Logistics and distribution Introduction - BeePOM 03 intro... · •“The procurement, maintenance,...

Logistics and distribution

Introduction

Programme Outline

• What does logistics mean• Definition of logistics

• The logistics execution• Military and Industrial logistics• The importance of logistics• The main trends in logistics

• Two main performance dimensions• The total logistic cost

• The service level

• The service level / costs trade‐off

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Programme Outline






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Definition of LogisticsSupply Chain Management is a process‐oriented approach to managing product, information and funds flows across the overall supply network, from the initial suppliers to the final end consumers

4

Integration and co-ordination (partnership) reduce logistics costs and increase service level

Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. The customer remains the primary focus of the process

Logistics Management is the process of planning, implementing and controlling the efficient flow and storage of materials and the information flow from point of origin to point of consumption for customer requirements

Is there any difference ???

Metz P., 1998CLM, 1986

Lambert and Cooper, 2000

Definition of LogisticsSupply Chain Management is a process‐oriented approach to managing product, information and funds flows across the overall supply network, from the initial suppliers to the final end consumers

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Logistics is 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 the point of origin to the point of consumption in order to meet customers’ requirements.

Logistics Management is the process of planning, implementing and controlling the efficient flow and storage of materials and the information flow from point of origin to point of consumption for customer requirements

Is there any difference ???

Metz P., 1998CLM, 1986

CLM (Council of Logistics Management)

Definition of Logistics

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1. Internal supply chainsProcesses Company

2. Customer-supplier relationships

3. External supply chains

4. Networks of companies

Increasing fragmentationand outsourcing

1982Oliver & Webber

1984Hayes &

Wheelwright

1998Tan et al.

Metz

2000ICFCE,

Ballou et al.,Lambert &

Cooper

1994Berry et al.,

ICFCE

1991Ellram

1992Christopher,

Lee & Billington

1995Saunders

1997Kopczak,Lee & Ng

1985Jones &

Riley

1960s/70sNCPDM, CLM

Definition of Logistics

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Customer Relationship Management

Customer Service Management

Demand Management

Order Fulfillment

Manufacturing Flow Management

Supplier Relationship Management

Product Development and Commercialization

Reverse Logistics

Global Supply Chain Forum, 2000

Delivery

The logistics execution• Material flows:

• receiving• stocking• (manufacturing)• picking• packaging• dispatching

• Information flows:• orders processing• elaboration and printing of bills• printing of transportation

documents• …

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STOCKSTOCK

Availability check

Input

Order

Controls

Delivery programOrder processing

Dispatching

Transportation to customer

Loading

PickingQuality control

Consolidation

Packaging

Military logistics• “The procurement, maintenance, and transportation of military material, facilities, and personnel”.

• Webster’s seventh new collegiate dictionary,1963

• “The science of planning and carrying out the movement and maintenance of forces”.

• In its most comprehensive sense, those aspects of military operations which deal with:

• Design and development, acquisition, storage, movement, distribution, maintenance, evacuation and disposal of materials

• Movement, evacuation and hospitalization of personnel• Acquisition or construction, maintenance, operation and disposition of facilities

• Acquisition or furnishing of services• NATO : north Atlantic treaty organization

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Industrial logistics• RAM LOGISTICS (repairable systems logistics)

• All the levers needed to effectively and efficiently support a complex system during its life cycle (ex.: machine tool)

• BULK LOGISTICS• The management of bulk material flows, usually row materials (for instance cereal, sand, carbon, liquids,

…) Flows with a great amount of low value products and no packaging

• AFTER‐SALES LOGISTCS• All the activities tied with the after‐sales services (ex.: mobile phones)

• PROJECT LOGISTICS• The management and control of all the needed activities in not‐repetitive processes (ex.: the building of a

new warehouse or a new plant)

• REVERSE LOGISTICS• Activities with the aim to dismiss, separate, dispose and recycle components or materials at the end of

the product life cycle. The logistics of material flows in the reverse direction, from customers back up the supply chain.

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Industrial logistics

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Project

Production(Implementation)

Distribution

Use (After-salesservice)

Row materials

Bulk materials

Consumer goods(foodstuffs, clothing, …)

Durable goods (cars, fridges, ovens, …)

Complex goods(airplanes, machines, plants, …)

Life cycle

Technological complexity

Bulk Logistics

Industrial / Business Logistics

After-sale logistics

(RAM Logistics)

Industrial/ Business Logistics

Industrial/ Business Logistics

DismissalReverse Logistics

RAM Logistics

Project Logistics

The importance of logistics

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Two main difficulties in Integrated Logistics Management: Different facilities (often different companies) with different and sometimes conflicting objectives The supply chain is a dynamic system that evolves over time:

Demand variations Production and distribution capacities Relationships along the network …

Some figures: $862 Billion (10% of U.S. GNP) spent in U.S. on supply related activities in 1997 (movement,

storage and control) It takes a typical box of cereal more than 3 months to get from the factory to the supermarket It takes a typical new car, on average, 15 days to travel from the factory to the dealership. The

actual travel time is no more than 4 to 5 days P&G saved retail customers $65 million over the past 18 months National Semiconductor reduced distribution costs by 2.5%, decreased delivery time by 47%, and

increased sales by 34% Wal-Mart best practices have cut the cost of sales by 3% compared to the industry average ….


