CHAPTER 1 SUMMARY
Economic impact of logistics
The economic impact of logistics can affect individual consumer such as you. These
impacts can be illustrated through the concept of economic utility, which is the value or
usefulness of a product in fulfilling customer needs or wants. Logistics clearly contributes
to time and place utility, The four general types of economic utility are; Possession
utility refers to the value or usefulness that comes from a customer being able to take
possession of a product. Possession utility can be influenced by the payment terms
associated with a product. For example, debit and credit cards, you can take possession
of a product without having to produce cash. Form utility refers to a product being in a
form that (1) can be used by the customer and (2) is of value to the customer. Through
allocation, logistics can break (for example) thousand of cases of diet cola into the
smaller quantitates that are desired by customers. Place utility refers to having
products available where they are needed by customers; products are moved from point
of lesser value to points of greater value. Time utility refers to having product available
when they are needed. Different products have different sensitivities to time.
Logistics; what it is
It is associated with managing the flows of goods and information from a point of origin to
a point of consumption. Logistics 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. Mass logistics, in which every
customer gets the same type and levels of logistics service; this will result in some
customers being overserved and others will be underserved. Companies should consider
tailored logistics approaches, in which groups of customers with similar logistical need
and want are provided with logistics service, appropriate to these need and wants.
The increased importance of logistics
Market demassification, suggest that, in contrast to mass markets, ever-increasing
number of market segments leads to distinct preferences, which refers to a company to
deliver highly customized products and services that are designed to meet the needs and
want of individual segments or customers. One-size does not fit all in mass
demassification. Disintermediation is the removal of intermediaries between producer
and consumer. Power retailers such as Wal-Mart; often wield greater power than the
companies that supply them. Power retailers are characterized by large market share and
,low prices. And they are often the largest customers for some of their suppliers. CPFR
(collaborative planning, forecasting and replenishment), a practice in which trading
partners share planning and forecasting data to better match up supply and demand.
The system and total cost approaches to logistics
Logistics is a classic example of the systems approach to business problems. The system
approach indicates that a company’s objectives can be realized by recognizing the mutual
interdependence of the major functional areas of the firm, such as marketing, production,
finance, and logistics.
Implications;
1. Is that the goals and the objectives of the major functional areas should be
compatible with the company’s goals and objectives. (one logistics system does
not fit all companies)
2. Is that decisions made by one functional area should consider the potential
implications of other functional areas.
Stock-keeping units (SKU) each different type or package size of a good is a different
SKU. An increased number of SKU provides customers with more choices, which today’s
customer often wants. From a logistic perspective, more SKU creates challenges such as
more items to identify, more to store en more to track; which increases the chances of
mistakes. Business logistics is made up of materials management (inbound logistics),
movement and storage of material into a firm. And physical distribution (outbound
logistics), storage of finished product and movement to the customer. Intrafunctional
logistics attempts to coordinate materials management and physical distribution in a
cost-efficient manner that supports an organizations customer service objective; This is
called the total cost approach, this approach is built on the premise that all relevant
activities in moving and storing product should be considered as a whole. The use of this
approach requires an understanding of cost trade-offs, in other words, changes to one
logistics activity cause some costs to increase and other to decrease. For example, a
decrease in transportation costs is often associated with an increase in warehousing
costs. The total logistic concept is unique not because of the activities performed but
because of the integration of all activities into a unified whole that seeks to minimize
distribution costs in a manner that support an organizations customer service objective.
Logistical relationships within the firm
Finance; charged with the responsibility of allocating the firm’s limited fund to project
desired by the various operating departments. Capital budgeting (buy or lease) is
making decisions that affect logistics, such as material handlings equipment (fork-lifts)
and packaging equipment (a shrink-wrap machine). Inventory is another area where
finance and logistics can interact. A basic challenge for the two areas is that the finance
department often measures inventory in terms of cost or value in dollars, where logistics
tends to measure inventory in terms of units.
