics development5

Phases of Logistics Development

3. Corporate Logistics

Definition:

  • the flow of material and information between the facilities and processes of a corporation. (inter workstation, inter-facility, intra-corporate).

    Objective:

  • Develop and maintain a profitable customer service policy while maintaining and reducing total logistics cost.


Phases of logistics development6

Phases of Logistics Development

3. Corporate Logistics


Phases of logistics development7

Supplier

Wholesaler

Retailer

Customer

Manufacturer

Phases of Logistics Development

4. Supply Chain Logistics

Supply chain is optimized when material,

information and money flow simultaneously,

in real time, and paperless.

Adapted from:Frazelle, Edward “Supply Chain Strategy” McGraw Hill 2002.


Logistics and supply chain management part i an introduction

Supply Chain Stages

SC: Supplier to Consumer

MC: Manufacturer to Consumer

WC: Wholesaler to Consumer

Supplier

Wholesaler

Retailer

Customer

Manufacturer

Supplier

Wholesaler

Retailer

Customer

Manufacturer

Supplier

Wholesaler

Retailer

Customer

Manufacturer

SW: Supplier to Wholesaler

SR: Supplier to Retailer

MR: Manufacturer to Retailer


Phases of logistics development8

Phases of Logistics Development

4. Supply Chain Logistics

Definition:

  • the flow of material, information and money between corporations (interworkstation, interfacility, intercorporate, and intrachain).


Phases of logistics development9

Phases of Logistics Development

5. Global Logistics

 Definition:

  • The flow of material, information, and money between countries.

  • Connects suppliers’ suppliers with its customers’ customers internationally.

  • Much more complicated than domestic logistics given the many languages, laws, currencies, time zones, cultures, etc.


Phases of logistics development10

Phases of Logistics Development

5. Global Logistics


What activities take place in logistics

What Activities take place in Logistics?

Activities

1. Customer Response

2. Inventory Planning &

Management (IP&M)

3. Supply

4. Transportation

5. Warehousing /

DC Operations

Each of these requires:

- Measures and Goals

- Process Design

- Information System Requirements

- Organizational Development


Logistics activity framework

*

Logistics Activity Framework


Logistics activity framework1

*

Logistics Activity Framework


Logistics activities

Logistics Activities

1. Customer Response

Involves:

  • Developing / Maintaining a Customer Service Policy*

  • Order Entry

  • Order Processing

  • Invoicing / Collections

  • Monitoring Customer Satisfaction

    (* the contract between the logistics organization and the customer, defining service targets, such as fill rates, response times, min. order quantities, terms and conditions for returns, etc.).


Logistics activity framework2

*

Logistics Activity Framework


Logistics activities1

Logistics Activities

2. Inventory Planning &

Management

Goal:

  • determining / maintaining the lowest inventory levels possible that will meet Customer Service Policy requirements.

    Involves:

  • Forecasting

  • Order Quantity Engineering

  • Replenishment planning

  • Inventory deployment


Logistics activity framework3

*

Logistics Activity Framework


Logistics activities2

Logistics Activities

3. Supply

Goal:

  • Minimize total acquisition cost

    (TAC) while meeting availability, response time and quality requirements

    Involves:

  • Developing / Maintaining a Supplier Service Policy

  • Sourcing (of supplies)

  • Supplier integration

  • Purchase Order processing

  • Buying and Payment


Logistics activity framework4

*

Logistics Activity Framework


Logistics activities3

Logistics Activities

4. Transportation

Links sources of supply with customers.

Goal:

  • Link all pick-up and deliver-to points within the response time requirements and transportation limitations at the lowest possible cost.

    Involves:

  • Network design & optimization

  • Shipment Management

  • Fleet and Container Management

  • Carrier Management

  • Freight Management


Logistics activity framework5

*

Logistics Activity Framework


Logistics activities4

Logistics Activities

5. Warehousing (DC Operations)

Goal:

  • To minimize the cost of labor, space and equipment in the warehouse while meeting cycle time and shipping accuracy and storage capacity requirements.

