After studying this chapter you will be able to understand: Secondary, or supporting; product scheduling; specify aggregate quantities; sequence and time production output; schedule supplies for production/operations; information maintenance (supports all other logistics activities); information collection, storage, and manipulation; data analysis; control procedures.
Logistics Management LSM 730 Lecture Dr Khurrum S Mughal 1-1 Key Activities/Processes • Secondary, or supporting – – Product Scheduling • Specify aggregate quantities • Sequence and time production output • Schedule supplies for production/operations Information Maintenance (Supports all other logistics activities) • Information Collection, Storage, and manipulation 1-2 The Activity Mix • Difference between Key and Support activities – Key activities almost in every logistics channel • Contribute most to the total logistics cost 1-3 Critical Customer Service Loop Customer order processing (and transmittal) Transportation Customers Inventory or supply source 1-4 Significance of Logistics Costs are high About 12% of World’s GDP internationally (IMF) About 10.5% of GDP domestically A range of to 30% of sales for individual firms, avg about 10% A high as 70-80% of sales if purchasing and production are included 1-5 Physical Distribution Costs Category Percent of sales $/cwt Transportation 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 Total Add one-third for inbound supply costs (Costs in Dollars per Centum Weight) Source: Davis & Drumm (2002) Logistics cost are about 10% of sales w/o purchasing costs 1-6 Significance of Logistics Customers are more demanding of the supply chain Desire for quick response Desire for mass customization Dell Computers L L Bean sells customized clothes National Bicycle Industrial Co 11 million variations over 18 models of road, racing, and mountain bikes 1-7 Customer Service Performance 10 96 94 90 88 86 84 82 Year % 92 Days Order Cycle Time, Days Product Availability % orders Product Availability % line items Source: Herb Davis & Company 1-8 Significance of Logistics An integral part of company strategy Expand to Generate revenue Optimize to Improve profit 1-9 Significance of Logistics Logistical lines are lengthening Going global to cut costs Globalized trade pushed by trade agreements Local vs long distance supply Produce and sell globally vs produce locally sell internationally An increase in logistics costs against decrease in labor and material costs Logistics is a key to trade and an increased standard of living Law of comparative economic advantage applies 1-10 Effect on Logistics Foreign Outsourcing Domestic sourcing Foreign sourcing Profit G&A Profit G&A Marketing Logistics Overhead Increase Marketing Logistics Increase Tariffs Overhead Materials Materials Labor Labor 1-11 Reduction Significance of Logistics Logistics adds customer value Four types of values: Possession Utility - the value or usefulness that comes from a customer being able to take possession of a product Form Utility - in a form that can be used by the customer and is of value to the customer Place Utility - available where they are needed by customers Time Utility - available when they are needed by customers Example: Online clothing stores 1-12 Wal-Mart Wins with Logistics! • Sales: 1987 • K-Mart $26 Billion • Wal-Mart $ 16 Billion • Wal-Mart’s Focus on supply chain • Cash registers linked to HQs • Trucks and modern distribution centers • Costs are lower than K-Mart or Target Stores • Wal-Mart is the largest retailer in the world! 1-13 The Supply Chain is Multi-Enterprise Scope in reality Focus Company Suppliers Customers Customers/ End users Supplier’s suppliers Acquire Convert Distribute Product and information flow 1-14 Reality of SC Scope 1-15 The Multi-Dimensions of SC on ati Int e rfu nc tio na l co ord ina tio n in ord co al on ati niz rga ero Int SUPPLY CHAIN MANAGEMENT Activity and process administration 1-16 ... - available where they are needed by customers Time Utility - available when they are needed by customers Example: Online clothing stores 1-1 2 Wal-Mart Wins with Logistics! • Sales: 1987 • K-Mart... G&A Profit G&A Marketing Logistics Overhead Increase Marketing Logistics Increase Tariffs Overhead Materials Materials Labor Labor 1-1 1 Reduction Significance of Logistics Logistics adds customer... $/cwt Transportation 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 Total Add one-third for inbound supply costs