1. BA 7051 Logistics and Supply Chain
Management
UNIT – 1 INTRODUCTION
Business logistics and supply chain – importance,
objectives and drivers. Strategy – planning, selecting
proper channel, performance measurement.
Outsourcing- Make vs buy approach – sourcing
strategy
2. Business Logistics and Supply chain
• Logistics - (business definition) Logistics is defined as a
business planning framework for the management of
material, service, information and capital flows.
Logistics is the art of managing the supply chain and
science of managing and controlling the flow of goods,
information and other resources like energy and people
between the point of origin and the point of
consumption in order to meet customers' requirements.
It involves the integration of information,
transportation, inventory, warehousing, material
handling, and packaging.
3. Military Logistics
In military logistics, logistics officers manage how and
when to move resources to the places they are needed.
In military science, maintaining one's supply lines
while disrupting those of the enemy is a crucial some
would say the most crucial element of military
strategy, since an armed force without resources and
transportation is defenceless
4. Medical Logistics
Medical logistics is the logistics of pharmaceuticals,
medical and surgical supplies, medical devices and
equipment, and other products needed to support
doctors, nurses, and other health and dental care
providers
5. Business Logistics
Inventory management
Purchasing
Transportation
Warehousing
This can be defined as having the right item in the
right quantity at the right time at the right place for
the right price
6. Business Logistics
Business Logistics management is that part of the
supply chain that plans, implements, and controls the
efficient, effective forward and reverse flow and
storage of goods, services, and related information
between the point of origin and the point of
consumption in order to meet customer requirements
7. SUPPLY CHAIN
• A supply chain may be considered as network of
organizations, connected by a series of trading
relationships. This network covers the logistics and
manufacturing activities from raw materials to the
final consumer
• A supply chain consists of all stages involved, directly
or indirectly, in fulfilling a customer request. The
supply chain not only includes the manufacturer and
suppliers, but also transporters, were houses, retailers,
and customer themselves
8. Difference between Logistics and
Supply Chain
logistic typically refers to activities that occur within
the organization and supply chain refers to network of
organizations that work together and coordinate their
actions to deliver a product to market
9. Importance of supply chain
To many firms throughout world, supply chain has
become an increasingly important value adding process
for a number of reasons
Costs are Significant
Increased expectations of the customers
Supply and distributions lines are lengthening
with greater complexity
Supply chain is important to strategy
10. Supply Chain adds Significant Customer Value
Customers increasingly want QUICK customized
Response
Supply Chain in Service Industry
Objectives of Supply Chain
The primary objective of any supply chain is to maximize
the overall value generated. The higher the supply chain
profitability, the more successful the supply chain. Next
objective is management of the supply chain. Supply chain
management involves the management of flows between
and among stages in a supply chain to maximize total
supply chain profitability.
11. Drivers of supply chain
Facilities : It is the actual physical locations in the
supply chain network where product is stored,
assembled , or fabricated. The two major facilities are
production sites and storage sites
12. Inventory : it encompasses all raw materials, work in
process, and all finished goods within a supply chain.
Changing inventory policies can dramatically alter the
supply chain’s efficiency and responsiveness. For
example ,a clothing retailer can make itself more
responsive by stocking large amounts of inventory and
satisfying customer demand from stock.
13. Transportation : It entails moving inventory
from point to point in the supply chain.
Transportation can take the form of many
combinations of modes and routes, each with
its own performances and characteristics . For
example , a mail – order catalog company can
use a faster mode of transportation such as
FedEx to ship products, thus making its supply
chain more responsive, but W.W.Grainger,
however ,have structured their supply chain to
provide the next day service to most of their
customers using ground transportation. They
are providing High Level of responsiveness at
lower cost
14. Information : It consists of data and analysis concerning
facilities, inventory, transportation, costs, prices and
customers through out the supply chain. Information is
potentially the biggest driver of performance in the
supply chain. For example with information on consumer
demand patterns, a pharmaceutical company can
produce and stock drugs in anticipation of customer
demand, which makes the supply chain very responsive
because customers will find the drugs they need when
they need them
15. Sourcing : It is the choice of who will perform a
particular supply chain activity such as production ,
storage, transportation or the management of
information, At the strategic level, these decisions
determine what functions a firm performs and what
functions the firm outsources, Sourcing affect both the
responsiveness and efficiency of a supply chain.