Production; one of the most common interfaces between production and logistics involves
the length of production runs. In many cases, the production people favor long
production runs of individual product because this allows the relevant fixed costs to be
spread over ore units, thus resulting in a lower production cost per unit. But longer
production runs generate large amount of inventory, and it is often a logistics staff
responsibility to store and track the inventory. Increasing utilization of the
postponement concept (the delay of value-added activities such as assembly,
production, and packaging until the latest possible time) also influences the interface
between production and logistics.
Marketing; place decisions involve two types of networks: logistics an the marketing
channel. From a marketing perspective, place decisions may also involve new strategies
for reaching customers. A popular retailing strategy in recent years involves a branding
alliance that allows customers to purchase products from two or more name-brand
retailers at one store location. From a marketing perspective branding alliances (1) offer
potential customers convenience (satisfying multiple needs in one place) (2) increase
,customer spending per transaction, and (3) boost brand awareness. Logistical challenges
with branding alliances include the cost and timing of product delivery. Price decisions a
key price-related decision for marketers involves how a product’s transportation costs
should be reflected in its selling price. Landed costs refer to the price of a product at the
source plus transportation costs to its destination. Logistical managers may play an
important role in product pricing. They are expected to know the costs of providing
various levels of customer service.
Product decision the marked increase in product offerings (which allow for more
customer choice) creates logistical challenges in terms of identification, storage, and
tracking. Another interface involves the particular SKUs to hold. Marketers often prefer to
carry higher quantities of items because this reduces stock-out (being out of an item, the
same time there is demand for it) situations. From a logistical point of view, higher
quantities of inventory (1) necessitate additional storage space and (2) increase inventory
carrying cost. Sustainable products product that meet present need without
compromising (losing) the ability of future generations to meet their needs. From a
logistical perspective, an organizations commitment to selling fair trade products, such as
coffee or chocolate, may result in changed sourcing requirements for the necessary raw
materials. Promotion decisions many promotional decisions require close coordination
between marketing and logistics. One important situation concerns the availability of
highly advertised products. It is very damaging to a firms’ goodwill to be stocked-out of
items being heavily promoted in a sales campaign. Bait and switch tactics is enticing a
customer with promises of a low-priced product, only to find that it is unavailable to get
that product, but that a higher-priced substitute product is readily available.
Marketing channels; refer to “a set of institutions necessary to transfer the title to
goods and to move goods from the point of production to the point of consumption”. The
traditional institutions in the marketing channel are the manufacturer, the wholesaler,
and the retailer. Each in turn assumes ownership of the inventory of goods, but also risks.
The ownership channel covers movement of the title to the goods, the goods might not
be physically present or even exist. The negotiations channel is the one in which buy and
sell agreements are reached. This could include; face to face, by telephone or email. In
many situations, no actual negotiation takes place because the price is stated. The
financing channel handles payments for goods. More important, it handles the company’s
credit. The promotions channel is concerned with promoting a new or an existing product
and can be related to the financing channel because monetary allowances are often part
of the promotion effort.
The most significant contribution that the logistics channel makes to the overall channel
process is the sorting function which bridges ‘’the discrepancy between the assortment
of goods and services generated by the producer and the assortment demanded by the
consumer’’. The four steps; sorting out is sorting a heterogeneous supply of product into
stock that are homogeneous. Accumulating is bringing together similar stock from
different sources. Allocating is breaking a homogeneous supply into smaller lots.
Assorting is building up assortments of goods for resale, usually to retail customers.
Channel intermediaries (facilitators) play a minor but important roll, for example a
translator, insurance company, bank, advertising agencies et cetera. They make the
entire system function better, and should only be used when necessary.
Activities in the logistical channel
Customer service, involves making sure that the right person receives the right product
at the right place at the right time in the right condition and at the right costs.
Demand forecasting: refers to efforts to estimate product demand in a future time
period.
Facility location decisions: increasingly important as the configuration of logistics
systems is altered due the impacts of multinational trade agreements.
International logistics: international logistics, which refers to the logistics activities
associated with goods that are sold across national boundaries, is much costly and
challenging than domestic logistics.
,Inventory management: refers to stocks of goods that are maintained for a variety of
purposes, such as for resale to others, as well as to support manufacturing or assembling
processes.
