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2019/6/5,School of Logistics,Southwest Jiaotong University,1,Session o2: Introduction to Logistics,What is logistics? Logistics elements Understanding logistics costs Logistics performance measurement Logistics integration,2019/6/5,School of Logistics,Southwest Jiaotong University,2,What is logistics?,In reality, people buy products for a range of factors apart from their tangible qualities logistics is about ensuring that the factors which influence customers choice are delivered cost effectively and in accordance with customers expectations,2019/6/5,School of Logistics,Southwest Jiaotong University,3,Logistics Defined,“the process of strategically managing the acquisition, movement and storage of materials, parts and finished inventory (and related information flows) through an organization and its marketing channels to fulfill orders most cost effectively” Source: Gattorna, J.L. (1990) , Handbook of Logistics and Distribution Management, 4th ed., page 5.,2019/6/5,School of Logistics,Southwest Jiaotong University,4,The Interface of Logistics,It is difficult to visualize accomplishing any marketing, manufacturing, or international commerce without logistics. When consumers purchase goods- at a retail store, over the telephone, or via the internet thy expect product delivery will be performed as promised. In fact, their expectation is for timely, error-free logistics every time they order.,Production,Marketing,Finance,Logistics,1,2,3,2019/6/5,School of Logistics,Southwest Jiaotong University,5,Logistics Mission,2019/6/5,School of Logistics,Southwest Jiaotong University,6,Operating in a Turbulent Environment,Deregulation has loosened controls in a number of areas, both locally and internationally Product changes are occurring more frequently and there are more products on offer Technology is evolving at an increasingly pace Customers are becoming far more demanding of their suppliers,2019/6/5,School of Logistics,Southwest Jiaotong University,7,On Coping with Turbulent Time,“The one certainty about the times ahead is that they will be turbulent times, and in turbulent times the first task of management is to make sure of the institutions capacity for survival, to make sure of its capacity to survive a blow, to adapt to sudden change, and to avail itself of new opportunities” Source: Peter Drucker, Managing in Turbulent Times (1980),2019/6/5,School of Logistics,Southwest Jiaotong University,8,Logistics Challenges,Logistics is concerned with the inter-relationship of all factors which affect the flow of information and products necessary to fulfill orders This flow starts when a customer decides to place an order and ends when the order is delivered to the customer and the customer has paid for the products received,2019/6/5,School of Logistics,Southwest Jiaotong University,9,The Scope of Logistics,2019/6/5,School of Logistics,Southwest Jiaotong University,10,Logistics Elements,Inventory Facilities Communications Unitization Transport Materials Management Production Scheduling,2019/6/5,School of Logistics,Southwest Jiaotong University,11,Inventory,Stock holding is central to effective logistics management. Key issues include: how much inventory should be held where should it be held in what quantities should it be held how frequently should it be replenished,2019/6/5,School of Logistics,Southwest Jiaotong University,12,Inventory,Inventory directly impacts an organizations customer service and its working capital,2019/6/5,School of Logistics,Southwest Jiaotong University,13,Facilities,Facilities are required to hold stock. Questions are: how many facilities do we need where do we locate them how large should they be should they be mechanised or automated and to what degree,2019/6/5,School of Logistics,Southwest Jiaotong University,14,Communication,Modern communications and computer technology can provide us with inventory visibility back to our suppliers and forward to our retail customers outlets. In this way information can be substituted for inventory,2019/6/5,School of Logistics,Southwest Jiaotong University,15,Unitization,Unitization refers to the packages in which products are originally packed and the means by which those packages are assembled into unit loads Unitization and containerization have revolutionized the way in which products are stored and transported,2019/6/5,School of Logistics,Southwest Jiaotong University,16,Transport,Transport decisions involve: what mode of transport should we use should we own or hire our transport fleet how frequently should we deliver to different customer groups how should deliveries be scheduled,2019/6/5,School of Logistics,Southwest Jiaotong University,17,Material Management,It is not possible to consistently manufacture products to an appropriate standard without effective coordination and control of a manufacturers purchasing function and the inbound movement of raw materials, components and packaging materials,2019/6/5,School of Logistics,Southwest Jiaotong University,18,Production Scheduling,The concept of “Just-in-Time” would not be possible if manufacturing enterprises