ОсновыЛогистикиЧасть1
ОсновыЛогистикиЧасть1
ОсновыЛогистикиЧасть1
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..
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:
I
2006
CONTENTS
I. CHAPTER 1 Business Logistics/Supply Chain
A Vital Subject 3
1. Unit 1. Introduction ..3
2. Unit 2. Business Logistics Defined .6
3. Unit 3. The Supply Chain 11
4. Unit 4. The Activity Mix 14
5. Unit 5. Importance of Logistics/Supply Chain 19
6. Unit 6. Business Logistics in the Firm 26
7. Unit 7. Objectives of Business Logistics/Supply Chain..31
II.
1.
2.
3.
4.
5.
III.
IV.
LITERATURE ................69
Chapter I
Business Logistics/ Supply Chain A Vital Subject
Unit 1
Physical distribution is simply another way of saying the
whole process of business
Peter Drucker
INTRODUCTION
As far back as history records, the goods that people wanted
were not produced where they wanted to consume them, or these
goods were not accessible when people wanted to consume them. Food
and other commodities were widely dispersed and were only available
in abundance at certain times of the year. Early peoples had the choice
of consuming goods at their immediate location or moving the goods to
a preferred site and storing them for later use. However, because no
well-developed transportation and storage systems yet existed, the
movement of goods was limited to what an individual could personally
move, and storage of perishable commodities was possible for only a
short time. This limited movement-storage system generally
constrained people to live close to the sources of production and to
consume a rather narrow range of goods.
Even today, in some areas of the world consumption and
production take place only within a very limited geographic region.
Striking examples can still be observed in the developing nations of
Asia, South America, Australia, and Africa, where some of the
population live in small, self-sufficient villages, and most of the goods
needed by the residents are produced or acquired in the immediate
, () , ,
( ,
)
; , ,
1) 2) ,
, ,
, ;
, (-. - of)
1) , 2) ,
(. store up, store away) 3)
,
perishable
production
range
to acquire
vicinity
standard of living
exchange
excess
to ship
market
, ; ;
;
, ; (
. .)
,
,
; ( )
;
, ,
()
Ex.2. Read the text and fill the gaps with the appropriate word:
a) pay
e) purchase
i) reasonable
b) reliable
f) comparative
j) trades
c) transportation
g) consumers
k) high-quality
d) labor
h) needs
l) imported
economies will be better off. South Korea has low ________(7) costs
for making DVD recorders, whereas the United States has an advantage
in producing low-cost, ________(8) software. With the availability of
inexpensive and ________(9) transportation, there is an economic
advantage to specializing in the product that can be produced most
cheaply and buying the remaining product from the other country. With
reasonable transportation costs, South Korea can place DVD recorders
in the United States at a price below the locally produced and locally
transported product. Conversely, the United States has the design
and production cost advantage for software and can incur a
_________(10) transportation charge to place software in South
Korea and at a price below what is available locally. The revised
economic picture can be seen in Table 2. Both consumers in the
countries save $1,450 - 1,200 = $250. Expensive transportation would
preclude the countries from trading with each other and realizing
their ________(11) economic advantages by making the landed price
of ________ (12) products higher than those available locally.
Unit 2
BUSINESS LOGISTICS DEFINED
Business logistics is a relatively new field of integral
management study in comparison with the traditional fields of finance,
marketing, and production. Logistics activities have been carried out by
individuals for many years. Businesses also have continually engaged
in move-store (transportation-inventory) activities. The newness of the
field results from the concept of coordinated management of the related
activities, rather than the historical practice of managing them
separately, and the concept that logistics adds value to products or
services that are essential to customer satisfaction and sales. Although
coordinated logistics management has not been generally practiced
until recently, the idea of coordinated management can be traced back
to at least 1844. In the writings of Jules Dupuit, a French engineer, the
idea of trading one cost for another (transportation costs for inventory
costs) was evident in the selection between road and water transport.
, , ; (
)
value
customer
coordinated
trace back
trade
cost
inventory
branch
to procure
to maintain
materil
personnel
facilities
To promulgate
supply
supply chain
to foster
flow
storage
to discard
integrated
interaction
extraction
end user
1) 2) ,
, ;
,
1) ( in - -.; with - -.) 2)
()
1) , 2) .. ,
1) , -
2) ;
1), ; 2) ,
, ; ;
1) 2) , ,
, ,
, (, )
1) , ;
2) , , ;
(, . .)
, , ;
,
, , ;
1) , (, )
2)
1) , 2) , ,
-. (,
)
; ;
;
( among, between; with)
,
competitive
distribution
,
,
Ex.1. Read the following statements and say whether they are true or
false:
1.
2.
3.
4.
