ROLE OF LOGISTICS IN SUPPLY CHAINS

1. ROLE OF LOGISTICS IN SUPPLY CHAINS

2. Learning Objectives • Understand the role and importance of logistics in private and public organizations. • Discuss the impact of logistics on the economy and how effective logistics management contributes to the vitality of the economy.  • Understand the value-added roles of logistics on both a macro and micro level.

3. Learning Objectives, continued • Explain the relationships between logistics and other functional areas such as manufacturing, marketing, and finance.  • Discuss the importance of management activities in the logistics function.  • Analyze logistics systems from several different perspectives to meet different objectives.  • Determine the total costs and understand the cost tradeoffs in a logistics system.

4. Figure 2.1 Contemporary Supply Chain Profile Source: Center for Supply Chain Research, Penn State University.

5. What is Logistics (four views of it as an organization’s division) • Business logistics: • That part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, service, and related information from point of use or consumption in order to meet customer requirements. • Military logistics: • The design and integration of all aspects of support for the operational capability of the military forces (deployed or in garrison) and their equipment to ensure readiness, reliability, and efficiency.

6. What is Logistics, continued • Event logistics: • The network of activities, facilities, and personnel required to organize, schedule, and deploy the resources for an event to take place and to efficiently withdraw after the event. • Service logistics: • The acquisition, scheduling, and management of the facilities/assets, personnel, and materials to support and sustain a service operation or business.

7. Table 2.1 Logistics Definitions Perspective Definition Source: Adapted from Stephen H. Russell, “A General Theory of Logistics Practices”, Air Force Journal of Logistics 24, no 4 (2000): 15

8. Logistics – Generic Definition • A SCM component that plans, implements, and executes flow and storage of goods, service and information from the point of origin to the point of consumption.

9. Figure 2.2Utility Creation in the Economy Source: Center for Supply Chain Research, Penn State University

10. Economic utilities and means that add value to a product or service in the SCM • Production • Form Utility (by assembling parts into finished goods) • Logistics • Place Utility (by moving goods to where demand is) • Time Utility (by moving goods when demand exists) • Quantity Utility (by offering the right quantity) • Marketing • Possession Utility (by promotion and sale to increase the desire to posses the goods)

11. Logistics Activities • Transportation • Warehousing and storage • Industrial packaging (during the transportation and storage phase) • Materials handling • Inventory control • Order fulfillment

12. Logistics Activities, continued Demand forecasting Production planning/scheduling Procurement (viewed as part of the logistics process) Customer service (order taking and filling) Facility location (selecting a plant or DC location to supply)

13. Logistics cost as a % of GDP • 1970’s – 20% • 1980’s – 12% • 1990’s – 8.6% • 2000’s – 9.4% • 2010 - 8.3% Note: the decline started in early1980, due to transportation deregulation.

14. Figure 2.3Logistics Cost as a Percentage of GDP Source: Council of Supply Chain Management Professionals

15. Macro inventory as a % of GDP • The amount of inventory do organizations carry to support GDP. • It is a measure of operations efficiency. • GDP went up by 212% from 1985 to 2006, while the inventory value went up by 119%, indicating companies were improving in managing their inventory

16. Figure 2.5Macro Inventory as a Percentage of GDP Source: Council of Supply Chain Management Professionals

17. Figure 2.4Total Logistics Costs – 2011 ($billion) Source: 22nd Annual State of Logistics Report, http://www.cscmp.org (2011) reproduced with permission from Council of Supply Chain Management Professionals

18. Logistics in the Firm: The Micro Dimension • Logistics interfaces with manufacturing or operations • Demand fluctuation • Setup (changeover) • Inbound and outbound • Loading and packaging • Logistics Interfaces with marketing • Price (quantity discounts) • Product (physical attributes) • Promotion (to promote sales) • Place (to select different channels)

19. Logistics in the Firm: Factors Affecting the Cost and Importance of Logistics • Competitive relationships • Order cycle • Sustainability • Inventory effect • Transportation effect • Product relationships • Dollar value • Density • Special handling & susceptibility to damage • Spatial relationships

20. Figure 2.6Required Inventory and Order Cycle Source: Center for Supply Chain Research, Penn State University

21. Figure 2.7Lost Sales Cost to Inventory Cost Source: Center for Supply Chain Research, Penn State University

22. Figure 2.8Lost Sales Cost to Transportation Cost Source: Center for Supply Chain Research, Penn State University

23. Figure 2.9Product Dollar Value to Logistics Costs Source: Center for Supply Chain Research, Penn State University

24. Figure 2.10Product Weight Density to Logistics Costs Source: Center for Supply Chain Research, Penn State University

25. Figure 2.11Susceptibility to Loss & Damage to Costs Source: Center for Supply Chain Research, Penn State University

26. Figure 2.12Logistics and Spatial Relations (Plant selection) Source: Center for Supply Chain Research, Penn State University

27. Table 2.3Logistics Mode Cost Comparison (transportation mode selection) Source: Center for Supply Chain Research, Penn State University

28. Approaches to Analyzing Logistics Systems • Materials management versus physical distribution • Cost centers • Nodes versus links • Nodes are fixed spatial points where goods stop for storage or processing. • Links represent the transportation network and connect the nodes in the logistics system. • Logistics Channels

29. Figure 2.13Dynamic (Cost) Analysis Source: Center for Supply Chain Research, Penn State University

30. Figure 2.14Nodes and Links in a Logistics System Source: Center for Supply Chain Research, Penn State University

31. Figure 2.15Simple Logistics Channel Source: Center for Supply Chain Research, Penn State University

32. Figure 2.16Multi-Echelon Logistics Channel Source: Center for Supply Chain Research, Penn State University

33. Figure 2.17Complex Logistics Channel Source: Center for Supply Chain Research, Penn State University

34. Summary • Logistics has developed as an important area or function of business since World War II. It has gone through several phases of development in achieving its present status. • Logistics is a critical part of supply chain management. The coordination and, perhaps, integration of the logistics systems of all the organizations in a supply chain are necessary requirements for successful management of the supply chain. • Logistics has a number of different definitions because of the broad-based interest in its activities and the recognition of its importance. The definition developed by the Council of Supply Chain Management Professionals is the primary definition used in this text.

35. Summary, continued • Logistics is an area of management that has four sub-disciplines: business, military, service, and event. • On a macro basis, logistics-related costs have been decreasing on a relative basis, which has helped the U.S. economy regain its competitive position on a global basis. • Logistics adds place, time, and quantity utilities to products and enhances the form and possession utilities added by manufacturing and marketing. • Logistics has an important relationship to manufacturing, marketing, finance, and other areas of the organization. • Logistics managers are responsible for a number of important activities, including transportation, inventory, warehousing, materials handling, industrial packaging, customer service, forecasting, and others.

36. Summary, continued • Logistics systems can be viewed or approached in several different ways for analysis purposes, including materials management versus physical distribution, cost centers, nodes versus links, and channels. All four approaches are viable for different purposes. • Logistics systems are frequently analyzed from a systems approach, which emphasizes total cost and tradeoffs when changes are proposed. Either a short- or a long run perspective can be used. • The cost of logistics systems can be affected by a number of major factors, including competition in the market, the spatial relationship of nodes, and product characteristics.