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INTRODUCTION TO LOGISTICS AND SUPPLY CHAIN MANAGEMENT Suppose you are asked to tell why Logistics is not only Warehousing and Transportation. What would be your line of reasoning? Which could be the activities under the responsibility of a Logistics or Supply Chain Executive? (PART 1) 3) From execu...

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INTRODUCTION TO LOGISTICS AND SUPPLY CHAIN MANAGEMENT  Suppose you are asked to tell why Logistics is not only Warehousing and Transportation. What would be your line of reasoning? Which could be the activities under the responsibility of a Logistics or Supply Chain Executive? (PART 1) 3) From execution to planning to design: 3 stack model of logistics  EXECUTION (OPERATIONAL): is the design and management of the processes supporting the flow of materials (transportation, production, warehousing - so handling and storage) and info/data/documents along the supply chain. “Base” upon which the other stacks are built.  PLANNING (TACTICAL, aligned with E): plans for the adjustment of operational capacity and for the execution of the operational activities linking DEMAND-SUPPLY sides. Getting the SC aligned and tuned. From downstream to upstream: demand management, inventory management/distribution management, production planning, procurement planning. “Plans and manages” the operational level of logistics.  DESIGN (STRATEGIC, aligned with E and P): aims at deciding network/SC structure (nodes, arcs); “make or buy” policies; transportation modes; target KPIs (service level, logistics costs…); information systems. Must be strongly aligned with the overall corporate strategy. At the base of everything there is a Performance Measurement System (and consequently a Gap analysis) 

What is the main idea behind the foundation of Logistics as a discipline? (PART 2) “Logistics Management is that part of supply chain management 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 customers' requirements.” CSCMP: at the beginning NCPDM  transportation + warehousing + inventory RADAR CHART OF LOGISTICS  1967, the NCPD, National Council of Physical Distribution Management (DISTRIBUTION MANAGER), elaborated this definition: “A term employed in manufacturing and commerce to describe the broad range of activities concerned with efficient movement of finished products from the end of production line to consumer, and in some cases includes the movement of raw materials from the source of supply to the beginning of the production line.” Elements: - Activity: execution - System: distribution (with a systemic view of functions) - Performance: Efficiency (cost reduction); - Products: Finished products Integration of “parts” of the internal supply chain (supply, production, distribution)  single company 1)From the optimization of single activities to an integrated function (of internal SC) • 1976, NCPD developed the Integrated Logistics (materials management + physical distribution), LOGISTICS MANAGER: “The integration of two or more activities for the purpose of planning, implementing, and controlling the efficient flow of raw materials, in-process inventory and finished goods from point-of origin to point-of-consumption.” Elements: - Activity: Planning the execution (not only the execution) - System: Internal Supply Chain of the company (Procurement + Production + Distribution, focus on the overall logistics system) - Performance: Efficiency - Product: all physical goods (Raw Materials + Work in process + Finished products) • 1985, CLM, Council of Logistic Management: “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.” Elements: - Activity: Planning - System: Internal supply chain - Performance: Efficiency + effectiveness (talking about customers’ needs) - Product: Products + Related Information • 1992, CLM:

“The process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point-of-origin to point-of consumption for the purpose of conforming to customer requirements.” Integration of the “internal supply chain”, so supply+production+distribution  single company

• 2009, CSCPM: “Logistics Management is that part of supply chain management 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 customers' requirements.” Elements: - Activity: Not only forward, but also reverse logistics - System: External Supply Chain (it involves not only the company, but also suppliers and customers, outside company’s boundaries) - Performance: Effectiveness, Efficiency - Product: Services + Products + Information related 

What is the difference between Logistics and Supply Chain Management? “Logistics Management is that part of supply chain management 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 customers' requirements.” Elements: 1. Activity: Not only forward, but also reverse logistics 2. System: External Supply Chain (it involves not only the company, but also suppliers and customers, outside company’s boundaries) 3. Performance: Effectiveness, Efficiency 4. Product: Services + Products + Information related 2)From physical distribution system, to internal SC management, to EXTENDED SCM Supply chain management (SUPPLY CHAIN MANAGER) is an integrated function with primary responsibility for linking major business functions and business processes WITHIN AND ACROSS companies into a cohesive and high-performing business model (logistics management + manufacturing operations + marketing, sales, product design, finance and information technology)  “Inter and intra company” along the extended SC Integration of the “external supply chain”, so SUPPLIERS+supply+production+distribution+CUSTOMERS  entire SC, logistics as a differentiator lever.