5.
a) requirements
b) performance
c) service
10
4. retail
5. move-store
6. coordinated
7. information
8. product
9. customer
10. product-flow
11. supply
12. competitive
13. long-term
14. raw
15. logistics
16. customers
17. integrated
18. finished
d) channel
e) advantage
f) materials
g) firm
h) satisfaction
i) products
j) interactions
k) costs
l) management
m) user
n) flows
o) activities
p) chain
q) flow
r) logistics
Unit 3
THE SUPPLY CHAIN
Logistics/SC is a collection of functional activities
(transportation, inventory control, etc.), which are repeated many
times throughout the channel through which raw materials are
converted into finished products and consumer value is added.
Because raw material sources, plants, and selling points are not
typically located at the same places and the channel represents a
sequence of manufacturing steps, logistics activities recur many times
before a product arrives in the marketplace. Even then, logistics
activities are repeated once again as used products are recycled
upstream in the logistics channel.
A single firm generally is not able to control its entire product
flow channel from raw material source to points of the final
consumption, although this is an emerging opportunity. For practical
purposes, the business logistics for the individual firm has a narrower
scope. Usually, the maximal managerial control that can be expected is
over the immediate physical supply and physical distribution channels,
as shown in Figure 2. The physical supply channel refers to the time
11
and space gap between a firm's immediate material sources and its
processing points. Similarly, the physical distribution channel refers to
the time and space gap between the firm's processing points and its
customers. Due to the similarities in the activities between the two
channels, physical supply (more commonly referred to as materials
management) and physical distribution comprise those activities that
are integrated into business logistics. Business logistics management
is now popularly referred to as supply chain management. Others have
used terms such as value nets, value stream, and lean logistics to describe
a similar scope and purpose.
Although it is easy to think of logistics as managing the flow
of products from the points of raw material acquisition to end
customers, for many firms there is a reverse logistics channel that must
be managed as well. The life of a product, from a logistics viewpoint,
does not end with delivery to the customer. Products become
obsolete, damaged, or nonfunctioning and are returned to their
source points for repair or disposition. Packaging materials may be
returned to the shipper due to environmental regulations or because it
makes good economic sense to reuse them. The reverse logistics
channel may utilize all or a portion of the forward logistics channel
or it may require a separate design. The supply chain terminates with
the final disposition of a product. The reverse channel must be
considered to be within the scope of logistics planning and control.
Vocabulary
to convert
to recur
marketplace
to recycle
distribution channel
lean
delivery
obsolete
damaged
repair
disposition
;
;
;
( )
,
;
;
,
12
to utilize
to terminate
design
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2) 3)
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.
, ,
.
13
5.
6.
7.
,
.
,
.
,
, ,
.
Unit 4
THE ACTIVITY MIX
The activities that make up business logistics vary from firm
to firm, depending on a firm's particular organizational structure,
management's honest differences of opinion about what constitutes the
supply chain for its business, and the importance of individual activities
to its operations. As shown in Figure 2 the components of a typical
logistics system are: customer service, demand forecasting, distribution
communications, inventory control, material handling, order processing,
parts and service support, plant and warehouse site selection (location
analysis), purchasing, packaging, return goods handling, salvage and scrap
disposal, traffic and transportation, and warehousing and storage.
Figure 3 organizes these activities, according to where they
are most likely to take place in the supply channel. The list is further
divided into key and support activities, along with some of the decisions
associated with each activity.
Key Activities
1. Customer service standards cooperate with marketing to:
a.
Determine customer needs and wants for logistics customer
service
14
b.
Determine customer response to service
c.
Set customer service levels
2. Transportation
a.
Mode and transport service selection
b.
Freight consolidation
c.
Carrier routing
d.
Vehicle scheduling
e.
Equipment selection
f.
Claims processing
g.
Rate auditing
3. Inventory management
a.
Raw materials and finished goods stocking policies
b.
Short-term sales forecasting
c.
Product mix at stocking points
d.
Number, size, and location of stocking points
e.
Just-in-time, push, and pull strategies
4. Information flows and order processing
a.
Sales order-inventory interface procedures
b.
Order information transmittal methods
c.
Ordering rules
Support Activities
1. Warehousing
a.
Space determination
b.
Stock layout and dock design
c.
Warehouse configuration
d.
Stock placement
2. Materials handling
a.
Equipment selection
b.
Equipment replacement policies
c.
Order-picking procedures
d.
Stock storage and retrieval
3. Purchasing
a.
Supply source selection
b.
Purchase timing
c.
Purchase quantities
4. Protective packaging designed for:
a.
Handling
15
b.
Storage
c.
Protection from loss and damage
5. Cooperate with production/operations to:
a.
Specify aggregate quantities
b.
Sequence and time production output
c.
Schedule supplies for production/operations
6. Information maintenance
a.
Information collection, storage, and manipulation
b.
Data analysis
c.
Control procedures
Key and support activities are separated because certain
activities will generally take place in every logistics channel, whereas
others will take place, depending on the circumstances, within a
particular firm. The key activities are on the "critical" loop within a
firm's immediate physical distribution channel, as shown in Figure 4.
