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Lesson 2: Logistic, Procurement and Supply Chain

Lesson 2: Logistic, Procurement and Supply Chain. CAMBRIDGE MANAGEMENT AND LEADERSHIP SCHOOL info@cmls.org.uk. The Enterprise and Adding Value. A business – economic system in which goods and services are exchanged on the basis of their perceived worth and typically for money.

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Lesson 2: Logistic, Procurement and Supply Chain

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  1. Lesson 2: Logistic, Procurementand Supply Chain CAMBRIDGE MANAGEMENT AND LEADERSHIP SCHOOL info@cmls.org.uk

  2. The Enterprise and Adding Value • A business – economic system in which goods and services are exchanged on the basis of their perceived worth and typically for money. • Income generated provides a cash flow for the business. • Cash flow enables business to purchase goods or services from other businesses, called suppliers. 1-2

  3. The Enterprise and Adding Value Business flow: • Flow of materials and services from suppliers to their customers • Flow of money in the reverse direction • Flow of data and information between the parties ensures required materials/services are supplied and agreed money is paid 1-4

  4. The Enterprise and Adding Value 1-5

  5. The Enterprise and Adding Value Adding Value • In providing a product or service that customers want to buy, a business adds value to the supplies that it has purchased • Value-adding process and concept of economic exchange between organisations are at the core of business relationships • Examples: Coffee shop, Google Nexus One mobile phone and car insurance company 1-6

  6. The Enterprise and Adding Value Value Chain • Value – the amount that a buyer is willing to pay for an item (Porter 1985). • Value Chain – combination of nine activities that work together within any business to provide value for customers. • The nine activities are divided into a primary and support focus. 1-7

  7. The Enterprise and Adding Value Value Chain Primary activities: • inbound and outbound logistics • production • sales and marketing The support activities are: • administrative infrastructure • human resource management • information technology • procurement 1-8

  8. Supply Chains and Networks • Terms supply chain andlogisticsare often used interchangeably. • However, although linked, the terms do have different meanings. Supply Chain • The term entered the business language in the 1990s. • It reflects the complex arrangements in getting goods from their initial raw materials to the ultimate finished product and so provide benefits for the end user. 1-9

  9. Supply Chains and Networks 1-10

  10. Supply Chains and Networks Supply Chain • Core supply chain – transactions within a business and between a business and its immediate (tier 1) suppliers and customers. • Extended supply chain – includes all the suppliers’ suppliers back to the farm and mine and all of the customers’ customers (product intermediaries) that handle an item through to the end user or consumer. • Example: Aluminium cans (see Figure 1.3) 1-11

  11. Supply Chains and Networks 1-12

  12. Supply Chains and Networks Supply Chain • Costs in supply chains • Total cost: money paid and cost of time such as planning the added-value stages, planning to move the item, transport time and holding inventory. • Examples of time taken through supply chains: • Cars – from iron ore to vehicle for sale at a dealer: 12 months • Clothing – from the wool fleece shorn from a sheep to clothing at a retailer: 18 months • The longer the supply chain takes, the more it costs 1-13

  13. Supply Chains and Networks Supply Chain and Value Chain • According to Feller, Shunk and Callarman (2006), difference between a supply chain and value chain is: • Supply chain – focuses on ‘integrating supplier and producer processes, improving efficiency and reducing waste’. • Value chain – focuses on ‘downstream, on creating value in the eyes of the customer’. 1-14

  14. Supply Chains and Networks 1-15

  15. Supply Chains and Networks Multiple Supply Chains • A business has two external components – the demand side and supply side. • Business will actually deal with multiple supply chains – for each product type on the demand side and each material type on the supply side there could be a different supply chain. • The demand side of the enterprise is driven by the customer and their requirements. 1-16

  16. Supply Chains and Networks Multiple Supply Chains • For industrial products, the end user is more likely to be the business that buys the item. • For consumer products, the end user can be a commercial customer or a consumer. • Wholesalers: • are customers that act as intermediaries between manufacturers or importers and smaller retailers. • promote the products within categories that suit different customers and then break the bulk delivery received into the smaller deliveries required. 1-17

  17. Supply Chains and Networks Supply Network • A business will have multiple supply chains for its outbound finished goods, inbound materials, components and purchased products (see Figure 1.6). • Logistics service providers (LSP) – collective term that identifies the wide range of logistics services available. LSPs undertake contracted roles such as: • goods movement • material services such as buying services • professional firms such as IT services. 1-18

