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Logistics Systems EngineeringIntroduction to Logistics

NTUSY-521-N

SMUSYS 7340

Dr. Jerrell T. Stracener, SAE Fellow

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• What is Logistics– Logistics is the process that integrates and

coordinates the elements within the supply chain to ensure that best possible flow of materials and information, in order to meet customer requirements in the most efficient manner and at the lowest possible cost.

What is Logistics

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• Definition:– The art of science and management,

engineering, and technical activities concerned with requirements, design, and supplying and maintaining resources to support objectives, plans, and operations.1

– The branch of military science having to do with procuring, maintaining, and transporting material, personnel, and facilities.2

What is Logistics

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• Definition:– 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 point of origin to point of consumption for the purpose of conforming to customer requirements.3

What is Logistics

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• Definition:– Logistics is a support element of the organ-

ization that incorporates elements such as:Transportation StorageSpare & Repair Parts FacilitiesPersonnel and TrainingTechnical PublicationsTest and Support Equipment

– “The process of having the right quantity of the right item in the right place at the right time.4

What is Logistics

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• What is Logistics– Single Source Information:

What is Logistics

AirConsolidatorDe-consolidatorCustomsCustomerFinancialFreight Forwarder

InformationManufacturingMotorOceanProduct MaterialRail

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• Evolution of Logistics (Prior to 1950)5:– Prior to the 1950’s, the typical enterprise

treated the process of logistical management on a fragmentary basis.

– Concerns were place on:1. Line-item proliferation2. Selling identical products through a wide

variety of marketing channels3. Widespread offering of product- contained services

What is Logistics

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• Evolution of Logistics (Prior to 1950)5:– Two reasons why logistics was neglected and

subsequently late in development were:1. Computers were not a commonplace and

quantitative analysis was rarely used2. The volatile economic climate and

profit margins were not typically scrutinized

What is Logistics

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• Evolution of Logistics (1956 to 1965)5:– During the period of 1956 to 1965, four major

concepts began to materialize:1. Development of total cost analysis2. Application of the system approach3. Increased concern for customer service4. Revised attention to marketing channels

What is Logistics

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• Evolution of Logistics (1966 to 1970)5:– A time which basic logistics were tested.– For the most part, logistical concepts passed

the test of time.– Managerial emphasis focused on improved

operating performances.– Firms placed a great deal of attention on

finished-goods inventory management and support of customer orders.

What is Logistics

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• Evolution of Logistics (1966 to 1970)5:– Material management began to develop as an

attempt to integrate the planning and logistical dimensions of purchasing and manufacturing.

– Some draw backs:1. Traffic mangers had a difficult time

embracing that the overall total cost might be reduced by spending

more on a specific activity such as transportation

What is Logistics

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• Evolution of Logistics (1966 to 1970)5:– Some draw backs (continue):

2. Widespread adoption of either physical distribution or materials management was the difficulty in presenting a case to support the hard-core return on investment that would materialize from implementation3. Given the accounting practice of the times, it was difficult to place a monetary return or value on superior customer service performance

What is Logistics

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• Evolution of Logistics (1971 to 1979)5:– Energy shortages arose causing companies to

place more emphasis on logistics.1. Transportation2. Inventory

– Overnight, enterprise priorities shifted from servicing demand to maintaining supply.

– Material management matured from the hazards of potential supply discontinuity.

– Just-in-time was adopted.– Long term contra

What is Logistics

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• Evolution of Logistics (1971 to 1979)5: – Long term contracts were introduced.– Attention began to be directed to third-party

logistical arrangements as an alternative solution to the growing complexity of logistical support.

– The institutionalization of logistics within the organizational structures of countless private and public enterprises.

What is Logistics

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• Evolution of Logistics (1980 to 1985)5:– The early years of the 1980s experienced

more change in logistical operations than was the case in any previous time period.6

– The most significant changes were:1. Transportation Deregulation2. Microprocessor Technology3. Communication Revolution

What is Logistics

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• Evolution of Logistics (1986 and beyond)5:– The attainment of strategic goals rests with

the development and implementation of a single overall logic. Integrated logistical management provides such a logic and is becoming increasingly relevant for at least five reasons.7 1. A great deal of interdependence between

all logistical areas which can be exploited to the advantage of the enterprise

What is Logistics

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• Evolution of Logistics (1986 and beyond)5:2. A narrower or restricted approach creates

the potential for a dysfunctional interface3. The control requirements for each

operation are similar4. An increasing awareness that many trade-

offs exist between manufacturing economies and marketing requirements that can be reconciled by a wall-designed logistical system

What is Logistics

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• Evolution of Logistics (1986 and beyond)5:5. The final and perhaps most significant

reason for integrated logistics is that the complexity of contemporary logistics

require innovative solutions

What is Logistics

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• Mission:– The mission of logistics Is to get the right

goods or services to the right place, at the right time, and in the desired condition, while making the greatest contribution to the firm.

