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Introduction
Logistics is a word often heard but seldom
understood
Definitions of logistics abound and are often
framed in the context of a single business,
military, societal or personal issue
Logistics enables growth of business, global
commerce and our civilization
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The Historical Perspective
Like many other areas of management,
logistics was originally associated with the
military
Sun Tzu Wu (500 BC) in his The Art of War
discussed logistical functions and their
relationships with strategy and tactics
Alexander the Great
The Roman Armies
Napoleon
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The Historical Perspective
Management techniques and philosophies
developed by the military were adopted by the
commercial sector
Logistics was the enabler and frequently the
determining factor in success of
Colonization
The industrial revolution
Urbanization
Centralization of commerce and power
Increasing consumerism
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The Modern Perspective
As we study logistics in this course we will
find that, at its heart, logistics addresses
issues of customer satisfaction
The systematic management of the various
activities required to move benefits from their
point of production to the customer
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The Modern Perspective
Traditional definition:
Logistics is the process of planning,
implementing and controlling the efficient,
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 (Council
of Logistics management 1985)
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The Modern Perspective
Modern Definition:
Logistics is the continuous process of meeting
customer needs by ensuring the availability
of the right benefits for the right customer, in
the quantity and condition desired by that
customer at the time and place the customer
wants them, all for a price the customer is
willing to pay.
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The Modern Perspective
Logistics means or is applied differently by
different organizations (or different parts of
the same organization):
Materials Management – management of raw
materials and parts into the production processes
Physical Distribution – management of finished
products through delivery to the customer
A combination of both the above
*Production Management may be included in either or addressed
separately depending on the organization
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The Modern Perspective
Raw
Materials
Raw
Materials
Raw
Materials
Parts
Supplier
Parts
Supplier
Manufacturer
Distributor
Distributor
Customer
Customer
Customer
Materials
Management
Materials
Management
Logistics
Distribution
Management
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Components of Logistics Systems
Customer service
Inventory management
Transportation
Storage and materials
handling
Packaging
Information processing
Demand forecasting
Purchasing
Facility location
Reverse Logistics
Warranty support
Many of these functions have traditionally been stand-alone
roles within the organization….BUT they are all related
because of their ability to impact customer satisfaction.
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The Modern Perspective
Supply Chain Management
The integration and management of inter and
intra business logistics to deliver customer
satisfaction at the lowest system cost.
Optimization of the value chain.
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The Modern Perspective
Raw
Materials
Raw
Materials
Raw
Materials
Parts
Supplier
Parts
Supplier
Manufacturer
Distributor
Distributor
Customer
Customer
Customer
Materials
Management
Materials
Management
Supply Chain Management
Logistics
Distribution
Management
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Logistics in the Organization
Primary activities of the organization are
shown running vertically
Ongoing production
Marketing
Delivery
Servicing of the product or services, etc.
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Logistics in the Organization
Horizontal activities are the support services
Purchasing
Human resources
Facilities, etc.
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Logistics in the Organization
Note that two of the five primary activities are
logistics activities
Inbound logistics
Outbound logistics
Depending on the size of the organization and
the complexity of the products/services
provided, there is frequently a function with
Operations that addresses internal logistics.
