Logistics and channel Logistics and channel managementmanagement

Week 12Week 12

Instructor: Jungwan LeeInstructor: Jungwan Lee

What is logistics?What is logistics?

..physical distribution..physical distribution ..supply chain management..supply chain management ..planning and implementing, an..planning and implementing, an

d controlling the physical flows od controlling the physical flows of materials and final goods from f materials and final goods from points of origin to points of use tpoints of origin to points of use to meet customer’s needs at a pro meet customer’s needs at a profit. (kotler)ofit. (kotler)

Supply chain management Supply chain management

In more recent years, with In more recent years, with the growing emphasis in the growing emphasis in marketing channels of firms marketing channels of firms cooperating in partnerships cooperating in partnerships and strategic alliances, SCM and strategic alliances, SCM describe logical systems that describe logical systems that emphasize close cooperation emphasize close cooperation to integrate the logistical to integrate the logistical operations of the different operations of the different firms in the channel.firms in the channel.

Logistic systemsLogistic systems

Total cost approachTotal cost approach -> Minimize firm costs-> Minimize firm costs -> Channel-wide cost -> Channel-wide cost

efficiencies efficiencies

Logistics system six basic Logistics system six basic componentscomponents

TransportationTransportation Materials handling;cross-Materials handling;cross-

docking docking Order processing;order cycle Order processing;order cycle

timetime Inventory control;Inventory control;

economic order quantityeconomic order quantity

WarehousingWarehousing Packaging Packaging

Third party logistics Third party logistics providersproviders This firm specialize in performing This firm specialize in performing

most or all of the logistical tasks.most or all of the logistical tasks. As specialists in logistics, As specialists in logistics,

companies such as Strategic companies such as Strategic Distribution, which focuses on Distribution, which focuses on maintenance, repair, and maintenance, repair, and operating supplies (MRO), are operating supplies (MRO), are able to provide superior service able to provide superior service at low cost than the firms who at low cost than the firms who hire them.hire them.

Efficient consumer Efficient consumer response (ECR)response (ECR) ..seeks to provide consumers with ..seeks to provide consumers with

better service and more value better service and more value through cooperation of all firms in through cooperation of all firms in the supply chain.the supply chain.

In an effort to address logistics In an effort to address logistics challenge, the grocery (food) challenge, the grocery (food) industry in recent years has industry in recent years has launched a massive effort to launched a massive effort to improve the logistics of food improve the logistics of food distribution from farm to distribution from farm to consumer.consumer.

Role of logisticsRole of logistics

..getting the right amount, ..getting the right amount, of the right products, to the of the right products, to the right place, at the right right place, at the right time, at the lowest possible time, at the lowest possible costs to the customer.costs to the customer.

..plays a critical role in ..plays a critical role in channel management.channel management.

The output of the logistics system;The output of the logistics system; key element of customer service key element of customer service

Product availabilityProduct availability Percentage in stockPercentage in stock

Order cycle timeOrder cycle time Elapsed time from order placement to Elapsed time from order placement to

order receiptorder receipt Distribution system flexibilityDistribution system flexibility

Response time to special requestResponse time to special request Distribution system informationDistribution system information

Speed, accuracy of responseSpeed, accuracy of response Post-sale product supportPost-sale product support

Response time in providing product Response time in providing product support support

Economic order quantityEconomic order quantity

Inventory control refers to the firm’s Inventory control refers to the firm’s attempt to hold the lowest level of attempt to hold the lowest level of inventory that still enable it to meet inventory that still enable it to meet customer demand.customer demand.

Inventory carrying costs: financing, Inventory carrying costs: financing, insurance, storage, lost, damaged, insurance, storage, lost, damaged, stolen goods---about 25%stolen goods---about 25%

Trade-off: inventory carrying costs Trade-off: inventory carrying costs versus ordering costs=total costsversus ordering costs=total costs

EOQ occurs at the point at which total EOQ occurs at the point at which total costs are lowest, by balancing costs are lowest, by balancing inventory carrying cost and ordering inventory carrying cost and ordering cost.cost.

Four key areas of interface between Four key areas of interface between logistics and channel managementlogistics and channel management

Defining logistics service Defining logistics service standardsstandards

Evaluating the logistics programEvaluating the logistics program Selling the channel members on Selling the channel members on

the logistics programthe logistics program Minimizing out-of-stock occurrencesMinimizing out-of-stock occurrences Reducing channel member inventory Reducing channel member inventory

requirementsrequirements Strengthening the manufacturer-Strengthening the manufacturer-

channel member relationshipchannel member relationship

Monitoring the logistics systemMonitoring the logistics system

Discussion1 Discussion1

Does this situation represent Does this situation represent an interface between an interface between channel management and channel management and logistics management?logistics management?

Timberland company case-Timberland company case-retailers/scanning equipmentretailers/scanning equipment

LG25 company caseLG25 company case

Discussion 2Discussion 2

Cross-docking systemCross-docking system ……which eliminates storage in the which eliminates storage in the

warehouse and the subsequent need warehouse and the subsequent need to pick stock to fill orders, can to pick stock to fill orders, can dramatically reduce labor and dramatically reduce labor and inventory carrying costs.inventory carrying costs.

The concept is just move it across the The concept is just move it across the loading docks to other trucks and loading docks to other trucks and send the merchandise on to its send the merchandise on to its intended final destination.intended final destination.

What are some of the complicating What are some of the complicating factors that make challenging to factors that make challenging to implement?implement?

Discussion 3Discussion 3

What are your suggestions What are your suggestions to solve the logistic to solve the logistic challenges of Korea?challenges of Korea?