Logistics Management

OPMA 4302 /5369

Business Logistics:
A Vital Subject

The supply chain is

simply another way of
saying the whole
process of business.

Logistics in History

IntroductionChapter 1

18th & 19th Century Warfare

18th Century armies are supposed to have fed
from magazines in their rear, yet they normally
subsist at the enemys expense.
JAH de Guibert in Essai Gnral de Tactique, 1803

Pass the order to levy a contribution of many

millions from Lerida as a means to feed, pay,
and dress the army. I cannot send money, war
should nourish war. Napoleon Bonapart in 1810 Communique
Such is the superiority of a war carried on by
means of requisitions over one dependent on
magazines that the latter does not at all look
like the same instrument.
MG Karl von Clausewitz in Vom Kreige, 1832

IntroductionChapter 1

US Civil War

Gettysburg Battlefield CSA Artillery Battery Position, 1863

IntroductionChapter 1

18th & 19th Century Warfare

Three of GEN Robert E. Lees objectives for the
Gettysburg campaign in July 1863
Feed my soldiers off the enemys land
Capture the boot factory in Gettysburg to cover

barefooted soldiers
Capture enemy provisions for war

Both GENs Grant and Sherman fought battles of

annihilation (scorched earth) in Mississippi and Georgia
(destroy enemys supplies)
MG Sheridan used this philosophy in 1868 Winter
Campaign to destroy the Southern Cheyenne, Arapaho,
Kiowa, and Comanche (starve, freeze, or surrender)
GEN Sheridan repeated the strategy with 1876 Winter
Campaign to destroy Sioux and Northern Cheyenne
IntroductionChapter 1

20th Century Warfare

World War I

Germans entered WWI with no arrangements to feed their

horses
Fodder frequently found, ready-harvested, and neatly
stacked in the fields
H. von Kuhl und J. von Bergmann, 1920

World War II

In view of the undoubted importance of mud as a factor

in the German defeat (Soviet Invasion 1941), the

Wehrmacht was wrong in basing its logistic system on
wheels instead of tracks.
B H Liddell Hart in History of WWII, 1972

US Military brought detailed Operations Research and

Logistics Planning skills into Operation Torch and later

Operation Overlord
Red Ball ExpressOne way highway system in Europe open
exclusively to thousands of Allied Logistics vehicles (24
hours per day)
IntroductionChapter 1

World War II

Invasion of Fortress Europe, D-Day 1944

IntroductionChapter 1

World War II

USA Engineers Build Pontoon

Bridge Across Mosel River,
IntroductionChapter 1
1944

Desert Storm

Military Containers Arrive in Saudi Arabia, 1990

IntroductionChapter 1

10

What Is A Supply Chain?

Network of manufacturing &

distribution sites that interact to
procure & transform raw materials for
producing finished goods to customers.

IntroductionChapter 1

11

Supply Chain
Manufacturers

Warehouses

Raw
Material

Customers
Assemblers

Stages
Procurement

Production
IntroductionChapter 1

Distribution
12

Concentrate Plant
Bottling Plants
Distribution Centers

Physical Flows

Suppliers

Information and Money Flows

Supply Chain for Beverage Provider

Customers
IntroductionChapter 1

13

Supply Chain Decisions

Strategic level

Tactical

Operational

Long term

Mid term

Near term

IntroductionChapter 1

Corporate objectives
Capacity
Facilities size/location
Mode selection
Design of order entry
Inventory positioning
Resource allocation
Seasonal service mix
Contracting, vendor
Selection
Routing and dispatching
Order filling
Replenishment quantities
And timing

14

The Immediate Supply Chain for an Individual Firm

Transportation

Factory

Transportation

Warehousing

Customers

Information
flows

Transportation

Warehousing

Transportation

IntroductionChapter 1

Vendors/plants/ports

1-2

15

Logistics Defined

Supply Chain Management Defined

IntroductionChapter 1

16

Evolution of Supply Chain Management

IntroductionChapter 1

17

Supply Chain Schematic

IntroductionChapter 1

1-5

18

The Logistics/SC Mission

IntroductionChapter 1

19

A Revised Strategy is Generating

Great Top Management Interest
Historical perspective of distribution:
The last frontier of cost economies
Peter Drucker, 1962

The contemporary view:

Distribution is a new frontier for demand
generationa competitive weapon.
Both
Bothviews
viewsare
are
now
now important!
important!
IntroductionChapter 1

20

Critical Customer Service

Loop
Customer order processing (and
transmittal)

Transportation
Customers
Inventory
or supply source

IntroductionChapter 1

21

Physical Distribution Costs

Category

Percent of sales

$/cwt.

3.34%

$26.52

Warehousing

2.02

18.06

Order entry

0.43

4.58

Administration

0.41

2.79

Inventory carrying

1.72

22.25

7.65%

$67.71

Transportation

Total

Add one-third for inbound supply

costs

Source: Herb Davis & Company

IntroductionChapter 1

Logistics cost
are about 10% of
sales w/o
purchasing costs
22

Customer Service Performance

Source: Herb Davis & Company

IntroductionChapter 1

23

Significance of Logistics

IntroductionChapter 1

24

Costs are lower than K-Mart or

Target Stores
CEO is a former logistician
Wal-Mart is the largest retailer in
the world!
IntroductionChapter 1

