OMSAN LOJİSTİK

Global Logistics and International Operations

1. Global Logistics Framework

Top Management Program in Logistics & Supply Chain Management (TMPLSM)

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Profit Drivers

• Maximize revenue Maximize margin

• Minimize cost

• Minimize investment => Maximize velocity

(Relatively) easy individually … difficult in simultaneous combination

4

Follow the Money

• All organizations have financial requirements and goals

• For non-profit organizations, non-financial goals are typically achieved by leveraging financial resources

• For most profit-maximizing firms, growing shareholder wealth is the ultimate measure of success.

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Why Profits?

“ProfitsProfits are the bestbest measuremeasure of whether a company is the best at what it does.

Profit measures howhow customerscustomers value value the products and services that a company delivers, and how efficientlyhow efficiently the company operates to deliver that value.

Profits provideprovide cash forfor shareholdersshareholders, for managers’managers’ and employees’employees’ compensation, and for investment in further growthgrowth.”

From Double Your Profits

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Evolution of Global Supply Chain Needs …

• What forcesforces are shaping the Evolution

of Supply Chains?

• What are the consequencesconsequences of

Globalization?

• How to take advantagetake advantage of the dynamic

process?

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Some Forces Shaping the Evolution of Supply Chains

Globalization and Regional Economic Alliances (e.g., EU, NAFTA, MercoSur, FTAA)

Government Regulations (e.g., content and import restrictions)

Technology is advancing very rapidly (e.g., Internet, cell phones)

CHINA: A producer evolving into a Customer

Infrastructure Improvements (e.g., mixed platforms)

Financial Performance is very important again (i.e., profitability more than market share)

Environmental Concern (i.e., more awareness)

Increased uncertainty (e.g., political risks, terrorism, exchange rate volatility)

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Turkey and the EU… Opportunities• Turkey is a bridge connecting the East and the West

– Situated in a very central place with the capability of reaching 700-800 million people (e.g., Turkic Republics, Russia, Middle East and Eastern Europe) within a short period of time

• Large domestic market Turkey has a population of 70 million – larger than the United Kingdom and Ireland combined

• Low-Cost and Productive Labor Force

• Attractive economic and political stability

• Already a wave of “solid” logistics companies

• Capability of developing logistics Platforms

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New Comers…Critical criteria for Global Logistics include: Wages, taxes, transportation links, fiscal incentives, labor, utilities …

• In Eastern Europe, Poland, Slovakia and Bulgaria have the highest labor availability

• Germany has closest proximity to customers and suppliers also Germany, Hungary and the Czech Republic are closest to rail hubs

• Bulgaria and Hungary have the lowest corporate taxes; Incentives are perhaps best in the Czech Republic, Austria, Germany and Hungary

• The Baltic Countries will become more attractive as DC hubs serving Northern Europe and Russia

• Inland waterway transport (especially on the Danube) will favor DC placement in Hungary and Germany

• In the last two years Slovakia has attracted Volkswagen and Hyundai/Kia plants (transportation network) and DHL will open a data center in Prague (wages of trained workforce) this year

Global Logistics & Supply Chain Strategies, April, 2004

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Some Consequences of Globalization Changing Market Requirements (i.e., new competitive pressures)

Faster Efficient and Effective Response (i.e., more than juts cost)

SCM considered as a Strategic Competitive Advantage

Customers are more sophisticated (e.g., worldwide standards of quality, global products and world brand development)

Reverse Logistics and Green Logistics

Outsourcing of Non-Core Business

The need for MEASUREMENT (i.e., if you don’t measure you cannot manage!)

Global Compliance and Security

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Worldwide Logistics Expenditures

1985 1990 1995 2000 20050

500

1000

1500

2000

2500

$ Billions (1980 $)

Source: Temple, Barke, & Sloane, Inc., 2000

* Approximately 20-25 cents of every sales dollar within the US. It should exceed $600 billion per year during the 1990s.

* Worldwide logistics expenditures should rise to nearly 2.5 trillion $US by 2005 (approx. 16% of worldwide GNP).

