Notes: Logistics and Supply Chain Management (Chaine/Chain Management)

Introduction to Logistics and Supply Chain Management

• Logistics: the work required to move and geographically position inventory; creates value by timing and positioning inventory. Includes order management, inventory, transportation, warehousing, materials handling and packaging as integrated throughout a facility network. $\text{Logistics}$ is the broader discipline described on Page 5.

• Logistics management: part of the supply chain 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. (Pages 6–7)

• Key objective (logistics management): getting the right product, at the right place, in the right quantity, at the right time, in the best condition and at an acceptable cost. (Page 7)

• Embraces multiple activities: purchasing and supplier management, materials management and inventory management, manufacturing, warehousing, distribution and transport, and customer service. (Page 7)

Evolution of Logistics and SCM

• Logistics and warfare: logistics was first realized by the time of fighting wars. (Page 3)

• Supply chain concept: developed in the $1990s$ out of the role of logistics (flow of goods) and the management of supply in firms. (Page 3)

• Procurement history: recognized as an important management function in the $1930s$. (Page 3)

• Functional history: procurement, materials management and logistics were long viewed as the responsibility of either operations or marketing; shift toward supply management and later supply chain management from the late $1980s$ onward. (Page 3)

• Timeline highlights from Page 4:

  • $1970s$–$1980s$: MRPII/ERP precursors; early planning and integration efforts.

  • 1980s: MRP II, integration era begins.

  • 1990s: ERP, IT and business process reengineering; term “Supply Chain” coined by Keith Oliver in 1992; concept boomed from $1995+$.

  • 1990s–2000s: Globalization era; development of sophisticated IT systems; increased supply chain capabilities. (Page 4)

• Key phrases: Procurement and supply management shift, evolution from “supply” to “supply chain management.” (Pages 3–4)

Definitions and Key Concepts

• Logistics (definition recap): the work to move and position inventory; creates value via timing/positioning; integrated activities across the supply network. (Page 5)

• Logistics management (definition recap): planning, implementing and controlling the efficient forward and reverse flow and storage of goods, services and related information from origin to consumption to meet customer requirements. (Page 6)

• Scope of logistics management: getting the right product to the right place, at the right time, in the best condition and at the lowest cost; includes purchasing, supplier management, materials management, inventory management, manufacturing, warehousing, distribution, transport and customer service. (Page 7)

• Supply chain (definition): a network of organizations working together to create value and realize higher profits through value creation; involves extraction of raw materials, manufacturing, wholesale, retail and customers. (Page 9)

• Supply chain management (SCM) (definition): management of a network of organizations and processes that produce value; aims to build trust, exchange information on market needs, develop new products and optimize supplier bases; includes planning, development, control, informing and monitoring of actions within and between supply chain links to meet strategic goals. (Page 11–12)

• CIPS definition of SCM: continuous planning, developing, controlling, informing and monitoring of actions within and between supply chain links so that an integrated supply process results which meets overall strategic goals. (Page 12)

• Upstream vs. downstream (page 13): Upstream includes suppliers; downstream includes distribution to customers.

• Extended supply chain: an expanded network including designers, market research, raw material manufacturers, distributors, retailers, producers, logistics, and finance providers along with customers and suppliers. (Page 10)

Types of Logistics

• Military logistics: procurement, maintenance and transportation of military materials, facilities and personnel; focuses on getting the right support to the right place at the right time (rations, equipment, vehicles, spare parts, medical services). (Pages 18)

• Engineering logistics: management engineering and technical activities to support objectives; includes integrated logistics support, life cycle analyses, system operation and maintenance management. (Page 19)

• Business logistics: applied to commercial environments (often fast-moving consumer goods); logistics management is the part of the supply chain that plans, implements and controls the forward/reverse flow and storage to meet customer requirements. (Page 20)

• Production logistics: logistics within production environments between raw materials and finished products; includes handling return loads, disposal of packaging, obsolete products, and recycling of appliances/components. (Page 21)

Logistics Processes

• Inbound logistics: all activities to get materials into the business before production or sale (transporting, storing, delivering raw materials/components from supplier to plant/warehouse/store). (Page 23)