They contribute most to the total cost of logistics or they are essential to
the effective coordination and completion of the logistics task.
Customer service standards set the level of output and degree
of readiness to which the logistics system must respond. Logistics costs
increase in proportion to the level of customer service provided, such
that setting the standards for service also affects the logistics costs to
support that level of service. Setting very high service requirements
can force logistics costs to exceedingly high levels.
Transportation and inventories maintenance are the primary
cost-absorbing logistics activities. Experience has shown that each
will represent one-half to two-thirds of total logistics costs.
Transportation adds place value to products and services, whereas
inventories maintenance adds time value.
Transportation is essential because no modern firm can operate
without providing for the movement of its raw materials or its finished
products. This importance is underscored by the financial strains
placed on many firms by such disasters as a national railroad strike
or independent truckers' refusal to move goods because of rate
disputes. In these circumstances, markets cannot be served, and
products back up in the logistics pipeline to deteriorate or become
obsolete.
16
17
vary
divide
force
contribute
carry
depend
provide
associate
make
a)
b)
c)
d)
e)
f)
g)
h)
i)
to
on
for
from
with
to
out
into
up
supply
logistics
a) control
b) strike
18
3.
4.
5.
6.
7.
8.
9.
10.
inventories
product
inventory
railroad
customer
scrap
order
security
c)
d)
e)
f)
g)
h)
i)
j)
protection
disposal
service
processing
chain
availability
maintenance
system
FALSE
19
20
(NAFTA) between Canada, the United States, and Mexico, and the
economic trade agreement among several countries of South America
(MERCOSUR).
Globalization and internationalization of industries
everywhere will depend heavily on logistics performance and costs, as
companies take more of a worldview of their operations. As this
happens, logistics takes on increased importance within the firm since
its costs, especially transportation, become a larger part of the total cost
structure.
Logistics/SC Is Important to Strategy
Firms spend a great deal of time finding ways to differentiate
their product offerings from those of their competitors. When
management recognizes that logistics/SC affects a significant portion
of a firm's costs and that the result of decisions made about the supply
chain processes yields different levels of customer service, it is in a
position to use this effectively to penetrate new markets, to increase
market share, and to increase profits. That is, good supply chain
management can generate sales, not just reduce costs.
Logistics/SC Adds Significant Customer Value
A product, or service, is of little value if it is not available to
customers at the time and place that they wish to consume it.
It is generally recognized that business creates four types of
value in products or services. These are: form, time, place, and
possession. Logistics creates two out of these four values.
Manufacturing creates form value as inputs are converted to outputs,
that is raw materials are transformed into finished goods. Logistics
controls the time and place values in products, mainly through
transportation, information flows, and inventories. Possession value is
often considered the responsibility of marketing, engineering, and
finance, where the value is created by helping customers acquire the
product through such mechanisms as advertising (information),
technical support, and terms of sale (pricing and credit availability).
To the extent that SCM includes production, three out of the four
values may be the responsibility of the logistics/supply chain
manager.
Customers Increasingly Want Quick, Customized Response
Fast food retailers, automatic teller machines, overnight
package delivery, and electronic mail on the Internet have led us as
21
22
Military
More than a decade before business logistics' developmental
period, the military carried out what was called the most complex,
best-planned logistics operation of that timethe invasion of Europe
during World War II.
Although the problems of the military, with its extremely high
customer service requirements, were not identical with those of
business, the similarities were great enough to provide a valuable
experience base during the developmental years of logistics. For
example, the military alone maintained inventories valued at about
one-third of those held by all U.S. manufacturers. In addition to the
management experience that such large-scale operations provide, the
military sponsored, and continues to sponsor, research in the logistics
area. Even the term logistics seems to have had its origins in the military.
The most recent example of military logistics on a large scale
was the conflict between the United States and Iraq over Iraq's
invasion of the small country of Kuwait. This invasion has been
described as the largest military logistics operation in history. The
logistics support in that war is yet another illustration of what worldclass companies have always known: Good logistics can be a source of
competitive advantage.
Ex.1. Answer the questions:
1.
2.
3.
4.
5.
6.
23
1. Value
2. Distribution
3. Just-in-time (JIT)
4. Benchmarking
5. Gross Domestic
Product (GDP)
6. Raw materials
7. Incur
8. Cost
9. Inventory
10. Input
11. Output
24
c) supply
d) inventories
h) transferred i) assembly
e) shipped
25
a)
b)
c)
d)
e)
f)
electric power
lodging
retail banking
newspaper publishing
merchandize retailing
fast food
Ex.6. According to the part of the text called Military say whether the
following statements are TRUE or FALSE:
26
1.
2.
3.
4.
5.
27
28
;
1) 2) ( -.)