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Global Sources for US Companies

Raw Materials Components

Finished Products

Europe 42% 0% 33%

South America 5% 40% 4%Far East 29% 18% 35%Africa 0% 15% 0%Indian 0% 15% 1%Middle East 1% 12% 1%Other 23% 0% 26%

65% to 70% of the companies in the survey mentioned cost as themain reason for outsourcing, 20% to 30% mentioned availability,and 5% to 20% mentioned quality.

Source: Temple, Barker & Sloane, Inc. “International Logistics: Meeting the Challengesof Global Distribution Channels”

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Critical Changes in Global Logistics

Deregulation of Transport

Intermodalism

Technology Facilitators

Liberalization of Commerce

Restrictions in Commercial Policies

Management of Exchange Rates

Emerging Economies and in Transition

Strategic Outsourcing

Ecology & Human Rights

Terrorism & Security

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The Target is then …

• A GLOCAL Supply Chain

1. More supportsupport for build up of different Site CompetencesSite Competences– Technical Knowledge– Supply Chain Management– Market Knowledge

2. More locallocal decision making power– Centralized Information– Decentralized Decisions

Responsive and reflective Organizations

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Economic Development of the Region

Competitiveness

Logistics Supply Chain

Public Policy

Analysis of Infrastructure MACRO

Corporate Strategies MICRO

Tariffs

Regulation FinancialPolicy Etc…

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Logistics Supply Chain

Corporate Strategies MICRO

Analysis of Infrastructure MACRO

Ports, Roads, Airports, Customs Communications,Utilities, …

Companies,Industries,Sectors … per region

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New Comers…Critical criteria for Global Logistics include: Wages, taxes, transportation links, fiscal incentives, labor, utilities …

• In Eastern Europe, Poland, Slovakia and Bulgaria have the highest labor availability

• Germany has closest proximity to customers and suppliers also Germany, Hungary and the Czech Republic are closest to rail hubs

• Bulgaria and Hungary have the lowest corporate taxes; Incentives are perhaps best in the Czech Republic, Austria, Germany and Hungary

• The Baltic Countries will become more attractive as DC hubs serving Northern Europe and Russia

• Inland waterway transport (especially on the Danube) will favor DC placement in Hungary and Germany

• In the last two years Slovakia has attracted Volkswagen and Hyundai/Kia plants (transportation network) and DHL will open a data center in Prague (wages of trained workforce) this year

Global Logistics & Supply Chain Strategies, April, 2004

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The Logistics System

SUPPLIERS

ComponentManufacturing

FinalAssembly

Distribution &Warehousing

CUSTOMERS

Physical SupplyInbound LogisticsInbound Logistics

Physical DistributionOutbound LogisticsOutbound Logistics

Material Information and Finance

Material Information and Finance

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Each logistics process has a specific role to assure the support of service levels and the optimization of

resources.Customer Service

Inventory Planning

SourcingTransportation & Distribution

Warehousing & DC Operations

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Supply Chain Management

The discipline that coordinates with a systemic perspective all corporate

functions in charge of optimizing the flow of materials, information and

finances across business partners.

NewtonVaureal, LLC

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7 Rights of the Logistics Manager

Ensure the availabilityavailability

of the rightright product,

in the rightright quantity,

and the rightright condition,

at the rightright place,

at the rightright time,

for the rightright customer,

at the rightright cost.

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Interface with the Other Functional Areas

Logistics

Marketing Production

FinanceOthers

Price, Product, Promotion, Place

Length of Production RunSupply Side Interfaces

Competing for ResourcesManagement of InformationAccounting Congruency

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Axis of the Logistics Evolution

COSTSCOSTS

SERVICESSERVICES

PHYSICAL FLOWPHYSICAL FLOW

INFORMATION FLOWINFORMATION FLOW EXTERNAL EXTERNAL THIRD PARTY THIRD PARTY LOGISTICSLOGISTICS

INTERNALINTERNAL

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What are the Key Questions?

• Do you have a Customer Segmentation Strategy?– Do you know your “best customers”?– Do you treat them differently? From a Marketing or

from a L/SCM point of view?