    Involves:

  • Receiving

  • Putaway

  • Storage

  • Order Picking

  • Shipping


Logistics involves optimization

Logistics involves Optimization

Optimization is a key ingredient in Logistics Master Planning

In general, we optimize:

-Customer Service Policy (CSP)

-purchase order quantities

-product sources (which one is best)

-location of DCs

-product placement in the warehouse


Logistics involves optimization1

Logistics involves Optimization

Example

If we want to optimize CSP, we would address the

Total Logistics Costs

( = inventory cost + response time cost + lost sales cost)

MINTotal Logistics Costs

Subject to

  • Inventory Availability > Customer Service Inventory Target

  • Response time < Customer Service Response time Target


Logistics activity profiling and data mining

Logistics Activity Profiling and Data Mining

What is Data Mining?

  • The process of automatically searching large volumes of data for patterns using tools such as classification, association rule mining, clustering, etc..

  • A class of database applications that look for hidden patterns in a group of data that can be used to predict future behavior.

  • True data mining software doesn't just change the presentation.

  • Actually discovers previously unknown relationships among the data.


Logistics activity profiling and data mining1

Logistics Activity Profiling and Data Mining

What is Profiling?

Definition

The systematic analysis of item and order activity used to:

·quickly identify root cause of material/information flow problems.

·Identify opportunities for improvement.

·Provide basis for decision making.

·First step in logistics master planning.


Logistics activity profiling and data mining2

Logistics Activity Profiling and Data Mining

What is a Profile?

  • A snapshot or picture of an aspect of a logistics activity.

  • Many different profiles will be needed to fully characterize and re-engineer the logistics enterprise.

  • Provides basis for decision making.

  • First step in logistics master planning.


Logistics activity profiling and data mining3

Logistics Activity Profiles

Flow of Material

Flow of Information

Flow of Money

1. Customer Response

2. Inventory Planning & Management (IP&M)

3. Supply

4. Transportation

5. Warehousing

Logistics Activity Profiling and Data Mining

What is a Logistics Activity Profile?

Definition

The compilation of profiles for flow of material, information and money for each of the major logistics activities.


Logistics activity profiling and data mining4

Logistics Activity Profiling and Data Mining

Result:

Five basic sets of activity profiles

1. Customer Activity Profile (CAP)

2. Inventory Activity Profile (IAP)

3. Supply Activity Profile (SAP)

4. Transportation Activity Profile (TAP)

5. Warehouse Activity Profile (WAP)


Logistics activity profiles

Logistics Activity Profiles

Result:

Typically a profile will exist for the activity, the item, and the activity-item pair (and many other relevant ones).

Examples:

  • Customer Sales Activity Profile

  • Item Sales Activity Profile

  • Customer - Item Sales Activity Profile

  • Supplier Activity Profile

  • Item Purchasing Activity Profile

  • Supplier - Item Purchasing Activity Profile


Logistics activity profiling and data mining5

Logistics Activity Profiling and Data Mining

What are Segments?

Segments represent and classify something according to some criteria into A, B, C (usually) or more groups.

Example: Customers and Items sold

Customer Segments (typical)

  • A Category: the top 5% of customers

  • B Category: the next 15% of customers

  • C Category: the bottom 80% of customers

    Item Segments (typical)

  • A Category: represents 80% of sales

  • B Category: represents 15% of sales

  • C Category: represents 5% of sales


Example customer item sales activity profile

Item Category

A – 80% of Sales

B – 15% of Sales

C – 5% of Sales

Customer Category

A – Top 5%

AA

AB

AC

B – Mid 15%

BA

BB

BC

C – Bottom 80%

CA

CB

CC

Example: Customer – Item Sales Activity Profile


Logistics activity profiling and data mining6

Logistics Activity Profiling and Data Mining

What are Segments?

  • Segments are a type of classification system.

  • The more you know about your customers, the more likely you will offer the right product’ at the right time and the right place, and the right price.

  • Pareto Principle: 80% of your sales & profits come from 20% of your customers.

    • Create A, B, C, D segments

    • A: Customers deliver largest portion of revenue

    • B: Close second, followed by C and D.

    • Recognize each group’s characteristics.


Logistics activity profiling and data mining7

Logistics Activity Profiling and Data Mining

Fine tune each Segment (A, B, C, D Customers)

  • How many products/services do they buy?

  • Purchase frequency?

  • Type of business?

  • Profitability of each transaction?

