INTRODUCTION TO LOGISTICS AND SUPPLY CHAIN MANAGEMENTProf. Jarosaw Witkowski, PhdVice -rector for International Co-operationWroclaw University of EconomicsKomandorska Street 118/120, 53-345 Wroclaw, PolandTel. 0048713680151, Cell phone: 48501090903 E-mail: jwit@ae.jgora.pl

Lecture outline1.Definition and main activities of business logistics2. Trade-offs analyses3. Idea of supply chains4. Supply Chain Management matrixSupply chain performance and efficiency improvement (SCOR and GSCF models)Japanese and European supply chain networks Simple EOQ formulaCenter 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- offsProfits at different levels of customer serviceRevenue, costs, profit Logistics costs 85%91%95% Customer service Revenue

Inventory costs trade- offInventory 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 80s 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 long- term performance of the individual companies and a supply chain as a whole (CSCMP 2005).

According to the new definition of CSCMPSCM 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 ManagementOrder FulfillementManufacturing Flow ManagementSupplier Relationship Management (key)Product DevelopmentCommercializationReturun 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

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 SMEs changes as a links in supply chains and networks

Scope of changes in SMEsHierarchical supply chainsPolycentric supply networkCompetences and skills

FlexibilityRole of small retailersKey intermediary

Dominant logistics services modelSmall truck companies

Source: Authors own discription Narrow in particular technological or functional areasLow or middleLow and passiveWholesaler or large retail network Self- or combined- service model Large number of independent firmsWide based on process orientation, ability to performance evaluation and outsourcingMiddle or highIncreasing and active Brokers or third party logistics providersPublic logistics service providers Subcontractors dependent on market leaders

New vs. Traditional logisticsIntegration (within organizational structures, computer systems, supply chain and network)Strategic approachOutsourcing Globalization and virtualization Customer orientationCity 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 costsDeveloped in 1913 by Harris and applied in industry by WilsonMany 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 zeroLead time is fixedNo discount is avaliable for bigger ordersReplenishment 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 itemS fixed cost per orderi 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 Q x P x i s x D TC = ------------ + -------- min 2 Q

2xDx s Q = --------- P x i

Facility location factors: A.Weber, Polander, Thunen classical theories Labour cost, land cost, transportation costAviability and cost of materials, energy, waterSocio- 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 modelsCost- benefit analisisCenter of gravity technique

Center of gravity (to find single location that minimizes of transportation cost)

Technika Centrum Grawitacji

X

( c (x,y)

0

Y

S1(x1; y1)

S3(x3; y3)

Z2(x2 ; y2)

Z1(x1 ; y1)

S2(x2; y2)

How to calculate the coordinates for CX and CYthe new facility location?(Ballu, p.487)Parameters:Vi volume at point iRi transportation rate to or from point iXi and Yi coordinates of existing locations Vi Ri Xi Vi Ri YiCX = -------------------- CY= ------------- Vi Ri Vi Ri

Assumptions (disadvantages) of center of gravity techniqueTransportation rate is a linear function of transported volume (units, tons, etc.) and the traveling distance,It doeset 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.: Zarzdzanie acuchem dostaw. Koncepcje, procedury, dowiadczenia, PWE, Warszawa 2010