1

SCM and Logistics

Dickson K.W. Chiu
PhD, SMIEEE, SMACM

Text: Ballou - Business Logistics Management, 5/E
(Chapter 1)
Dickson Chiu 2006 SCM-2
Learning Objectives
To familiarize with basic concepts of logistics
and supply chain management
To understand recent evolvement of logistics
To understand the reasons for its recent growth
in importance
To understand the importance of IT in logistics
3
Overview of Logistics and
Supply Chain Management
Dickson Chiu 2006 SCM-4
CR (2004) Prentice Hall, Inc.
1-2
Supply Chain Overview
Warehousing
Warehousing
Transportation
Transportation
Vendors/plants/ports
Transportation
Factory
Transportation
Customers
Information
flows
Dickson Chiu 2006 SCM-5
CR (2004) Prentice Hall, Inc.
Logistics vs Supply Chain Management
Council of Logistics Management
Logistics is the process of planning, implementing
and controlling the efficient, cost-effective flow and
storage of raw materials, in-process inventory,
finished goods and related information from the point
of origin to point of consumption for the purpose of
conforming to customer requirements.
Handfield and Nichols
SCM is the integration of all activities associated with
the flow and transformation of goods from raw
materials through to end user, as well as information
flows, through improved supply chain relationships,
to achieve a sustainable competitive advantage.
Dickson Chiu 2006 SCM-6
Common Contemporary Logistics Terms
Value stream/logistics process
Quick response and flexible manufacturing
Mass customization
Supply chain management/ collaborative logistics
Reverse logistics
Service logistics
Continuous replenishment
Lean logistics
Integrated logistics

=> IT people have to deal with any related automation
anyway
Dickson Chiu 2006 SCM-7
The Logistics/SCM Mission
Getting the right goods or services to the right place, at
the right time, and in the desired condition at the lowest
cost and highest return on investment.

Product / Service Utility
Possession Utility - the value or usefulness that comes from a
customer being able to take possession of a product
Form Utility - in a form that can be used by the customer and is
of value to the customer
Place Utility - available where they are needed by customers
Time Utility - available when they are needed by customers
Logistics obviously help time and place utility

Dickson Chiu 2006 SCM-8
Demand forecasting
Purchasing
Requirements planning
Production planning
Manufacturing inventory
Warehousing
Material handling
Packaging
Finished goods inventory
Distribution planning
Order processing
Transportation
Customer service
Strategic planning
Information services
Marketing/sales
Finance
Supply Chain
Management
Supply Chain
Management
Logistics
Purchasing/
Materials
Management
Physical
Distribution
Activity fragmentation to 1960
Activity Integration 1960 to 2000 2000+
Demand forecasting
Purchasing
Requirements planning
Production planning
Manufacturing inventory
Warehousing
Material handling
Packaging
Finished goods inventory
Distribution planning
Order processing
Transportation
Customer service
Strategic planning
Information services
Marketing/sales
Finance
Supply Chain
Management
Supply Chain
Management
Logistics
Purchasing/
Materials
Management
Physical
Distribution
Activity fragmentation to 1960
Activity Integration 1960 to 2000 2000+
CR (2004) Prentice Hall, Inc.
Evolution of Supply Chain Management
Dickson Chiu 2006 SCM-9
CR (2004) Prentice Hall, Inc.
1-5
Supply Chain Schematic
Dickson Chiu 2006 SCM-10
A Revised Strategy is Generating Great
Top Management Interest
Historical perspective of distribution
(Peter Drucker, 1962):
The last frontier of cost economies

The contemporary view:
Distribution is a new frontier for demand
generationa competitive weapon.

