S08 WK1 SC Concept

S08 WK1 SC Concept - LSCM 360 Business Logistics Welcome....

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Unformatted text preview: LSCM 360 Business Logistics Welcome. Good Luck. Learn Lots. Study Hard. Be Scared. SUPPLY CHAIN MANAGEMENT DEFINED Supply Chain Management (SCM) encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management activities. SCM includes coordination and collaboration with channel partners (suppliers, intermediaries, thirdparty service providers, and customers). SCM drives coordination of processes and activities with and across marketing, sales, product design, finance and information technology. In essence, SCM integrates supply and demand management within and across companies. CSCMP SUPPLY CHAIN CONFIGERATIONS LOGISTICS MANAGEMENT DEFINED "The part of SCM 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." CSCMP LOGISTICS DEFINED Cont. Does what? Of what? Where? Why? Plans, implements, and controls the efficient, effective forward and reverse flow and storage... Goods, services, and related information Between the point of origin and the point of consumption In order to meet customers' requirements. LOGISTICS INCLUDES Customer Service Inventory management Warehouse management Materials handling & packaging Order management Transportation management Network design / facility location decisions Parts and service support Returned products Salvage and scrap Information management Production planning/scheduling Sourcing and procurement Demand forecasting The output of logistics is customer service! A BILL OF "RIGHTS" Logistics embodies the effort to deliver: the right product in the right quantity in the right condition to the right place at the right time for the right customer with the right information at the right cost LOGISTICS BASIC FACTS Logistics cost of a $3.60 box of cereal (field to table) $0.37 # of truckload shipments Chrysler receives each day 3,500 Supply chain's impact on company valuation SC glitch = 8% decrease in stock price Sophisticated SC methods = 12x greater profit BASIC FACTS Cont. Logistics is the U.S.'s 2nd largest employer (behind healthcare) 8.6% of total U.S. labor force! U.S. has over $1 TRILLION logistics spend annually! > GDP of all but 12 countries Logistics as a percent of GDP has been decreasing ~15% in 1980 9.5% in 2005 WHY THE DECREASE AS PERCENT GDP? Year Inventory Transportation Administrative Total U.S. Logistics As Logistics % of GDP $B $B $B LOGISTICS COST 44 64 91 116 214 274 351 441 590 744 3 4 6 9 17 20 25 30 39 46 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 31 38 56 97 220 227 283 302 377 393 78 106 153 222 451 521 659 773 1,006 1,183 14.7 14.7 14.7 13.5 16.1 12.4 11.4 10.4 10.1 9.5 LOGISTICS COST INDEXED LOGISTICS COST AS % OF GDP Inventory Sales Ratio More Sales, Less Inventory Logistics Role in the Economy Logistics Role in the U.S. Economy Components of 2005 Logistics Costs ($B) Inventory carrying costs (all business inventory: $1.76 trillion) Interest $ 58 Taxes, obsolescence, depreciation, insurance 245 Warehousing 90 Total InventoryRelated Costs $393 Transportation costs Motor carriers: Truckintercity Trucklocal Subtotal $394 189 $583 Logistics in U.S. Economy, cont. Other carriers: Railroads $ 48 Water (inter. 22; domestic 5) 27 Oil pipelines 9 Air (inter. 15; domestic 25) 40 Forwarders 22 Subtotal $153 Total Transportation Costs $636 Shipper Related Costs 8 Logistics Administration 46 TOTAL LOGISTICS COST $1,183 WHY LOGISTICS NOW? THE DRIVING CHANGE Deregulation Technology Changes in consumer behavior Power shift in the supply chain Globalization UTILITY CREATION IN THE MACRO ECONOMY THE TOTAL LOGISTICS (and SCM) CONCEPT THE TOTAL LOGISTICS CONCEPT: SYSTEMS APPROACH Logistics goals and objectives should be compatible with company goals and objectives Interdependence of major functional areas Logistics interdependence (intrafunctional logistics) Optimizing parts may not optimize the whole! e.g., sales vs. logistics cost no one logistics strategy is optimal for all firms SYSTEMS APPROACH THE TOTAL LOGSTICS CONCEPT: TOTAL COST APPROACH NEVER ENDING TRADEOFFS! INTEGRATION = LOWER COSTS, FASTER THROUGHPUT, HAPPIER CUSTOMERS! EXAMPLES OF LOGISTICS COST TRADEOFFS Competitive: Product Inventory vs. Production (order cycle length) Inventory vs. Cost of lost sales (COLS) Transportation vs. COLS Transportation vs. Inventory Transportation vs. Warehousing Spatial Product value vs. Various logistics costs Loss and damage vs. Various logistics costs Total Logistics Concept: to find the lowest total cost that supports an organization's customer service requirements Required Inventory for Order Cycle Length: Customer's Perspective Cost of Lost Sales vs. Inventory Cost Cost of Lost Sales vs. Transportation Cost: General Relationship Product $ Value vs. Logistics Costs: General Relationships Susceptibility to Loss and Damage vs. Logistics Costs: General Relationships Logistics and Spatial Relations LOGISTICS (and SCM) INTERFACES WITH 1. 