The part of the supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information btw the point of origin and the point of consumption in order to meet customer’s requirements.
7 Rights of Logistics
1) Right Product
2) Right Customer
3) Right Time
4) Right Place
5) Right Quantity
6) Right Cost
7) Right Condition
Why are executives giving logistics more focus?
– Increased competitive behavior, customer service
– Shift in channel power, category killer stores (Walmart)
– Increased globalization (supply chain is longer, less inventory levels)
– Development of IT systems, increased importance of information
– Increase product proliferation, increase in the number of products available
– Increased number of delivery points, smaller orders
an economic term used to describe perceived value
5 Economic Utilities- 1
1) Possession Utility – created by marketing
5 Economic Utilities- 2
2) Form Utility – responsibility of purchasing and operations managers
Ex.) Repackage products during distribution into special sizes (Costco)
5 Economic Utilities- 3
3) Time Utility – logistics, product arrives when needed
Ex) just-in-time manufacturing
5 Economic Utilities- 4
4) Place Utility – logistics, delivering prouct where it’s needed Ex) delivery to home/office
5 Economic Utilities- 5
5) Quantity Utility- logistics, delivering the right amount of product Ex) breaking bulk, sorting
How does logistics create value?
Through the movement, storage, and processing of goods/services. Value can only be assessed through the eyes of the customer.
Logistics connections to marketing and production
Marketing- Logistics satisfies the demand that marketing creates. They intersect through “place”, from the 4 p’s.
Production- product scheduling, plant location, and purchasing
CSCMP definition of supply chain manangment
The planning and management of all activities involved. Integrates supply and demand management w/i and across the company.
GSCF def. of supply chain managment
Process from origin to end user to add value.
Supply chain is broader, logistics is a part of the supply chain management.
U.S. Logistics costs makeup
Logistics as a percent of GDP has declined, but total logistics costs are increasing (as we near 100% efficiency)
The biggest single expense for U.S. logistics
Truck Transportation (63%), then inventory carrying costs.
In the past, inventory carrying costs were the largest expense.
Different types of logistics
Logistics cost tradeoffs – Increasing # of warehouses
Increasing number of warehouses — Increased inventory costs, decreased transportation, and sometimes decreased cost of lost sales
Logistics cost tradeoffs – Faster transportation
Faster transportation — decrease the cost of lost sales
Logistics cost tradeoffs – Increased lot quantity costs
— decrease inventory carrying costs, and vice versa
Logistics cost tradeoffs – Investments in IT
— decrease the cost of lost sales
Total Cost Concept
The sum of logistics operations as a system and seek to minimize the total cost of the system rather than the individual functions.
All costs and service elements are interlinked.
Eliminate all processes, steps, and material that do not add value
The Eight Wastes
4) Not Utilizing Staff Talent
8) Excess Processing
Lean 5S Methodolgy
1) Sort- eliminate unneeded items, store, and organize
2)Simplify- have a place where everything belongs
3)Sweep- Clean and organize each day, put away
4)Standardize- standard process and procedure, easy to train new people
5)Sustain- Follow approach and implement it through out the company
What do logistics systems provide?
delivered goods and services on time, at a low cost
Aspects of delivery that customers care about
The 7 rights
Definition of customers service
The output of the logistics and is the ‘place’ component of the 4p’s, providing customers what they expect.
Importance of excellent logistics customer service
crucial to customer loyalty, competitive weapon to secure customers and keep customers coming back (5x more expensive to acquire new customers)
Deliverables of order fulfillment (operational targets)
1) Product availability: basic and essential. Some factors out of our control, weather and natural disasters.
Use Data Management and Inventory Management
2) Timely Delivery: (speed. consistency, and agility)
3) Transparency: tracking orders. Improves planning, execution, and evaluation.
4) Protection Against Disruption: contingency plans, ‘what-if’ scenarios, and service recovery paradox
5) Operational Efficiency: provide the service customers need, take cost out of order fulfillment
The perfect order
Order is received, processed, picked, packed, shipped, documented, and delivered on time without damage (85-90%)
Methods for establishing a customer service strategy
-Determine service levels
-Customer service office
Segmented service offerings
Transactional– cost driven, and arms length (80% of customer relationships)
-need and expect efficient service, don’t have resources to waste, want treated fairly, more forgiving
Strategic Alliances– account for disproportionate sales and profits (5-10%)
-the most important customers, key customers, keep them happy
How to measure lifetime customer value
the projected revenue that a customer will generate over their lifetime
-80% of profits are driven by your most important 20% of customers
-“A” customers (5-10%) — MOST IMPORTANT, customized service
-“B” customers — VERY high level of service
-“C” customers — high level of standardized service
1) Classify companies by sale
2) Modify classifications based on strategic issues
Customer Profitability Analysis
Segment customers based on profitability. Some customers buy higher margin strategies, others cost to serve
Four questions for tracing costs
1) what are cost objects?
