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HO CHI MINH CITY UNIVERSITY OF TRANSPORT CHAPTER 2: INTRODUCTION ABOUT BUSINESS LOGISTICS CHAPTER LEARNING OUTCOMES After completing this Chapter, students should be able to: ü Indicate the definition of Business Logistics and its evolution ü Understand the nature of Business Logistics ü Categorize the Business Logistics activities ü Discuss the issues related to Corporate ü Explain the key drivers and role of Business Logistics Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh CHAPTER OUTLINE 2.1 Definition of Business Logistics 2.2 Evolution of Business Logistics 2.3 Nature of Business Logistics 2.4 Categories of Business Logistics 2.5 Key drivers of Business Logistics 2.6 Some issues for Enterprises 2.7 Roles of Business Logistics Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh REFERENCE LIST [4]-Douglas M.lambert James R.Stock,Lisa M Ellram, Fundamentals of Logistics Management, Mc grow Hall,1998 – Chapter [6]-Lê Phúc Hòa, “Bản chất logistics, mục tiêu hoạt động chủ yếu nó”, Tạp chí Giao thơng vận tải, 5/2005, tr.51-52 [12]-Trường đại học Kinh tế Tp HCM (2012), Quản trị hậu cần,Nxb Đại học kinh tế quốc dân – Chapter [18]-Ronald H Ballou (1999), Business Logistics Management, Nxb Prentice Hall, 1999 – Chapter Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 2.1 DEFINITION OF BUSINESS LOGISTICS vFrom customers’ perspective Getting the Right product, to the Right customer, in the Right quantity, in the Right condition, at the Right place, at the Right time, and the Right price vFrom management perspective: “that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers’ requirements” (CSCMP-The Council of Supply Chain Management Professionals) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 2.2 EVOLUTION OF BUSINESS LOGISTICS Demand forecasting Sourcing/ Purchasing Demand planning Production planning Manufacturing inventory Warehousing Inbound logistics Logistics SC Packaging Materials Handling Goods Inventory Outbound logistics Distribution planning Order processing Transportation Customer service Fragmentation 1960 Evolving integration 1980 Total integration 2000 Figure 2.1: The evolution of Logistics by integration level (Source: Center for Supply Chain Research, Penn State University) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh Scope & Influence Facility logistics Corporate Logistics Supply Chain Logistics Global Logistics Workplace Logistics 1950 1960 1970 1980 1990 Figure 2.2: The evolution of Logistics by scope & influence Source: Frazelle (2002) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh q Workplace Logistics: the flow of material at a single workstation The objective of workplace logistics is to streamline the movements of an individual working at a machine or along an assembly line q Facility logistics: the flow of material between workstations within the four walls of a facility (that is, interworkstation and intrafacility) The facility could be a factory, terminal, warehouse, or distribution center q Corporate: the flow of material and information between the facilities and processes of a corporation (interworkstation, inter-facility, and intra-corporate) q Supply Chain Logistics: the flow of material, information, and money between corporations (interworkstation, interfacility, intercorporate, and intrachain) q Global Logistics: the flow of material, information, and money between countries Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 2.3 NATURE OF BUSINESS LOGISTICS vLogistics changes the traditional concept of stocking: “ no stock is the best” Level A Level B Demand changes Poor suppliers Inaccurate forecast Quality issues Bottlenecks Information flow Physical flow Workplace Workplace Workplace Figure 2.3: KANBAN technique (1958) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh + New concept of stock keeping changes the commercial practice Large shipment Small shipment + The new concept of stock keeping requires a change in organizing transport Manufacturer Consumer A D B E C F Consumer Manufacturer D A B Transit Transit E F C Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 10 vLogistics is facilitated by the material management techniques WILSON PERT GANTT Min Stock KANBAN, JIT MRP OPT Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 11 2.4 CATEGORIES OF BUSINESS LOGISTICS vPhysical flow-based categories: + Inbound logistics + Outbound logistics + Return logistics vMarket-based categories: + Domestic logistics + International logistics vUse of goods categories: + Industrial goods + Consumer goods vProduct-based categories: + Automotive Logistics + Electronic Goods Logistics + ……………………… Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 12 2.5 KEY DRIVERS OF BUSINESS LOGISTICS ₋ Globalization of commerce ₋ Development of advanced information technology ₋ Rapid increase in transportation cost ₋ Manufacturing cost savings at peak ₋ Inadequate supply and distribution costs ₋ Increase in the diversity of product lines ₋ Society’s increasing awareness about environmental issues ₋ Scarce resources ₋ Regulations and Policies ₋ Competition Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 13 2.6 KEY ISSUES FOR ENTERPRISES • Where to source materials? • Where to manufacture the products? • Where to promote and sell the products? • Where to keep inventory and distribute the products/services? How much inventory should be kept? • Which mode of transportation should be selected? •… Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 14 2.7 ROLES OF BUSINESS LOGISTICS 2.7.1-Role of Logistics in the Economy ₋ A tool to support economic activities nationally and globally ₋ Using the social resources economically, sustainably and efficiently ₋ Logistics has made a great contribution to enhance the commercial and economic cooperation ₋ Logistics contributes to the reduction in manufacturing cost, distribution cost, adding competitiveness to the products as well as the whole economy ₋ A country’s logistics development level as well as its logistics cost have become the most important factors in the investment strategy of MNEs ₋ Logistics requires the completion and standardization of procedures, documents in commercial and transporting areas Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 15 Table 2.1: Logistics cost as a percentage of GDP in the USA, Japan and South Korea (1991 - 1999) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 16 Figure 2.7: Logistics cost as a percentage of GDP in the USA (2008 - 2019) (Source: Annual State of Logistics Report 2020) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 17 Logistics Costs ific c Pa ia As e pe nd sia or am o y a p n l r t la ie ga a Eu h n V i M T S a in h C a ric f A M d id le s Ea r No t th Am ic er a a u So th Am ic er ld or W Figure 2.7: Logistics cost as a percentage of GDP in 2018 (Source: Armstrong & Associates 2020) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 18 2.7.2- Roles of Logistics in the Organization Ø Logistics improves the management efficiency, reducing production costs, and enhancing the competitiveness for Enterprises Ø Logistics facilitates businesses to move goods and services efficiently to customers Ø Logistics supports managers to make accurate decisions in production and business activities Ø Creating out of utilities of Logistics (form utility; possession utility; time utility; place utility): • …………… utility • …………… utility Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 19 Ø Logistics interfaces with Financial functions + Logistics has a significant impact on Return on Asset (ROA) and Return on Investment (ROI): + Inventory is reported as an asset on the balance sheer and an expense in the income statement, which means: An increase in inventoryg………… in assets and ……………in cashflow + Transportation and warehousing costs also affect the ROA • If the company owns warehouses and transportation fleetg ……………in assets • If the company outsources its transportation and warehousing activities g ……… in expenses • More focus on customer service level would………… revenue (R>E) • If the increase in revenue is higher than that of customer service cost gROA …………… Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 20 Ø Logistics should be in collaboration with Production and Marketing LOGISTICS PRODUCTION Interface Activities - Transportation Main activities - QA/QC - Production planning - Equipment maintenance - Production planning - Manufacturing Main activities: - Product scheduling - Plant location -…………… Interface Activities - Packaging - Inventory - …………… - Order processing - …………………… - Retail location - Material control - Warehousing Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh MARKETING Main activities: - Promotion - Market research - Product mix - Sale force management 21 .. .CHAPTER LEARNING OUTCOMES After completing this Chapter, students should be able to: ü Indicate the definition of Business... Quản trị hậu cần,Nxb Đại học kinh tế quốc dân – Chapter [18]-Ronald H Ballou (1999), Business Logistics Management, Nxb Prentice Hall, 1999 – Chapter Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh... M.lambert James R.Stock,Lisa M Ellram, Fundamentals of Logistics Management, Mc grow Hall,1998 – Chapter [6]-Lê Phúc Hòa, “Bản chất logistics, mục tiêu hoạt động chủ yếu nó”, Tạp chí Giao thơng