Both views are important!
Dickson Chiu 2006 SCM-11
Critical Customer Service Loop
Customers
Transportation
Inventory
or supply source
Customer order processing (and
transmittal)
Customers
Transportation
Inventory
or supply source
Customer order processing (and
transmittal)
Dickson Chiu 2006 SCM-12
Category Percent of sales $/cwt.
Transportation 3.34% $26.52
Warehousing 2.02 18.06
Order entry 0.43 4.58
Administration 0.41 2.79
Inventory carrying 1.72 22.25
Total 7.65% $67.71
Add one-third for inbound supply costs
Source: Herb Davis & Company
Logistics cost
are about 10% of
sales w/o
purchasing costs
CR (2004) Prentice Hall, Inc.
Physical Distribution Costs
Dickson Chiu 2006 SCM-13
Customer Service Performance
4
5
6
7
8
9
10
1
9
9
2
1
9
9
4
1
9
9
6
1
9
9
8
2
0
0
0
2
0
0
2
Year
D
a
y
s
82
84
86
88
90
92
94
96
%
Order Cycle Time,
Days
Product
Availability--%
orders
Product
Availability--%
line items
Source: Herb Davis & Company
Dickson Chiu 2006 SCM-14
Physical distribution
Physical supply
(Materials management)
Business logistics
Sources of
supply
Plants/
operations
Customers
Transportation
Inventory maintenance
Order processing
Acquisition
Protective packaging
Warehousing
Materials handling
Information maintenance
Transportation
Inventory maintenance
Order processing
Product scheduling
Protective packaging
Warehousing
Materials handling
Information maintenance
Internal supply chain
CR (2004) Prentice Hall, Inc.
1-14
Traditional Scope of the Supply Chain
Dickson Chiu 2006 SCM-15
Key Activities/Processes
Primary
Setting customer service goals
Transportation
Inventory management
Location
Secondary, or supporting
Warehousing
Materials handling
Acquisition (purchasing)
Protective packaging
Product scheduling
Order processing
Dickson Chiu 2006 SCM-16
Logistics Strategy and Planning
The objectives of logistics strategy
Minimize cost
Minimize investment
Maximize customer service
Levels of logistical planning
Strategic
Tactical
Operational

Dickson Chiu 2006 SCM-17
Customer
service goals
The product
Logistics service
Information sys.
Inventory Strategy

Forecasting

Storage fundamentals

Inventory decisions

Purchasing and supply

scheduling decisions

Storage decisions
Transport Strategy

Transport fundamentals

Transport decisions
Location Strategy

Location decisions

The network planning process

CR (2004) Prentice Hall, Inc.
The Logistics Strategy Triangle
(4 problem areas)
Dickson Chiu 2006 SCM-18
Decision area Strategic Tactical Operational
Transportation Mode selection Seasonal equip-
ment leasing
Dispatching
Inventories Location, Control policies Safety stock levels Order filling
Order
processing
Order entry, transmittal,
and processing system
design
Processing
orders, Filling
back orders
Purchasing Development of supplier-
buyer relations
Contracting,
Forward buying
Expediting
Warehousing Handling equipment
selection, Layout design
Space utilization Order picking
and restocking
Facility
location
Number, size, and
location of warehouses
CR (2004) Prentice Hall, Inc.
Strategic, Tactical, and Operational
Decision Making
Dickson Chiu 2006 SCM-19
PRODUCTION/
OPERATIONS
Sample activities:

Quality control

Detailed production
scheduling

Equipment maint .

Capacity planning

Work measurement
& standards
LOGISTICS
Sample
activities:

Transport

Inventory

Order
processing

Materials

handling
Interface
activities:

Product
scheduling

Plant
location

Purchasing
MARKETING
Sample
activities:

Promotion

Market
research

Product
mix

Sales force
management
Interface
activities:

Customer
service
standards

Pricing

Packaging

Retail
location
Production-
logistics
interface
Marketing-
logistics
interface
Internal Supply Chain
CR (2004) Prentice Hall, Inc.
Relationship of Logistics to
Marketing and Production
Dickson Chiu 2006 SCM-20
Product
Price
Promotion
Place-Customer
service levels
Inventory
carrying costs
Lot quantity
costs
Order processing
and information
costs
Transport
costs
Warehousing
costs
L
o
g
i
s
t
i
c
s

CR (2004) Prentice Hall, Inc.
Relationship of Logistics to Marketing
Dickson Chiu 2006 SCM-21
Relationship of Logistics to Production
Coordinates through scheduling and strategy
make-to-order
make-to-stock
An integral part of the supply chain
Affects total response time for customers
Shares activities such as inventory planning
Costs are in tradeoff
Production lot quantities affect inventory levels and
transportation efficiency
Production response affects transportation costs and
customer service
Production and warehouse location are interrelated
22
Contemporary IT and Logistics
Dickson Chiu 2006 SCM-23
Wal-Mart Wins with Logistics
Costs are lower than K-Mart or Target Stores
CEO is a former logistician
Wal-Mart is the largest retailer in the world!

