Post on 30-May-2018
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Lecture 2
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Different types of trade-offs:
1.Within distribution components
2.Between distribution components
3.Between company functions
4.Between company and external organizations
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Customer serviceChannels of distribution
Supply points
Production locations
Depot configurationDepot types
Location and size of depots
Transport modal choice
Third party or ownDirect delivery
Stock levels
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Vehicle types/sizes/numbers Contract hire
Primary routes
Delivery schedules Support facilities
Design and layout
Space allocation
Handling methods Information support systems
Monitoring procedures/order processing
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Goods receipt and checkingBulk storage
Order picking
Stock replenishment
Load scheduling
Stock update
Vehicle maintenanceVehicle workshop activity.
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Logistics
Strategy
The objectives of logistics strategy are:- Minimize cost- Minimize investment- Maximize customer service
Levels of logistical planning:- Strategic- Tactical- Operational
The 4 problem areas of supply chain planning
- Customer service levels- Facility location- Inventory decisions- Transportation decisions
When to plan?- No distribution network currently exists.- There has been no re-evaluation in 5 years.- When costs are changing rapidly, especially transport & inventory.- When markets have shifted.- When current distribution economics encourage shifts.- When there has been a major policy shift in logistics such as in price,
customer service, or investment level.
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Corporate to Functional
Strategic Planning
EconomicRegulatoryTechnologicalCompetitive
External factorsCorporate
strategic plan
Marketing
Finance
Manufacturing
Logistics
Functional strategic plans
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Flow of Logistics Planning
Facility location Operations strategy Inventory management
Information systems
Material handling Traffic and transportation Planning and control methods Organization
Individual Link of
Logistics SystemBusiness goals and
strategies
Customer service
requirements
Integrated logistics
planning
Design of integrated
logistics management
system
Overall performance
measures
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Logistics Objective
Maximize return on logistics
assets (ROLA)
Assets
CostsRevenueROLA =
Logisticscontribution
to sales
Investment
in logistics
assets
Costs of
logisticsoperations
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Decision area Strategic Tactical Operational
Transportation Mode selection Seasonal equip-ment leasing
Dispatching
Inventories Location, Control policies Safety stock levels Order filling
Order
processing
Order entry, transmittal,
and processing systemdesign
Processing
orders, Fillingback orders
Purchasing Development of supplier-
buyer relations
Contracting,
Forward buying
Expediting
Warehousing Handling equipment
selection, Layout design
Space utilization Order picking
and restocking
Facility
location
Number, size, and
location of warehouses
Strategic, Tactical, and Operational
Decision Making
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Six Concepts for Logistics Strategy
FormulationTotal cost concept
Tradeoff conflicting costs at optimum
Differentiated distribution Not all products should be provided the same level of
customer service
Mixed strategy A pure strategy has higher costs than a mixed strategy
Postponement Delay formati on of the final product as long as possible
Shipment consolidationSmaller shipment sizes have disproportionately higher
transportation costs than larger ones
Product standardizationAvoid product variety since it adds to inventory
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Cost of
transportation
serviceInventory cost
(includes
storage and
intransit
Total cost
Rail Truck Air
Cost,indollars
Transportation service
(greater speed and dependability)
A Cost Conflict in Logistics
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Choosing the Right Supply Chain
Strategy
FunctionalProducts--Predictable
demand
InnovativeProducts--
Unpredictabledemand
Efficient supplychain
Staple foodproducts
Responsivesupply chain
Electronicequipment
Low margin
High margin
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Classification of Products
Predictable/Mature Products
Corn FlakesLawn fertilizerBall point pens
Light bulbsAuto replacement tiresSome industrial chemicalsTomato soup
Unpredictable/IntroductoryProducts
New music recordingsNew computer games
Fashion clothesArt worksMoviesConsulting servicesNew product offerings ofexisting product lines
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Efficient
supply chain
s Economical production runs
s Finished goods inventories
s Economical buy quantities
s Large shipment sizes
s Batch order processing
Responsivesupply chain
s Excess capacity
s Quick changeovers
s
Short lead timess Flexible processing
s Premium transportation
s Single order processing
Supply-
to-stock
Supply-
to-order
Choosing the Right Supply Chain Strategy
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Seven Principles
of Supply Chain Management
Segment customers based on service needsListen to signals of market demand and plan