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SUPPLY CHAIN BASED COMPETITION Strategic approach where:  Competitiveness strongly impacted by actions of other supply chain members  Competitiveness is mostly among DIFFERENT SC Strategic implications:  Competitiveness improved focusing on INTERFACE PROCESSES with the other SC members (integration and collaboration)  Action on interface processes is more effective than on internal processes (share benefits) 

Build a strong case in favour of the following statement: Logistics is crucial for a Retailer in the Fast Moving Consumer Goods sector (BARILLA, ABINBEV) 4) From cost reduction (optimisation) to CUSTOMER SERVICE AND PROFIT OPTIMIZATION Logistics costs: represent 5/15% of revenues (and more if we take a SC perspective). Have a substantial impact on company’s assets and depend on:  Industry  Type/role of the company  SC perspective They are: - Transportation costs - Handling costs (WH) - Storage costs (WH); also inventory related costs, like cost of capital, cost of obsolescence, depreciation… - Packaging costs - Info and documents management costs (administrative)

Logistics costs=

1 ×complexity Value density

Many customer service factors are strongly affected by the logistic process and should be considered as KPIs  Logistics management obj. function = logistics costs + service level (cost-to-serve relation is more than proportional) 5) From direct flows of products, to flow of information/services/money, to reverse logistics of goods INFORMATION - Transactional data: it is the order cycle (order to payment)  orders, invoices, transport documents, order confirm - Planning data  demand forecasts, inventory status, production plan, capacity (operational) - Product and marketing  product range/SKU; product phase in-phase out, promotions SERVICE INDUSTRIES: - Healthcare - After sales service REVERSE LOGISTICS (convergent, non-identified items (requires time), happens always transformation activity) - Unsold products (returns management) - End of life products - Packaging EXAMPLE OF DIRECT REVERSE LOGISTICS IN FOOD!!! LOGISTICS AND STRATEGY  What’s the difference between effectiveness- and efficiency-related performance in Logistics? Give some examples of effectiveness related performance? Starting from logistics management definition:  EFFECTIVENESS (to meet customers’ requirements) in serving the market: higher REVENUES if: o The right materials o o

In the right quantities Of the right quality

o

In the right place

o At the right time EFFICIENCY (to control costs) in leveraging resources: lower COSTS if: o Materials at the right price So, logistics process has:  DIRECT IMPACT ON CUSTOMERS’ SERVICE (place)  INDIRECT IMPACT, through logistics costs, ON PRICE 

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What is the meaning and the use of the ROA model? Provide some examples of different logistic strategies, their expected impact on ROA and their alignment with the corporate strategy? How can logistics affect corporate profitability? To understand QUALITATIVELY the trade-offs between possible impacts of logistics strategies on corporate profitability

ROA=

Profits R−C = Assets FC + WC

Ways to impact on it: 1) COSTS: reduction of logistics costs (efficiency) They are a sum of different activities (transportation, handling, storage, administrative, packaging, ecc…) we can split them also in other costs each one. They are only the variable costs, the fixed one are at the denominator. Logistics costs account 5% or 15% of revenues, so even if they are not high, we can work on them to reduce the total costs. How can we do that? - Improving PRODUCTIVITY/EFFICIENCY at individual activities level - INTEGRATING activities (!!!) and increase ENTIRE LOGISTICS PROCESS EFFICIENCY (total costs or systemic analysis) - Improving QUALITY of activities 2) REVENUES: better (customers) service level (effectiveness) How can a company create value through service level? The customers service level is the connection between logistics and revenues, we have to develop all the aspect of the line of connection, so focus on the customers but also the other aspects. Regarding the AVAILABILITY, the Fill Rate is the ratio between what is available in invent and what customers want (+ potential), it regards the customer service. There are some indicator that measure this ratio: Order Fill Rate = Orders Fulfilled/(Orders received + potential orders), Item Fill Rate = items fulfilled / (items requests + potential): in an order there are more items and it is

