1 logistics and supply chain management part i an introduction esi 4554 ise senior design
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Logistics and Supply Chain Management
Part I
An Introduction
ESI 4554
ISE Senior Design
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LogisticsDefinition
“Logistics…
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”
Council on Logistics Management
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LogisticsDefinition The flow of material, information and money
between consumers and suppliers.
In 1990-96: Freight Transportation $352, $455 Billion
Inventory Expense $221, $311 Billion
Administrative Expense $27, $31 Billion
Logistics related activity 11%, 10.5% of GNP.
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Logistics Costs
Logistics costs are estimated about 10% of sales
Source: Delaney, R. - Cass Logistics Annual State of Logistics report, 2001
Cost Category Total Cost ($ Billion
% of Sales % of Logistics Costs
Transportation $590 5.9% 58.4%
Warehousing $78 .8% 7.9%
Inventory $299 3.0% 29.7%
Admin. $39 0.4% 4.0%
Total $1,006 10.1% 100.0%
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Logistics in the Manufacturing Firm
Profit 4%
Logistics Cost 21%
Marketing Cost 27%
Manufacturing Cost 48%
Profit
Logistics Cost
Marketing Cost
Manufacturing Cost
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Logistics vs. Supply Chain Management
What is the difference?
A Supply chain is the network of: facilities (warehouses, factories, terminals, ports,
stores, homes) vehicles (trucks, trains, planes, ships) logistics information systems
connecting suppliers’ suppliers with its customers’ customers.
Logistics is:
“what happens in the supply chain” “putting the right material in the right place at the right
time“ it provides much of the Supply Chain’s value-added.
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Flows in a supply chain
Information
Product
Funds
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History of Logistics
Private industry starts evolving since the
1940’s.
Military were the only ones to using the term
(1950’s, 60’s)
No true concept of the term in the private
industry.
Companies had departments, such as
material housing, warehousing, machining,
etc.
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History of Logistics
1950's 1960's 1970's 1980's 1990's
Sco
pe
& In
flu
ence
WorkplaceLogistics
FacilityLogistics
CorporateLogistics
Supply ChainLogistics
GlobalLogistics
Adapted from:Frazelle, Edward “Supply Chain Strategy” McGraw Hill 2002.
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Phases of Logistics Development1. Workplace Logistics
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Phases of Logistics Development1. Workplace Logistics
Definition: the flow of material at a single workstation.
Objective: to streamline the movements of an individual
working at a machine or assembly line.
Origins: Principles developed by fathers of Industrial
Engineering during and after WWII.
Also known as: Ergonomics.
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Phases of Logistics Development2. Facility Logistics
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Phases of Logistics Development2. Facility Logistics
Definition: the flow of material between work stations
within the four walls of a facility
(interworkstation, intra facility). Facility can be a factory, terminal, warehouse,
distribution center (DC).
Origins: developed in mass production assembly lines
in 1950’s, 60’s and 70’s.
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Phases of Logistics Development3. Corporate Logistics
(Soda Manufacturer)
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Phases of Logistics Development3. Corporate Logistics
Definition: the flow of material and information between
the facilities and processes of a corporation. (inter workstation, inter-facility, intra-corporate).
Objective: Develop and maintain a profitable customer
service policy while maintaining and reducing total logistics cost.
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Phases of Logistics Development
3. Corporate Logistics
Logistics
takes place
between
and
Manufacturers Its factories Warehouses
Wholesalers Distribution Centers
RetailersIts distribution centers (DCs)
Retail Stores
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Phases of Logistics Development4. Supply Chain Logistics
Supplier Manufacturer Wholesaler Retailer Customer
Supply chain is optimized when material,information and money flow simultaneously,
in real time, and paperless.
Adapted from:Frazelle, Edward “Supply Chain Strategy” McGraw Hill 2002.
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Supply Chain Stages
Supplier Manufacturer Wholesaler Retailer Customer
Supplier Manufacturer Wholesaler Retailer Customer
Supplier Manufacturer Wholesaler Retailer Customer
SR: Supplier to RetailerSW: Supplier to Wholesaler
WC: Wholesaler to Consumer
MR: Manufacturer to Retailer
SC: Supplier to Consumer
MC: Manufacturer to Consumer
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Phases of Logistics Development4. Supply Chain Logistics
Definition:
the flow of material, information and
money between corporations
(interworkstation, interfacility,
intercorporate, and intrachain).
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Phases of Logistics Development5. Global Logistics
Definition: The flow of material, information, and
money between countries.
Connects suppliers’ suppliers with its
customers’ customers internationally.
Much more complicated than domestic
logistics given the many languages, laws,
currencies, time zones, cultures, etc.