, ,
1) 2)
;
, ,
1) ( -.);
2) ;
, ; ;
1) , , ; 2)
, ,
, ,
29
immediate
measurement
incentive
to dissipate
to merge
to encourage
proponent
collaboration
benefit
to den
challenge
1) , ; 2),
1) ( ); 2) ,
3.
30
4.
5.
Production/operations would be
concerned ______ the creation of the product or service,
which creates form value in the product.
Logistics would deal _______
those activities (previously denned) that give a product or
service time and place value.
a) maintenance
b) control
31
3. sales
4. equipment
5. target
6. quality
7. interfunctional
8. physical
9. order
10. customer service
11. market
12. cost-service
13. organizational
14. possession
15. plant
c) processing
d) location
e) force
f ) benefits
g) improvement
h) groups
i) areas
j) value
k) structure
l) distribution
m) research
n) management
o) coordination
3.
.
70 80 ..
EDIFACT,
() ,
()
.
- ,,
.
Unit 7
OBJECTIVES OF BUSINESS LOGISTICS/SC
Within the broader objectives of the firm, the business
logistician seeks to achieve supply channel process goals that will
32
move the firm toward its overall objectives. Specifically, the desire is to
develop a logistics activity mix that will result in the highest possible
return on investment over time. There are two dimensions to this goal:
(1) the impact of the logistics system design on the revenue contribution,
and (2) the operating cost and capital requirements of the design.
Ideally, the logistician should know how much additional
revenue would be generated through incremental improvements in the
quality of customer service provided. However, such revenue is not
generally known with great accuracy. Often, the customer service level
is set at a target value, usually one that is acceptable to customers, the
sales function, or other concerned parties. At this point, the logistics
objective may become one of minimizing costs subject to meeting the
desired service level rather than profit maximization or return on
investment.
Unlike revenue, logistics costs usually can be determined as
accurately as accounting practice will allow and are generally of two
types: operating costs and capital costs. Operating costs are those
that recur periodically or those that vary directly with variation in
activity levels. Wages, public warehousing expenses, and
administrative and certain other overhead expenses are examples of
operating costs. Capital costs are the one-time expenses that do not
change with normal variations in activity levels. Examples here are the
investment in a private trucking fleet, the construction cost of a
company warehouse, and the purchase of materials-handling
equipment.
If it is assumed that there is knowledge of the effect of logistics
activity levels on revenues of the firm, a workable financial objective
for logistics can be expressed in the ratio known as ROLA (return on
logistics assets). ROLA is defined as
Contribution to revenue logistics operating costs
Logistics assets
The contribution to revenue refers to the sales resulting from
the logistics system design. Logistics operating costs are the expenses
incurred to provide the level of logistics customer service needed to
generate sales. Logistics assets are the capital investments made in the
logistics system. ROLA is to be maximized over time.
If the value of money is high, maximizing the present value of
cash flows or maximizing the internal rate of return is a more
33
,
, ,
1) , , ; ;
2) , ,
;
;
,
, ,
,
; ;
;
34
Capital requirement
Additional revenue
Target value
Profit maximization
Capital costs
Logistics assets
Ex.3. Find the synonyms in the right column to the words given in the
left column:
1. dimension
2. impact
3. inventory
4. objective
5. exchange
6. to maintain
7. wages
8. to foster
9. interaction
10. transportation
11. purchase
12. responsibility
13. to ship
14. production
15. to conceive
a) salary
b) goal
c) acquisition
d) influence
e) barter
f) coordination
g) measurement
h) conveyance
i) stock
j) manufacture
k) to understand
l) to support
m) to encourage
n) obligation
o) to transport
35
2. Hall of Shamers. Identify three firms that have failed in the execution
of a logistics /supply chain strategy important to their overall strategy.
Hall of Shamers
36
Chapter II
Logistics/Supply Chain Strategy and Planning
Unit 1
While in the past physical distribution (logistics) has been
referred to as the last frontier of cost economies, it is now the new
frontier of the demand generation
Peter Drucker
In Alice's Adventures in Wonderland, Alice asks the Cheshire
Cat, "Would you tell me, please, which way I ought to go from here?"
"That depends a good deal on where you want to get to," said the Cat.
Deciding a company's strategic direction in order to meet its financial,
growth, market share, and other objectives is an important first consideration for management. This is a creative, visionary process, usually
conducted by top management, whereby a firm's overall direction is
outlined and translated into a corporate action plan.
For the functional areas of the firm, the corporate plan is then
divided into subplans, such as marketing, production, and logistics.
These subplans require making many specific decisions. Regarding the
supply chain, these decisions include locating warehouses, setting
inventory policies, designing order-entry systems, and selecting transportation modes. Many of these may be aided by the application of various concepts for logistics and decision-making techniques available to
the supply chain manager.
This chapter focuses on the planning process, first from the
corporate-wide perspective and then from the logistics function viewpoint. A framework is set for planning that will form the basis for later
chapters. This chapter, as well as much of this book, will be focused on
37
planning and the decision making that leads to good logistics/SC plans
that contribute to a firm's financial goals.