2) what process does does each customer initiate?
3) what activities comprise each process?
4) what resources are used by each activity?
occurs when demand for an item cannot be filled from existing inventory
Backorders, lost sales, and lost customers
Impediments to an effective customer service strategy
-failing to segment markets
-misuse of customer service
-cost effectiveness mismeasure
-inability to determine competitive service
-inadequate customer service
Logistics System (module 3)
the network of organizations and activities engaged in managing the movement and storage of products and services as well as the flow of information from the source to the customer— high service at a low cost
Hierarchy of Business Strategy
Supply Chain Strategy
(Supply, Operations, Logistics)
getting products in the hands of all customers across a broad market geography.
-relies on scale, produce and ship huge volumes
ex.) Apple, LG, Coke, P&G
occupying a strategic position among a small number of customers or in a select region.
-limit to a geographic region
ex.) craft beer, some pop
intentionally reaching a limited number of customers to maintain prestige– luxury goods
ex.) Rolex, Ferrari
Four broad supply chain strategies
1) Planning based fulfillment supply chain:
-Forecast driven, known demand, push to customer, blind to market changes, low-cost commodities
2) Lean fulfillment:
-push to DC and pull from DC, inventory and replenish, consistent/stable demand, inventory problems
3) Agile fulfillment:
-pull from material supply, fast and accommodating, very lean, customization, make to order, direct distribution, hard to forecast
4) Leagile Fulfillment:
-tailored customization in less time, eliminate waste, differentiated products
the point/balance btw push and pull
Definition of resilience
capacity to survive, adapt, and grow in the face of turbulent change
the ability of the supply chain to bounce back after a major disruption
Four-step risk management process
1) Risk Identification
2) Risk Assessment
3) Risk Prioritization
4) Risk Mitigation
Three types of risk
1) Known-knowns are events with a track record. They occur fairly frequently. You can thus look at the data to assess the probability they will occur and the severity of their impact.
2) Known-unknowns are events that you know can happen, but they have no consistent pattern or history. Assessment is thus speculative. As you evaluate likelihood and potential impact, you ask a lot of “what-if” questions.
3) Unknown-unknowns are conceivable but unusual and unexpected events (think: the break up of the Soviet Union or 9/11 attacks). Because they are very rare—even surprising—they are sometimes called black swan events. Black swans have a major effect on operations. Although you can’t predict them with any accuracy, you can build a resilient supply chain.
OSU Resiliency framework
Vulnerabilities–balance–Capabilities = Optimal Resilience
Supply chain vulnerabilities
factors that make a company suseptible to disruptions, caused by forces of change, must balance with capabilities or company may be exposed to risk
ex.) turbulence, sensitivity, connectivity, supplier and customer disruptions
Supply chain capabilities
attributes that enable an enterprise to anticipate and overcome disruptions, management controls, must balance with vulnerabilities or company
ex.) visibility, recovery, flexibility in sourcing
Definition of partnership
A tailored business relationship built on mutual trust, openness, shared risk, shared rewards that result in performance greater than the absence of a partnership
-To gain the advantages of vertical integration while still maintaining organizational independence
-To take advantage of “best in class” expertise
-To achieve service improvements
-To gain operational efficiencies
-To respond to competition
The partnership model
-The Partnership Model and the Collaboration Framework developed by The Global Supply Chain Forum are tools for developing and managing partnerships
-Partnership strategy driven by overall corporate strategy
-focused on a companies ‘best’ relationships
-costly to implement
-not all should be partnerships
Uses of the model
-Evaluate a potential new partnership
-Analyze a portfolio of relationships
-Review of relationship management
Components of the Partnership Model
Made up of–
-Partnership drivers: compelling reasons to partner, benefits to partnering–the stronger the drivers the more successful the partnership
-Partnership Facilitators: Supportive environmental factors that enhance partnership growth, increase the likelihood of partnership success
(The strength of the drivers and facilitators determine the type of partnership)
-Partnership Components: joint activities and processes that build and sustain the partnership (managerial elements)
-Outcomes: the extent to which performance meets expectations
Five Key relationship lessons
1) A well strucutured plan that is well monitored is key for ensuring results
2) Mistakes happen, must learn from them
3) Visibilty is the key to building trust
4) Most companies have a lot more in common than they think
5) You must be willing to look at things differently