• Do you have a Product Segmentation Strategy?– Do you know your “best products”?– Do you treat them differently? From a Marketing or

from a L/SCM point of view?

Do you have a Logistics/SCM Strategy?

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More Questions? …

• What makes Customers to buy from you instead of the Competition?

– Cost

– Quality

– Service

– Flexibility

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What are your Winning and Qualifying Criteria?

YOURYOUR COMPANYCOMPANY

Competitors

MarketResponse

C U S T O M E R S

Cost

Flexibility

Service

Quality

Demand Share

Demand Share

PerformancePerformanceOutputs

Outputs

Preferences

Market Size

Inputs

Inputs

SUPPL I ERS

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Winning versus Qualifying Criteria

Initial Cost: the cost of acquiring the product which is directly related to the price the customer pays (usually relevant in everyday use consumer products)

Lifecycle Cost: the cost of acquiring, maintaining and disposing the product (relevant in industrial equipment markets)

Design Quality: features, styling and other product attributes that enhance fitness for use(typically important in luxury products)

Conformance Quality: the product conforms to set standards during the production process (important for almost all product markets)

Delivery Speed: ability to produce and deliver the product in a short notice(characteristic environments of time based competition)

Delivery Reliability: ability to produce and deliver consistently products according to contractually prespecified time intervals

New Product Flexibility: ability to introduce in an effective and timely manner new products (again characteristic of time based competition)

Customization: ability to produce a large variety of products that match the needs of a highly segmented market (mass customization)

Product Mix Flexibility: ability to efficiently and effectively adjust the production mix in response to demand fluctuations of various products (cyclical demand markets)

COST

QUALITY

SERVICE

FLEXIBILITY

{

{

{

{

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What are the right combinations?Winning Criteria Category Examples

Cost +

Service

Commodities Sugar, paper clips

Quality + Flexibility

Loyal Customers POLO, Nike, PUMA, IBM

Cost +

Quality

Intruding Markets Toyota, VW

Service + Flexibility

Repositioning / New Channels

HP, Amazon

Service + Quality

New Entrants / Mass Markets

Starbucks, 7-Eleven

Cost +

Flexibility

Leaders! Dell, Zara, Wal-Mart

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Trade-Offs …Today’s customers are very demanding...

... but tomorrow their demands will be even greater and competitors will set new standards.

RequestedServiceToday Today

RequestedService inFuture

Cost CostGap

ServiceGap Current

Trade-offsCost

ServiceGap

FutureTrade-offs

ServiceService

Key Capabilities• Perfect Order• Short Order Cycle Times• Continuous Replenishment• Customized Delivery Options• Information Responsiveness

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Global Logistics Framework

Geographic

Sectorial Functional

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Intra-Firm Integration

* Firms are formed by different functional areas, e.g., marketing, production, finance, accounting, etc.

* They are NOT competing among themselves.

* They are part of the same organization and “hopefully” after the SAME objectives.

* LEADERSHIP consists on finding the right incentives for making ALL move in the same direction. Functional

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Intra-Firm Integration

PERFORMANCE MEASURES

Business As A SystemBusiness As A SystemCOST RATIOSFunctionally Oriented

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Inter-Firm Integration

* Industrial Markets are formed by suppliers and customers or, more generally, by buyers and sellers.

* Lasting relationships are beneficial for all parties involved.

* The interaction requires extensive knowledge about each other, e.g., resources, organization, strategies.

* LEADERSHIP consists on finding the right mechanism of control, coordination, and conflict resolution. Sectorial

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Geographic Elements

• Worker Productivity is not necessarily the same everywhere

• Process Adaptability might be difficult

• Governmental Concerns and/or Incentives may balance economic problems

• Infrastructure Available (e.g., transportation)

• Cultures (e.g., social structure) are not homogeneous

• Exchange Rate Volatility affects long term decisions

Geographic

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US versus Europe: Can we Compare?

• Geographical concentration

– Approx. 80% of the population in Europe live in the area equivalent to 12% of the land mass of the US!... And 85% of the people are located within 500 miles radius.

– Europe moves almost the same amount of truck freight as the US in one-third the geographical area.

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US versus Europe: Can we Compare?