CORPORATE STRATEGY
Corporate strategy creation begins with a clear expression of
the firm's objectives. Whether the company is to seek profit, survival,
social, return on investment, market share, or growth goals should be
well understood. Next, a process of visioning is likely to take place where
unconventional, unheard of, and even counterintuitive strategies are
considered. This requires addressing the four components of good
strategy: customers, suppliers, competitors, and the company itself.
Assessing the needs, strengths, weaknesses, orientations, and
perspectives of each of these components is a beginning. Then,
brainstorming about what may be possible as a niche strategy is the output of this visioning process. The following are examples of such
visions:
General Electric's vision is to be number one or two in each
market that it serves; it will get out of any market in which it cannot
maintain that standard. Hewlett-Packard envisions serving the scientific
community. IBM constantly reshapes itself to remain an effective
competitor. Next, the broad, general visioning strategies need to be
converted into plans that are more definitive. With a clear understanding
of the firm's costs, financial strengths and weaknesses, market share
position, asset base and deployment, external environment,
competitive forces, and employee skills, a selection is made from
alternative strategies that evolve from the threats and opportunities
facing the firm. These strategies now become specific directions for
how the vision will be made reality.
Ex.1. Answer the questions:
1.
2.
3.
4.
5.
38
6.
b) packer
c) running out
d) inventories
f) marketplace
g) strategy
39
40
from
for
of
on
at
by
41
b) become
f) serviced
c) reigned
g) stepped
d) enjoys
42
PART 1
Levels ofPlanning
Logistics planning attempts to answer the questions of what,
when, and how, and it takes place at three levels: strategic, tactical, and
operational. Strategic planning is considered long-range. Tactical
planning involves an intermediate time period, usually less than a year.
Operational planning is short-range decision making, with decisions
frequently made on an hourly or daily basis.
Major Planning Areas
Logistics planning tackles four major problem areas: customer
service levels, facility location, inventory decisions, and transportation
decisions.
Customer Service Goals
More than any other factor, the level of logistics customer
service provided dramatically affects system design. When service levels
are pressed to their upper limits, logistics costs will rise at a rate
disproportionate to the service level. Therefore, the first concern in
logistics strategic planning must be the proper setting of customer
service levels.
Facility Location Strategy
The geographic placement of the stocking points and their
sourcing points creates an outline for the logistics plan. Fixing the
number, location, and size of the facilities and assigning market
demand to them determines the paths through which products are
directed to the marketplace. Assigning customer demand to be served
directly from plants, vendors, or ports, or directing it through selected
stocking points, affects total distribution costs. Finding the lowest cost
assignments, or alternatively the maximum profit assignments, is the
essence of facility location strategy.
Inventory Decisions
Inventory decisions refer to the manner in which
inventories are managed. Allocating inventories to the stocking
points versus pulling them into stocking points through inventory
replenishment rules represent two strategies. The particular policy
used by the firm affects the facility location decision and, therefore, the
policy should be considered in the logistics strategy.
43
Transport Strategy
Transport decisions can involve mode selection, shipment
size, and routing and scheduling. These decisions are influenced by
the proximity of warehouses to customers and plants, which, in rum,
influence warehouse location.
When to Plan
If no logistics system currently exists, as in the case of a new
firm or of new items within an existing product line, the need for
planning a logistics network is obvious. However, in most cases in
which a logistics network is already in place, a decision must be made
either to modify the existing network or to allow it to continue to
operate. General guidelines for network appraisal and audit can be
offered in the five key areas of demand, customer service, product
characteristics, logistics costs, and pricing policy.
Demand
Both the level of demand and its geographic dispersion greatly
influence the configuration of logistics networks. Firms often
experience disproportionate growth or decline in one region of the
country compared with others. Although only expansion or reduction at
current facilities may be required, substantial shifting of demand patterns may require that new warehouses or plants be located in rapidly
growing areas while facilities in slow growth or declining markets need
to be closed.
Customer Service
Customer service broadly includes inventory availability, speed
of delivery, and order filling speed and accuracy. The costs associated
with these factors increase at a higher rate as the customer service level
is raised.
Product Characteristics
Logistics costs are sensitive to such characteristics as product
weight, volume, value, and risk. In the logistics channel, these
characteristics can be altered through package design or finished state
of the product during shipment and storage. Because altering a
product's characteristics can substantially change one cost element in
the logistics mix with little change to the others, this creates a new cost
balance point for the logistics system.
Logistics Costs
44
The costs that a firm incurs for physical supply and physical
distribution often determine how frequently its logistics system should
be replanned. With high logistics costs, even the small improvements
brought about by frequent replanning can result in substantial cost
reductions.
Pricing Policy
Changes in the pricing policy under which goods are
purchased or sold will affect logistics strategy, mainly because it
defines responsibility for certain logistics activities.
