F08 WK1 SC Concept

F08 WK1 SC Concept - LSCM 360 Business Logistics SYLLABUS...

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Unformatted text preview: LSCM 360 Business Logistics SYLLABUS You are responsible to know Dates of hw and exams WebCT application Policy for missed quizzes Class topics by week Office hours Instructor by week (or date) Grade breaks 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 UTILITY CREATION Transportation, warehousing… Packaging, Size Packaging , Inventory BASIC LOGISTICS FACTS Logistics cost of a $3.60 box of cereal # truckload shipments to Chrysler / day $0.37 3,500 Logistics is U.S.’s 2nd largest employer U.S. has over $1 TRILLION logistics spend annually! 8.6% of total U.S. labor force! Healthcare is #1 > GDP of all but 12 countries Logistics Role in the U.S. Economy Components of 2007 Logistics Costs ($B) Inventory Carrying Costs (all business inventory: $2.026 trillion) Interest $103 Taxes, obsolescence, depreciation, insurance 273 Warehousing 111 Total Inventory­Related Costs $487 Transportation costs Motor carriers: Truck­intercity Truck­local Subtotal $455 216 $671 Logistics in U.S. Economy, cont. Other carriers: Railroads Water (inter. 33; domestic 5) Oil pipelines Air (inter. 16; domestic 25) Forwarders Subtotal $ 58 38 10 41 30 $177 Total Transportation Costs $848 $ 62 Administration / Shipper Costs TOTAL LOGISTICS COST $1,397 LOGISTICS COST ($Billion) Year Inventory Carry Cost Transportation Costs Administrative Costs Total U.S. Logistics Logistics Cost As % of GDP 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2007 31 38 56 97 220 227 283 302 374 395 487 44 64 91 116 214 274 351 441 594 739 856 3 4 6 9 17 20 25 30 39 46 54 78 106 153 222 451 521 659 773 1,007 1,180 1,397 14.7 14.7 14.7 13.5 16.1 12.3 11.4 10.4 10.3 9.5 10.1 Logistics Costs as % of GDP 17 16 15 Percent 14 13 12 11 10 9 8 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2007 Inventory Sales Ratio WHY LOGISTICS NOW? THE DRIVING CHANGE Deregulation in the 1980’s Technology Changes in consumer behavior Power shift in the supply chain Globalization TOTAL LOGISTICS (and SCM) INTEGRATION THE TOTAL LOGISTICS INTEGRATION: Logistics goals and objectives should be compatible with company goals and objectives SYSTEMS APPROACH Interdependence of major functional areas Logistics interdependence (intrafunctional logistics) – Optimizing parts may not optimize the whole! – no one logistics strategy is optimal for all firms – e.g., sales vs. logistics cost SYSTEMS APPROACH THE TOTAL LOGSTICS INTEGRATION: 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 – Logistics outsourcing – Contract logistics – Lead logistics provider (LLP) ...
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