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Logistics
BUS M&L 650: Professor Blackwell
May 24, 2004
Thomas Goldsby, Ph.D.Asst. Professor of Marketing and Logistics
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Session Objectives
To understand the basics of logistics;
To review the interrelationship betweenmarketing and logistics;
To examine logistics role in supply chainmanagement;
To gain insight into the work of the logistician(logistics professional); and
To review the learning opportunities available inTransportation and Logistics at OSU.
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Logistics Management: Defined
That part of supply chain management thatplans, implements, and controls the efficient,
effective forward and reverse flow and storageof goods, services, and related information fromthe point of origin to the point of consumption inorder to meet customers requirements.
-- Council of Logistics Management
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Simply put, what is Logistics?
Production
MaterialsManagement
PhysicalDistribution
Logistics is the movement and storage of inventories(raw materials, work-in-process, finished goods, and
consumed/scrap materials) throughout the supply chain
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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 rightcustomer
at the right cost
SERVICE(effectiveness)
COST (efficiency)
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What is the role of Logistics incorporate strategy?
To provide time (when) and place (where)utilities at a level consistent with customerservice and cost objectives
Logistics also finds its way into:
supply chain strategy customer relations
supplier relations new product development
international marketing strategy
environmental strategy
Logistics is the primary
boundary-spanning activity
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The Marketing/Logistics Relationship
DEMAND REALIZATIONand/or CREATION
DEMAND SATISFACTION
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Keep the promise or else!!!
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Marketing Objective:
Logistics Objective:
Allocate resources to the marketing mix in such a manner as to maximize the long-term profitability of the firm.
Minimize Total Costs given the customer service objective where total costs = Transportation Costs +
Warehousing Costs + Order Processing and Information Costs + Lot Quantity Costs + Inventory Carrying Costs
Logistics
MarketingProduct
Place
Customer ServiceLevels
Price
Procurement
InventoryManagement
Order Processingand
Information
TransportationManagement
Promotion
WarehousingManagement
Douglas M. Lambert
Logistics Role in Marketing Strategy
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Place/customer service levels Customer service (lost sales) Parts & service support Returns goods handling
Inventory carrying cost Opportunity cost of inventory Insurance and taxes Obsolescence and loss
Procurement costs Lot quantities Material handling
Order processing andinformation costs
Order processing Information exchange
Demand forecasting/planning
Transportation costs Inbound and outboundtransportation
Warehousing costs Warehousing andstorage
Plant and warehouse
site selection
Copyright 2001, Thomas J. Goldsby, all rights reserved
Within eachfunction:
activities and
costs
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Logistics Cost (Warehouses)
Cost of lost sales
Total cost
Inventory cost
Warehousing cost
Transportation cost
$
Number of Warehouses (anticipated service)
Note: Cost curves are not to scale
Lot quantity cost
Order processing cost
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The Systems Concept
View the the sum of logistics operations as asystem and seek to minimize the total cost of thesystem rather than the individual functions.
Its like a stereo system: Tuner vs. Media Player vs. Speakers
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Where does the workof logistics occur?
Answer: At the sources of raw materialssupply and within and between each supplychain entity right up to consumption .... and
beyond!
Raw Materials [Materials Procurement]
Work-in-Process [Manufacturing Support]
Finished Goods [Physical Distribution] Returns & recyclables [Reverse Logistics]
Supporting Information
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Columbus: At the heart of of it all!
Location: Within 500 miles of Greater Columbus:
58% of U.S. population & 50% of Canadian population
61% of U.S. Manufacturing Capacity
80% of U.S. Corporate Headquarters
Logistics Assets
2 International Airports
3 Intermodal rail yards
40 Freight forwarders and customs brokers
140 Trucking Companies - 40 National Carriers Over 150 million square feet of warehouse space
Foreign Trade Zone #138 and 24-hour customs
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Some Basic Facts
The field of logistics is the nations
second largest employer (#1: healthcare)
Almost $1 trillion was spent on logisticsin the U.S. in 2003 (about 10% of GDP)
Transportation accounts for $571 billion
Logistics costs represent 5 - 40% of thetotal (landed) cost of typical products
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Logistics is not new!
It is part of everyday life
Personal vs. Business vs. Military applications
Its focus has shifted
(from cost reduction to competitive services)
Being good at it is new (competitive advantage)
Implications:
The need for expertise
Solid prospects for career advancement
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Logistics in the Modern Environment
Examples of the new emphasis on logistics:
Electronic commerce/Virtual storefronts
There is no such thing as virtual logistics!
Lean manufacturing systems Greater reliance on perfect, JIT logistics
performance
Product attributes can be easily duplicated
The service component of product offerings(logistics) is difficult to duplicate
Excellent logistics execution can lend significantlyto customer loyalty
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Supply Chain Management
Supply Chain Management: the integration ofkey business processes from end user
through original suppliers that providesproducts, services, and information that addvalue for customers and other stakeholders.