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Logistics in the Organization
The ultimate value a firm creates is a function
of the amount buyers are willing to pay for its
products/services
Profit occurs when the value exceeds the total
cost of production/delivery activities
Firms gain competitive advantage by
delivering at lower total cost than their
competition
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Logistics as a Competitive Edge
Logistics is important strategically and
tactically in order to gain competitive
advantage
Business is increasingly aware that well-
managed logistics systems can provide the
organization with a sustainable competitive
advantage
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Logistics as a Competitive Edge
Appreciation of the importance of logistics is
a relatively recent phenomenon
Lower labor cost
Natural resources
Large captive markets
Technical advantage/expertise
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Logistics as a Competitive Edge
Into the ’80s companies focused on improved
productivity and lower costs
In the late ’80s, focus shifted to high quality
In the ’90s, focus shifted to customer service
Business strategies
Lose advantage over time
Window of opportunity for any given strategic
innovation is relatively narrow
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Logistics as a Competitive Edge
In the early 1980s business strategy focused
on improved productivity and lower costs as
foreign competition eroded once strong
domestic markets
Later in the 1980s, business strategic focus
shifted to include higher quality in goods and
services
In the 1990s, business focus shifted to
excellence in customer service
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Logistics as a Competitive Edge
Growing demand for time-based logistics
management
Streamlining the flow of goods from supplier to
customer
Reducing or eliminating activities that add time
but not value
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Logistics as a Competitive Edge
Customers demand
Faster delivery
Continuous shipment tracking
Electronic transfer of information
Reduction of wasted time
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Logistics as a Competitive Edge
The challenge for any organization is to focus
its skills on satisfying those customer needs
that offer the greatest opportunities for
obtaining a sustainable competitive
advantage.
Speed of delivery may be important to those in
developed regions/countries
Consistency of availability may be more
important to those in underdeveloped regions
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Interest in Logistics is Growing
Searching for ways to capitalize on the new
markets
Central and Eastern Europe
China, India and the Russian Far East
Central Africa
Taking advantage of these opportunities
requires logistics systems that are often
different from those in developed countries
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Interest in Logistics is Growing
Emerging Trade Blocks
Give smaller countries economic advantage
Simplifies economic transactions between
members
Reshaping the perception of domestic vs.
international markets
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Customers Demand Greater Value
Customers prefer perceived ‘highest customer
value’
The difference between total customer cost and
total customer value
Difficult for global companies to determine
with customers in many different markets
Customers seldom lower their desired level of
delivered value
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Customers Demand Greater Value
Product
Value
Services
Value
Personnel
Value
Image
Value
Monetary
Price
Psychic
Costs
Energy
Costs
Time
Costs
Total
Customer
Value
Total
Customer
Costs
Customer
Delivered
Value
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Customers Demand Greater Value
Transportation
Complex framework of laws and regulations
Recently deregulated (1977)
Reorientation towards more competitive transport
system
Opportunities for shipper to obtain better service and
lower prices
Increased complexity for transport managers
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Customers Demand Greater Value
Environmental concerns affect society’s
quality of life
Logistics impacts are important in affluent
countries
Willing to pay more for environmentally friendly
goods …recycling, “green” products/services, etc.
Less important to those in developing countries
More interested in raising their standard of living
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Customers Demand Greater Value
Changing view of inventory
Historically used to compensate for internal
problems that could result in customer
dissatisfaction
Long runs for reduced set-up cost
Sales force pressures
Focus on inventory costs
JIT results in lower cost but lower customer service
Inventory management increasingly critical
management activity for global companies
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Customers Demand Greater Value
Information technology
The glue that holds the logistics system together
Dramatic improvements in the past 20 years enable
systematic management of logistics
Capability to fully automate the logistics system
is now available
EDI
Supply chain visibility
Customer visibility of order fulfillment
RFID, GPS, secure containers, etc.
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Customers Demand Greater Value
Electronic commerce
E-commerce rapidly taking hold
Security issues
Quick order placement requires quick delivery to
insure customer value
Total logistics management (Supply chain
management) is the best approach to the problem
we have today
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Global Organization of Logistics
Traditional approach to business concentrates
on geographic markets
Global organizations must look at the whole
world as one potential market
Sourcing
Manufacturing
Researching
Raising capital
Sales
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Global Organization Logistics
Challenge is managing this global network
Spread activities among nations to serve the
world market “locally”
Coordinate among those dispersed activities to
minimize cost and maximize value for each
customer population served
Outbound logistics, after-sales service and marketing
tied to buyer’s location
Inbound logistics and manufacturing performed
anywhere
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The Logistics System
Customer
Service
Information
Systems
Materials
Management
Inventory
Management
Warehouse
Management
Transportation
LOGISTICS