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Topic 1: Logistics and Supply Chain Management Overview

-that *part of the supply chain* process 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* to *meet customers’ requirements*
-manages the flow of inventory inbound/within/beyond the business in order to serve customers at the lowest cost
-provides the “reach” in the market
-nation’s second largest employer (second to healthcare)
-costs represent 5-40% of the total landed cost of typical products
-1.5 trillion dollar industry (mostly transportation –> 62.6%)
Reverse flow
-returns of various kinds, reallocating goods, if goods are defective and need to be shipped back
-most popular logistics firm
Macroeconomic impacts
-comparative advantage of individual nations –> by virtue of trade, we can specialize (international trade)
Possession utility
-the value or usefulness that comes from a customer being able to take possession of a product (credit cards speed this up)

-make a product or service available to someone
-advertising, marketing, sales

Form utility
-the product being in a form that can be used by the customer and is of value to the customer –> allocation is bulk breaking
Place utility
-having products available where they are needed by customers –> products are moved from points of lesser value to greater value
-the where
-provides the “reach” of the market
Time utility
-having products available when they are needed by customers
-the when
-provides the “reach of the market”
Total Logistics Cost
23% – Inventory carrying cost
62.6% – Transportation
9.9% – Warehousing
0.7% – Shipper related cost
3.9% – Logistics administration
U.S. Percent of GDP
-around 8.3%
-less than other countries because U.S. has most comprehensive network/infrastructure (rivers, lakes, roads, air, pipelines)
-ex: Columbus, OH employs 80,000 logistics jobs
5 Modes of Transportation
1. Air
2. Train
3. Water
4. Motor
5. Pipeline (often forgotten)
Friction of Distance
-how easy or difficult it is to cover distance
-low in the U.S. compared to other nations but this is changing due to age (more congestion = more friction)
Increased importance in logistics
-reduction in economic regulation
-changes in consumer behavior
-technological advances
-growing power of retailers & consumers
-globalization of trade
Digitalization of commerce and emergence of 3D printing
-doesn’t make logistics obsolete
-we still need physical items to make digital commerce happen
-3D printers need materials to be transported
-logistics is critical to supply provisions in disasters
Goal of logistics
-to meet specified customer service levels at the least total cost – to optimally balance service (effectiveness) and cost (efficiency)
The Bill of Rights
-transitional elements of logistics that embody the effort to fulfill the goal of logistics
1. the right product
2. the right quantity
3. the right condition
4. the right place
5. the right time
6. the right customer
7. the right cost
Work of logistics occurs
-throughout the supply chain – from the sources of raw materials supply right up to consumption… and beyond!
-raw materials (materials management or inbound logistics)
-finished goods (physical distribution or outbound logistics)
-returns & recyclables (reverse logistics)
-supporting information
-goes back to suppliers
-going toward the consumers
Balanced inbound and outbound
ex: smartphones: complex, both heavy on inbound and outbound
(small logistics cost bc it is small, high value)
Heavy inbound
ex: cars –> bringing in lots of parts (aka just-in-time inventory)
Heavy outbound
ex: breakfast cereal –> on the shelves of every store (outbound = complex; more logistics cost)
Reverse bound
-3PL (third party logistics company) takes back defective/used stuff
Is it Inbound or Outbound?
-depends on your perspective
-changes to one activity cause some costs to increase and others to decrease
Total Logistics Concept
-find the lowest total cost that supports an organization’s customer service requirements
-Total cost approach
-Cost tradeoffs
Marketing Mix
-Place (Customer Service Levels – also in the Logistics Mix)
Logistics Mix
-Place/Customer Service Levels
-Inventory Carrying Costs
-Transportation Costs
-Lot Quantity Costs
-Warehousing Costs
-Order Processing and Information Costs
Place/Customer Service Levels
-Customer service (lost sales), ex: when you don’t fulfill the “bill of rights” for the customer –> lose the customer = lose the money)

-parts and service support, ex: instructions on how to use/return product; servicing a warranty, etc.