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Phases of Logistics Development5. Global Logistics
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What Activities take place in Logistics?Activities
1. Customer Response2. Inventory Planning & Management (IP&M)3. Supply4. Transportation5. Warehousing / DC Operations
Each of these requires:- Measures and Goals- Process Design- Information System Requirements- Organizational Development
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Logistics Activity Framework
*
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Logistics Activity Framework
*
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Logistics Activities1. Customer Response
Involves:• Developing / Maintaining a Customer Service
Policy* • Order Entry• Order Processing• Invoicing / Collections• Monitoring Customer Satisfaction
(* the contract between the logistics organization and the customer,
defining service targets, such as fill rates, response times, min. order
quantities, terms and conditions for returns, etc.).
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Logistics Activity Framework
*
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Logistics Activities2. Inventory Planning & Management
Goal:
determining / maintaining the lowest inventory
levels possible that will meet Customer Service
Policy requirements.
Involves: Forecasting
Order Quantity Engineering
Replenishment planning
Inventory deployment
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Logistics Activity Framework
*
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Logistics Activities3. Supply
Goal:
• Minimize total acquisition cost
(TAC) while meeting availability, response time and quality requirements
Involves:• Developing / Maintaining a Supplier Service Policy• Sourcing (of supplies)• Supplier integration• Purchase Order processing• Buying and Payment
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Logistics Activity Framework
*
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Logistics Activities4. Transportation
Links sources of supply with customers.
Goal: Link all pick-up and deliver-to points within the
response time requirements and transportation limitations
at the lowest possible cost.
Involves: Network design & optimization Shipment Management Fleet and Container Management Carrier Management Freight Management
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Logistics Activity Framework
*
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Logistics Activities5. Warehousing (DC Operations)
Goal:
To minimize the cost of labor, space and equipment in the warehouse while meeting cycle time and shipping accuracy and storage capacity requirements.
Involves: Receiving Putaway Storage Order Picking Shipping
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Logistics involves OptimizationOptimization is a key ingredient in
Logistics Master Planning
In general, we optimize:
- Customer Service Policy (CSP)
- purchase order quantities
- product sources (which one is best)
- location of DCs
- product placement in the warehouse
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Logistics involves Optimization Example
If we want to optimize CSP, we would address the
Total Logistics Costs
( = inventory cost + response time cost + lost sales cost)
MIN Total Logistics Costs
Subject to
Inventory Availability > Customer Service Inventory Target
Response time < Customer Service Response time Target
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Logistics Activity Profiling and Data MiningWhat is Data Mining? The process of automatically searching large volumes
of data for patterns using tools such as classification, association rule mining, clustering, etc..
A class of database applications that look for hidden patterns in a group of data that can be used to predict future behavior.
True data mining software doesn't just change the presentation.
Actually discovers previously unknown relationships among the data.
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Logistics Activity Profiling and Data Mining
What is Profiling?
Definition
The systematic analysis of item and order activity used to:
· quickly identify root cause of material/information
flow problems.
· Identify opportunities for improvement.
· Provide basis for decision making.
· First step in logistics master planning.
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Logistics Activity Profiling and Data Mining
What is a Profile?
A snapshot or picture of an aspect of a
logistics activity.
Many different profiles will be needed to
fully characterize and re-engineer the
logistics enterprise.
Provides basis for decision making.
First step in logistics master planning.
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Logistics Activity Profiling and Data MiningWhat is a Logistics Activity Profile?
Definition
The compilation of profiles for flow of material, information and money for each of the major logistics activities.
Logistics Activity Profiles
Flow of Material
Flow of Information Flow of Money
1. Customer Response √ √ √
2. Inventory Planning & Management (IP&M)
√ √ √
3. Supply √ √ √
4. Transportation √ √ √
5. Warehousing √ √ √
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Logistics Activity Profiling and Data MiningResult:
Five basic sets of activity profiles
1. Customer Activity Profile (CAP)
2. Inventory Activity Profile (IAP)
3. Supply Activity Profile (SAP)
4. Transportation Activity Profile (TAP)
5. Warehouse Activity Profile (WAP)
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Logistics Activity ProfilesResult:
Typically a profile will exist for the activity, the item, and the activity-item pair (and many other relevant ones).
Examples: Customer Sales Activity Profile Item Sales Activity Profile Customer - Item Sales Activity Profile
Supplier Activity Profile Item Purchasing Activity Profile Supplier - Item Purchasing Activity Profile
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Logistics Activity Profiling and Data MiningWhat are Segments?
Segments represent and classify something according to
some criteria into A, B, C (usually) or more groups.
Example: Customers and Items sold
Customer Segments (typical) A Category: the top 5% of customers B Category: the next 15% of customers C Category: the bottom 80% of customers
Item Segments (typical) A Category: represents 80% of sales B Category: represents 15% of sales C Category: represents 5% of sales
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Example: Customer – Item Sales Activity Profile
Item Category A – 80% of Sales B – 15% of Sales C – 5% of Sales
Customer Category
A – Top 5% AA AB AC
B – Mid 15% BA BB BC
C – Bottom 80% CA CB CC
A B C
A
BC
0
10
20
30
40
50
60
70
% of Sales Volume
Customer Categories
Item Categories
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Logistics Activity Profiling and Data MiningWhat are Segments?
