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Supply Chain Management

Chapter 1
GEM 361
3 Credit Hours
By Sushant Karki
Objective
To deal with managing logistics in the
context of continuously improving
customer service by managing
uncertainties and shortening lead
time.
Text Book
Logistical Management
The Integrated Supply Chain Process
Donald J. Bowersox
David J. Closs
Schedule Planning
Topics Net Contact
Hours

Logistics 4
Logistical Operations Integration 7
Customer Service 6
Supply Chain Relationships 6
Information and Forecasting 4
Inventory Strategy and Management 4
Transportation Infrastructure, Regulation and 6
Management
Warehouse Management & Material Handling 4
Packing 5
Total 46 hrs
The SCM Network

FIGURE 1.1: The logistics network


Evolution of Supply Chain
Management

Further
Refinement of
SCM
Capabilities
SCM
Formation/
Extensions

JIT, TQM,
Alliances

Inventory Management/Cost
Optimization

Traditional Mass Manufacturing

1950s 1960s 1970s 1980s 1990s 2000s Beyond


Chapter 1: Logistics
Logistics is unique. It never stops!
It happens around the globe twenty four
hours of every day, seven days a week,
during fifty-two weeks a year
It is difficult to visualize accomplishing
any marketing or manufacturing without
logistical support
Logistics is not a new concept. It has
been in practice since the beginning of
civilization
What is Logistics ?
Logistics involves the integration of
information, transportation, inventory,
warehousing, material handling and packaging
Logistics adds value when inventory is
correctly positioned to facilitate sales
In an average organization, 5% to 35% of sales
accounts to logistic expenditures
Logistics account for one of the highest cost of
doing business, second only to materials in
manufacturing or COGS in wholesaling/retailing
Overall Goal of Logistics
To achieve a targeted level of
customer service at the lowest
possible total cost

Logistics and logistics management


can be viewed as a core competency
for any organization
Logistical Management includes
design and administration of systems
to control the flow of material, work-
in-process and finished inventory to
support business unit strategy.
Two Other Formal Definitions
The design and management of seamless, value-
added process across organizational boundaries
to meet the real needs of the end customer
Institute for Supply Management
Managing supply and demand, sourcing raw
materials and parts, manufacturing and
assembly, warehousing and inventory tracking,
order entry and order management, distribution
across all channels, and delivery to the customer
The Supply Chain Council
Progression of Logistics
Costs

FIGURE 1-4: Logistics costs share of the U.S. economy


Composition of Logistics
Costs

FIGURE 1-5: Total U.S. logistics costs between 1984 and 2005
Logistics Cost Composition

Source: SCDigest, based on Data from State of Logistics 2013 Report


Supply Chain: The
Potential
P&Gs estimated savings to retail customers of $65
million through logistics gains

Dell Computers outperforming of the competition in


terms of shareholder value growth over more than two
decades by over 3,000% using:
Direct business model
Build-to-order strategy

Wal-Mart transformation into the worlds largest retailer


by changing its logistics system:
highest sales per square foot, inventory turnover and
operating profit of any discount retailer
Logistical Competency
When a firm decides to differentiate itself
based on logistical competency, it seeks to
outperform competitors in al facets of
operations. (core competency)
The strategy is to provide superior service
at a total cost below industry average
Typical characteristics: alternative logistical
capabilities, emphasizing flexibility, time-
based performance, operational control,
postponement capabilities and perfect
service performance
The Logistical Mission
An integrated effort to create customer
value at the lowest cost
Facilitate relevant manufacturing and
marketing operations
Challenge is to balance service
expectations and cost expenditures in a
manner that achieves business
objectives
Well designed logistical effort is required
Service:
In todays operating environment, the
only limiting factor for any level of
logistical service is economics, not
technology
Basic logistical service is measured in
terms of
Availability (meeting product requirements)
Operational Performance (elapsed time from
order to delivery)
Service Reliability ( accurate measurement
of availability and operational performance)
Total Cost:
The total cost of logistics
Total cost was positioned to include
all expenditures necessary to perform
logistical requirements
This concept showed how functional
costs interrelate
A firm committed to overnight service
at 100 percent consistency could
easily be at loss trying to provide
service that customers may not need,
expect or even want.
The Logistical Renaissance
Previous Perceptions
Overall total cost could not be reduced
by increasing spending in a specific
functional area
Dont fix it if it aint broke perception
NOT able to adopt the integrated
logistics in the era of traditional
accounting
The revival of Logistics
Logistical functions could be integrated
or cross-functional integration were
possible after computers
Continuous pressure for profit
improvement began
Technology and economic necessity
combined to spark change in logistical
practice that continues today
The most significant drivers of
change
1. Regulatory Change:
Creation for environment of transportation
innovation
Relaxed restraints concerning services, prices and
commitments provided by common and contract
carriers
2. Microprocessor Commercialization
Low cost data processing significantly affected
logistics operations
Provide computing power to complete most
transaction, performance control and decision
support information processing at user level
Usage of relational database for information to
achieve unprecedented level of logistical
performance
3. Information Revolution
Usage of Electronic Data Interchange (EDI)
for data transfer between businesses
(availability of timely information)
Fascimile an easy-to-use and low-cost
method to exchange hard copy documents
Logistical Operations improved as it was
easy to track information on real time basis
New strategies emerged : Just In Time (JIT),
Quick Response (QR), Continuous
Replenishment (CR), and automatic
Replenishment (AR)
4. Quality initiatives
Widespread adoption of Total Quality
Management
Basic Message Doing things right the first time
Realizing that poor logistical operations is poor
quality
Unique logistical solutions for quality-driven
expectations of each key customer
5. Alliances
Developing efficient interorganizational working
arrangements
Firms began to think both customers and
suppliers as business partners
New win-win scenarios emerged

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