• European companies have developed better logistics control systems– In Europe the transport infrastructure has been a patchwork of

national networks whose structures vary considerably due to geographic, economic, political and historical factors (e.g., in France 4% is by water while in Germany it is 20%).

– In Europe, as opposed to the US, most of air transport has been stimulated by passenger traffic. Air trades has been historically oriented toward international trade.

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Resource Oriented Logistics

• Rationalization of Resources

• Economies of Scale

• Supply Chain Coordination

• Financial Flexibility (e.g., Tax Incentives)

Geographic

Functional

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Information Oriented Logistics

• Rationalization of Resources

• Economies of Scope

• Network Optimization

• Operational Flexibility

Geographic

Sectorial

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SetupTime

Lot SizePrincipalOperationTime Per

Item

Apparent Operation Time Ratio(%)

4 hrs. 100 1 min.1min. +

4x60 / 100 = 3.4 min. 100

4 hrs. 1,000 1 min.1 min. +

4x60 / 1,000 = 1.24 min. 36

Economies of Scale

SetupTime

Lot SizePrincipalOperationTime Per

Item

Apparent Operation Time Ratio(%)

3 min. 100 1 min.1min. +

3 / 100 = 1.03 min. 100

3 min.. 1,000 1 min.1 min. +

3 / 1,000 = 1.003 min. 97

Economies of Scope

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User Oriented Logistics

• Rationalization of Resources

• Technology Development and R&D

• Customer Service (Winning, Maintain)

• Responsiveness Flexibility

Sectorial Functional

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There is more than one type of logistics

Geographic

Sectorial Functional

ResourceOrientedLogistics

InformationOrientedLogistics

User OrientedLogistics

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Decide your priorities for Logistics

• Cost• Utilization• Efficiency

• Speed of

Exchange• Extent of

Communication

• Customer

Service• Bargaining

Power

ResourcesResources InformationInformation User User OrientedOriented Oriented Oriented Oriented Oriented

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It is a very dynamic process!

GLOBALLOGISTICS

ResourcesLogistics

User Logistics

InformationLogistics

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Retail Industry Examples

WAL MART

C + FC + F C + SC + S

S + QS + Q

Geographic

Sectorial Functional

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The Global Corporation

Fully integrates product design, materialsupply, production, distribution, accounting,marketing, and finance on a world-wide basis.

Typically design their operating strategyobjectives around four components:Technology, Marketing, Manufacturing, andLogistics.

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… and even more Questions ? …

• What are the Logistics/SCM Implications of the Winning/Qualifying positioning?

• What are the Financial Implications of the

“right” Logistics/SCM?

– logistics/SCM has a direct impact at the bottom line of the company, by understanding those linkages it is easier to prioritize initiatives and projects

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Under Valued Inc. has a substantial sales base that grows consistently at a rate comparable to the overall economy. The company’s stable pattern of earnings is expected to continue. UV’s net profit rate is roughly twice its industry’s average and at parity with the best performing competitor. The company’s stock price has been gradually declining in a rampant, prosperous bull market. Most alarmingly, UV’s stock price has fallen sharply relative to its competitors’. For simplicity, assume that future prospects are highly correlated with current performance, that the stock market values companies on a fair, timely, and accurate basis, and that ROI is a substantial determinant of equity valuations.

Summarize an operations-based hypothesis that might explain UV’s predicament and recommend several specific (and distinct) operational actions that UV might consider for improving its operating performance and stock price fundamentals.

Under Valued Inc.

Performance MeasurementFinancial

• Net profit– an absolute measurement in dollars

• Cash flow– a survival measurement ....