When changes have occurred in one or several of these areas,
replanning the logistics strategy should be considered.
Vocabulary
vendor
alter
attempt
variety
expansion
outline
appraisal
proximity
replenishment
; ,
(); ();
,
,
1) ; ;
2) , ,
, ,
,
, ; ,
( of )
, (
, , );
, ;
,
1) , , ;
2) ,
, ,
,
1) ,
2) ,
45
pricing
incur
tackle
dispersion
accuracy
availability
( - );
- incur debts
- incur losses
( -. ),
( -.
.. )
1) ;
2)
, ,
1) , ,
;
2) ,
Ex1. Read the text and fill the gaps with the appropriate word:
a) distribution
e) customers
b) customer service
f) warehouses
c) shipments
d) strategy
46
Inventory
Distribution
Package
Facility
Declining
Product
Pricing
a)
b)
c)
d)
e)
f)
g)
design
availability
network
policy
location
costs
characteristics
47
8.
9.
Customer
Logistics
h) markets
i) service
Part 2
Guidelines for Strategy Formulation
Many of the principles and concepts that guide logistics
planning are derived from the unique nature of logistics activities,
especially transportation. Others are a result of general economic and
market phenomena. Several of these will now be outlined.
Total Cost Concept
Central to the scope and design of the logistics system is tradeoff analysis, which, in turn, leads to the total cost concept. The cost
trade-off is the recognition that cost patterns of various activities of the
firm frequently display characteristics that put them in conflict with
one another. This conflict is managed by balancing the activities so
that they are collectively optimized. Therefore, the basic problem in
logistics is one of cost conflict management.
Improved service usually means that more must be paid for
transportation, order processing, and inventories. The best trade-off
occurs at a point below 100 percent (perfect) customer service.
But not always the total cost concept is applied to the internal
problems of the firm and specifically to logistics problems. However, at
times, decisions made by a firm in a channel of distribution affect the
logistics costs of another firm. For example, the inventory policies of a
buyer affect both the inventory costs of the shipper and the operating
costs of the carrier. In this case, it is necessary to extend the boundaries
of the system beyond either the logistics function or the firm, possibly to
include several firms.
The point is that the total cost, or alternately the total system,
concept is a concept without clear boundaries.
Differentiated Distribution
Not all products should be provided the same level of customer
service. This is a fundamental principle for logistics planning. Different
customer service requirements, different product characteristics, and
different sales levels among the multiple items that the typical firm
distributes suggest that multiple distribution strategies should be provided within the product line. Managers have made use of this
principle when they broadly classify their products into a limited
48
number of groups, such a$ high, medium, and low sales volume, and
then apply a different stocking level to each.
An improved strategy might be first to differentiate those
products that should move through the warehouse from products
that should be shipped directly to customers from plant, vendors, or
other source points. Those customers ordering in high-volume
quantities would be served direct, while all others would be served
from warehouses.
Of the sales volume remaining, the products should be
differentiated by location. That is, the fast-moving items should be
placed in the field warehouses with the most forward locations in the
distribution channel. Medium-volume items should be placed in fewer
regional locations. The slow-moving items should be located only at
centralized stocking points such as plants. As a result, each stocking
point may contain a different product mix.
Mixed Strategy
The concept of a mixed strategy is similar to that of
differentiated distribution. The concept is: A mixed distribution
strategy will have lower costs than a pure, or single strategy. Although
single strategies may benefit from economies of scale and administrative simplicity, they are at an economic disadvantage when the
product line varies substantially in terms of cube, weight, order size,
sales volume, and customer service requirements. A mixed strategy
allows an optimal strategy to be established for separate product
groups. This often has lower costs than a single, global strategy that
must be averaged across all product groups.
Postponement
The principle of postponement can be stated as follows: The time
of shipment and the location of final product processing in the
distribution of a product should be delayed until a customer order is
received. The idea is to avoid shipping goods in anticipation of when
demand will occur (time postponement) and to avoid creating the form
of the final product in anticipation of that form (form postponement).
Consolidation
Creating large shipments from small ones is a powerful
economic force in strategic planning. It results from the substantial
economies of scale that are present in the transport cost-rate
structure. Managers can use this concept to improve strategy. For
49
,
,
, ,
( -
);
;
1) ( )
2) ( )
3) ,
50
feasible
trade-off
trade-off analysis
derive
proliferation
substitute
interchangeable
substantial
anticipation
recognition
consolidation
4)
5)
, , (
, ..)
1) , 2) 3) (
)
, (from)
1) ( ..) 2)
( )
, -.
, ,
, , ,
, ,
, ;
1) , ; ,
2) ;
,
Ex.1. Read the text and find equivalents to the given examples:
1. Didnt meet the companys requirement
2. To reduce expenses
3. Was highly interested in
4. The company managed to
5. Were followed
6. Sufficient room
7. To satisfy quickly growing sales
8. Purchases
9. Was carried out
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
51
use only privately owned warehouses and trucks to provide high levels
of service to the stores. Expansion plans called for the construction of a
new $7 million facility. The warehouse was to supplement an
overloaded facility that served a primary market area around Pittsburgh
and to lower costs by using up-to-date handling and storage equipment
and procedures. Management was committed to this strategy and had
begun searching for a site for the new building.
