INTRODUCTION TO LOGISTICS AND SUPPLY CHAIN MANAGEMENT Prof. Jarosław Witkowski, Phd Vice -rector for International Co-operation Wroclaw University of Economics Komandorska Street 118/120, 53-345 Wroclaw, Poland Tel. 0048713680151, Cell phone: 48501090903 E-mail: [email protected] Lecture outline 1.Definition and main activities of business logistics 2. Trade-offs analyses 3. Idea of supply chains 4. Supply Chain Management matrix 5. Supply chain performance and efficiency improvement (SCOR and GSCF models) 6. Japanese and European supply chain networks 7. Simple EOQ formula 8. Center of Gravity Technique Logistics (according to CLM) 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 The mission of logistics is to get the right goods or services to the right place, at he right time, and in the desired condition and quantity in relation to customers order Main logistics activities and decisions: • cooperate with marketing to set customer service levels, • facility location decisions, • transportation activities (eg. transportation mode selection, vehicle scheduling, carrier routing), • inventory management (inventory short -term forecasting, planning and control, cooperate with production to calculate EOQ, sequence and time production ), • information collection and flows and order processing, • warehousing and materials handling, • packaging and packing. Cost- revenue trade- offs Profits at different levels of customer service Revenue, costs, profit Revenue  Logistics costs  85% 91% 95% Customer service Inventory costs trade- off • Inventory carring costs (space costs, capital costs, inventory risk and services costs) • Procurement costs (acquisition costs, transportation costs, manufacturing and handling costs) • Out – of – stock costs (lost sales and back order costs) Supply chain (since 80’s of XXc.) • In broader sense „SC is any combination of processes, activities, relationships and pathways along which products, services, information and financial transactions move in and between enterprices” (Gattorna 2006, p. 2) • In narrow sens SC is restricted to materials and information flows from suppliers, through manufactures and distribution centers to retailers and final customers e.g. M. Christopher (2005) defines SC „as a network of connected and independent organizations mutually and cooperatively working together to, control, manage and improve the flow of materials and informations from suppliers to end users”. Council of Supply Chain Management Professionals (former Council of Logistics Management ): “Supply Chain Management is the systemic, strategic coordination of the traditional business functions and the tactics across business functions within a particular company and across businesses within the supply chain for the purposes of improving the longterm performance of the individual companies and a supply chain as a whole” (CSCMP 2005). According to the new definition of CSCMP • SCM encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities (including coordination and collaboration with channel partners). • In essence SCM integrates supply chain and demand management within and across companies GSCMF (Lambert and others) • SCM is the integration of key business processes from end user through original supplier that provides products, services and information that add value for customers and other stakeholders. • GSCMF vs. SCOR model (8 vs 5 key processes) Supply Chain Operations Reference Model Global Supply Chain Managgement Forum Model (from 1996) Customer Relationship Management (key) Demand Management Order Fulfillement Manufacturing Flow Management Supplier Relationship Management (key) Product Development Commercialization Returun Management Based on the product – relationship matrix Cooper and Slagmulder (1999, p.10) distinguished four key decisions and activities areas in the integrated supply chains, such as: - configuration of product and network, which covers the decisions concerning the main rules of cooperation, - formation of the production network, mainly the choice of production facility and warehousing locations as well as their capabilities, - product design with involvement the research and development abilities of suppliers, - process optimization in order to reduce cycle times and inventory level in the cost-effective way. The product- relationship SCM matrix Keiretsu and Kaizen as a source of the development of Supply Chain Management in Japan KEIRETSU JIT JIT JIT JIT TQM TQM TQM TQM Kanban Kanban Kanban Kanban Supplier Producer Wholeseler Kaizen Retailer The traditional role and place of small firms