What is Logistics

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• From Cradle to Grave9

What is LogisticsM

arke

t Vol

ume

TechDev

AppLaunch

AppGrowth

MatureTech

TechObsolescence

Time

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• 3PL’s – Third party logistics are companies that

specialize in logistics.– Firms hire them out for their knowledge and

expertise.– Allows firms to concentrate on their core

competence.– Complete confidence and trust must take

place between both the 3PL and the firm hiring the 3PL.

What is Logistics

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• 3PL’s – Examples of 3PL’s

1. EDS2. i2 Technologies3. KPMG4. Manugistics, Inc5. Ryder Logistics6. UPS Logistics

What is Logistics

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• Cutting Cost• Viewing the Life Cycle Cost• Logistics Management and the Balance Sheet• Technology Infusion Dilemma

Why Logistics

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• Cutting Cost– Chrysler Corp.’s Drive to Cut Costs10

Saved $2.1 billion this year as part of a drive to cut supply costs, a $900 million increase over last year

“We’re constantly working with our suppliers as teammates to discover new ways to be more efficient”

Suppliers submit proposals aimed at reducing logistics and manufacturing costs

Why Logistics

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• Cutting Cost– Forward thinking retailers, e.g., Wal-Mart, are

using technology and optimizing transportation to better serve customers and squeeze cost out of the supply chain11

– Dell uses UPS to design a network of distribution models to help improve the time in transit of their products and reduce overall inventory

Why Logistics

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• Logistics Management and the Balance Sheet14 Why Logistics

Assets

Liabilities

CashReceivables

Inventories

Property, Plan& Equipment

Order Cycle TimeOrder Completion RateInvoice Accuracy

Balance Sheet Logistics Variable

Inventory Policiesand Service Levels

Distribution FacilitiesTransportation Equipment

Cur. LiabilitiesDebt

EquityFinance Options forInventory Plant & Equ.

Purchasing Policies

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Logistics is an Essential Link in the Value Chain

The Seven R’s

Ensuring the availability of the Right product, in theRight quantity, in the Right condition, at the Rightplace, at the Right time, for the Right customer, atthe Right cost.

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Logistics is a Value Added Service

Good logistics doesn’t mean the cheapest providerGood logistics doesn’t mean the cheapest providerGood logistics doesn’t mean the cheapest providerGood logistics doesn’t mean the cheapest providerGood logistics doesn’t mean the cheapest providerGood logistics doesn’t mean the cheapest provider

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1 Established in 1974 by the Society of Logistics Engineers (SOLE), Huntsville, Alabama.

2 Guralnik, David B., ed., Webster’s New World Dictionary of the American Language, 2nd college edition (New York: Simon & Schuster, 1980).

3 Council of Logistics Management, Oak Brook, Illinois.4 Norman E. Hutchinson, Florida Institute of Technology.5 Donald J. Bowersox, David J. Closs, and Omar K. Helferich, Logistical

Management, Third Edition (New York: Macmillan Publishing Co, 1986).6 Roy D. Shapiro, “get Leverage from Logistics,” Harvard Business Review

(May-June 1984), pp. 119- 126, and Graham Sharman, “The Rediscovery of Logistics,” Harvard Business Review (September-October, 1984), pp. 71-79.

7 Donald J. Bowersox, David J. Closs, and Omar K. Helferich, Logistical Management, Third Edition (New York: Macmillan Publishing Co, 1986), pp 14-15.

8 Frederick Betz, Managing Technology: “Competing Through New Ventures, Innovation, and Corporate Research,” 1987, pp. 72-74

References

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9 Frederick Betz, Managing Technology: “Competing Through New Ventures, Innovation, and Corporate Research,” 1987, pp. 72-74

10 Inbound Logistics, August 199811 Inbound Logistics, August 199812 E097922 \ Library \ RMSL-Prod Supt-ILS \ Log - New Frontier.ppt-2113 E097922 \ Library \ RMSL-Prod Supt-ILS \ Log - New Frontier.ppt-2214 E097922 \ Library \ RMSL-Prod Supt-ILS \ Log - New Frontier.ppt-23

References