16. Pricing : It Determines how much a firm will charge
for goods and services that it makes available in the
supply chain. Pricing affects the behavior of the buyer
of the goods or services, thus affecting supply chain
performances. For example, if a transportation
company varies its charges based on the lead time
provided by the customers, it is very likely that
customers who value efficiency will order early and
customer who value responsiveness will be willing to
wait and order just before they need a product
transported.
17. • Strategy or Design: Strategy is a grand plan. Supply chain
strategy involving decisions how to structure the supply
chain over next several years. It decides what the chains
configuration will be, how resources will be allocated, and
what processes each stage will perform. Strategic decisions
made by companies include the location and capacities of
production and warehouse facilities, the products to be
manufactured or stored at various locations, the modes of
transportation to be made available along different
shipping legs, and the type of information system to be
utilized. A firm must ensure that the supply chain
configuration supports its strategic objectives during this
decision phase. Supply chain design decisions are made for
the long term and are very expensive to alter on short
notice.
• Consequently when companies make these decisions, they
must take into account uncertainty in anticipated market
conditions over the next few years.
18. • Planning: The supply chains configuration determined in
design phase is fixed for making planning decisions.
Companies start the planning phase with a forecast for the
coming year of demand in different markets. Planning
includes decisions regarding which markets will be
supplied from which locations, the sub contracting of
manufacturing, the inventory policies to be followed, and
the timing and size of marking promotions. Planning
establishes parameters within which a supply chain will
function over a specified period of time. In the planning
phase, companies must include uncertainty in demand,
exchange rates, and competition over this time horizon in
their decisions.
• Given a shorter time horizon and better forecast than the
design phase, companies in the planning phase try to
incorporate any flexibility built into optimize performance.
As a result of the planning phase, companies define a set of
operating polices that govern short-term operations.
19. Selecting proper channel
(1) The Nature of the Product
Various factors under this category are:
Perishability:
Products which are perishable in nature are
distributed by employing a shorter channel of
distribution so that goods could be delivered to the
consumers without delay. Delay in distribution of
these products will deteriorate their quality.
20. Size and weight of product:
Bulky and heavy products like coal and food grains
etc. are directly distributed to the users involve
heavy transportation costs. In order to minimise
these costs a short and direct distribution channel is
suitable.
Unit value of a product:
Products with lesser unit value and high turnover are
distributed by employing longer channels of
distribution. Household products like utensils,
cloth, cosmetics etc. take longer time in reaching the
consumers.. On the other hand, products like
jewellery having high product value are directly sold
to the consumers by the jewellers.
21. Standardisation:
Products of standard size and quality usually take
longer time by adopting longer channel of
distribution. For example, machine tools and
automobile products which are of standard size reach
the consumer through the wholesalers and retailers.
Un-standardised articles take lesser time and pass
through shorter channels of distribution.
22. Technical Nature of Products:
Industrial products which are highly technical in
nature are usually distributed directly to the
industrial users and take lesser time and adopt
shorter channel of distribution. In this case after
sales service and technical advice is provided by
the manufacturer to the consumers.
On the other hand, consumer products of
technical nature are usually sold through
wholesalers and retailers. In this manner longer
channel of distribution is employed for their sales.
After sales services are provided by the wholesalers
and retailers. Examples of such products are
televisions, scooters, refrigerators, etc.
23. Product Lines:
A manufacturer producing different products in the
same lines sells directly or through retailers and lesser
time is consumed in their distribution. For example, in
case automobile rubber products this practice is
followed. On the other hand, a manufacturer dealing
only in one item appoints sole selling agents,
wholesalers and retailers for selling the product. For
example, in case of ‘Vanaspati Ghee’ longer
distribution channel in undertaken.