  18. Supply Chains and Networks 1-19

  19. Supply Chains and Networks Supply Network • Supply network can also include contract manufacturers and original design manufacturers (ODM) that produce products on behalf of the brand owner. • Original equipment manufacturers (OEM) – coordinate with the contract manufacturers and component suppliers for delivery of materials and components to the contract manufacturers. • Supply network for the business has both physical and communications links. 1-20

  20. Supply Chains and Networks Supply Network • Supply network perspective – setting an operation in the context of all the other operations with which it interacts, some of which are its suppliers and its customers. Materials, parts, other information, ideas and sometimes people all flow through the network of customer–supplier relationships formed by all these operations (Slack at al. 2007). 1-21

  21. Supply Chains and Networks Supply Network Consists of four components: • Physical locations: the ‘nodes’ of the network such as factories, warehouses and distribution centres. • Transport: movement between the nodes of the network – by trucks, trains, aircraft and marine vessels (deep sea and river). • Systems: software applications and tools that support operations within the network such as order management systems, warehouse management systems and transport management systems. • Relationships: the business and personal relationships developed within and between organisations, recognising the similarities and differences between peoples and their cultures (see Figure 1.7). 1-22

  22. Supply Chains and Networks 1-23

  23. Logistics and Availability • The term ‘logistics’ is very old, entered regular vocabulary following the 1990 Gulf War (portrayed as the ‘logistics’ war). • ‘Logistic’ is derived from the Greek words logizesthai(to compute) and logistikos(skilled in calculating). • Logistics is what an organisation does – a supply chain for an item is the environment within which the item and its constituent parts move. 1-24

  24. Logistics and Availability US Council of Supply Chain Management Professionals (CSCMP) defines logistics as: Logistics is that part of the supply chains 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 … Logistics Management is an integrating function which co-ordinates and optimises all logistics activities, as well as integrates logistics activities with other functions … 1-25

  25. Logistics and Availability • Logistics in business is continuing to evolve, primarily due to: • the availability and decreasing cost of IT and communications hardware and applications, which allow the development of technologies and applications that enable and hasten the integration of parties in supply chains. • the development of a body of knowledge since the 1960s concerning the discipline. 1-26

  26. Logistics and Availability Availability • Availability of resources – meeting customer requirements means the time-related positioning of resources to provide availability of goods and services for customers. 1-27

  27. Logistics and Availability Product Logistics Logistics within a product business contains four subsets that together provide availability: 1. Customer service logistics a. Inventory: how many and what value of products to hold and where, what materials to acquire and when, what to make (or import) and when b. Material movement: importing, materials storage, finished goods warehousing and distribution operations c. Transport: owned by the organisation or operated by a provider of transport services. 1-28

  28. Logistics and Availability Product Logistics 2. Conversion logistics – planning of manufacturing or the final assembly, pack and test of inputs. Planning of inventory is the main component of availability. 3. Reverse logistics – the return of goods, which typically involves packaging (primary and secondary), parts (warranty items) or whole products (recalled items). 1-29

  29. Logistics and Availability Product Logistics 4. Support logistics – the post-sales support of products and services. Also the planning and scheduling for the life-cycle support of an organisation’s internal infrastructure and capital equipment. • ‘Integrated logistics management’ (ILM) – addressed the need for managing the total cost of ownership throughout the life cycle of weapons systems. • ILM uses the techniques and tools of integrated logistics support (ILS) and logistics systems analysis (LSA). 1-30

  30. Logistics and Availability Services Logistics • Process of providing availability for non-material activities and associated materials required in the delivery of a service. • Can be applied in a wide range of businesses. • Service capacity is mainly about planning for the availability of people (same role as inventory in a product environment). 1-31

  31. Logistics and Availability Services Logistics • Features of planning for service delivery: • People must be available for peak period demands. • Capacity planning is often by defined groups or teams that operate in fixed sizes. • Groups are often dedicated to a location, so are difficult to re-allocate. 1-32

  32. The Business Model – Providing the Products and Services Business model • Most suitable and most profitable business model for a commercial business is, in part, dependent on how it interacts with its core supply chains and supply network. • Companies need to undertake a regular review and if needed adapt the business model to take advantage of changes in the supply chains. 1-33