Materials handling: refers to short-distance movement of products within the confines
of a facility, like plant, warehouse.
Order management: refers to management of the activities that take place between a
time a customer’s places an order and the time it is received by the customer.
Packaging: can have both a marketing (consumer packaging) and a logistical (industrial
packaging) dimension. Refers to packaging that prepares a product for storage and
transit, and packaging has important interfaces with materials handling and warehousing
activities.
Procurement: refers to raw materials, component parts, and supplies bought from
outside organizations to support a company’s operations.
Reverse logistics: products, can be returned for various reasons, such as product
recalls, product damage, lack of demand, and customer dissatisfaction.
Transportation management: can be defined as the actual physical movement of
goods from one place to another, whereas transportation management refers to
management of transportation activities by a particular organizations.
Warehousing management: refers to places where inventory can be stored for a
particular period of time.
CHAPTER 5 SUMMARY
Logistics is as part of supply chain management (SCM)
Evolution of supply chain management
SCM is a relatively new concept it was rarely mentioned prior to 1990. A
supply chain encompasses all activities associated with the flow and
transformation of goods from the raw material stage, through to the end
user, as well as the associated information flows. Supply chains are not a
new concept. Some supply chains can be much more complex than others.
Complex supply chains may include “specialist companies” , such as third-
party logistics (3PL) providers. Customers are also an integral component
in supply chains. Supply chain management encompasses the planning
and management of all activities involved in sourcing and procurement,
conversion and all logistics management activities. Importantly, it also
includes coordination and collaboration with channel partners, which can
be suppliers, intermediaries, third-party service providers, and customers.
SCM requires companies to apply the systems approach across all
organizations in the supply chain. The system approach suggests that
companies must recognize the interdependencies of the decisions made in
major functional areas within, across, and between firms.
Three of the more prominent SCM models are;
1. SCOR process
2. GSCF process (see textbook)
3. PCF process (see textbook)
SCOR process
Plan Processes that balance aggregate demand and supply to
develop a course of action which best meets sourcing
production, and delivery requirements.
Source Processes that procure goods and services to meet planned or
, actual demand
Make Processes that transform product to a finished state to meet
planned or actual demand
Deliver Processes that provide finished goods and services to meet
planned or actual demand, typically including order
management, transportation management, and distribution
management.
Return Processes associated with returning or reveiving returned
products for any reason. These processes extend into post
delivery customer support.
Attributes affecting SCM implementation
A number of key attributes affect a firms’ ability to implement SCM;
sutomer power,
long-term orientation, leveraging technology, enchanced communication
across
organizations, inverntory control, interorganizational collaboration, and the
use of
supply chain facilitators. See next page!
Customer power
The customer has gained tremendous power over buying decisions, in
large part because of greater acces to information. (by the internet).
Supply chains should be fast and agile, rather than slow and inflexible. A
fast supply chain emphasizes a speed and time component, whereas an
agile supply chain focuses on an organizations ability to respond to
changes in demand with respect to volume and variety. Customer centric
supply chains are concerned with perfect orders (on-time delivery and
correct order quantity). An Agile supply chain may be most appropriate in
contexts where demand is fast, and the customer requirement for variety
is high. In case where customer demand is relatively stable and variety is
low, establishing a lean supply chain may be a more appropriate goal.
(lean = eliminating waste et cetera).
Long-term orientation
Well-run supply chain improve the long-term perfomance of the individual
companies and the supply chain as a whole. Supply chains should employ
long-term orientation in stead of short-term orientation. Long-term
orientation focusses on relational exchanges, whereas short-term
orientation focusses on transactional exchanges. SCM can not be succesful
without information sharing among various participants. Partnerships,
which can be loosely described as positive, long-term relationships
between supply chain participants, are part of relational exchange. The
key characteristics are; high interdependence among supply chain
participants, shared information, compatible goals, mutual trust, and
buying decisions based on value and not on cost or price.
Leveraging technology
Technology has been at the center of changes taking place that affect the
supply chain. Two key factors; computing power and the internet. In an
effort to maximize shareholder wealth or minimize costs (1) were not very