24. (2) The Nature of the market
Consumer of industrial market:
In case of industrial markets, number of buyers
is less; a shorter channel of distribution can be
adopted. These buyers usually directly
purchase from the manufacturers. Marketing
intermediaries are not needed in this case.
But in case of consumer markets, where there
are a large number of buyers, a longer channel
of distribution is employed. Distribution
process cannot be effectively carried out
without the services of wholesalers and
retailers.
25. Number of prospective buyers:
If the number of buyers is likely to be more, the
distribution channel will be long. On the other
hand, if the number of consumers is expected
to be less, the manufacturer can effectively sell
directly to the consumers by appointing
salesmen.
Size of the order:
If the size of the order placed by the customers
is big, direct selling can be undertaken by the
manufacturer as in case of industrial goods. But
where the size of the order is small, middlemen
are appointed to distribute the products.
26. Geographic concentration of market:
Where the customers are concentrated at one particular
place or market, distribution channel will be short and
the manufacturer can directly supply the goods in that
area by opening his own shops or sales depot. In case
where buyers are widely scattered, it is very difficult for
the manufacturer to establish a direct link with the
consumers, services of wholesalers and retailers will be
used.
Buying habits of customers:
This includes tastes, preferences, likes and dislikes of
customers. Customers also expect certain services like
credit and personal attention and after sales services etc.
All these factors greatly influence the choice of
distribution channel.
27. (3) The Nature of Middlemen
(a) Cost of distribution of goods:
Cost of distribution through middlemen is one of
the main considerations to be taken into account
by the manufacturer. Higher cost of distribution
will result in the increased cost of product. The
manufacturer should select the most economical
distribution channel.
In finalising the channel of distribution, services
provided by the intermediaries must be kept in
mind. It may be pointed out that the manufacturer
can select an expensive marketing intermediary
because that may ensure various marketing
services which cannot be offered by others
28. Availability of desired middlemen:
Sometimes desired middlemen may not be available
for the distribution of goods. They may be busy in
dealing with the competitive products. Under such
circumstances the manufacturer has to make his own
arrangements by opening his branches or sales depots
to distribute the goods to the consumers.
29. Unsuitable marketing policies for middlemen:
The marketing policies of the manufacturer may not
be welcomed by the middlemen the terms and
conditions may not favour the middlemen. For
example, some wholesalers or retailers would like to
act as sole selling agents for the product in a particular
area or region.
30. Services provided by middlemen:
The manufacturer should select those middlemen who
provide various marketing services viz, storage, credit
and packing etc. At the same time the middlemen
should ensure various services to customers.
(e) Ensuring greater volume of sales:
A manufacturer would like to appoint that middlemen
who assure greater sales volume over the long run.
31. Reputation and financial soundness:
In appointing middleman, the manufacturer must take
into consideration the financial stability and
reputation of the middleman. A financially sound
middleman can provide credit facilities to customers
and make prompt payment to the manufacturer.
32. The nature and size of the manufacturing unit
Manufacturer Reputation and Financial Stability:
Reputed and financially sound manufacturing
concerns can easily engage middlemen as compared to
lesser reputed and newly established units. Usually a
manufacturing unit having a sound financial base can
easily distribute the goods without appointing
middlemen by opening their own sales depots and
branches. A financially weaker unit cannot operate
without the help of middlemen.
33. Ability and Experience of the Undertaking:
Industrial undertakings having ample marketing
ability and experience can effectively manage their
distribution activities themselves. They have lesser
dependence on undertaking intermediaries. On the
other hand, marketing units possessing lesser
marketing ability and experience depend more on
middlemen for the distribution of goods.
34. Desire for Control of Channel:
A manufacturer may resort to a shorter distribution
channel in order to exercise effective control over
distribution. This is suitable in case of perishable
goods and is helpful in establishing direct link
between the manufacturer and the consumer. The cost
of distribution may be more by adopting such a
channel of distribution
35. Industrial Conventions:
Industrial conventions followed influence the
selection of distribution channel. If a particular
mode of distribution is adopted in an industry, the
same will be followed by every manufacturing unit
in that industry in distribution their products.