Segments are a type of classification system.
The more you know about your customers, the more likely
you will offer the right product’ at the right time and the
right place, and the right price.
Pareto Principle: 80% of your sales & profits come from
20% of your customers.
Create A, B, C, D segments
A: Customers deliver largest portion of revenue
B: Close second, followed by C and D.
Recognize each group’s characteristics.
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Logistics Activity Profiling and Data MiningFine tune each Segment (A, B, C, D Customers)
How many products/services do they buy?
Purchase frequency?
Type of business?
Profitability of each transaction?
Payment promptness?
Cost of the service?
Referrals provided?
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Logistics Activity Profiling and Data MiningOnce Segments are fine tuned & sub classified, plan
to promote customers from one category to the next highest:
Ex. from C to B, from B to A
An “A” customer is the hardest to replace.
Need replacements in case customers go “elsewhere”.
If you loose an “A” customer, promote a good “B” customer to replace it.
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Logistic Activity ProfilesWhat does each profile tell us?
1. Customer Activity Profile (CAP): illustrates sales activity by customer and by item.
captured in terms of dollars, # of orders, # of order lines, units, weight, cube, truckloads, pallets and cases.
different items and customers create different level / type of logistics
logistics strategy must reflect unique logistics requirements of each customer – item combination.
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Logistic Activity Profiles1. Example of a Customer Activity Profile (CAP)
How to understand example: Very few customers or items can be found in AA segment, yet it has high volumes, high
revenues and intense competition Many customers and items are found in the CC segment, yet it has low volumes, low
revenues and little or no competition
AB
C AB
C0
10
20
30
40
50
60
70
% of Sales Volume
Customer Categories
Item Categories
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Logistic Activity ProfilesDefinition - SKU
The abbreviation for Stock Keeping Unit.
An SKU is an individual item or part, a unit of
inventory that is carried as a separate identifiable
unit, and is typically represented by a UPC.
i.e. A box of 100 ball point pens, although
containing the same unit, is a different SKU from a
single ball point pen.
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Logistic Activity ProfilesAnother Example of a Customer Activity Profile (CAP)
A
B
C
A SKUs
B SKUs
C SKUs0
100
200
300
Units Purchased
Customer Categories
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Logistic Activity ProfilesWhat does each profile tell us?
2. Inventory Activity Profile (IAP):
helps determine opportunities to reduce inventory
and improve customer service.
shows locations in the supply chain where excess
has accumulated.
reports inventory turns, days-on-hand, other.
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Logistic Activity ProfilesExamples of Inventory Activity Profile (IAP):
ABC Inventory Valuation Analysis
S= StoreT= TransitW = Warehouse
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Logistic Activity ProfilesWhat does each profile tell us?
3. Supply Activity Profile (SAP):
reveals opportunities for purchasing improvements
reports purchasing in $, units, cases, pallets,
truckloads, weight, volume, orders, SKU, supplier,
other.
helps categorize suppliers, make / buy analysis, etc
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Logistic Activity ProfilesExample of Supply Activity Profile (SAP)
Supplier – Item Classification
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Logistic Activity ProfilesExample of Supply Activity Profile (SAP):
Inbound Logistics Strategy and Stratification
A B C D A B C D A B C D A B C D A B C DSuppliersA VMI VMI VMI VMI Cns
B VMI VMI VMI VMI CnsC CnsD Cns
DC VMI Vendor Man. Inv. Cns Consignment
Promos.
EliminateCross Dock
Health/Beauty HousewaresSupplyPlan
Dry Grocery Perishables Clothing
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Logistic Activity ProfilesWhat does each profile tell us?
4. Transportation Activity Profile (TAP):
For each transportation lane, reports:
units, cases, pallets, truckloads, weight, volume,
dollars moved, carrier availability, statistics, on-
time percentage, damage and claims rates.
Helps measure carrier performance, routing,
scheduling, consolidation opportunities.
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Logistic Activity ProfilesExample of Transportation Activity Profile (TAP):
Multi commodity transportation activity profile
in the chemical industry.
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Logistic Activity ProfilesWhat does each profile tell us?
5. Warehouse Activity Profile (WAP)
Helps reveal patterns in item activity and customer orders to
help improve:
storage system design
warehouse layout
order activity profile
Captures: requests, units, cases pallets, dollars, weight
shipped per unit time.
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Logistic Activity Profiles
What does each profile tell us?
5. Warehouse Activity Profile (WAP)
Helps choose and design a storage system for each
item.
Helps design order picking and shipping systems.
Typically includes distributions such as:
Order mix by Family
Lines per order
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Logistic Activity ProfilesExample of Warehouse Activity Profile (WAP):
Lines per Order Distribution
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Logistic Activity ProfilesExample of Warehouse Activity Profile (WAP):
Item Popularity Distribution
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Video
Supply Chain Management