were not capable of managing productive resources in an effective yet responsive manner. As inventory levels shrink, this becomes even more important,The concept of “Just-in-Time” would not be possible if manufacturing enterprises were not capable of managing productive resources in an effective yet responsive manner. As inventory levels shrink, this becomes even more important,2019/6/5,School of Logistics,Southwest Jiaotong University,19,Understanding Logistics Costs,All too frequently, logistics costs are summarized in the enterprises Profit & Loss Statement under two or three headings, typically: warehousing distribution Before we can achieve the objective stated above, we need to understand the elements that comprise the logistics costs within our enterprise,2019/6/5,School of Logistics,Southwest Jiaotong University,20,Logistics Costs Composition,Inventory holding costs Warehousing costs Order processing costs Transportation costs, both inbound and outbound, domestic and international Costs of funds employed (logistics infrastructure) Communications and data processing costs, to name but a few,2019/6/5,School of Logistics,Southwest Jiaotong University,21,Within a broad range of distribution channel alternatives we need to decide which channels are most appropriate to service different segments - positioning,2019/6/5,School of Logistics,Southwest Jiaotong University,22,Since it may not be appropriate to service all possible segments, we must decide which segments to target,Segmentation reveals the degree of heterogeneity in a market, which leaves three broad choices of response: undifferentiated marketing differentiated marketing concentrated or focused marketing Source: Kotler, et al, (1980),2019/6/5,School of Logistics,Southwest Jiaotong University,23,Target segments and desired market response will influence choice of channels,Since it may not be appropriate to service all possible segments, we must decide which segments to target,2019/6/5,School of Logistics,Southwest Jiaotong University,24,We cant be sure that segments will only deal with one channel, but it is important to be able measure volume of sales and associated costs for each,2019/6/5,School of Logistics,Southwest Jiaotong University,25,Logistics Performance Measurement,Peter Drucker reminds us of the difference between efficiency and effectiveness, stating that: efficiency is all about doing things right; whilst effectiveness is all about doing the right things,2019/6/5,School of Logistics,Southwest Jiaotong University,26,Logistics Performance Measurement,So we need to ensure that the things we do are the right things (ie they add value), then do them efficiently,2019/6/5,School of Logistics,Southwest Jiaotong University,27,Logistics Measures Categories:,Price performance Cost effectiveness Quality Time/delivery/responsiveness Technology/Innovation Physical environment and safety Asset and integrated supply chain management Administration and efficiency Government/Social Internal customer satisfaction,2019/6/5,School of Logistics,Southwest Jiaotong University,28,The Measurement Dilemma,What you cant measure you cant control if we want to control the quality of the service we provide, we must measure that quality as seen from the customers perspective People perform in line with what gets inspected rather than what is expected of them there must be congruency between how we expect our people to perform (duty statements, etc) and what we inspect (performance measures),2019/6/5,School of Logistics,Southwest Jiaotong University,29,The Principles of Measurements,Let your customers say what counts Develop a number of complementary measures into a system that balances process, product and satisfaction measures,2019/6/5,School of Logistics,Southwest Jiaotong University,30,The Principles of Measurements,Make the measurement system matter: ensure that achievement of the balanced system of measures is adequately reflected in the enterprises compensation system, both psychic and monetary,2019/6/5,School of Logistics,Southwest Jiaotong University,31,Supply-side Logistics,Strategic sourcing decisions Potential supplier assessment and selection Procurement and purchasing activities Supplier performance - inbound logistics Logistics asset utilization and performance,2019/6/5,School of Logistics,Southwest Jiaotong University,32,Demand-side Logistics,Order acquisition and processing Order picking and assembly Order dispatch and delivery Order completeness and condition Warehouse productivity and performance Carrier productivity and performance Logistics asset utilization and performance,2019/6/5,School of Logistics,Southwest Jiaotong University,33,Performance Measures - Yes or No?,Measures of performance are essentially guidelines that tell us how we are going against standards that we set. The critical thing then is to know: What should be measured ? What standards should we use?,2019/6/5,School of Logistics,Southwest Jiaotong University,34,Performance Measures contd.,Essentially there are three areas where a positive benefit can be gained from performance measures, these are: Inputs to the logistics system; The logistics