(E) Services Provided By the Manufacturers:
The selection of marketing intermediaries is also
influenced by various services provided by the
manufacturer. These services include extensive
advertisement for the product, after sales services
and facilities of credit. The manufacturers
providing these services can easily avail the
services of reputed retailers and wholesalers.
36. (5) Government Regulations and Policies:
Government policies and regulations also influence
the choice of distribution channels. The Government
may impose certain restrictions on the wholesale trade
of a particular product arid takeover the distribution of
certain products. All these restrictions have a direct
impact in selecting the channel of distribution.
37. (6) Competition:
The nature and extent of competition prevalent in a
industry is another detrimental consideration in
selecting a distribution channel. Different
manufacturers producing similar products may
employ the same channels of distribution.
38. Outsourcing
Outsourcing is subcontracting a process, such as
product design or manufacturing, to a third-party
company. The decision to outsource is often made in
the interest of lowering firm costs, redirecting or
conserving energy directed at the competencies of a
particular business, or to make more efficient use of
labour, capital, technology and resources
39. Outsourcing objectives
Focus core activity
Reduced costs
Improved operational quality
Achieve high productivity
De-risk the business
40. Reasons for outsourcing
• Cost savings: The lowering of the overall cost of
the service to the business. This will involve
reducing the scope, defining quality levels, re-
pricing, re-negotiation, cost re-structuring. Access
to lower cost economies through off shoring called
“labour arbitrage” generated by the wage gap
between industrialized and developing nations.
• Cost restructuring: Operating leverage is a
measure that compares fixed costs to variable
costs. Outsourcing changes the balance of this
ratio by offering a move from fixed to variable cost
and also by making variable costs more
predictable.
41. Improve quality: Achieve a step change in quality
through contracting out the service with a new service
level agreement.
• Knowledge: Access to intellectual property and
wider experience and knowledge.
• Contract: Services will be provided to a legally
binding contract with financial penalties and legal
redress. This is not the case with internal services.
42. Operational expertise: Access to operational
best practice that would be too difficult or time
consuming to develop in-house.
• Staffing issues: Access to a larger talent pool and
a sustainable source of skills.
• Capacity management: an improved method of
capacity management of services and technology
where the risk in providing the excess capacity is
borne by the supplier
• Catalyst for change: An organization can use an
outsourcing agreement as a catalyst for major step
change that cannot be achieved alone. The
outsourcer becomes a change agent in the process.
43. Reduce time to market: The acceleration of the
development or production of a product through
the additional capability brought by the supplier.
• Commodification: The trend of standardizing
business processes, IT services and application
services enabling businesses to intelligently buy at
the right price. Allows a wide range of businesses
access to services previously only available to large
corporations.
• Risk Management: An approach to risk
management for some types of risks is to partner
with an outsourcer who is better able to provide
the mitigation.
44. • Time zone: A sequential task can be done during
normal day shift in different time zones – to make it
seamlessly available 24X7. Same/similar can be done
on a longer term between earth’s hemispheres of
summer/winter.
• Customer Pressure: Customer may see benefits in
dealing with your company, but are not happy with the
performance of certain elements of the business,
which they may not see a solution to except through
outsourcing
45. Impact of outsourcing
Offshore outsourcing for the purpose of saving cost
can often have a negative influence on the real
productivity of a company. Rather than investing in
technology to improve productivity, companies gain
non-real productivity by hiring fewer people locally
and outsourcing work to less productivity facilities
offshore that appear to be more productive simply
because the workers are paid less.
