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Lecturer:

Ho Trung Thao (thao.hotrung@hoasen.edu.vn)

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Course Objectives

Understand the definitions Logistics and Supply Chain

Understand the concept and key points of Supply ChainManagement.

Understand how to manage Supply Chain and Logistics inreal companies.

 Apply to a group project.

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 Chapter 1

Fundamentals of Logistics

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Learning Objectives 

DEFINE ‘logistics’ and associated terms 

UNDERSTAND the role and structure of supply chains

LIST different activities of logistics and understand the

relationships between them DISCUSS the aims of logistics

SHOW how logistics contributes to customer satisfaction

RECOGNISE the importance of logistics to every

organization.

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1. Basics Definition

 All organizations move materials.Manufacturers: raw materials finished goods.

Definition of Logistics: Logistics is the function that is

responsible for the movement of  materials (and

information). It is responsible for the transport and

storage of materials between suppliers and customers.

 According to the Council of Supply Chain Management

Professionals (CSCMP), a professional organization for

Logistics and SCM professionals, logistics is defined as:

“the process of planning, implementing and controlling theefficient, effective flow and storage of goods, services and

related information from point of origin to point of consumption

for the purpose of conforming to customer requirements” 

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 what is products?

 What is products?

Basic Definition (contd.)

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Basic Definition (contd.) Products: Goods (tangible) and Services (intangible)

Operations: Operations include manufacturing, serving,

transporting, selling, training, and so on. The main outputsare products.

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- People

- Buildings

- Raw materials

- Equipment- Information

- Investment

etc. . .

INPUT  OUTPUT 

OPERATIONS 

- Manufacture

- Serve

- Supply

- Transport- Sell

- Train

etc… 

- Goods

- Services

- Profit

- Waste- Wages

etc… 

Fig. 1.2. Operations of a organization

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Basics Definition (contd.) 

 LOGISTICS is the function responsible for the flow of

materials from suppliers into an organization,through operations within the organization, and thenout to customers.

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Inbound logistics: activities between external suppliers and the

organization

Outbound logistics: activities between external customers andthe organization

Operations within the organization: activities between internal

suppliers and internal customers 

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Link:

http://www.youtube.com/watch?v=V4JRH3e4xrg&featur

e=related 

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2. THE SUPPLY CHAIN

-Different names for these chains of activities and organizations.

emphasize the operations, refer to the process;

emphasize marketing, call it a logistics channel;

look at the value added, call it a value chain, 

see how customer demands are satisfied, call it a demand chain. ---Here we are emphasizing the movement of materials and will use

the most general term of supply chain.

 A SUPPLY CHAIN consists of the series of activities andorganizations that materials move through on their journey

from initial suppliers to final customers.

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Supply Chain of Sheets of Paper?

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Inbound logistics: activities between externalsuppliers and the organisation

Outbound logistics: activities between externalcustomers and the organisation

Operations within the organisation: activities betweeninternal suppliers and internal customers 

Fig. 1.5. Supply Chain

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Structure of the supply chain 

SUPPLY CHAIN = a series of activities and organizations that move materials from initial suppliers to finalcustomers

Upstream supply chain activities: involve initial supplier,

third tier supplier, second tier supplier, first tier supplier Downstream supply chain activities: involve first tier

customer, second tier customer, third tier customer, finalcustomer

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Do you want to avoid supply chain?

EG: The market of vegetables

the sugar and sugar cane, beet

 Well , You can get answer from figure!

Benefit from Supply Chain

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3. ACTIVITIES OF LOGISTICS 

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Procurement or purchasing.

Inward transport or traffic management Receiving

Warehousing or stores

Stock control, Order picking and Materials handling.

Outward transport Physical distribution management

Recycling, returns and waste disposal

Location and Communication

Logistics is the process of planning, implementing and controlling theefficient, cost-effective flow and storage of raw materials, in-process

inventory, finished goods and related information from point of origin to

point of consumption for the purpose of conforming to customer

requirements (Council of Logistics Management (CLM) - 

http://cscmp.org/default.asp) 

S f l i i i i i

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Summary of logistics activities

 

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Case Study

NIKE logistics centerhttp://www.youtube.com/watch?v=NkfHVYv5nUo&feature=related 

How UPS Cargo Containers Workhttp://www.youtube.com/watch?v=MyeqlieHhi4 

Simulationhttp://www.youtube.com/watch?v=_0UJ0lKnn_o&feature=related 

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Organizing Logistics

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4. Aims of logistics

 When you buy an item, what kind of contents will be takeinto your consider?

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Aims of Logistics  Logistics is responsible for the flow of materials through a

supply chain. This function is also called supply chainmanagement.

LOGISTICS is the time-related positioning of resources, or

the strategic management of the total supply-chain The SUPPLY-CHAIN is a sequence of events intended to

satisfy a customer.

The overall AIM OF LOGISTICS is to achieve highcustomer satisfaction. It must provide a high qualityservice with low – or acceptable – costs. 

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Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes 26

profits earne Assets asse

dRe tsturn on =  employed

Stocks,

money etc.

Property,

Equipment,

Plant, etc.