At this time, a network planning study was conducted. The
results showed that while the Pittsburgh facility was expensive to
operate, the savings generated by the new warehouse could not justify
the $7 million investment. Although this was informative, it did not
solve the company's need for additional space.
A mixed strategy was suggested to the vice president of distribution.
The use of some public (for rent) warehouse space along with the companyowned space could offer lower total costs than the all-private strategy. The
company was able to move the high-cube products into a nearby public
warehouse, install new equipment, and recover enough space to meet
foreseeable needs. The costs were about $200,000 for the new equipment
and about $100,000 for additional annual transport expense for serving
the stores from both facilities. Thus, the company was successfully able
to avoid the $7 million that it had already agreed to spend if a single, or
pure, distribution strategy were pursued.
Ex.2. Insert the right prepositions. You can use each preposition more
than once:
over
of
in
into
to
from
at
52
3.
4.
5.
6.
7.
8.
9.
a.
b.
c.
d.
e.
f.
g.
h.
i.
stock
dispatch
warehouse
vendor
replenish
terminal
equipment leasing
order
expedite
UNIT 4
SELECTING THE PROPER CHANNEL STRATEGY
53
54
lumpy. Low volume items are typical of these. Unless the products are
low valued, there is an economic disincentive to maintain inventories
of these products to meet the uncertain demand. The better strategy is
to respond quickly to demand at the time that it occurs, not from
inventories but from production processes or from vendors. Applying
the supply-to-stock design to the unpredictable product class results in
excessive finished goods inventories needed to maintain adequate
product availability levels, increased product cycle times resulting
from batch production or quantity purchasing, and slow deliveries
resulting from shipment consolidation. A responsive design avoids
the long delivery times and/or excessive inventories by meeting
demand as it occurs.
In fashioning the right strategy, it is necessary to categorize
correctly existing items in a product line. Once this has been done,
they should be matched to their supply chain design as shown in
Figure 7. When there is a mismatch, two options are available. First, an
attempt can be made to change the product characteristics. For an
unpredictable product, an improved forecast method may be sought
so that a supply-to-stock design is appropriate. Second, the type of
supply chain design may be changed. A supply-to-stock design used
for an unpredictable product may be changed to a supply-to-order, or
responsive, design. On the other hand, a product categorized as
predictable but being supplied under a responsive design can be
changed to the efficient design. It is doubtful that a predictable product
would be moved to the unpredictable category.
General guidelines have been provided to select the proper
supply chain design; however, some mismatching of product
characteristics to design type may be tolerated. Some products may
have highly unpredictable demand, but their low value and low
margin suggests that holding extra inventory resulting from poor
forecasting, or highly variable replenishment lead times, is justified.
Responsive design requiring careful management is not warranted.
Similarly, products with predictable demand do not need to be moved
from a responsive to an efficient design if there is no benefit from lower
channel costs or higher customer service.
Ex.1. Answer the questions:
55
1.
2.
3.
4.
5.
6.
7.
8.
9.
FALSE
56
b) warehouse
f) bar code
j) digital
c) linking
g) worldwide
d) manufacturing
h) computer-aided
57
shipped to the Los Angeles store, picks them up, and loads them onto a
truck. Including ___________(8) time, Benetton can get the order to
Los Angeles in four weeks. If the warehouse already has red sweaters
in stock, it takes one week. That's quite a performance in the
notoriously slow ___________(9) industry, where hardly anyone else
will even bother with reorders. And if Benetton suddenly realizes that
it didn't make any, say, black cardigans and purple blouses this year
and they're hot, it can manufacture and ship a "flash collection" of
black cardigans and purple blouses in huge __________(10) in a few
weeks.
Ex.4. Match the words with their definitions:
1.
2.
3.
4.
5.
6.
7.
8.
9.
efficiency
effectiveness
availability
responsiveness
lead time
postponement
predictability
disincentive
replenishment
UNIT 5
MEASURING STRATEGY PERFORMANCE
Once supply chain strategies are planned and implemented,
managers want to know if they are working. Three measures are useful
to monitor this: cash flow, savings, and return on investment. If all are
positive and substantial, the strategies are probably working well. These
financial measures are of particular interest to top management.
58
59
60
- ,
, , ,
, . .
ERP(
ENTERPRISE RESOURSE PLANNING),
, ,
. ,
,
. SCM ( supply chain
management software) .
Ex. 3. Discuss the following:
1. You plan to start a company that will produce household furniture
(sofas, chairs, tables, and the like). Outline a corporate strategy for
competing in the market place. What logistics strategy might you
derive from your corporate one?