• Return on investment– a relative measure based on investment

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Return on Investment (ROI)

• Fundamental measure of profitability• Profits ‘standardized’ by capital employed

• Financial attractiveness metric• Comparative basis across opportunities

• Guides the flow of capital• Investors seek best risk adjusted returns• Capital markets are efficient (long-run)

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Under Valued Inc. has a substantial sales basesubstantial sales base that growsgrows consistentlyconsistently at a rate comparable to the overall economy. The company’s stablestable pattern of earningsearnings is expected to continue. UV’s net profit rateprofit rate is roughly twicetwice its industry’s averageindustry’s average and at parity withparity with the best best

performing competitorperforming competitor. The company’s stock pricestock price has been gradually decliningdeclining in a rampant, prosperous bull bull

marketmarket. Most alarmingly, UV’s stock price has fallen stock price has fallen

sharply relative to its competitors’sharply relative to its competitors’. For simplicity, assume that future prospects are highly correlated with current performance, that the stock market values companies on a fair, timely, and accurate basis, and that ROI is a substantial ROI is a substantial

determinantdeterminant of equity valuations.

Summarize an operations-based hypothesis that might explain UV’s predicament and recommend several specific (and distinct) operational actions that UV might consider for improving its operating performance and stock price fundamentals.

Under Valued Inc.

• Net profitan absolute measurement in dollars

• Return on investmenta relative measure based on investment

• Cash flowa survival measurement ....

• Throughputthe rate at which money is generated by the system through sales

• Inventoryall the money that the system has invested in purchasing things it intends to sell

• Operating expensesall the money that the system spends to turn inventory into throughput ....

Performance MeasurementFinancial

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Cost Effectiveness

Asset Productivity

Service Level

Throughput

Return on InvestmentOperations Drivers

ROI

Capacity

Profits

Revenue

Costs

Investment Working Capital

InventoryReceivablesPayables

Plant &Equipment

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FIXEDCOST

VARIABLECOST

CAPACITY

VAR COST x UNIT

PRODUCTIONOUTPUT

INVENTORY

AVAILABLE PRODUCT

DEMAND

ROI

PROFIT

INVESTMENT

REVENUE

COST

SHIPMENTS

PRICE

SCM’s Financial

Model

Information Asset’s

Investment

Capacity Utilization

Capacity Utilization

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Strategic Logistics Profit Model©

Profit

ReturnonInvestment

Investment

Reduced Logistics Assets

Increased On-Time/Complete Delivery

Reduced OC Length and Variability

Increased Forecast Accuracy

Increased Customer Responsiveness

Reduced Supply Chain Malfunction

Increased In-Stock Availability

Reduced Procurement Cost

Reduced Manufacturing Cost

Reduced Transportation Cost

Reduced Shipment Expediting Cost

Reduced Warehousing Cost

Reduced Shipment Transfer Cost

Reduced Inventory Carrying Cost

Increased SC Technology Cost

Reduced Inventory Cost

Reduced Logistics Asset Cost

Increased Inventory Turns

Reduced Cash-to-Cash CycleReducedWorking Capital

Reduced Assets

Reduced Fixed Costs

Reduced Variable Costs

Increased Sales Revenues

Reduced Cost ofLost Sales

Revenue

Cost

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Logistics has as an objective the Optimization of Resource

Utilization

Inventory OptimizationMinimize: Cost of Carrying Inventory (ICC)

Subject to: Availability

Supply OptimizationMinimize: Total Supply Cost (TSC)

Subject to: Availability, Lead Time, Perfect P/O

Transport OptimizationMinimize: Total Transportation Cost (TTC)

Subject to: Response Time

Warehouse OptimizationMinimize: Total Warehousing Cost (TWC)

Subject to: Availability, Response Time, Perfect Orders

Logistics OptimizationMinimize: TOTAL COST OFLOGISTICS (TLC = ICC + TSC + TTC + TWC)

Subject to: CUSTOMER SERVICE POLICY (CSP) =Availability, Response Time, Perfect Orders

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Motivation to Measure...

• You can’t control what you don’t measure.

• You can’t manage what you can’t control!

• It is hard to win a game without a scoreboard!

• As soon as you start measuring something, the something improves!

Information

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Supply Chain Gap Analysis: A Picture is Worth a Thousand Words

Source: Company X Chain Scorecard, 2003 Data

0.00

0.20

0.40

0.60

0.80

1.00

Total Logistics Cost/Sales Ratio

Total Inventory Turns asSales

% Orders with AvailableCapacity within Promised

Leadtime

Storage DensityCustomer Order Cycle

Time (days)

Vehicle CapacityUtilization

Total Perfect OrderPercentage

Rockwool Benelux

World-Class Benchmarks

% Orders with Available Capacity within Promised Leadtime

Company X

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Once the LPS is in place a company can begin the auditing process with itself or other companies. A good way to

capture the disparities found in an audit is through a Gap Analysis

• The logistics/SCM performance gap analysis is used to compare logistics key performance indicators with benchmark indicators.

