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Fundamentals ofLogistics and Supply

Chain Management

Dr. Mary Collins HolcombDr. Mary Collins Holcomb

Associate ProfessorAssociate Professor

November 16th and 18th, 1999November 16th and 18th, 1999

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University of Tennessee

Agenda

x The Role of LogisticsThe Role of Logistics

x Integrated Logistics ManagementIntegrated Logistics Management

x Information ManagementInformation Managementx Implementing Logistics StrategyImplementing Logistics Strategy

x Supply Chain ManagementSupply Chain Management

x Issues and ChallengesIssues and Challenges

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The Role of Logistics

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Logistics Management

That part of supply chain managementThat part of supply chain management

which deals with the process of planning,which deals with the process of planning,

implementing and controlling the efficient,implementing and controlling the efficient,effective flow and storage of goods,effective flow and storage of goods,

services, and related information fromservices, and related information from

point of origin to point of consumption forpoint of origin to point of consumption for

the purpose of conforming to customerthe purpose of conforming to customerrequirements.requirements.

-- Council of Logistics Management-- Council of Logistics Management

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MOVETangible goods still have to move (and be stocked)through space and time. . . new strategies and

methods must create new value.

movemove

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Logistics Management

Demand

F

orecasting

P

urchasing

Inventory

Management

P

roduction

Management

D

istribution

Center

O

perations

Order

Management

Tran

sportation

Management

Customer

Service

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.

Transportation costs

comprise the single

largest element in mostphysical distribution

systems

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Shared Services

Distribution

Planning

InventoryDeployment/Reduction

Basic Service

Delivery

Service

Value-AddedServices

Inter-Facility/Outbound Transportation

Management

WarehouseManagement

OutsourcingStrategy

DistributionNetwork

Configuration

Customer-SupplierRelation/Partnership

3rd Party ServiceProvider Relation/

Partnership

AssetManageme

nt

RevenueEnhanceme

nt

Operational

Efficiency

Planning/Operati

onal

Strateg

ic

New LogisticsT e

Excellence in distribution & transportation adds value at all levels.

T

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1. Rationalize distribution networks

2. Outsource select processes

3. Explore shared facilities4. Understand supply chain tax

implications

5. Consolidate warehouses

6. Replace inventories with

information

7. Reduce distribution cycle time

8. Implement demand-driven planning

New LogisticsT e

To improve deployment & management of assets . . .

educecapital expenditures byimproving usage of fixed

assets

educeworking capital byminimizing inventories

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Drivers Behind Increase in Transportation

Expenditures

x Accelerating trend toward leaner, more flexible logistics

networks

x Less inventory in the pipeline

x Increasing demand for synchronized service

x Increasing requirement for faster more reliable

transportation service over longer distances

Pressure to reduce cost and improve servicePressure to reduce cost and improve service

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Integrated Logistics

Management

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Integrated Logistics

PRODUCT FLOWPRODUCT FLOW

x Physical SupplyPhysical Supply

x Manufacturing SupportManufacturing Support

x ProcurementProcurement

x Physical DistributionPhysical Distribution

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Integrated Logistics (cont.)

INFORMATION FLOWINFORMATION FLOW

x Coordination flowsCoordination flows

xStrategic objectivesStrategic objectives

xCapacity constraintsCapacity constraints

x

Logistical requirementsLogistical requirementsxForecastingForecasting

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Integrated Logistics (cont.)

INFORMATION FLOWINFORMATION FLOW

x Operational FlowsOperational Flows

xOrder managementOrder management

xOrder processingOrder processing

x

Distribution operationsDistribution operationsxInventory managementInventory management

xTransportationTransportation

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Operating Objectives

x Rapid responseRapid response

x Minimum varianceMinimum variance

x Minimum inventoryMinimum inventoryx Movement consolidationMovement consolidation

x QualityQuality

x Life-cycle supportLife-cycle support

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Barriers to Integration

x Organizational structureOrganizational structure

x Measurement systemsMeasurement systems

x Inventory ownershipInventory ownershipx Information technologyInformation technology

x Knowledge transfer capabilityKnowledge transfer capability

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Measuring Performance

Several different approaches may be used toSeveral different approaches may be used to

measure the functional performance ofmeasure the functional performance of

logistics:logistics:

x cost criteriacost criteria

x

productivity criteriaproductivity criteriax service criteriaservice criteria

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Measuring Performance

Firms evaluate logistics managers primarilyFirms evaluate logistics managers primarily

on the basis of three factors:on the basis of three factors:

x line management abilityline management ability

x problem-solving abilityproblem-solving ability

x

project management abilityproject management ability

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Best of the Best Logistics

Firms

x Organizationally positioned to guideOrganizationally positioned to guide

logistics activities at all levels - strategic,logistics activities at all levels - strategic,

tactical, and operational;tactical, and operational;

x Internal integration has enabled theInternal integration has enabled the

development of operational excellence,development of operational excellence,

and boundary spanning relationships;and boundary spanning relationships;

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Best of the Best Logistics

Firms (cont.)

x Demonstrated agility in terms of theDemonstrated agility in terms of the

firms competency with respect tofirms competency with respect to

relevancy, accommodation, and flexibility.relevancy, accommodation, and flexibility.

x Measured performance both internally andMeasured performance both internally and

externally.externally.