-- The Global Supply Chain Forum, OSU
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SCM Processes
Customer
SupplyCh
ainBusinessProcesses
Tier 1Supplier
Tier 2Supplier
Information Flow
ConsumerLogisticsPurchasing Marketing & Sales
R&D
PRODUCT FLOWProduction Finance
RETURNS MANAGEMENT
PRODUCT DEVELOPMENT AND COMMERCIALIZATION
SUPPLIER RELATIONSHP MANAGEMENT
MANUFACTURING FLOW MANAGEMENT
ORDER FULFILLMENT
DEMAND MANAGEMENT
CUSTOMER SERVICE MANAGEMENT
CUSTOMER RELATIONSHIP MANAGEMENT
Source: Adapted from Keely L. Croxton, Sebastin J. Garca-Dastugue, Douglas M. Lambert and Dale S. Rogers, "Supply Chain Management Processes,The International Journal of Lo istics Mana ement Vol. 12 No. 2 2001 . 14.
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Supply Chain Network Structure
Members of the Focal Companys Supply Chain
n
2
3
1
2
1
1
n
2
1
3
n
1
21
n
2
n
1
2
n
1
Consumers/End-customers
n
InitialSuppliers
Focal Company
Tier 1Customers
Tier 2Customers
Tier 3 toConsumers/End-Customers
Tier 2Suppliers
Tier 1Suppliers
Tier 3 toInitialsuppliers
n
1
n
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Motivation forSupply Chain Management
Realization that systems concept applies tomultiple-organization channels (as well as withinthe firm)
Movement toward partnering with choicesuppliers and customers
This is the way business will dominantly beconducted in the future
Supply chain competition, perhaps?
Firms are seeking to partner with other supply chainentities now before competitor approaches
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The Elevating Status of Logistics andSCM Professionals
Logistics has become a strategic weapon
No longer viewed as a necessary cost of doingbusiness
Logistics professionals are gainingunprecedented stature in their organizations
No longer uncommon for a logistician tobecome chief executive particularly by wayof leadership in supply chain management
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Supply Chain Vice President - Worldwide
The Company
The world's fourth largest company, well respected in its industry. A Brand name.
Revenues under $5 billion and extremely successful.
Increasing the number of OEM agreements, outsourcing initiatives and more direct shipments.
Needs to optimize their global transportation network.
Intensifying exports which requires tight control of US export regulations. The Supply Chain Management Group focuses on the strategic aspects of global supply chain.
The operation responsibility lies within many Business Units and other Countries.
The Responsibilities/Requirements - Self Analysis Profile
These are the areas in which the company requires experience and proven success. How do you rate yourself in each?Please complete the Self Analysis Profile below rating yourself on each letter (A-S) from 1 to 5 with 5 being the highest in your skills,strengths and desires. Give a brief description as to why that rating. This will benefit you in order to determine compatibility.
G) Integrating a new Manufacturing application. H) Set up and lead strategic outsourcing organization.
I) Provide a major role in SAP implementation from a supply chain perspective.
J) Build modern supply chain skills in the organization. Work across five independent business units.
Base salary in the high six-figures rangeplus a bonus.
L) 15 years experience in supply chain techniques.
M) Time sensitive to the customer's needs (currently providing above 90% customer service satisfaction).
N) Familiar with modern Supply Chain techniques (rapid replenishment, ship direct, etc.) and Global.
O) MBA or equivalent.
P) Handling both high and low volume products.
Q) Information technology, success in establishing solid procedures which currently does not exist.
R) Politically able to successfully deal within a large, complex worldwide organization.
S) Travel worldwide.
A) Visionary and skilled in working across multiple business units and customer needs (matrix mgmt.).
B) Lead and refine supply chain strategy implementation and "change areas".
C) Proven record of overcoming "turf" issues with a recently merged, multi location company.
D) Building relationships in addition to extensive interpersonal skills (hiring training, team building).
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Other Suppliers: Rival Institutions
Arizona State University
Iowa State University
University of Maryland Michigan State University
Penn State University
University of Tennessee
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Potential Employers
Manufacturing firms
Retailers, Wholesalers & Distributors
Service institutions (restaurants, hospitals, etc.) Passenger & Freight transportation companies
Third-party logistics organizations
Consulting firms Government
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The T&L Major at OSU
M&L 780: Introduction to Logistics
M&L 781: Analysis and Design of Logistics
Systems
M&L 784: Principles of Transportation
Plus two more from a set of approved
electives
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The Transportation and LogisticsAssociation (TLA) at OSU
Meeting information:
Tuesday evenings (resuming next quarter)
Pizza at 7:00pm
Guest speaker at: 7:30pm Location: Schoenbaum Hall (2nd floor)
Need not be a T&L major nor TLA member toattend meetings
TLA website:
www.osutla.com