-returned goods collection, ex: facilitate collection

Inventory Carrying Cost
-the cost of holding inventory
-Inventory management
-Returned goods inventory

(if you store inventory, you are going to incur an inventory carrying cost)

Lot Quantity Costs
-occur when the per unit cost drops with increased production
–> Economies of Scale
-Materials handling
-Production setup (the bigger the production, the lower the per unit cost)
Order Processing and Information Costs
-the cost of having people/technologies receive and process orders
-Order processing
-Information Exchange
-Demand forecasting/planning
Warehousing Costs
-One of the easiest costs quantifiers –> some businesses own their own warehousing, but today, most businesses outsource
-Warehousing and storage
-Plant and warehouse site selection
Transportation Costs
-one of the easiest cost quantifiers –> some businesses own their transportation, but today, most businesses outsource
-Minimizing costs can affect the place/customer service levels element
Most important logistics element
Not one element is more important than another!
-Many companies believe that customer service or transportation is most important (because 50% of costs are incurred at transportation)
-Every one of the elements affects the other five
-Must make decisions that cut costs but keep in mind the customer service boz
Supply Chain Operations (SCO)
-the integration of the company’s source, make, and deliver functionalities (i.e., purchasing, production/operations, and logistics)
-the management of “physical flows”
Supply Chain Management (SCM)
-the management of the company’s relationships in the supply chain network
-involves all of the business’ functions
-“the integration of key business processes from end user through original suppliers that provides products, services, and information that add value for customers and other stakeholders” – The Global Supply Chain Forum (GSCF), OSU
-should implement the systems approach to ensure that the goals of the organization are compatible with the overall goals
Supply Chain Network Structure
Tier 3: Initial Suppliers (then supply to any number of ‘n’ suppliers)
Tier 2: Suppliers
Tier 1: Suppliers
Focal Company
Tier 1: Customers
Tier 2: Customers
Tier 3: Consumers/End-Customers
Supply Chain Management Process
Tier 2: Supplier
Tier 1: Supplier
Focal Company:
-PRODUCT FLOW: Purchasing, Production, R&D, Finance, Marketing & Sales, Logistics
–> Customer –> Consumer
Supply Chain Business Processes
-Customer relationship management
-Supplier relationship management
-Customer service management
-Demand management
-Manufacturing flow management
-Order fulfillment
-Product Development and commercialization
-Returns management
Motivation for SCM
-the systems concept applies to multiple-organization channels (as well as within the firm)
-movement toward partnering with “choice” suppliers and customers
-the way business will dominantly be conducted in the future
-partner with other supply chain entities now before a competitor approaches
-SCM beginning to look and feel like a “team sport”
Enablers of SCM
-Understanding the implications of increased customer power
-Establishing the appropriate relationship structures
-Leveraging technology for enhanced visibility and communication
-Use of supply chain facilitators (3PL/Logistics outsourcing & 4PL/Lead logistics providers [LLPS])
100% Guarantee policies
-risky because you could lose a lot of money on returns (ex: Zappos)
Economic Utility
-the value or usefulness of a product in fulfilling customer wants or needs
-four main types:
1. Possession Utility
2. Form Utility
3. Place Utility
4. Time Utility
Mass Logistics
-every customer gets the same type and levels of logistics service –> some people are over served while others are underserved
Tailored Logistics
-groups of customers with similar logistical needs and wants are provided with logistics service appropriate to these needs and wants (better option)
Humanitarian Logistics
-the process and systems involved in mobilizing people, resources, skills, and knowledge to help people who have been affected by either a natural or human-made disaster
-a reduction in regulation (1970-1980) allowed for more flexibility which helped to implement tailored logistics
-the removal of intermediaries between producers and consumers
-retailers are gaining more power (big-box: large floor space and products) and therefore need to utilize better logistical practices
-a uniform sealed reusable metal box in which goods are shipped –> needed for improved global trade
Systems Approach
-a company’s objectives can be realized by recognizing the mutual interdependence of the major functional areas of the firm (marketing, finance, etc.)
-the goals and objectives of each department need to be compatible with the goals and objectives of the entire business
-each department needs to consider how their choice will impact someone else (increase customer satisfaction means increasing stock-keeping units (SKU))
Materials Management
-movement and storage of materials into a firm
Physical Distribution
-storage of finished product and movement to the customer
Intrafunctional Logistics
-attempts to coordinate materials management and physical distribution in a cost-efficient manner that supports an organization’s customer service objectives
Total Cost Approach
-all relevant activities in moving and storing products should be considered as a whole (total cost, not individual)
Cost Trade-offs
-changes to one logistics activity cause some costs to increase and others to decrease (need to be considered together simultaneously)
Interaction with other departments
-Finance: allocation of costs to equipment, different ways of measuring inventory
