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Lecture 1: Supply Chain Management: An Overview. Physical supply Physical distribution materials management outbound logistics inbound logistics. Development of the Supply Chain Concept Started in the 1960s with the development of the physical distribution concept

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Physical supply Physical distribution

materials management outbound logistics

inbound logistics

Development of the Supply Chain Concept
    • Started in the 1960s with the development of the physical distribution concept
    • Initial focus on physical distribution or outbound logistics was logical since finished goods
    • During the 1980s, the logistics or integrated logistics management concept developed in a growing number of organizations
    • The underlying logic of the systems or total cost concept was also the rationale for logistics management
    • Supply chain management can be viewed as a pipeline or conduit for the efficient and effective flow of products/materials, services, information, and financials
Major Supply Chain Issues
  • Technology
    • challenge is to evaluate and successfully implement the technology
  • Transportation Management
    • right product, right time, right quantity, right quality, right cost, right destination
  • Supply Chain Security
    • concern and potential challenge since 9/11
What is Logistics?
    • Logistics management
    • Business logistics management
    • Integrated logistics management
    • Materials management
    • Physical distribution management
    • Marketing logistics
    • Industrial logistics
    • Distribution
Logistics Definitions
  • Inventory:
    • Management of materials in motion and at rest
  • Customer:
    • Getting the right product, to the right customer, in the right quantity, in the right condition, at the right place, at the right time, and at the right cost (called the dictionary “seven Rs of logistics”)
  • International Society of Logistics:
    • The branch of military science having to do with procuring, maintaining, utility/ value and transporting material, personnel, and facilities
  • Council of Supply Chain Management
    • The art and science of management, engineering, and technical activities concerned with requirements, design, and supplying and maintaining resources to support objectives, plans, and operations
Logistics Definitions
  • Component support:
    • Providing time and place utility/value of materials and products in support of Functional management organization objectives
  • Common culture:
    • That part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption in order to meet customer requirements
    • Supply management for the plant (inbound logistics) and distribution
    • Management for the firm’s customers materials requirements, purchasing, transportation, inventory management, warehousing, materials handling, industrial packaging, facility location analysis, distribution, return goods handling, information management, customer service, and all other activities concerned with supporting the internal customer (manufacturing) with materials and the external customer (retail stores) with product
Four Subdivisions of Logistics
  • Business logistics:
    • That part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, service, and related information from point of use or consumption in order to meet customer requirements.
  • Military logistics:
    • The 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.
  • Event logistics:
    • The network 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.
  • Service logistics:
    • The acquisition, scheduling, and management of the facilities/assets, personnel, and materials to support and sustain a service operation or business.
Value-Added Roles of Logistics
  • The five principal types of economic utility which add value to a product or service are:
    • Form
    • Time
    • Place
    • Quantity
    • Possession
Logistics Activities
  • Transportation
  • Warehousing and storage
  • Industrial packaging
  • Materials handling
  • Inventory control
  • Order fulfillment
  • Demand forecasting
  • Production planning/scheduling
  • Procurement
  • Customer service
  • Facility location
  • Return goods handling
  • Parts and service support
  • Salvage and scrap disposal
Logistics in the Firm: The Micro Dimension
    • Another dimension of logistics is the micro perspective which examines the relationships between logistics and other functional areas in an organization
      • Marketing
      • manufacturing/operations
      • Finance
      • Accounting
      • Others

The impact that logistics can have upon return on assets (ROA) or return on investment (ROI) is very significant

  • ROA is defined as follows:
    • ROA = Revenue - Expenses/Assets Or
    • ROA = Gross Profit/Assets
Spatial Relationships:

Spatial Relationships are extremely significant to logistics is spatial relationships, the location of fixed points in the logistics system with respect to demand and supply points. Spatial relationships are very important to transportation costs, since these costs tend to increase with distance.

Techniques of Logistics System Analysis

Short-Run/Static Analysis

Long-Run/Dynamic Analysis

    • The nodes are fixed spatial points where goods stop for storage or processing.
  • Links

The links represent the transportation network and connect the nodes in the logistics system.