25

Effect on Logistics Foreign Outsourcing

Domestic sourcing

Foreign sourcing

Profit
G&A

Profit
G&A

Marketing

Increase

Marketing

Logistics

Logistics

Overhead

Increase

Tariffs
Overhead

Materials
Materials
Labor

Labor
IntroductionChapter 1

Reduction
26

Scope of Supply Chain for Most Firms

Inbound
logistics

Business logistics

Physical supply
(Materials management)
Sources of
supply

Outbound
logistics
Physical distribution

Plants/
operations
Transportation
Inventory maintenance
Order processing
Acquisition
Protective packaging
Warehousing
Materials handling
Information maintenance

Customers
Transportation
Inventory maintenance
Order processing
Product scheduling
Protective packaging
Warehousing
Materials handling
Information maintenance

Focus firms internal supply chain

IntroductionChapter 1

1-14

27

Key Activities/Processes

Primary
- Setting customer service goals
- Transportation
- Inventory management
- Location

Secondary, or supporting
- Warehousing
- Materials handling
- Acquisition (purchasing)
- Protective packaging
- Product scheduling
- Order processing
IntroductionChapter 1

28

The Supply Chain is Multi-Enterprise

Scope
in reality
Focus
Company
Suppliers

Customers
Customers/
End users

Suppliers
suppliers

Acquire

Convert

Distribute

Product and information flow

IntroductionChapter 1

29

Reality of SC Scope

IntroductionChapter 1

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IntroductionChapter 1

31

Customer
service goals
The product
Logistics service
Ord. proc. & info. sys.

Location Strategy
Location decisions
The network planning process

C O N T R O L L IN G

Transport Strategy
Transport fundamentals
Transport decisions

P L A N N IN G

Inventory Strategy
Forecasting
Inventory decisions
Purchasing and supply
scheduling decisions
Storage fundamentals
Storage decisions

O R G A N IZ IN G

Study Framework

The focus is
here
IntroductionChapter 1

32

The Logistics Strategy Triangle

Inventory Strategy
Forecasting
Transport Strategy
Storage
fundamentals

Transport fundamentals
Inventory decisions
Transport decisions
Purchasing
and
supply

scheduling decisions
Customer
Storage decisions
service goals
The product
Logistics service
Information sys.
Location Strategy
Location decisions
The network planning process

IntroductionChapter 1

33

Relationship of Logistics to
Marketing and Production
PRODUCTION/
OPERATIONS
Sample activities:
Quality control
Detailed production
scheduling
Equipment maint.
Capacity planning
Work measurement
& standards

Interface
activities:
Product
scheduling
Plant
location
Purchasing

LOGISTICS
Sample
activities:
Transport
Inventory
Order
processing
Materials
handling

Interface
activities:
Customer
service
standards
Pricing
Packaging
Retail
location

Productionlogistics
interface

MARKETING
Sample
activities:
Promotion
Market
research
Product
mix
Sales force
management

Marketinglogistics
interface

Internal Supply Chain

IntroductionChapter 1

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1-21

Logistics

Marketing

Relationship of Logistics to
Marketing
Product
Promotion

Price
Place-Customer
service levels

Transport
costs

Inventory
carrying costs
Lot quantity
costs

Order processing
and information
costs
IntroductionChapter 1

Warehousing
costs

1-22

35

Relationship of Logistics to Production

Coordinates through scheduling and strategy

make-to-order or make-to-stock
An integral part of the the supply chain
Affects total response time for customers
Shares activities such as inventory planning
Costs are in tradeoff
Production lot quantities affect inventory
levels and transportation efficiency
Production response affects transportation
costs and customer service
Production and warehouse location are
interrelated
IntroductionChapter 1

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Logistics/SC in Diverse Areas

Manufacturingmost common
Environmentcausing restrictions
Serviceemerging opportunities
Non-profitslittle explored
Militarylong history

IntroductionChapter 1

37

Contemporary Logistics Terms

Value stream/logistics process

Quick response and flexible
manufacturing
Mass customization
Supply chain management/
collaborative logistics
Reverse logistics
Service logistics
Continuous replenishment
Lean logistics
Integrated logistics
IntroductionChapter 1

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Logistics Principle #1
Logistics Benefits Society
Makes Goods & Services Available
It Influences Price of Goods & Services
It Helps Society Respond to Needs of

Citizens

Standard of Living
Emergency Needs For Food, Medical Care, &
Shelter

IntroductionChapter 1

39

Logistics Principle #2
Logistics Is Pervasive
Affects Every Aspect of Business
Reach Customers
Create Brand Loyalty

Manufacturers Need Parts & Supplies

Retailers Need Goods to Sell
Services Need Equipment & Supplies
Not-For-Profit Organizations Must Reach

Clients & Services

IntroductionChapter 1

40

Logistics Principle #3
Logistics Contributes to Companys
Revenues & Growth
Positive Effect on ROI
Substantial Portion of Costs in Many

Industries
Good Logistics Practices Provides
Better Customer Service
Lower Costs
Higher Profits

Extends Market Reach

IntroductionChapter 1

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Logistics Principle #4
Logistics Plays Key Role in Marketing
Strategy
Supporting Strategies

Price
Product Development
Service
Promotion

Promote Customer Loyalty

Reach New Markets
Segment Markets
Competitive Advantage
IntroductionChapter 1

42

Logistics Principle #5
Logistics Activities Affect One Another
& Other Functions of Marketing
Not a Single Activity
Combination of Integrated Functions

IntroductionChapter 1

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Logistics Principle #6
Logistics Fulfills Promises Made by
Other Facets of Marketing
Promises to Customers
Performance
Availability
Price

Creates Demand

IntroductionChapter 1

44