Logistics Management

Transcription

1 Logistics Management Dr.T.A.S.Vijayaraghavan XLRI, Jamshedpur Logistics The branch of military science and operations dealing with the procurement, supply and maintenance of equipment, with the movement, evacuation, and hospitalization of personnel, with the provision of facilities and services and with related matters. The planning, implementation and coordination of the details of a business and or other operation. [French logistiques, equivalent to loger (to lodge), to quarter of troops] Webster s Unabridged Dictionary 1

2 Seven R s One definition that some individuals refer to as the layperson s description of logistics is the Seven R s, which means ensuring the availability of the Right product, in the Right quantity and the Right condition, at the Right place, at the Right time, for the Right customer, at the Right cost. Logistics is the planning, organising and controlling of all move-store activities that facilitate product flow from the point of raw material acquisition to the point of final consumption Logistics is the physical movement of goods from supply points to final sale to customers and the associated transfer and holding of such goods at various intermediate storage points, accomplished in such manner as to contribute to the explicit goals of the organization 2

3 Council of Supply Chain Management Professionals Logistics Management is 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. Council of Logistics Management is now renamed as Council of Supply Chain Management Professionals (CSCP) from January 2005 SOLE definition Another group interested in logistics- the International Society of Logistics(SOLE)-offers the following definition The area of support management used throughout the life of the product or system to efficiently utilize resources assuring the adequate consideration of logistics elements during all phases of the life cycle so that timely influence on the system assures an effective approach to resource expenditures. 3

4 Key Logistics Activities Customer service Demand forecasting/ planning Inventory management Logistics communications Material handling Order processing Packaging Parts and service support Plant and warehouse site selection Procurement Return goods handling Reverse logistics Traffic and transportation Warehousing and storage Activities and Logistics Decisions Transportation rate and contract negotiation mode and service selection routing and scheduling Inventories finished goods policies supply scheduling short term forecasting Warehousing private vs. public space determination warehouse configuration Stock layout and dock design stock placement Cross-docking Facility Location determining location, number and size of facilities allocating demand to facilities Customer Service determining customer wants determining customer response to service changes Materials Handling equipment selection equipment replacement order picking procedures Packaging design Order Processing order procedure determination Production Scheduling aggregate production quantities sequencing and timing of production runs 4

5 Business Logistics within the firm 1. Traditional production / marketing structure fails to recognize the importance of activities between production and consumption 2. Logistics may suffer from poor coordination a. marketing is concerned with revenue generation b. production is responsible for producing at lowest unit cost c. purchasing is responsible for acquisition at lowest unit cost Approaches to Analyzing Logistics Systems Materials Management versus Physical Distribution Cost Centres Nodes versus Links Logistics Channel 5

6 Physical Supply ( materials management) and Physical Distribution ( marketing logistics) Physical Supply Physical Distribution Raw Material Supply Points Raw Material Storage Manufacturing Finished good Storage Markets Storage Plant Warehouse A Storage Plant Warehouse B Storage Plant Warehouse C Frequently the movement and storage of raw materials is far different from the movement and storage of finished goods. Four different classifications of logistics systems Balanced system - e.g., consumer products Heavy inbound - e.g., aircraft, construction Heavy outbound - e.g., chemicals Reverse systems - e.g., returnable products 6

7 The division into physical supply and physical distribution is a very useful managerial or control perspective of the logistics activities. Cost differences that may exist between Physical Supply and Physical Distribution in terms of logistics requirements may have implications for the design of the logistics system. Although different management approaches may result for viewing these two, however, close coordination between them is necessary Cost Centres Logistics system is analysed on the basis of activity centres or cost centres since the possibility for reducing total logistics costs and/or improving service will occur by trading off one of these activity centres against another 7

8 Systems Concept Total Cost Concept Trade-off Concept Analysis of Total Logistics Cost with a Change to Higher Cost Mode of Transport Cost Centers Transportation Inventory Packaging Warehousing Cost of Lost Sales Total Cost Rail Motor

9 Analysis of Total Logistics Cost with a Change to More Warehouses Cost Centers Transportation Inventory Warehousing Cost of Lost Sales Total Cost System 1 Three Warehouses 850,000 1,500, , ,000 3,300,000 System 2 Five Warehouses 500,000 2,000,000 1,000, ,000 3,600,000 Trade-offs Cost to Cost Cost to Service 9

10 Transportation vs Inventory Cost inventory transportation service 0 Rail Truck Air Transportation Service Customer Service vs Cost Cost lost sale cost transportation, order, inventory costs 0 0 % 100 % Improved Customer Service 10

11 No. of Warehouses transportation Cost inventory 0 Increasing no. of stocking points Trade-off Examples Faster transportation vs. reduction in pipeline (transit) inventories Make vs buy decisions regarding finished products and/or components Centralized vs decentralized warehousing Adding or reducing private fleet equipment vs outsourcing transportation Increasing frequency of shipments vs carrying larger inventories Public vs private warehousing 11