Current Assets

Fixed Assets

Assets 

Importance of Logistics 

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Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes 27

profits earne Assets

asse

dRe

tsturn on =

 employed

Customer

Satisfaction

Operating

Costs

Product

Features

Sales

Profit

Margin

Price

Profit

Importance of Logistics (cont.) 

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Example: ABC currently has sales of $ 20 mil. a year, with a stock level of 35% of

sales. Annual holding cost for the stock is 20% of value. Operating

costs are $8 mil./ year and other assets are valued at $15 mil. What isthe current return on assets? How does this change if stock levels arereduced to 25% of sales?

Solution: Taking costs over a year, the current position is:

Cost of stock = stock × holding cost = (20 × 0.35) × 0.2 = 1.4 mil./year

Total costs = operating cost + cost of stock = 8 + 1.4 = 9.4 mil./year

Profit = sales − total costs = 20 − 9.4 = 10.6 mil. /year 

Total assets = other assets + stock = 15 + (20 × 0.35) = 22 mil.

Return on assets = profit / total assets = 10.6 / 22 = 0.4818 (48.18%)

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The new position with stock reduced to 25% of sales has: ???Cost of stocks = 20 × 0.25 × 0.2 = 1 mil. /year

Total costs = 8 + 1 = 9 mil. /year

Profit = 20 − 9 = 11 mil./year 

Total assets = 15 + (20 × 0.25) = 20 mil.

Return on assets = 11 / 20 = 0.55 or 55%

 Reducing stocks gives lower operating costs, higher profitand a significant increase in Return on Asset (ROA).

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Example (cont.):

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Development of logistics

pressures to the use of logistics

Changes of Customers.

Changes of Competition

Other changes in retail markets  International trade continues to grow.

Organizations become to outsource peripheral activities and

concentrate on their core operations.

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Current trends

Improving communication Electronic data interchange (EDI)

Electronic point-of-sales data (EPOS)

e-purchasing of e-procurement

… 

Support of EDI:

Item coding (often bar-coding)

Electronic Fund Transfer (EFT)

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Current trends

Improving customer service Lower lead-times

synchronized material movement

mass customization

Other significant tendencies Globalization

Reduced number of suppliers

Concentration of ownership

Outsourcing. Make or Buy.

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Current trends

Other significant tendencies Cross-docking

Direct delivery

Stock reduction methods

Increasing environmental concerns More collaboration along the supply chain

Three important themes for logistics consider

LEANNESS, AGILITY  and INTEGRATION . Ideally,logistics should aim for all three of these

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Current themes

LEAN Logistics faster deliveries, reduce stock levels, reduce handling, lower

costs, reduce waste etc.

 AGILE Logistics

flexible and responsive, customized service, respond quicklyto a changing demand.

INTEGRATION Logistics

co-operate with other organizations

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Summary❑Every organization creates products to satisfy customer demand.

The operations that create these products need an effective and

efficient flow of materials. In this sense, ‘materials’ are all the goodsand services needed to create products.

❑ Logistics is the function that is responsible for the flow of materialsinto, through and out of an organization.

❑ Materials move through a series of related activities andorganizations between initial suppliers and final customers. Theseform a supply chain. Each product has its own supply chain.

❑ There are many possible structures for supply chains, but thesimplest view has materials converging on an organization through

tiers of suppliers, and products diverging through tiers ofcustomers.

❑ Logistics consists of a series of related activities. These range fromprocurement at the beginning of operations, through to physical

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Summary (cont.) ❑ An overall aim for logistics is to achieve high customer

satisfaction or perceived product value. This must be achieved with acceptable costs.

❑ Every organization depends on the movement of materials, andthe way this is done affects costs, profits, relations with suppliersand customers, customer service, and virtually every other

measure of performance.❑ There are a lot of pressures for improving logistics. Current

trends are: Improving communication, Improving customer service,some other significant tendencies.

❑ Current themes:

LEAN logistics, AGILE logistics, INTEGRATION logistics.

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Q i 01

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Quiz 01Prob.01

ABC currently has sales of $ 20 mil. a year, with a stocklevel of 35% of sales. Annual holding cost for the stock is

20% of value. Operating costs are $8 mil./ year and

other assets are valued at $15 mil. What is the current

return on assets? How does this change if stock levels arereduced to 25% of sales?

Prob.02

Draw a Supply Chain for Bottle of water

Homework 01

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Homework 01

(Due: next class) 5. The cost of logistics varies widely from organization to

organization. What factors affect these costs? Are the costsfixed or can they be controlled?

6. How could you find the best balance between service leveland costs?

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Production Inventory & Warehousing

 Transportation

Customers

Manufacturers

Suppliers

Material

 Transportation

Fig. 1.3. Logistics Network Transportation

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In practice, most organizations get materials from manydifferent suppliers, and sell products to many differentcustomers.

The supply chain converges as raw materials move inthrough the tiers of suppliers, and diverges as productsmove out through tiers of customers.

 A manufacturer might see sub-assembly providers as firsttier suppliers, component makers as second tier suppliers,materials suppliers as third tier suppliers, and so on. Itmight see wholesalers as first tier customers, retailers as

second tier customers, and end users as third tiercustomers .