  33. The Business Model – Providing the Products and Services The industry and product type • Logistics strategy and operations will differ by broad industry type (see figure 1.9). • Within each industry type, there are different influences and pressures at the inbound, internal or outbound parts of their core supply chains. 1-34

  34. The Business Model – Providing the Products and Services 1-35

  35. The Business Model – Providing the Products and Services ‘Owning’ the product • Ownership of the product has a strong influence on the business model – since product ‘owner’ is responsible for making money for the business. • How ownership is structured will influence the logistics operations. Possible structures: • divisions or subsidiary companies • geographic areas • product group. 1-36

  36. The Business Model – Providing the Products and Services How the company views its markets • Companies operate with their own view of how they relate to their markets; for example: • Domestic • Multi-domestic • International • Global • Multinational/transnational. 1-37

  37. The Business Model – Providing the Products and Services Supply chain links • Core or focused business – focused business, highest value adding parts of the supply chains and outsource the balance. • Horizontal integration – sell a type of product or service in numerous markets through subsidiary companies. Each provides variations of the product to a different market segment or geographical area. 1-38

  38. The Business Model – Providing the Products and Services Supply chain links 3. Vertical integration – businesses share a common owner and are united through an administrative hierarchy. Each member of the hierarchy produces different products or services, which are combined through a specific supply chain. 4. Virtual integration – company forms a network of business that are drawn together to meet a specific customer need in a project management structure. 1-39

  39. The Business Model – Providing the Products and Services Supply chain links 5. Supplier alliance – formal relationship exists between two or more parties for a set period of time. The parties pursue a set of agreed-upon goals or meet a critical business need, while remaining independent organisations. 1-40

  40. The Business Model – Providing the Products and Services Positioning the business • Although each business has the same steps in its business flow, the means to implement these steps is very different (Hayes and Wheelwright, 1979). • It depends on the products and the processes used to produce the product or service for sale. 1-41

  41. The Business Model – Providing the Products and Services 1-42

  42. The Business Model – Providing the Products and Services Logistical trade-offs • ‘You can’t have everything’ – relationship between the variables of a supply chain performance, service level, cost etc. • Example: Trade-off between transport costs and the number of warehouses. • Global supply chains make the trade-offs in logistics more acute. 1-43

  43. The Business Model – Providing the Products and Services 1-44

  44. Strategic Approach • Few companies have a strategic plan for their supply chains and logistics. • Supply chains are currently viewed with a cost focus. • Supply chains are a cross-organisational concept that is not under the control of any one function. 2-4

  45. Strategic Approach Business Plan • Purpose of Business Plan: • planning to take advantage of current opportunities • allows management to make informed choices concerning the ‘best’ portfolio of regions or countries and products • provides the guide to building on future or longer term opportunities. 2-5

  46. Logistics Strategy Approach • Logistics strategy model developed by Professor Pieter Nagel. • Logistics strategy of the enterprise is informed by current structure of the supply chains that interact with the business. • Structure also defines the framework within which the logistics operations can execute the strategy. • The logistics strategy is driven, in part, by the strongest influence on the strategy; either the brand, the customers or suppliers. 2-6

  47. Logistics Strategy Approach Power and its impact on supply chains • Power – capability of a party in a relationship to make the other member do something they otherwise would not do. • Porter (1979) proposed that five forces shape industry competition. • Aspect of logistics strategy will identify how power is being used in the business relationships through the supply chains. 2-7

  48. Logistics Strategy Approach Power and its impact on supply chains • Examples of how companies may increase their power: • restricting the availability of supply for an item in high demand • incorporating product(s) into a superior service package that is not easily duplicated • gaining influence through contacts in government • providing a continual flow of innovative (‘must have’) products and services that customers have to stock. 2-8

  49. Logistics Strategy Approach Power and its impact on supply chains • obtaining a licence to operate from government • promoting reputation and prestige by the seller or buyer • increasing the size of the organisation and its buying strength • promoting specialised knowledge, e.g. commodity trading • eliminating dependency on a few powerful customers • being a technology leader, e.g. holding patents • developing superior information, optimisation and modelling systems. 2-9

  50. Logistics Strategy Approach Power and its impact on supply chains • An established power base can be weakened by: • implementing superior technologies • disintermediation (removal of intermediaries in the buying and selling process) • e-procurement techniques • creating joint ventures and joint purchasing initiatives. 2-10

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