-Production: length of production runs (production wants high
-Marketing: split up into the marketing mix
-an alliance that allows customers to purchase products from two or more brand retailers at one store location
Landed Costs
-the price of a product at the course plus transportation costs to its destination
-being out of an item at the same time there’s demand for it
Marketing Channels
-a set of institutions necessary to transfer the title to goods and to move goods from the point of production to the point of consumption and, as such, which consists of all the institutions and all the marketing activities in the marketing process (manufacturer –> wholesaler –> retailer)
Ownership Channel
-covers movement of the title to the goods (i.e., bank, finance company)
Negotiation Channel
-where buy and sell agreements are reached (online) (i.e., brokers)
Financing Channel
-handles payments for goods and credit (i.e., banks, finance company)
Promotions Channel
-promoting new or existing products
-linked to financing and logistics channel
(i.e., advertising agencies)
Logistics Channel
-main contribution includes Sorting Function and Freight Forwarder
Sorting Function
-bridges the discrepancy between the assortment of goods and services generated by the producer and the assortment demanded by the consumer
-Four main steps: Sorting Out, Accumulating, Allocating, Assorting (all steps fone by wholesaler, retailer, or specialist)
Sorting Out
-first step of the Sorting Function
-heterogeneous products into homogeneous
-second step of the sorting function
-bringing together similar stocks
-third step of the sorting function
-breaking homogeneous supply into smaller lots
-fourth step of the sorting function
-building up assortment of goods for resale (retail)
Freight Forwarder
-assembles small shipments into large ones and then tenders them into a truckload quantity to truck lines
Supply Chain
-a combination of processes, functions, activities, relationships, and pathways along which products, services, information, and financial transactions move in and between enterprises from original producer to ultimate end-user or consumer
SCOR Model
-identifies six processes (Plan, Source, Make, Deliver, Return, and Enable) associated with SCM
-focused on logistics, operations, and procurement functions
GSCF Model
-comprises eight processes (Customer Relationship Management, Supplier Relationship Management, Customer Service Management, Demand Management, Order Fulfillment, Manufacturing Flow Management, Product Development and Commercialization, and Returns Management)
-Involves all business functions
-fast supply chains emphasize speed and time
-an agile supply chain focuses on an organization’s ability to respond to changes in demand with respect to volume and variety
Lean Supply Chain
-focused on eliminating all waste, including time, and to ensure a level schedule
-combines aspects of both lean and agile as a way to focus part of one’s supply chain on a timely response to fluctuating customer orders and/or product variety and another part of the supply chain on leveling out the planning requirements to smooth production output
Bullwhip Effect
-characterized by variability in demand orders among supply chain members the result of which is inventory lumps
-long-term orientations tend to be predicted on relational exchanges whereas short-term orientation tends to focus on transnational exhanges
Supply Chain Collaboration
-cooperative relationships between members of a supply chain (formal or informal) between companies and their suppliers or customers, established to enhance the overall business performance of all parties
Supply Chain Partnership
-a tailored business relationship between two supply chain members
-the internet has really helped the productivity of the supply chain
Third-Party Logistics
-aka Logistics Outsourcing or Contract Logistics
-one company allows a specialist company to provide it with one or more logistics functions
Fourth-Party Logistics
-aka Lead Logistics Provider
-a company whose primary purpose is to ensure that various 3PLs are working toward the relevant supply chain goals and objectives
SCM Troubles
-regulatory and political considerations
-lack of top management commitment
-reluctance to share, or use, relevant info
-incompatible info systems
-incompatible corporate cultures
-globalization challenges
Integrating Supply Chain Organization
-Use vertical integration (one organization owns multiple participants in the supply chain), formal contracts (could be franchising), or informal agreements (control is exerted by the largest organization in the supply chain)
Quiz 1 Review:
1. Time and place are the two utilities of logistics
2. Tax abatement is not a responsibility of logistics
3. In the U.S., logistics is a smaller part of a nation’s GDP due to infrastructure
4. The marketing mix does not include supply
5. Logistics is not only concerned with the forward flow of products
6. Logistics is the second largest industry in the U.S.
7. Products for which logistics costs are low tend to have a higher-than-normal emphasis on service (logistics is a small share of sales for any technologically advanced thing (phone), but a higher portion if service)
8. Logistics is not a career field found among manufacturing based industries
9. Landed costs are the sum of all the costs involved in making a product available in the market for a customer
10. Building materials would have a high share of landed costs
11. The smallest most basic unit of analysis in logistics is SKU
12. Systems approach –> -a company’s objectives can be realized by recognizing the mutual interdependence of the major functional areas of the firm
13. The Global Supply Chain Forum – definition

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