12 Trade-off Examples (cont d) Higher service levels vs lower inventory levels Locations/types/no. of manufacturing facilities and/or warehouses Holding orders for consolidation (transportation) vs immediate shipping to reduce inventories Inventory carrying costs vs order-set-up costs Trucking or quantity discount savings with larger lots vs cost of extra inventory NODES AND LINKS The nodes are the established spatial points where the movement of goods is stopped for storage or processing The links represent the transportation network connecting the nodes This has paved way for Operations Research/ Management Science techniques and models to play a significant role in logistics 12

13 Nodes and Links in a Logistics System LOGISTICS CHANNEL This represent the network of intermediaries engaged in various functions such as transfer, storage, handling and communication that contribute to the efficient flow of goods INDUSTRIAL CAPITAL GOODS Product dominated Manufacturer Consumer CONSUMER DURABLES Manufacturer Central Warehouse Regional Warehouse Retailer Consumer PERISHABLE GOODS Market dominated Manufacturer Commodity Market Wholesale Market Retailer Consumer 13

14 A Simple Logistics Channel A Multi-Echelon Logistics Channel 14

15 A Complex Logistics Channel Reducing the cost of market contact by intermediaries Direct Selling Supplier Selling through one Intermediary Supplier Customer Intermediary Customer 15

16 Factors Affecting the Cost and Importance of Logistics Competitive Relationships Inventory/order cycle length Inventory/lost sales effect Transportation/lost sales effect Product Relationships Product dollar value/logistics costs Weight density/logistics costs Susceptibility to loss & damage/logistics costs Spatial Relationships Value-Added Role of Logistics Most commonly referred to in terms of economic utilities: Form utility (what) Place utility (where) Time utility (when) Possession utility (why) 16

17 Fundamental Utility Creation in the Economy 1997 Global Logistics Expenditures Gross Domestic Product (GDP) (US$ in Billions) Logistics Cost (US$ in Billions) Logistics Cost to GDP Region Country North America Canada Mexico United States Total Europe Belgium/ Lux Denmark France Germany Greece Ireland Italy Netherlands Portugal Spain United Kingdom Total

18 1997 Global Logistics Expenditures (cont.) Gross Domestic Product (GDP) (US$ in Billions) Logistics Cost (US$ in Billions) Logistics Cost to GDP (%) Region Country Pacific-Rim PRC India Hong Kong Japan Korea Singapore Taiwan Total South America Brazil Venezuela Argentina Total Remaining Other Countries Total Logistics Expenditures Production Operations Sample activities Quality control Detailed Production Scheduling Equipment maint.. Capacity planning Work Interface activities: Product Scheduling Plant location purchasing Logistics Sample activities Transport Inventory order processing Materials handling Interface activities Customer service standards pricing packaging Retail location Marketing Sample activities Promotion Market research product mix sales force manageme nt Production logistics interface Marketinglogistics M interface 18

19 MAJOR DECISION ISSUES HOW SHOULD ORDERS BE HANDLED? ORDER PROCESSING WHERE SHOULD STOCKS TO BE LOCATED? WAREHOUSING HOW MUCH STOCK SHOULD BE HELD? INVENTORY HOW SHOULD GOODS BE SHIPPED? TRANSPORTATION ORDER PROCESSING BEGINS WITH A CUSTOMER ORDER TRY TO SHORTEN THE ORDER-TO-REMITTANCE CYCLE WAREHOUSING FINISHED GOODS NEED TO BE STORED UNTIL THEY ARE SOLD DECIDE ON NUMBER OF STOCKING LOCATIONS 19

20 INVENTORY It affects the customer satisfaction Inventory cost increases at an increasing approaches 100% Involves when to order and how much to order Order processing costs Vs inventory carrying costs Variables which affect stock levels Delays in supplying goods to warehouses Variations in customer requirements Fluctuations in handling times Deterioration of goods held in stock Varying quantity discounts Costs of placing orders Return on capital secured as inventory Variations in warehousing costs Differences in order lead times Acceptable level of risk for stock outs FACTORS AFFECT CHOICE OF TRANSPORT MODES OPERATIONAL FACTORS Covering the operating environment, the product,the company and its customers IDENTIFYING THE FEATURES OF EACH ALTERNATIVE MODE OF TRANSPORT CHANNEL SITUATION Covering the alternative approaches to the total distribution system 20

21 LOGISTICS PLANNING TRIANGLE Customer service levels Inventory decisions Transportation decisions Facility location decisions Customer service levels Inventory strategy Inventory levels Deployment of inventories Control methods Customer service. goals. Transport Strategy Modes of transport Carrier routing/ scheduling Shipment size/ consolidation TRIANGLE OF LOGISTICAL DECISION MAKING Location Strategy Number, size, and location of facilities Assignment of stocking points to sourcing points Assignment of demand to stocking points or sourcing points Private/public warehousing 21

22 Level of Decisions Type of Decision Strategic Tactical Operational Location No of facilities, size and location Inventory positioning Routing, expediting and displacing Transportation Mode selection Seasonal service mix Replenishment quantities and timing Order processing Selecting and designing order entry system Priority rules for customer orders Expediting orders Customer service Setting standards Warehousing Layout, site selection Seasonal space choices Purchasing Policies Contracting, vendor selection Order filling Order releasing 22