SUPPLY CHAIN AND LOGISTICS ?· supply chain management Logistics ... The Impact of the Supply Chain…

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  • 17-1 2000 McGraw-Hill Ryerson Limited

    C H A P T E R S E V E N T E E N

    SUPPLY CHAIN ANDLOGISTICS MANAGEMENT

  • 17-2 2000 McGraw-Hill Ryerson Limited

    AFTER READING THIS CHAPTER YOU SHOULDAFTER READING THIS CHAPTER YOU SHOULDBE ABLE TO:BE ABLE TO:

    Explain what supply chain and logisticsmanagement are and how they relate to themarketing mix.

    Understand the nature of the logistics trade-offs among transportation, inventory, andother logistics functions.

    Explain how managers trade off differentlogistics costs relative to customer service inorder to reach a logistics decision.

  • 17-3 2000 McGraw-Hill Ryerson Limited

    AFTER READING THIS CHAPTER YOU SHOULDAFTER READING THIS CHAPTER YOU SHOULDBE ABLE TO:BE ABLE TO:

    Recognize how customer service in logisticsdecisions contributes to customer value andsuccessful marketing programs.

    Describe the key logistics functions oftransportation, warehousing and materialshandling, order processing, and inventorymanagement and the emerging role of third-party logistics providers.

  • 17-4 2000 McGraw-Hill Ryerson Limited

    The Unglamorous World of the Supply Chain & LogisticsThe Unglamorous World of the Supply Chain & LogisticsManagementManagement

    It makes no sense to have brilliant marketing programs to sellworld-class products if the products arent available:

    a. at the right time,

    b. at the right place, and

    c. in the right form and condition that consumers want them.

    Poor customer service adds up to lost revenue and profitopportunities.

    Welcome to the unglamorous--but critical--world of supplychain and logistics management.

  • 17-5 2000 McGraw-Hill Ryerson Limited

    Definition of Logistics

    Logistics involves . . . .Logistics involves . . . .

    those activities that focus on gettingthe right amount of the right productsto the right place at the right time atthe lowest possible cost.

    those activities that focus on gettingthe right amount of the right productsto the right place at the right time atthe lowest possible cost.

  • 17-6 2000 McGraw-Hill Ryerson Limited

    Definition of Logistics ManagementDefinition of Logistics Management

    Logistics Management is . . .Logistics Management is . . .

    1. Organizing the cost effective flow and storage of materials, in-process inventory, finished goods and related information2. From point of origin to point of consumption3. To satisfy customer requirements

    1. Organizing the cost effective flow and storage of materials, in-process inventory, finished goods and related information2. From point of origin to point of consumption3. To satisfy customer requirements

  • 17-7 2000 McGraw-Hill Ryerson Limited

    Definition of a Supply Chain

    A Supply Chain is . . . .A Supply Chain is . . . .

    a sequence of firms that performactivities required to create anddeliver a good or service toconsumers or industrial users.

    a sequence of firms that performactivities required to create anddeliver a good or service toconsumers or industrial users.

  • 17-8 2000 McGraw-Hill Ryerson Limited

    The Supply ChainThe Supply Chain

    A supply chain differs from a marketing

    channel in terms of membership.

    A supply chain includes suppliers

    who provide raw material inputs to a

    manufacturer as well as the wholesalers

    and retailers who deliver finished goods.

  • 17-9 2000 McGraw-Hill Ryerson Limited

    Supply Chain ManagementSupply Chain Management

    Supply chain management is theintegration and organization ofinformation and logistics activitiesacross firms in a supply chain for thepurpose of creating and deliveringgoods and services that providevalue to consumers.

  • 17-10 2000 McGraw-Hill Ryerson Limited

    PP17-1 Related marketing channels, logistics management, andPP17-1 Related marketing channels, logistics management, and supply chain management supply chain management

    LogisticsManagement

    ProducerSuppliers Consumers

    Supply-chain Management

    Supplier Network Marketing Channel

    Inbound flow of rawmaterials & parts

    Outbound flow offinished products

  • 17-11 2000 McGraw-Hill Ryerson Limited

    PP17-2 The Automotive Supply Chain

    steel

    aluminum

    Buick/Dodge

    Lincoln/Mercury

    Cadillac/Chevy

    rubber seats

    brakes

    engine

    chassis

    DaimlerChrysler

    Ford

    transmission suspensionGeneral Motors

    Raw materials Components Subassembly Assembly Dealer network

    Supplier Network Auto Manufacturer Marketing Channel Consumer

  • 17-12 2000 McGraw-Hill Ryerson Limited

    Paint Industry Supply ChainPaint Industry Supply Chain

    BlendingStations

    Professional Paint Market (PPM)

