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7/27/2019 Dimensions of Logistics-2- Supply Chain Management
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SUPPLY CHAIN MANAGEMENT
MODULE 7
DIMENSIONS OFLOGISTICS
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INTRODUCTION
Peter Drucker1962 The Economys Dark Continent
Logistics is one of the most neglected but most promising
areas of business
Logistics originated in the military's need to supply itself with
arms, ammunition and rations as the army moved to different
locations
Gulf War in 1991, Afghanistan War in 21stcentury regarded assignificant logistical wars
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MICRO DIMENSION OF LOGISTICS
Micro Dimension of logistics examines the relationshipsbetween logistics and other departments in an organization
Interfaces with Manufacturing:
Length of the Production Run - Balance economies of long
production runs against increased costs of high inventories
Supply interfaces - Stocking adequate supplies to ensure
uninterrupted production
Protective packaging - Principal purpose is to protect the
product from damage during transit
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Interfaces with Sales and Marketing:
Sales forecastSales forecast will decide quantities estimated to betransported and stored
Product- Size, shape, weight, volume of the product impacts
storage, transportation and handling
PriceLarger shipments means cheaper transportation rate,therefore shipment sizes should be customized to the carriers vehiclecapacity
Promotion - Logistics function must be aware of any promotionalactivities so that it can plan accordingly
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MICRO DIMENSION OF LOGISTICS CONTINUED
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MICRO DIMENSION OF LOGISTICS CONTINUED
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Interfaces with Sales and Marketing continued Place:
Wholesalers - Since wholesalers combine purchases for multipleretailers, the shipment sizes are larger and number oftransactions are fewer, resulting in smaller logistics costs
Retailers - With the exception of very large retailers who actmore like wholesalers, smaller shipment sizes are the standard.These generally cost more for transportation and orderprocessing
Interfaces with Finance and Accounting:
Logistics management can have a major impact on overall
Return on Investment
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LOGISTICS ACTIVITIES
Transportation: Physical movement or flow of goods between different
locations
Storage: Inventory management and warehousing
Packaging: Affected by type of product and transportation
Materials handling:
Movement into, from and within a warehouse
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LOGISTICS ACTIVITIES CONTINUED
Order fulfillment: Completing customer orders which affects lead time
Forecasting:
Predicting inventory necessary to fulfill customerdemand
Production planning: Product necessary to cover market
Purchasing: Procurement of supplies which affects transportation
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APPROACHES TO ANALYZING LOGISTICS SYSTEMS CONTINUED
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Materials Management v/s Physical Distribution continued Heavy Outbound:
e.g. Dow Chemicals - Inbound crude oil by-products, saltwater and other raw
materials flow from a limited number of sources and move in volumes over
relatively short distances. On the outbound side, a wide variety of complex
industrial and consumer chemicals are produced that need storage, packaging,
and transportation to the customer.
Reverse Systems:
e.g. HP, Samsung - These companies have frequent product returns on the
outbound side of their logistics systems due to exchange or repairs.
Nodes v/s Links: Nodes are places where goods stop for processing
e.g. Warehouses, Production plants, Stock points
Links are the means of transport connecting the nodes
e.g. Aircraft, Ship, Train, Truck etc.
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APPROACHES TO ANALYZING LOGISTICS SYSTEMS CONTINUED
Logistics Channels: Network of intermediaries involved in the logistics system
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LOGISTICS AND SYSTEMS ANALYSIS
Cost Perspective: The most efficient systems are not always comprised of each
component operating at its lowest possible cost
The significant concern is to have the entire system operating at
its lowest total cost
Optimization:
Deciding upon the best possible alternative in terms of locations
and transport options:
Constructing warehouse near to factory or near to customerlocation ?
Which mode of transport to be utilized ?
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LOGISTICS AND SYSTEMS ANALYSIS CONTINUED
Levels of optimality: There are often constraints working which result in less than optimum
outcomes
Additionally, logistics systems must work in harmony with marketing,
finance, production etc.
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TECHNIQUES OF LOGISTICS SYSTEM ANALYSIS
Short-Run/Static Analysis: Looks at short run situation and selects the system with the lowest overall
cost
Comprises of a matrix-like table which presents each of the logistics and
other relevant costs for two or more alternative logistics systems.
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TECHNIQUES OF LOGISTICS SYSTEM ANALYSIS CONTINUED
Long-Run/Dynamic Analysis: Mathematically calculates the point of equality between two alternate logistics
systems over a longer time duration
Comprises of a graph of fixed and variable costs of the two systems
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Competition through customer service: Order Cycle:
Shorter order cycle, less inventory required
Substitution:
More substitutable product, higher customer service level
required
Inventory Effect:
Increase inventory, reduce cost of lost sales
Transportation Effect:
Increase transportation, reduce cost of lost sales
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FACTORS AFFECTING THE COST AND IMPORTANCE OF LOGISTICS
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FACTORS AFFECTING THE COST AND IMPORTANCE OF LOGISTICS
CONTINUED
Product factors:
Value:
When product value increases, the cost of warehousing, transportationand inventory increases
Density:
Higher the density, more efficient use of warehouse and transportation
space
Damage:
Greater the risk of damage, higher the transportation and warehousingcost
Special Handling Requirements: Critical, Very Heavy and Very High Value raw materials/products
e.g. Aircrafts, Oil Rigs, Medical equipment
Distance FactorWarehouse near to factory or near customer?
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