Dickson Chiu 2006 SCM-24
Logistics/SCM in Diverse Areas
Manufacturing - most common
Service - emerging opportunities
Environment - causing restrictions
Non-profits / Government - little explored
Military - long history

Note the global evolvement into a
service-oriented economy!
Dickson Chiu 2006 SCM-25
Focus
Company
Suppliers
Suppliers
suppliers
Customers
Customers/
End users
Acquire Convert Distribute
Product and information flow
Conventional
Scope
CR (2004) Prentice Hall, Inc.
Supply Chain is Multi-Enterprise
Dickson Chiu 2006 SCM-26
Profit
G & A
Marketing
Logistics
Overhead
Materials
Labor
Profit
G & A
Marketing
Logistics
Overhead
Materials
Labor
Tariffs
Increase
Reduction
Increase
Domestic sourcing Foreign sourcing
CR (2004) Prentice Hall, Inc.
Effect on Logistics Foreign Outsourcing
Dickson Chiu 2006 SCM-27
CR (2004) Prentice Hall, Inc.
Reality of SCM Scope
Dickson Chiu 2006 SCM-28
SUPPLY
CHAIN
MANAGEMENT
Activity and process
administration
CR (2004) Prentice Hall, Inc.
The Multi-Dimensions of SCM
Dickson Chiu 2006 SCM-29
Increasing Significance of Logistics
Costs are high
About 10.5% of GDP domestically
About 12% of GDP internationally
A range of 4 to 30% of sales for individual firms, avg. about 10%
A high as 70-80% of sales if purchasing and production are included
Customers are more demanding of the supply chain
Desire for quick response
Desire for mass customization
An integral part of company strategy
Generate revenue
Improve profit
Logistical lines are lengthening
Local vs. long distance supply
Globalization of trade
Logistics is a key to trade and an increased standard of living
Law of comparative economic advantage applies
Logistics adds value
Time and place utilities
Dickson Chiu 2006 SCM-30
Contemporary IT Applications in Logistics
Focus of this Course
Tremendous technological advances in past decades
Logistics management relies on analysis over massive
information from heterogeneous sources
Disparate business functions in service-oriented economy
Internet and mobile technologies has further improved
logistical effectiveness and efficiency
Enabled logisticians and management to make timely, informed,
and accurate decisions
but create new dimensions of complexity
IT people work closely with logistician and management
Understand complex requirements
Choose the right technology and design appropriate IT
infrastructures, architectures, and systems
Explain how contemporary IT can help to others
Dickson Chiu 2006 SCM-31
Some Useful Contemporary IT in Logistics
eXtended Markup Language (XML)
Service-oriented architecture
Process integration and interaction management
Exceptions, alerts, and relationship management in logistics
Information integration
Facilitating decision support
Mobile technologies
Radio Frequency Identification (RFID)

=> The key is to achieve information and process
integration for efficient and effective decision support.
32
Summary
Dickson Chiu 2006 SCM-33
Summary
The logistic process plans, implements, controls the flow
and storage of goods, services, and related information
between the point of origin and the point of
consumption to satisfy customer requirements
Logistics addresses the time utility & place utility out of
the four economic utilities
Logistics becomes more important and complex because
of new requirements of the service-oriented economy,
disparate business functions, and the impact of various
contemporary IT
Logistics involves the interaction with multiple
departments within a company as well as now also
across business partner organizations and customers
Application of contemporary IT, especially information
and process integration for efficient and effective
decision support, is a critical success factor and
therefore the focus of this course.