    Households/DIY Market

    Commercial Branches- retail stores- wholesalers- home centres

    Warehouses

    Paint manufacturers

    Suppliers- chemicals- steel pail- plastics

  • 17-13 2000 McGraw-Hill Ryerson Limited

    The Supply Chain & the Marketing MixThe Supply Chain & the Marketing Mix

    The Impact of the Supply Chain on:

    - product factors

    - pricing factors

    - promotional factors

    - place factors

  • 17-14 2000 McGraw-Hill Ryerson Limited

    Concept CheckConcept Check

    1. What is the principal difference

    between a marketing channel and

    a supply chain?

    2. How does logistics interact with

    the product element of the

    marketing mix?

  • 17-15 2000 McGraw-Hill Ryerson Limited

    Total Logistics Cost ConceptTotal Logistics Cost Concept

    Decisions associated with the flow of product makingup the total logistics cost concept include:

    - transportation

    - warehousing and storage

    - packaging

    - materials handling

    - inventory control

    - order processing

    - customer service level

    - plant and warehouse site location

    - return goods handling

  • 17-16 2000 McGraw-Hill Ryerson Limited

    PP17-3 How total logistics costs vary with number ofPP17-3 How total logistics costs vary with number of warehouses used warehouses used

    0 5 10 15 20

    Cos

    t

    Total logisticscosts

    Inventorycosts

    Transportationcosts

    Number of warehouses

  • 17-17 2000 McGraw-Hill Ryerson Limited

    Customer Service ConceptCustomer Service Concept

    Customer service is the ability oflogistics management to satisfy usersin terms of:

    - time

    - dependability

    - communication

    - convenience

  • 17-18 2000 McGraw-Hill Ryerson Limited

    PP174 Logistics Managers Balance Total Logistics CostPP174 Logistics Managers Balance Total Logistics Cost Factors Against Customer Service Factors Factors Against Customer Service Factors

    Stockoutcosts

    Inventorycosts

    Transportationcosts

    Materials handlingand warehousing

    costs

    Orderprocessingcosts

    Convenience

    Time

    Communication

    Dependability

    Total logistics cost factors Customer service factors

  • 17-19 2000 McGraw-Hill Ryerson Limited

    Cost of Customer ServiceCost of Customer Service

    Low HighService level

    Log

    isti

    cs c

    osts

  • 17-20 2000 McGraw-Hill Ryerson Limited

    Customer Service StandardsCustomer Service Standards

    Customers service standards are a set of formallydeveloped and written standards that serve asobjectives and provide a benchmark against whichresults can be measured for control purposes.

    Customer service standards are developed within thecontext of three things:

    - customer needs,

    - what competitors offer, and

    - willingness of customers to pay more for better service.

  • 17-21 2000 McGraw-Hill Ryerson Limited

    PP17-5 Examples of Customer Service StandardsPP17-5 Examples of Customer Service Standards

    Type of Firm Customer Service Standard

    Wholesaler At least 98% of orders filled accurately

    Manufacturer Order cycle time of no more than 5 days

    Retailer Returns accepted within 30 days

    Airline At least 90% arrivals on time

    Trucker A maximum of 5% loss/damage per year

    Restaurant Lunch served within 5 minutes of order

  • 17-22 2000 McGraw-Hill Ryerson Limited

    Concept CheckConcept Check1. What is a current strategy adopted by

    firms attempting to squeeze costs from their logistics system while delivering customer service?

    2. In what ways do key customer service factors differ between a manufacturer and a retailer?

    3. What is the relationship between transportation costs and volume shipped? What impact does it have on the pricing of the firm?

  • 17-23 2000 McGraw-Hill Ryerson Limited

    Key Logistics Functions in a Supply ChainKey Logistics Functions in a Supply Chain

    Transportation

    Inventorymanagement

    Warehousing &materials handling

    Order processing

    Key Supply Chain Logistics Functions

  • 17-24 2000 McGraw-Hill Ryerson Limited

    Third-Party Logistics ProvidersThird-Party Logistics Providers

    Third-party logistics providers are firms thatperform most or all of the logistics functions thatmanufacturers, suppliers, and distributors wouldnormally perform themselves.

    Today, many of Canadas top manufacturersoutsource one or more logistics functions, at least ona limited basis.

    Two major companies performing logistics functionsare UPS Worldwide Logistics, and FedEx.