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Information Management

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Electronic Commerce

x Examples:Examples:

x Electronic data interchange (EDI)Electronic data interchange (EDI)

x e-maile-mailx Electronic funds transferElectronic funds transfer

x Electronic publishingElectronic publishing

x Shared databasesShared databasesx Internet / Web sitesInternet / Web sites

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A. The sender assembles the data using its own business application

system

B. This data is translated into an EDI standard format (i.e., transactionset)

C. The transaction set is transmitted either through a value added

network (VAN) or directly to the receiver's EDI translation system

D. The transaction set, in EDI standard format, is translated into files that

are usable by the receiver's business application system

E. The files are processed using the receiver's business application

system

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Electronic Commerce Levels

x LEVEL 1LEVEL 1

One-way communicationOne-way communication

x LEVELLEVEL 22

Database accessDatabase access

x LEVEL 3LEVEL 3

Data exchangeData exchangex LEVEL 4LEVEL 4

Sharing processesSharing processes

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The Internet Changes

Everything!

x The Internet is ubiquitous.The Internet is ubiquitous.

x The Internet is user friendly.The Internet is user friendly.

x The Internet is inexpensive.The Internet is inexpensive.

x The Internet is global.The Internet is global.

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How Long Until Your

Company...

x Receives over 64% of its $8.5 billion inReceives over 64% of its $8.5 billion in

sales over the Internetsales over the Internet

x 70% of all technical support questions are70% of all technical support questions areasked over the Internetasked over the Internet

x 55% of its employee resumes come over55% of its employee resumes come over

the Internetthe Internet

Cisco Systems, USA Today, Sept. 23, 1998Cisco Systems, USA Today, Sept. 23, 1998

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Implementing Logistics Strategy

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If logistics managers do not understand

corporate strategy, they will not be ableto make decisions that are in the best

interest of the organization.

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The Hierarchy of Planning

Strategic Tactical Operational

____________________________________

What is the organizations overall customer service

strategy and what should it be?

What are the best opportunities for cost reduction in

the organizations logistics system?

What are the core competencies of the logistics

function, I.e. which activities should be

outsourced?

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The Strategic Issues and

Challenges

x How to help the firm and its customers deal with big

changes -- globalization, restructuring, competition

x How to improve profitability (growth) and value creation- for the firm and its customers

x How to raise the performance of all services to

competitive advantage levels

x How to integrate/leverage logistics within the firm and

the supply chain

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Supply Chain Management

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The supply chain encompasses

all activities associated with theflow and transformation of goods

from the raw materials stage,

through to the end user, as wellas the associated information

flows.

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How to Achieve Profitable Growth

and Value Creation*

i

ProfitableGrowth

Working

CapitalEfficiency

TaxMinimization

Fixed CapitalEfficiency

Cost Minimization

Value

Time

* Based on Supercharging Supply Chains, a new book by E&Y/J. Wiley, Inc.

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Stages of Supply Chain

Development

x STAGE 1 - FundamentalsSTAGE 1 - Fundamentals

Focus on qualityFocus on quality

x STAGE 2 - Cross Functional TeamsSTAGE 2 - Cross Functional TeamsServe our customersServe our customers

x STAGE 3 - Integrated EnterpriseSTAGE 3 - Integrated Enterprise

Drive business efficiencyDrive business efficiency

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Stages of Supply Chain

Development (cont.)

x STAGE 4 - Extended Supply ChainSTAGE 4 - Extended Supply Chain

Create market valueCreate market value

x STAGE 5 - Supply Chain CommunitiesSTAGE 5 - Supply Chain CommunitiesBe a market leader!Be a market leader!

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Supply Chain Cost Categories

x ManufacturingManufacturing

x Purchased materials, labor, equipment charge,Purchased materials, labor, equipment charge,

and suppliers marginand suppliers marginx MovementMovement

x Transportation, inventory in the pipelineTransportation, inventory in the pipeline

(cycle), safety stock, and duty(cycle), safety stock, and duty

x Incentives and subsidiesIncentives and subsidies

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Supply Chain Cost Categories

(cont.)

x IntangiblesIntangibles

x Quality, product adaptation or performance,Quality, product adaptation or performance,

coordinationcoordinationx OverheadOverhead

x Total current landed costsTotal current landed costs

x

Long-termLong-termx Productivity and wage changes, exchange rates,Productivity and wage changes, exchange rates,

product design, and core competenciesproduct design, and core competencies

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Sluggish Supply Chains

x Lack of synchronization in materialsLack of synchronization in materials

managementmanagement

x

Ambiguous goals and objectivesAmbiguous goals and objectivesx Poorly designed procedures and formsPoorly designed procedures and forms

x Outdated technologyOutdated technology

x

Lack of informationLack of information

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Sluggish Supply Chains

x Poor communicationPoor communication

x Limited coordinationLimited coordination

x Limited cooperationLimited cooperationx Lack of / ineffective trainingLack of / ineffective training

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The Strategic Issues and

Challenges

x How to help the firm and its customers deal with bigHow to help the firm and its customers deal with big

changes -- globalization, restructuring, competitionchanges -- globalization, restructuring, competition

x How to improve profitability (growth) and valueHow to improve profitability (growth) and valuecreation - for the firm and its customerscreation - for the firm and its customers

x How to raise the performance of all services toHow to raise the performance of all services to

competitive advantage levelscompetitive advantage levels

x How to integrate/leverage logistics within the firmHow to integrate/leverage logistics within the firm

and the supply chainand the supply chain

Documents

Sup Chain 1