is the design and administration of systems to control movement and geographical positioning of raw materials, work-in-process, and finished inventories at the lowest total cost.
Logistics includes the integration and management of the following activities:
Warehousing/Materials Handling to support.... Procurement, Manufacturing, and Customer Accommodation
Logistics is necessary to:
Move goods and materials from suppliers to buyers
Move goods and materials between sites (internal & external)
Move finished goods to the customer
Products have little value to the customer until they are
-moved to the customer's point of consumption
-Products are delivered at the right time.
-Products are delivered to the desired location.
Logistical value proposition
consists of a commitment to key customer expectations and requirements at a minimum cost
The two elements of this value proposition are
Service and Cost Minimization
-Firms must make appropriate tradeoffs between service and cost for each of their key customers
-Why would the tradeoff potentially be different by customer?
How does Logistics Create Service Benefits?
-1.)Availability - having inventory to consistently meet customer material or product requirements
-2.)Operational Performance - the time required to deliver a customer's order
Key metrics for this area involve delivery speed and consistency
Flexibility - to handle unexpected customer demand/requests
Malfunction and recovery time - logistical failures and corrections
-3.)Service Reliability - quality attributes of logistics
Key to quality is accurate measurement of availability and operational performance over time
Focused on achieving the lowest possible cost for each individual function of logistics
For example, transport the material the cheapest way possible
Expected lowest cost based on decisions that were cheapest for individual functions
Ignored the impact of cost decisions across logistics functions
Focused on achieving the lowest total cost across each function of logistics
A cost decision in one function should consider impact to costs of all other logistics functions
For example, transporting material the cheapest way is likely slower than other choices. This requires an increase in storage cost to hold the material longer
Therefore, would it still be the lowest total cost to use the cheapest mode of transportation?
Compare two alternative transportation carriers to move a shipment of electronic chips
Value of the shipment = $25,000
Faster shipping is generally more expensive than slower shipping
Carrier 1 (slower/standard) costs $250 to make the shipment
Carrier 2 (faster/expedited) costs $20 more but delivers 1 day faster
Product in transit is a form of inventory
Holding costs for a shipment is 40% of value per year
No other cost differences across remaining logistics functions
Traditional cost you would choose carrier 1 beacause that is the lowest INDIVIDUAL cost. However Total cost method will consider more than that.
Logistics Includes These Major Functions:
Integrated through a network of facilities
e.g., warehouses & distribution centers
The 5 Functions of Logistical Work are Interrelated
5.)Warehousing, Material handling and Packaging
Customer Relationship Management is
the movement of finished product to customers. The objective of logistics
Manufacturing Production concentrates on
managing work-in-process inventory as it flows between stages of manufacturing. Master Production Schedule (MPS)
Procurement is concerned with
purchasing and arranging inbound
movement of materials, parts, and/or finished inventory from suppliers
into manufacturing or assembly plants, warehouses or retail stores
-Sourcing or Strategic Sourcing
-Material Planning & Purchasing
Logistical Integration - Achieving 6 Objectives Simultaneously
1.)Responsiveness - Satisfy customer requirements in a timely manner.
2.)Variance Reduction - The elimination of operations disruptions.
3.)Inventory Reduction - Control asset commitment and turn velocity.
4.)Shipment Consolidation - Reduce transportation costs through larger (and therefore fewer) shipments.
5.)Quality - Continuous improvement towards zero defects.
6.)Life Cycle Support - Cradle-to-cradle logistical support.
Echelon Structured Logistics
Supplier ->Industrial distribution/Consolidation warehouse ->Manufacturer->Wholesaler or distribution center ->Retailer -> Customer
Combined echelon and direct delivery
Direct delivery is done through each stage of the ecelon process.
Logistics Performance Cycle
The performance cycle represents elements of work necessary to complete the logistics related to customer accommodation, manufacturing or procurement
A performance cycle consists of the following elements
-Nodes or "links" in the logistics supply chain
Base stock (sometimes also referred to as cycle stock)
Safety stock (possibly even strategic stock in addition to safety stock)
-Input and Output Requirements
Input = Demand (e.g., orders)
Output = Level of performance
May involve singe or multiple firms
-Cost -vs- Total Cost
-Balance Speed & Cost