within integrated supply chains was mostly limited): - delivering raw- materials, parts or modules for the final goods producers, - delivering customer goods to wholesalers or selling small quantities of this goods to the final customers, - providing transportation and forwarding services, - manufacturing goods and providing other services for market niches which are considered as not enough profitable for big companies (also as a subcontractor), - trading under well known brand name of large distribution networks (franchising) Table: The directions of SME’s changes as a links in supply chains and networks Scope of changes in SME’s Hierarchical supply chains Polycentric supply network Competences and skills Narrow in particular technological or functional areas Flexibility Role of small retailers Key intermediary Low or middle Low and passive Wholesaler or large retail network Dominant logistics services model Self- or combined- service model Wide based on process orientation, ability to performance evaluation and outsourcing Middle or high Increasing and active Brokers or third party logistics providers Public logistics service providers Small truck companies Source: Author’s own discription Large number of independent firms Subcontractors dependent on market leaders New vs. Traditional logistics • Integration (within organizational structures, computer systems, supply chain and network) • Strategic approach • Outsourcing • Globalization and virtualization • Customer orientation • City logistics and non- conventional applications EOQ simple formula (Harris, Wilson) Economic order quantity formula helps to find the optimal number of units which should be ordered or made in order to minimize the total inventory costs Developed in 1913 by Harris and applied in industry by Wilson Many disadvantages and several extensions Main assumptions (disadvatages) of EOQ formula • Demand and ordering cost are constant • Maximum inventory is equal to order quantity, new order is delivered when the inventory is zero • Lead time is fixed • No discount is avaliable for bigger orders • Replenishment is delivered at once • Lack of inflation The required parameters to calculate EOQ: • • • • D – demand quantity (units per year, month, day) P – purchase cost per each item S – fixed cost per order i – inventory carring cost rate related to capital invested in inventory • Q – order quantity • D/Q – number of orders How to calculate EOQ based on total cost function? • Total cost of inventory TC= inventory carring cost + procurement cost QxPxi sxD TC = ------------ + --------  min 2 Q 2xDx s Q= √ --------Pxi Facility location factors: A.Weber, Polander, Thunen classical theories • Labour cost, land cost, transportation cost • Aviability and cost of materials, energy, water • Socio- economic factors (taxes, political stability, import and export restrictions, enviromental regulations, quality of life, etc.) Analytical techniques for facility location decisions: • Heuristic approach (e.g. factor rating by weights reflecting the importance of each factor) • Simulation models • Cost- benefit analisis • Center of gravity technique Center of gravity (to find single location that minimizes of transportation cost) Technika „Centrum Grawitacji” X S3(x3’; y3’) S1(x1’; y1’)  Z2(x2 ; y2) c (x,y) Z1(x1 ; y1) S2(x2’; y2’) 0 Y • • • • How to calculate the coordinates for CX and CYthe new facility location?(Ballu, p.487) Parameters: Vi – volume at point i Ri – transportation rate to or from point i Xi and Yi – coordinates of existing locations ∑ Vi Ri Xi ∑ Vi Ri Yi CX = -------------------CY= ------------∑ Vi Ri ∑Vi Ri Assumptions (disadvantages) of center of gravity technique • Transportation rate is a linear function of transported volume (units, tons, etc.) and the traveling distance, • It doese’t consider real traveling distance which is depended on the roads availability References: • [1] Ballu R.H.: Business logistics management, Prentice Hall International, New Jersey 1999 • [2] Christopher M.: Logistics and Supply Chain Management. Creating Value – Adding Networks, Prentice Hall 2005 • [3] Gattorna J.: Living Supply Chains. How to Mobilize the Enterprise Around Delivering What Your Customers Want, Prentice Hall, 2006 • [4] SCOR model http://supply-chain.org/ • [5] CSCMP Supply Chain Management Definitions , www.cscmp.org • [6] Cooper R., Slagmulder R.: Supply Chain Development for the Lean Enterprise – Inter- organizational Cost Management, Productivity Press Portland 1999 • [7] Witkowski J.: Zarządzanie łańcuchem dostaw. Koncepcje, procedury, doświadczenia, PWE, Warszawa 2010