  • Payment promptness?

  • Cost of the service?

  • Referrals provided?


Logistics activity profiling and data mining8

Logistics Activity Profiling and Data Mining

Once Segments are fine tuned & sub classified, plan

to promote customers from one category to the next highest:

Ex. from C to B, from B to A

An “A” customer is the hardest to replace.

Need replacements in case customers go “elsewhere”.

If you loose an “A” customer, promote a good “B” customer to replace it.


Logistic activity profiles

Logistic Activity Profiles

What does each profile tell us?

1. Customer Activity Profile (CAP):

  • illustrates sales activity by customer and by item.

    • captured in terms of dollars, # of orders, # of order lines, units, weight, cube, truckloads, pallets and cases.

  • different items and customers create different level / type of logistics

  • logistics strategy must reflect unique logistics requirements of each customer – item combination.


Logistic activity profiles1

Logistic Activity Profiles

1. Example of a Customer Activity Profile (CAP)

How to understand example:

  • Very few customers or items can be found in AA segment, yet it has high volumes, high revenues and intense competition

  • Many customers and items are found in the CC segment, yet it has low volumes, low revenues and little or no competition


Logistic activity profiles2

Logistic Activity Profiles

Definition - SKU

  • The abbreviation for Stock Keeping Unit.

  • An SKU is an individual item or part, a unit of inventory that is carried as a separate identifiable unit, and is typically represented by a UPC.

  • i.e. A box of 100 ball point pens, although containing the same unit, is a different SKU from a single ball point pen.


Logistic activity profiles3

Logistic Activity Profiles

Another Example of a Customer Activity Profile (CAP)


Logistic activity profiles4

Logistic Activity Profiles

What does each profile tell us?

2. Inventory Activity Profile (IAP):

  • helps determine opportunities to reduce inventory and improve customer service.

  • shows locations in the supply chain where excess has accumulated.

  • reports inventory turns, days-on-hand, other.


Logistic activity profiles5

Logistic Activity Profiles

ABC Inventory Valuation Analysis

Examples of Inventory Activity Profile (IAP):

S= Store

T= Transit

W = Warehouse


Logistic activity profiles6

Logistic Activity Profiles

What does each profile tell us?

3. Supply Activity Profile (SAP):

  • reveals opportunities for purchasing improvements

  • reports purchasing in $, units, cases, pallets, truckloads, weight, volume, orders, SKU, supplier, other.

  • helps categorize suppliers, make / buy analysis, etc


Logistic activity profiles7

Logistic Activity Profiles

Example of Supply Activity Profile (SAP)

Supplier – Item Classification


Logistic activity profiles8

Logistic Activity Profiles

Example of Supply Activity Profile (SAP):

Inbound Logistics Strategy and Stratification


Logistic activity profiles9

Logistic Activity Profiles

What does each profile tell us?

4. Transportation Activity Profile (TAP):

For each transportation lane, reports:

  • units, cases, pallets, truckloads, weight, volume, dollars moved, carrier availability, statistics, on-time percentage, damage and claims rates.

  • Helps measure carrier performance, routing, scheduling, consolidation opportunities.


Logistic activity profiles10

Logistic Activity Profiles

Example of Transportation Activity Profile (TAP):

Multi commodity transportation activity profile

in the chemical industry.


Logistic activity profiles11

Logistic Activity Profiles

What does each profile tell us?

5. Warehouse Activity Profile (WAP)

Helps reveal patterns in item activity and customer orders to help improve:

  • storage system design

  • warehouse layout

  • order activity profile

    Captures: requests, units, cases pallets, dollars, weight shipped per unit time.


Logistic activity profiles12

Logistic Activity Profiles

What does each profile tell us?

5. Warehouse Activity Profile (WAP)

  • Helps choose and design a storage system for each item.

  • Helps design order picking and shipping systems.

     Typically includes distributions such as:

  • Order mix by Family

  • Lines per order


Logistic activity profiles13

Logistic Activity Profiles

Example of Warehouse Activity Profile (WAP):

Lines per Order Distribution


Logistic activity profiles14

Logistic Activity Profiles

Example of Warehouse Activity Profile (WAP):

Item Popularity Distribution


Video

Video

Supply Chain Management

65


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