Business Logistics

1. Business Logistics Chapter 2 Dimensions of Logistics Adam Conrad

2. Learning Objectives • Understand the role and importance of logistics in private and public organizations • Appreciate the impact of logistics on the economy and how effective logistics management contributes to the economy • Understand the value-added roles of logistics • Define logistics systems from several perspectives

3. Learning Objectives • Understand the relationship between logistics and other important functional areas of a company, including manufacturing, marketing, and finance • Discuss the important 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 from a static and dynamic perspective

4. EMC Case Study • Class Discussion

5. Dimensions of Logistics • Drucker – 1962 “The Economy’s Dark Continent” • Distribution is one of the most sadly neglected but most promising areas of American business… • 15-25% of the cost of manufactured components goes to cover expenses before it hits the assembly line • Origins date back to the military around WWII – Gulf War regarded as a ‘logistics war;

6. Definition of Logistics That part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services and related information from the point of order to the point of consumption in order to meet customers’ requirements

7. Seven R’s • Ensuring the availability of the • Right product • Right quantity • Right condition • Right Place • Right time • Right customer • Right cost

8. Change in Logistics • Emphasis on Quality and meeting customer requirements • Change – influence of large buyers such as Wal-Mart • Increasing sophistication of all buyer types –industrial and consumer

9. Macro Perspective • Logistics impacts and has relationship with economy • Cost of business logistics increasing • Percentage of GDP decreasing • Transportation largest percentage of logistics costs (rising due to inventory management practices)

10. Macro Perspective • Logistics adds value to a product • Place utility - moving goods to points where demand exists • Time utility - moving goods to points at a specific time • Allows for economic development and specialization • Affects land values due to increased accessibility

11. Micro Perspective • Interfaces with production in determining the length of the production run • Interfaces with marketing in selling the product • price - size, quantity • product - dimensions, packaging • promotion - inventory, channels • customer service • Relationship with all areas of a company

12. Logistics Activities • Transportation - physical movement or flow of goods • Storage - inventory management and warehousing • Packaging - affected by product and transportation • Materials handling - movement in, from, and within a warehouse

13. Logistics Activities • Order fulfillment - completing customer orders, affects lead time • Forecasting - predicting inventory necessary to fulfill customer demand • Production planning - product necessary to cover market • Purchasing - procurement of supplies, affects transportation

14. Approaches to Analyzing Logistics Systems • Materials Management versus Physical Distribution • Balanced System • Heavy Inbound • Heavy Outbound • Reverse Systems • Cost centers • Trade offs

15. Approaches to Analyzing Logistics Systems • Nodes versus links • nodes - points where goods stop for processing • links - transportation connecting nodes • Logistics Channels - network of intermediaries that contribute to efficient flow of goods

16. Logistics and Systems Analysis • System - is a set of interacting elements, variables, parts or objects that are functionally related to one another and that form a coherent group. • Optimization –always the best alternative (water transportation example)

17. Logistics and Systems Analysis • Levels of optimality • Delivery timeframes • Functional relationships • Interdepartmental cooperation • Constraints

18. Logistics System Analysis • Short-Run/Static Analysis • Look at short run situation and select the system with the lowest overall cost. • Long-Run/Dynamic Analysis • Mathematically calculate the point of equality between the two systems • Examples p.55/56

19. Factors Affecting the Cost and Importance of Logistics • Competition via customer service • Order Cycle • shorter order cycle, less inventory required • Substitution • more substitutable product, higher customer service level required • Inventory Effect • increase inventory, reduce cost of lost sales • Transportation Effect • increase transportation costs, reduce cost of lost sales

20. Factors Affecting the Cost and Importance of Logistics • Product factors • Dollar Value - product value increases, cost of warehousing, transportation and inventory increases • Density- higher the density, more efficient use of warehouse and transportation space • Damage -greater the risk of damage, higher the transportation and warehousing cost • Special Handling Requirments

21. Factors Affecting the Cost and Importance of Logistics • Spatial Relationships • Distance Factor