accordingly
Develop a supply-chain-wide technologystrategy
Customize the logistics network
Differentiate product closer to the customerSource strategicallyAdopt channel-spanning performancemeasures
Differentiated distribution
Design to customer needs
Postponement
Boundary spanninginfo. systems
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New
Product
Development
Marketing
and
Sales
Operations Distribution Service
Finance, Accounting, Information Technology, Human Resources
Business Strategy
New Product
StrategyMarketing
Strategy Supply Chain Strategy
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Strategic fit:Consistency between customer
priorities of competitive strategyand supply chain capabilities
specified by the supply chain
strategyCompetitive and supply chain
strategies have the same goals
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Facilitiesplaces where inventory is stored,
assembled, or fabricatedproduction sites and storage sites
Inventory
raw materials, WIP, finished goodswithin a supply chain
inventory policies
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Transportationmoving inventory from point to point in a supply chain
combinations of transportation modes and routes
Informationdata and analysis regarding inventory, transportation,facilities throughout the supply chain
potentially the biggest driver of supply chain
performance
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Efficiency Responsiveness
Facilities Transportation Inventory Information
Supply chain structure
Drivers
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Strategy
(Design)
Planning
Operation
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Cycle inventorySafety inventory
Seasonal inventory
inventory built up to counter predictable variability in
demandcost of carrying additional inventory versus cost offlexible production
Overall trade-off: Responsiveness versus efficiency
more inventory: greater responsiveness but greater cost
less inventory: lower cost but lower responsiveness
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Mode of transportationRoute and network selection
route: path along which a product is
shippednetwork: collection of locations and routes
In-house or outsourceOverall trade-off: Responsiveness versusefficiency
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Driver Efficiency Responsiveness
Inventory Cost of holding Availability
Transportation Consolidation Speed
Facilities Consolidation /
Dedicated
Proximity /
FlexibilityInformation What information is best suited for
each objective
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Distribution: the steps taken to move and
store a product from the supplier stage to
the customer stage in a supply chain
Distribution directly affects cost and thecustomer experience and therefore drives
profitability
Choice of distribution network can achievesupply chain objectives from low cost to high
responsiveness
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Distribution network performance evaluatedalong two dimensions at the highest level:
o Customer needs that are met
o Cost of meeting customer needsDistribution network design options must
therefore be compared according to their impacton customerservice and the cost to provide this
level of service
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Elements of customer service influenced by network structure:Response timeProduct varietyProduct availability
Customer experienceOrder visibilityReturnability
Logistics costs affected by network structure:InventoriesTransportationFacilities and handlingInformation
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Number ofFacilities
Response Time
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Local FG
Mix
Regional FG
Local WIP
Central FG
Central WIP
Central Raw Material and Custom production
Custom production with raw material at suppliers
Cost
Response Time HiLow
Low
Hi
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TransportationTransportation
Total Costs Related to
Number of Facilities
TotalC
osts
TotalC
osts
Number of FacilitiesNumber of Facilities
InventoryInventory
FacilitiesFacilities
Total CostsTotal Costs
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Manufacturer Storage with Direct Shipping
Manufacturer Storage with Direct Shipping
and In-Transit Merge
Distributor Storage with Carrier DeliveryDistributor Storage with Last Mile Delivery
Manufacturer or Distributor Storage with ConsumerPickup
Retail Storage with Consumer Pickup
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Manufacturer Storage with
Direct Shipping
Manufacturer
Retailer
Customers
Product Flow
Information Flow
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In-Transit Merge Network
Factories
Retailer
Product Flow
Information Flow
In-Transit Merge byCarrier
Customers
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Distributor Storage with
Carrier Delivery
Factories
Customers
Product Flow
Information Flow
Warehouse Storage by
Distributor/Retailer
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Distributor Storage with
Last Mile Delivery
Factories
Customers
Product Flow
Information Flow
Distributor/Retailer
Warehouse
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Manufacturer or Distributor Storage
with Customer Pickup
Factories
Retailer
Pickup Sites
P d t Fl
Cross Dock DC
Customer Flow
Customers