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Logistics costsProfits

Industrial costs

Added value

TotalSC

10 1,83,223

43,3

35

11,58

69

14,5

16,5

15,3

30,3

54,5 100

Supplyer Manufacturer Distributors

22

15,51,5

22,8

6,84,5

6

43

22,3

12,7

6,5

55,2 100

Financial costs of stocksObsolescence costs

Other costs (adm., quality, …)

Transport and handling

23

5

15,5

49,5

6,2

TotalSC

Supplyer Manufacturer Distributors


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Better service level

Lower costs (transports, stocks, etc.)

Lower stocks (finished goods, work in

progress and row materials)

Less resources and infrastructures

(warehouses, vehicle, etc.)

Value for shareholders

(ROI)

EBIT

Invested capital

Sales

Costs

Operating working capital

Fixed capital

ROI =

+

-


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Transportation costs

ProductPrice Promotion

People

Logistics process

Costs of inventories

Handling and stocking costs

Setup costs

Order planning costs

Marketing Mix


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Product

Price

People

Promotion

Food Chemical Pharmac. Auto Paper Electronic Textiles Total

34,8

25,8

20,0

19,4

33,0

34,8

19,1

13,1

36,9

29,4

17,3

16,4

26,8

29,8

33,5

9,9

23,2

35,8

28,9

12,1

41,3

26,5

21,8

10,4

34,7

22,0

22,8

20,5

33,3

29,9

22,4

14,4

“Importance of Marketing Variables by Industry”Council of Logistics Management 1988

The main trends in logistics

• Globalization• Outsourcing• Supply Chain Management / Supply Chain integration Projects

• Innovation in ICT (ERP, DRP, …)• e‐Commerce• Environment• Mass customization

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18

0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

Local Europe World Local Europe WorldRef. +5 y +10 y

MARKETS SOURCES- 11- 15

+33

+33 +33

+27

Global selling Global sourcing


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Transport

Stocking

Transports management

Information Technology

Added value services

Billing

Logistics management

50%

18%

23%

12%

20%

40%

39%

76%

300%

160%

44%

2%

5%

16%

Outsourcing 1998

Expected 1998-2003

Source: AT-Kearney "Insight to Impact", 1998


• Transportation

• Warehousing

• Operations

• Inventories

• Stock‐outto trace back to poor service level

• Lost sales; lost customers; delayed cash flow; backorders; penalty clause; reputation

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3PL

Easy to outsource

Difficult to outsource

Impossibleto outsource

Consignmentstock

Programme Outline






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Two performance dimensions

• TOTAL LOGISTIC COST• to provide a certain service level

• SERVICE LEVEL• multidimensional concept

• (7Rs: the Right product, the Right quantity, the Right condition, the Right place, the Right time, the Right customer, the Right cost)

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The total logistic cost

• Components• Plants and warehouses

• Inventory

• Transportation

• Forecast

• Admins

• Handling and packaging

• Direct labor

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Organizational Functions Purchasing Warehousing Materials management, Production

planning and control … Information systems Customer Care Marketing/sales, Subsidiaries ….. Integrated logistics units

The total logistic cost

Distribution costs (% of turnover)

USA Europe

Inventories 1,64% 1,51%

Admins 0,35% 0,52%

Order management 0,59% 0,94%

Fixed assets 1,90% 2,22%

Transportation 2,84% 2,72%

Total 7,22% 7,80%

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Herbert Davies (400 companies)

The service level• The logistics process is one of the most important lever for many key factors of the customer service. Thus these key factors can be used as dimensions to measure the performance in effectiveness of the logistic process.

• For instance: • Cycle time order‐delivery• Delivery accuracy• Inventory coverage• Quality of available information on work in progress

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Input(resources)

Output Clients

CUSTOMER SERVICECUSTOMER SERVICE

LOGISTICS PROCESSLOGISTICS PROCESS

The service level

Behaviour

Product

Buy same brand, different

package(%)

Buy another brand (%)

Delayed purchase (%)

Search in another store

(%)

Buy a substitutive product (%)

Coffee 19 41 15 21 4

Tea 2 34 12 48 4

Soft Drinks 10 29 15 36 10

Butter 3 55 16 24 2

Detergents 8 37 17 38 0

Canned vegetables 18 61 8 12 1

Toilet paper 0 20 40 39 1

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The effects of a poor service level

Service level / costs trade‐off

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FACTORS THAT INFLUENCE THE SERVICE - REVENUES RELATIONSHIP• Product uniqueness• Purchasing behavior• Brand loyalty• Competitors’ strategies• Distribution channels’ behaviors

Revenues

Service

Costs

Trade off between service level and logistic costs

Service level / costs trade‐offThree approaches

• BudgetingTotal cost is negotiated and fixed, then logistic managers strive to squeeze the maximum service level

• MarketingService level is determined as a part of a marketing strategy, then logistic managers try to minimize costs while keeping the service level

• AnalyticalJoint evaluation of service and costsEvaluation of stock‐out costsTrade off optimization

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R, C

Service level

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