2. 3. Finance & Accounting Marketing & Sales Production 1. Logistics & Finance / Accounting Logistics tracks three flows 1. 2. 3. Inventory investment, cash flow & opportunity cost of capital Logistics can have a major impact on ROA and ROI. Freight (goods), Information, $'s (payment and etc.) 2. Logistics & Marketing's 4 Ps a) Place Logistics channels and marketing channels tradeoffs and complementary functions Inventory decisions how much and where? Logistics network design 2. Logistics & Marketing's 4 Ps (cont) a) Price Logistics costs are a component of price Logistics quantity discounts Pricing systems & landed costs Need compatibility between pricing strategy and logistics strategy FOB origin (freight collect, freight prepaid, freight prepaid and charged back) FOB destination (freight collect, freight prepaid, freight prepaid and charged back) Phantom Freight & Freight Absorption FREIGHT PRICING FOB Origin FOB Origin, Freight Prepaid FOB Origin, Freight Prepaid and Chargeback FOB Destination FOB Destination, Freight Collect FOB Destination, Freight Prepaid and Chargeback Seller Seller Owns Freight Payment of Freight to Carrier Ultimate Payment of Freight Buyer Buyer Buyer Seller Buyer Seller Seller Seller Seller Buyer Buyer Buyer Phantom Freight and Freight Absorption 2. Logistics & Marketing's 4 Ps (cont) a) Product Consumer packaging (size, shape, weight and other physical characteristics of the product impact storage, transportation and handling.) Role of logistics in product development Changes in any of the above can cost (or save) millions of dollars in logistics. 2. Logistics & Marketing's 4 Ps (cont) a) Promotion Logistics division must be involved in planning for changes in demand patterns. Push versus pull Pull strategies tend to be more erratic. Push strategies tend to more predictable. 3. Logistics & Production/Operations Length of production runs Seasonal demand Foreign & third party alternatives Protective packaging & marketing Postponement LANDED vs. PROCUREMENT COSTS Computer Chip Maker DELL Iowa State University Who is supplying (supplier)? Who is demanding (procuring)? Landed cost = costs of all inputs + cost of manufacturing + shipping costs (SELLER PAYS SHIPPING!!!!) Procurement cost = landed cost + margin = cost of suppliers input, manufacturing, and shipping costs + margin Computer Chip Maker DELL Iowa State University Chip maker DELL Input cost = $1.00 Manufacturing costs = $100 Transportation costs = $300 per 100 chips (FOB origin) Margin = $96 per chip Procurement (input) costs for chips = ? Other procurement costs = $500 Transportation costs = $50 per computer (FOB destination terms) Margin = $450 per computer Computer Chip Maker DELL Iowa State University Chip Maker DELL Landed costs = $1 input + $100 manufacturing + $0 shipping = $101 Procurement costs = $101 chip maker landed costs + $96 chip maker margin + $3 shipping costs = $200 + $500 other procurement = $700 Landed costs = $700 DELL Procurement costs + $50 Dell shipping costs = $750 Procurement costs = $750 DELL landed costs + $450 DELL margin = $1200 ISU SUCCESSFUL SUPPLY CHAINS HAVE... An enterprisetoenterprise point of view. A systems approach across all functional areas and organizations in the supply chain. Companies recognize interdependencies Goals and objectives are compatible KEY ATTRIBUTES OF SCM Customer power Longterm orientation Leveraging technology Enhanced communication across organizations Inventory control Interactivity, interfunctional, and inter organizational coordination Relational vs. Transactional BARRIERS TO SCM Regulatory and political considerations Lack of top management commitment Reluctance to share, or use, relevant data Incompatible information systems Incompatible corporate cultures SCM & INTEGRATION Longterm mutually beneficial agreements Methods used to integrate Vertical integration Formal contracts Informal agreements Partnerships and Strategic Alliances Thirdparty Logistics (3PL), aka Contract Logistics and Logistics Outsourcing INTEGRATED SUPPLY CHAIN SCM & INTEGRATION ThirdParty Logistics (3PL) Fourthparty logistics (4PL) primarily used in global companies Supply chain software Lead logistics provider (LLP) Logistics outsourcing Contract logistics ...
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