process itself; and Outputs from the logistics system,2019/6/5,School of Logistics,Southwest Jiaotong University,35,Key Areas for Measurement,In planning a performance measurement system, we need to decide: What measurements truly provide an indication of the systems operational performance? How can the data be gathered to ensure it is timely, accurate and representative of the activity in the area we wish to monitor? What other data needs to be captured to enable meaningful analysis of variation outside acceptable standards to be conducted?,2019/6/5,School of Logistics,Southwest Jiaotong University,36,Setting Standards,Initially derived from the marketplace by means of customer service audit Matched against internal objectives for congruency Periodically reviewed to ensure they continue to reflect market demand,2019/6/5,School of Logistics,Southwest Jiaotong University,37,Key Customer Service Variables,Order cycle time, by component Fill rate (percentage ordered versus delivered) Order consistency (variance in delivery time) Response capability to customer enquiries Ability to adjust order quantities Ability to change requested delivery dates Ability to interact with production schedules Ability to substitute or back-order line items,2019/6/5,School of Logistics,Southwest Jiaotong University,38,Key Logistics Efficiency Variables,Logistics efficiency (costs) related to functional activities such as: transportation warehousing inventory management production planning and scheduling order processing,2019/6/5,School of Logistics,Southwest Jiaotong University,39,Key Asset Utilization Variables,Typically these would include: inventory performance by SKU, product group and in aggregate warehousing performance including MHE utilization delivery fleet performance whether company owned or third party,2019/6/5,School of Logistics,Southwest Jiaotong University,40,Developing the Monitoring System,A systematic procedure to: Identify all important logistics cost categories Institute systems and procedures for the collection of cost and utilisation efficiency data Prepare a set of useful ratios and measures by which logistics performance can be evaluated Set up a mechanism for regular presentation of status reports,2019/6/5,School of Logistics,Southwest Jiaotong University,41,Interpreting Results,Understand what is being measured Understand impact of variance on enterprise and its customers Snapshot measurements can be misleading Dynamic measurements indicate trends All systems will have variation, it is the amplitude of the variation we must control,2019/6/5,School of Logistics,Southwest Jiaotong University,42,Operational Performance,Operational performance deals with the time required to deliver a customers order. It involves delivery speed and consistency. Fast delivery is of limited value if inconsistent from one order to the next. Firmes typically focus on delivery consistency first and then seek to improve delivery speed. Source: Donald J. Bowersox, David J. Closs, M. Bixby Cooper, Supply Chain Logistics Management (2e) (2007),2019/6/5,School of Logistics,Southwest Jiaotong University,43,Logistics Viewed as a System,logistics activities cross traditional functional boundaries within organizations to achieve optimal overall outcomes, it may be necessary for some functional areas to operate sub-optimally,2019/6/5,School of Logistics,Southwest Jiaotong University,44,Logistics Viewed as a System,By viewing logistics as a total system it is possible to ensure the best possible outcome for both the organization and its customers,2019/6/5,School of Logistics,Southwest Jiaotong University,45,Managing Logistics System Performance,2019/6/5,School of Logistics,Southwest Jiaotong University,46,The Objectives of a Logistics System,The fundamental objective of any logistics system must be to provide the necessary levels of customer service, so as to maintain and expand profitable business, at the minimum total cost compatible with such service levels.,2019/6/5,School of Logistics,Southwest Jiaotong University,47,Measuring Logistics Systems,If it cant be measured, it cant be controlled Identify elements which comprise the logistics system Identify costs associated with each element and how those costs impact upon total profitability Identify type and volume of activity associated with each element and their impact on productivity Identify points within each element where performance can be meaningful measured,2019/6/5,School of Logistics,Southwest Jiaotong University,48,Developing a Performance Measurement and Evaluation System,Determine which performance categories to measure Develop specific performance measures Establish performance objectives for each measure Finalize system details Implement and review system performance and measures,2019/6/5,School of Logistics,Southwest Jiaotong University,49,Summary,The emphasis of any performance measurement system should be on useful ( that is actionable) information gathering. Before collecting data, we should be able to answer the questions: “Why are the data useful?“ and “What positive actions do w
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