46. In contrast, increases in real productivity are the result
of more productive tools or methods of operating that
make it possible for a worker to do more work. Non-
real productivity gains are the shifting work to lower
paid workers, often without regards to real
productivity. The net result of choosing non-real over
real productivity gain is that the company falls behind
and obsoletes itself overtime rather than making real
investments in productivity
47. Advantages
1) Greater flexibility suppliers
2) Lower investment risk
3) Improved cash flow
4) Lower potential labour costs shortage
Disadvantages
1) Possibility of choosing wrong
2) Loss of control over process
3) Potential for guard banding
4) Long lead – times / capacity
5) “Hollowing out” of the corporation
48. Make Vs Buy Approach
The make-or-buy decision is the act of making a
strategic choice between producing an item internally
(in-house) or buying it externally (from an outside
supplier). The buy side of the decision also is referred
to as outsourcing.
49. Make-or-buy analysis is conducted at the strategic and
operational level
Issues like government regulation, competing firms,
and market trends all have a strategic impact on the
make-or-buy decision.
The increased existence of firms that utilize the
concept of lean manufacturing has prompted an
increase in outsourcing
50. It prescribes that a firm outsource all items that do not
fit one of the following three categories:
(1) The item is critical to the success of the product,
including customer perception of important product
attributes;
(2) The item requires specialized design and
manufacturing skills or equipment, and the number of
capable and reliable suppliers is extremely limited; and
51. (3) The item fits well within the firm's core
competencies, or within those the firm must develop
to fulfill future plans. Items that fit under one of these
three categories are considered strategic in nature and
should be produced internally if at all possible.
52. Make-or-buy decisions also occur at the operational
level
Cost considerations (less expensive to make the part)
Desire to integrate plant operations
Productive use of excess plant capacity to help absorb
fixed overhead (using existing idle capacity)
53. Need to exert direct control over production and/or
quality
Better quality control
Design secrecy is required to protect proprietary
technology
Unreliable suppliers
No competent suppliers
Desire to maintain a stable workforce (in periods of
declining sales)
54. Quantity too small to interest a supplier
Control of lead time, transportation, and warehousing
costs
Greater assurance of continual supply
Provision of a second source
Political, social or environmental reasons (union
pressure)
Emotion (e.g., pride)
55. Factors that may influence firms to buy a part externally
include:
Lack of expertise
Suppliers' research and specialized know-how exceeds
that of the buyer
cost considerations (less expensive to buy the item)
Small-volume requirements
56. Limited production facilities or insufficient capacity
Desire to maintain a multiple-source policy
Indirect managerial control considerations
Procurement and inventory considerations
Brand preference
Item not essential to the firm's strategy
The two most important factors to consider in a
make-or-buy decision are cost and the availability
of production capacity.
57. buying firm will compare production and purchase costs
Elements of the "make" analysis include:
Incremental inventory-carrying costs
Direct labor costs
Incremental factory overhead costs
Delivered purchased material costs
Incremental managerial costs
Any follow-on costs stemming from quality and related
problems
58. Incremental purchasing costs
Incremental capital costs
Cost considerations for the "buy" analysis include:
Purchase price of the part
Transportation costs
Receiving and inspection costs
Incremental purchasing costs
Any follow-on costs related to quality or service
59. Sourcing Strategy
Strategic sourcing is an institutional procurement
process that continuously improves and re-evaluates
the purchasing activities of a company. In a production
environment, it is often considered one component of
supply chain management.
60. The steps in a strategic sourcing process were
defined, in 1994,
Assessment of a company's current spending
(what is bought, where, at what prices?).
Assessment of the supply market (who offers
what?).
Total cost analyses (how much does it cost to
provide those goods or services?).
Identification of suitable suppliers.
61. Development of a sourcing strategy (where to
purchase, considering demand and supply situations,
while minimizing risk and costs).
Negotiation with suppliers (products, service levels,
prices, geographical coverage, Payment Terms, etc.).
Implementation of new supply structure.
Track results and restart assessment (Continuous
cycle)
62. A slimmed down strategic sourcing process was defined,
in 2012, as
Data collection and spend analysis
Market Research
The RFx process (also known as go-to-market)
Negotiations
Contracting
Implementation and continuous improvement