Three eras of globalization
  • The first era was initially driven by countries (1400–1800) seeking materials and goods not available in their own land
  • The second era of globalization (1800–2000) was driven by companies seeking goods and materials, labor, economies of scale, and markets.
  • In the third era of globalization, said to have begun around the year 2000, the significant characteristic is that it is being powered by individuals and smaller organizations
Supply Chains in a Global Economy
  • Economies and companies could improve their “wealth” by allowing specialization of tasks.
  • The advantage is true as long as you can sell the increased volume that is produced. It is an important role of logistics to help extend the market area of countries or companies through improved efficiency to lower the “landed cost” in new market areas.
The Scope and Magnitude of Global Business
  • The ability to connect to individuals and companies across the globe and to connect computer information systems on a 24/7 basis has provided unparalleled opportunity for collaboration horizontally and vertically in supply chains.
  • The trade volume with China was 18.2 percent of the total of the top 10 for 2006, and it increased its trade volume by 20 percent from 2005 to 2006. In 2000, China was number 4 following Canada, Mexico, and Japan.
Global Markets and Strategy
  • The global business environment has changed significantly and become much more conducive to business activity between and among different countries.
  • Success in the global market place requires developing a cohesive strategy, including product development, technology, marketing, manufacturing, and supply chains.
  • Global markets and strategy have four important characteristics:
    • standardization reduces complexity
    • global competition reduces the product life cycle
    • traditional organizational structures and business models frequently change
    • globalization introduces more volatility
Supply Chain Security: A Balancing Act
  • Given the importance of global trade to the United States, a delicate balance exists between security and the efficient flow of global commerce.
  • More cargo inspections, much more paperwork, and a longer time to clear U.S. borders are now a reality.
  • C-TPAT is a cooperative effort to secure the global supply chain and to facilitate legitimate cargo and conveyance.
  • Ports are a critical part of global supply chains and also a major focus for global security.
  • America’s ports are a vital part of its global commerce. Over $2 trillion in trade value per year passes through U.S. ports, and over $18 billion is collected in industry fees and taxes.
North American Free Trade Agreement
  • NAFTA establishes free trade between these three countries and provides the way the agreement is to be interpreted.
  • Even though the U.S./Canada Free Trade Agreement has been in effect for some time, certain trade barriers still remain.
  • The supply chain constraints will eventually be eliminated as NAFTA experience grows.
Global Transportation Options


  • The most pervasive and important global shipment method, accounting for two-thirds of all international movements. Major advantages are low rates and the ability to transport a wide variety of products and shipment size
  • Three major categories:
    • Liner service
    • Charter vessels
    • Private carriers


  • Fast transit times
  • An advantage in packaging
  • Disadvantage of air carriage is high rates
Global Transportation Options (cont.)


  • Use motor transport when shipping goods to between the United States and Mexico or Canada
  • It is very common in Europe
  • Motor also plays a large part in intermodal shipments


  • International railroad use is also highly similar to domestic rail use
  • Intermodal container shipments by rail are increasing
  • Maritime bridge concepts
    • Land bridge
Strategic Channel Intermediaries

Foreign Freight Forwarders

  • Supplies expertise to international shippers
  • Consolidate small shipments into more economical sizes
  • Derives income from fees for service

Non-Vessel-Operating Common Carriers

  • Consolidates and dispenses containers at inland points
  • Uses the shipping expertise that NVOCCs possess
  • Ocean carrier gains from the increased market area
Strategic Channel Intermediaries (cont.)

Export Management Companies

  • EMCs act as agents for domestic firms in the international arena
  • Obtain orders, selecting appropriate markets, distribution channels, and promotional campaigns

Export Trading Companies

  • ETC exports goods and services to overseas buyers and handles most of the export arrangement
  • ETC allows small- to medium-size firms to engage in foreign trade
Strategic Channel Intermediaries (cont.)

Customs House Brokers

  • Oversee the movement of goods through customs and ensure that the documentation accompanying a shipment is complete and accurate for entry into the country
  • Operate under power of attorney from the shipper to pay all import duties due on the shipment
  • The importer is ultimately liable for any unpaid duties
  • Keeps abreast of the latest import regulations and specific requirements of individual products
Storage Facilities and Packaging
  • Transit sheds provide temporary storage while the goods await the next portion of the journey
  • Carrier provided hold-on-dock storage free of charge until the vessel’s next departure date
  • Public warehouses are available for extended storage periods.
  • Bonded warehouses operate under customs agency’s supervision and are used to store, repack, sort, or clean imported merchandise entered for warehousing without paying import duties while the goods are in storage.
  • Export shipments moving by ocean transportation require more stringent packaging than domestic shipments normally do
  • The shipper may find settling liability claims for damage to export goods very difficult. Usually, the freight handling involves many firms, and these firms are located in different countries.