2. Suppose in your company that you are responsible for distributing
Taiwanese beer throughout the European Union. Suggest a
distribution network that meets the three individual goals of cost
reduction, capital reduction, and service improvement. Contrast
each of these designs and suggest what you think would be a good
balanced design.
3. Sketch a network diagram of the logistics systems you think would be
appropriate for the following companies:
a. A steel company supplying sheet steel to auto manufacturers.
b. An oil company supplying heating fuel to the northeastern
United States.
c. A food company distributing canned goods to a domestic
market.
d. A Japanese electronics firm distributing television sets in
Europe.
4. Consider the problem of locating a company-owned warehouse that
will serve as a regional distribution point for its line of housewares.
a. Describe the planning process that the logistician might follow
to decide where to locate the warehouse.
61
62
63
often frustrated by the limited selection. You feel that you have a
price advantage because of low overhead (only order takers and
order fillers make up the staff, and the warehouse is in a low rent
district).
What strategy can you formulate that will allow you to compete
effectively with local retailers?
12. Storck is a German producer of candies, of which the best-known
brand names are Werther's, Riesen, and Golden Best. All production
takes place in Europe; in fact, Storck is the largest consumer of
sugar in Europe. Storck USA imports its candy products to the
United States through an East Coast port and distributes them to
retail and distribution outlets such as Wal-Mart, CVS
Pharmacy, McLane, Target, Tri-Cor Distributors, and Winn-Dixie.
Sales in the United States are about $100 million. Distribution
currently takes place through a few public warehouses and some
pool points. Consolidation among the retailers and a repositioning
of their warehouses, shifts in demand levels, and the need to
correct some customer degradation in order to protect market share
have led to reevaluating the U.S. distribution system.
Considering common logistics strategies that might maximize
return on logistics assets (ROLA), what distribution system
design can you propose that will generally meet each of this goal?
APPENDIX
Table 1. Consumer Prices to Buy Only Locally Produced Products
Consumer in
DVD Recorder
South Korea
The USA
The economies
$250.00
$400.00
World
Processing
Software
$500.00
$300.00
Total
$750.00
$700.00
$1,450.00
64
DVD Recorder
South Korea
$250.00
The USA
$300.00(2)
The economies
Imports from the USA
Imports from South Korea
World
Processing
Software
$350.00(1)
$300.00
Total
$600.00
$600.00
$1,200.00
Factory
Supply
Chain
Flows
Products
Services
Information
Financial
Resources
Demand
Forecasts
Marketing
Sales
Research and
Development
Forecasting
Production
Purchasing
Logistics
Information Systems
Finance
Warehousing
Customer Service Transportation
Supplier
Focal Firm
Customer
Customer
Satisfaction/
Value/
Profitability/
Competitive
Advantage
Customers
Transportation
Warehousing
Information
Flows
Transportation
65
Vendors/ports
Business Logistics
Physical Supply
(Materials management)
Sources
of supply
Transportation
Inventory maintenance
Order processing
Acquisition
Protective packaging
Warehousing
Materials handling
Information maintenance
Supply scheduling
Physical
Distribution
Plants/
Operations
Customers
Transportation
Inventory maintenance
Order processing
Product scheduling
Protective packaging
Warehousing
Materials handling
Information maintenance
66
Customers
Inventory
maintenance
or supply
67
Production/
Operations
Sample activities:
Quality control
Detailed production
Scheduling
Equipment
Maintenance
Capacity planning
Work measurement
and standards
Interface activities
Customer
Service
Standards
Pricing
Packaging
Retail
Location
Interface
activities:
- Product
scheduling
- Plant
location
- Purchasing
Marketing
Sample
activities:
- Promotion
- Market
research
- Product mix
- Sales force
management
Logistics
Sample
activities
- Transport
- Inventory
- Order
processing
- Materials
handling
68
Marketing logistics
Interface
Unpredictable/Introductory Products
New CDs
New computer games
High-fashion clothes
Artwork
Movies
Consulting services
New product offerings of existing
product lines
69
Responsive
Supply chain
SupplyTo-Order
Excess capacity
Quick changeovers
Short lead times
Flexible processing
Premium transportation
Single order processing
Product Characteristic
Predictable/Mature Unpredictable/Introductory
Tomato soup
If product is here
If product is here
70
LITERATURE
1. Donald J. Bowersox, David J. Closs Logistical Management, The
McGraw-Hill Companies Inc., 2005
2. Ronald H. Ballou Business Logistics/Supply Chain Management,
Pearson, 2005
3. Peter F. Drucker Physical Distribution: The Frontier of Modern
Management, Macmillan, 1969
4. John T. Mentzer, William DeWitt, James S. Keebler Defining
Supply Chain Management, 2001
5. P. Kotler, G. Armstrong Marketing. An Introduction,Prentice
Hall, 1992
6. Internet resources
71