• The gaps are used to assess strengths and weaknesses; to identify complementary logistics benchmarking partners; and to develop a cost-benefit justification of a world-class logistics initiative.

POCT (24/72)

VU (65%/95%)

COCT (42/24)

LCSR (17%/10%)

LWFP (2.4/1)

IT (2/8)

SD (8/6)

IA (90%/97%)

POP (45%/75%)

VAS (5/5)

0

1

2

3

4

5

Company X

World-Class

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Annual Volume 94,652,089$ 1,676.77 94,652,089$ 15,923,019$ 291,237$ 1,676.77 annual sales annual orders annual sales on-hand inventory daily sales annual orders

Current Performance 16.54% 44 5.94 647$ 93 26%logistics/sales orders/FTE/year current turns $/f2 cycle in days current POP

Current Resource Requirement 14,473,948$ 38 15,923,019$ 24,594 27,189,147$ 1,237 logistics cost current FTEs on-hand inventory espacio (f2) OHI/Receivables current reprocessing

Optimal Performance 8.00% 120 9.00 $ 2,000 75 75.00%optimal ratio optimal ratio optimal turns optimal $/f2 optimal cycle optimal POP

Optimal Resource Performance 7,572,167$ 14 10,516,899$ 7,962 21,842,790$ 419 optimal logistics cost optimal FTEs optimal OHI optimal space (f2) optimal OHI/Rec optimal reprocessing

Resource Savings 7,572,167$ 24 5,406,120$ 16,632 5,346,357$ 818 cost reduction personnel reductioninventory reduction space reduction asset reduction reprocessing reduction

Resource Rate Cost 30% 21,973 23% $6.46 23% $2,500ICR cost per f2 ICR cost per correction

Annual Savings 2,271,650$ 537,239$ 1,243,408$ 107,387$ 1,229,662$ 2,044,407$ Total Savings ($s/year) 5,162,103$ Payback Period (years) 2

Justifiable Investment 10,324,206$

Logistics Savings Source

Logistics Cost/ Sales

Ratio30%

Perfect Order

Percentage28%

Customer Order Cycle Time (days)

17%Storage Density

1%

Customer Order per

Person-Year7%

Inventory Turnover

17%

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  Financial Indicators Productivity Indicators

Quality Indicators Response Time Indicators

Customer Service & Order Processing

Total Response CostResponse Cost per Customer Order

Customer Orders per Person Hour

Order Entry Accuracy Order Entry TimeOrder Processing Time

Inventory Planning & Management

      Total Inventory CostInventory Cost per SKU 

Inventory TurnsSKUs per Planner 

      Fill RateForecast Accuracy 

Supply       Total Supply CostSupply Cost per PO 

      POs per Person-Hour      SKUs per Buyer 

Perfect PO Percentage  Purchase Order Cycle Time

Transportation        Total Transportation CostTransportation Cost per Mile 

      Stops per Route      Fleet Yield      Container Capacity Utilization 

      On-Time Arrival Percentage      Damage PercentageMiles Between Accidents 

 In-Transit Time

DC Operations         Total Warehousing Warehousing Cost       Warehousing Cost per Square Foot 

  q  Units per Person HourStorage Density 

       Inventory Accuracy Picking Accuracy       Shipping Accuracy Damage PercentageHours Between Accidents 

Warehouse Order Cycle Time

LOGISTICS        Logistics Expenses

       Logistics Profit

       Logistics Asset Value

       Logistics Asset Turnover  Logistics Capital Charges Total Logistics Cost  Logistics Cost-Sales Ratio  Return on Logistics Assets

Logistics Value Added 

Perfect Orders per Logistics FTE 

Perfect Order Percentage 

Total Logistics Cycle Time 

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Case Discussion