  • Inbound activities include purchasing inbound movement, receiving, storing, material handling, warehousing, inventory management, and managing suppliers. (Page 24)

• Outbound logistics: storing, transporting, and delivering finished goods from a business to customers or distribution points; after production is completed; movement of finished goods and related information flow to end user. (Pages 25–26)

• Third party logistics (3PL): outsourced logistics functions to a contractor; e.g., warehousing, transportation, customs duties; sometimes called contract logistics. (Pages 27–29)

  • 3PL enables firms to stay lean, focus on core areas, and reduce costs. (Page 28)

• Fourth party logistics (4PL): a supply chain integrator that coordinates activities of 3PLs and manages all resources, technology, and providers; end-to-end management from sourcing to final delivery; strategic partner focus; may not own assets. (Pages 30–31)

  • Features include end-to-end management, integration focus, and single point of contact; coordinates multiple logistics partners. (Page 30)

• Take-home prompt: Outline differences between 3PL and 4PL. (Page 32)

Business Logistics Activities

• Definition: tasks and processes involved in planning, implementing and controlling the efficient flow and storage of goods, services and related information from origin to consumption to meet customer requirements. (Page 33)

• Main activities (12):
  1) Demand forecasting: determining future product and information requirements across markets. (Page 34)
  2) Logistics management forecast: determines quantities and where demand will occur to plan transportation to markets. (Page 34)
  3) Facility site selection and design: location, layout, capacity, labor and transport considerations. (Page 34)
  4) Packaging: marketing promotion and product protection/handling in logistics. (Page 34)
  5) Procurement: acquisition of goods/services/information; supplier selection; timing of arrival; pricing and quality control. (Page 35)
  6) Material handling: movement of raw materials to finished goods within facilities; affects productivity and costs. (Page 35)
  7) Warehouse management: space and inventory holding; storage for future sales. (Page 36)
  8) Order processing: speed and accuracy of fulfilling customer orders. (Page 36)
  9) Logistics communication: management of information and communications systems. (Page 36)
  10) Transportation: movement of goods from origin to consumption. (Page 36)
  11) Reverse logistics: return handling and waste disposal; returns due to defects or wrong items. (Page 36)
  12) Inventory management: balancing service level with holding costs and obsolescence. (Page 36)

Porter’s Value Chain and Competitive Advantage

• Origin: Michael Porter, Competitive Advantage (1985). Value chain analyzes activities a firm performs and links them to competitive position; helps identify sources of competitive advantage. (Page 37)

• Value chain definition: a sequence of activities by which value is added to the product or service; covers raw materials to finished product and after-sales service. (Page 38)

• Purpose: identify sources of differentiation and cost advantage; map primary and support activities to understand cost behavior and differentiation sources. (Page 38–39)

• Primary activities (inbound logistics, operations, outbound logistics, marketing and sales, service). (Page 40)

• Support activities (procurement, technology development, human resource management, firm infrastructure). (Page 41)

• Primary activity examples include inbound receiving/handling, production, outbound delivery, order handling, cost control, etc. (Page 40)

• Value addition equation (conceptual): Value added per activity is the difference between total value of outputs and the costs of inputs; overall profit margin can be seen as Value added − Cost. Expression shown as a slide: “Value added = Cost to deliver product” example on slide: “Value added less Cost = Profit margin.” (Page 40)

Take-Home Activity and Review Prompts

• Practical exercise: Create a practical industry-based example illustrating the roles of logistics management, reverse logistics, upstream and downstream flows, physical distribution, and the focal company; list suppliers and customers involved. (Page 16)

• Take-home task: Outline the difference between 3rd and 4th party logistics (Page 32).

Conclusion

• The logistics value chain is central to supply chain efficiency and competitiveness; coordination of inbound logistics, warehousing, transportation, inventory management and customer service adds value at every stage. Effective logistics reduces costs, delivery times, and improves service quality and responsiveness to market demands; globalization intensifies the need to optimize the logistics value chain for long-term growth. (Page 43)