fulfilled if the items are all available. If the IFR is 95%, it means that it is the probability of being fulfilled, so the OFR = 0,95 ^ 10 (number of items) = 60%, so it is not so much. IFR (order lines, specific items…) is more specific than the OFR (order completeness), so, it is used to see which the right amount of stocks is. The second class of indicators are the TIME related one: the first one in the Order Cycle Time (LT) it means the speed of the order. It is the LT between the order placement to order delivery from the prospective of the customers, it depend on the position of the inventories and the speed of the transportation modes. The second one is On Time Delivery means delivering when it was promised, so punctuality and reliability. The third is ACCURACY one and the main indicators are: Order Compliant (right items, quantity and quality); Document Compliant and Packaging complaints is the right item but also in the right packaging (dimension for example). In many companies they combine these indicators and made the COMBINED INDICATORS: OTIF (on time and full), multiply the factor that compose it (ex. order completeness = on time + in full) . If able to increase those “indicators” you can: - Put a PREMIUM PRICE for a better service  work on profit - Increase CUSTOMER BASE (and customer retention)  work on revenues 3) SERVICE(x)-COST(y) trade-off How can a company create value through service-cost trade off (so R-C)? - COST TO SERVE curve: like exponential - REVENUES TO SERVE curve: like S curve o Combining the 2 curves, to a certain % of service level (85,95,99%) corresponds the maximum profit (Mmax) o To each SL and margin should correspond a cluster of customers, according to the weights of service level performances they request and the costs to provide them. What is the connection between service level and revenues? The best point is not the maximum service level but is the service level that optimize profit, not revenues. If we consider both the impact on revenues and costs, optimal service level is the one that create the maximum space between the two lines. 4) WC (working capital) IMPACT: lower inventories and faster payments How to reduce the current assets? WC is the capital you need to work on your activities in the short term, it is measured as inventories + accounts receivables (already sold but not been payed yet) – accounts payables (money you owe to your suppliers). C2C (cash to cash) is about time = Days of Inventories + Days of sales outstanding – days of payables outstanding. The impact on logistics costs are the days of inventory, the longer a logistics system in term of time the higher the working capital. We should aim at reducing inventories (money) and reducing/controlling the cash-to-cash cycle time (days). The higher/longer they are, the worst is for me; if negative value for me it’s good” 5) FC (fixed capital) IMPACT: less (logistics related) resources and infrastructures They are composed by infrastructures (WHs), equipment (trucks), personnel and information system. How can a company create value working on fixed asset? - OPTIMIZATION of ASSET UTILIZATION/PRODUCTIVITY (or reducing the assets, by better planning) - Work on OUTSOURCING of logistics (to reduce denominator), make or buy decision 6) OVERALL TRADE-OFF: managing ROA trade-off between the different sources of value Some cases can be: - Improving productivity (lower costs) through investments in fixed capital (higher FC) - Improving efficiency (lower costs) and service level (higher revenues) by increasing the inventories in the system (higher WC) - Improving customer service and revenues accepting a less than proportional increase in logistics costs - Reducing fixed capital through outsourcing (lower FC) accepting an increase in the logistics costs (higher costs)…. 

What are the main types/models of supply chain strategy according to Lee’s Model? How can these approaches be related to the main variables describing the external context? What evidence of these approaches could you find in examples/seminars/visits seen in class or that you know? What are the main logistics strategies/strategic approaches? LEE’S MODEL (SC strategies) Assumption and idea: SC strategic approach and policies should be consistent with the SC profile in which the company operates

Method: - Know your SC  SC profile (1), demand and supply side uncertainty - Choose your SC strategic approach  SC strategy (2), lean or agile? - Define your SC strategic policies (consistently), actions to do  CONSISTENCY between the 2 in the matrix (3) - Review your strategy overtime (evolution in the matrix) 1) SC PROFILE (according to those drivers you place the company inside the matrix)  DEMAND SIDE UNCERTAINTY (from sx to dx  L, M, H) o Product range

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o o

Demand unpredictability/volatility Incidence of promotions

o o

Price fluctuations Risk of obsolescence

o

Number/variety of sales channels

o Competition level of the market o Number of echelons in the downstream SC SUPPLY SIDE UNCERTAINTY (from up to down  L, M, H) o Range of components o Number of suppliers o Dependency/stability of suppliers and duration of contracts o o o o

Maturity of production technologies Complexity of bill of materials Evolution of raw materials/components Number of echelons in the upstream SC

2) SC STRATEGIES  LEAN/EFFICIENT: optimising the SC, maximizing the expected ROA, both increasing value and reducing costs. Good if the context is stable  FULFIL DEMAND AT LOWEST COST. Policies: o Elimination of non-value adding activities

  

o o

Work on cost advantages Work on service related competitive advantages

o o

Automation Focus on economies of scale/scope

o Inventory management (centralized) Responsive: mitigate risks on the demand side related to diverse needs of customers (ex. inventories, resource sharing, ICT adoption) Risk hedging: reduce risks on the supply side (ex. postponement, built-to-order, extra capacity…) AGILE: mitigating SC risks, both on D and S side, combining Responsive and Risk hedging  FULFIL DEMAND QUICKLY (ex. through outsourcing). Policies: o Manage and reduce uncertainty by being agile o Shared inventory (and resources) o

Flexibility:  Reduce time to market: quick phase in and phase out  Reduce supply chain times (LT): is the sum of the LT of all the phases/stages along the SC  Supply chain collaboration  Alternative sources/suppliers

3) CONSISTENCY (between profile and strategies + evolution overtime)

WAREHOUSES GENERAL OVERVIEW

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What is the role of warehouses in a distribution network? What are the main processes and activities in a warehouse? And in a transit point? Warehouses are part of a more complex system called logistic channel. The logistic channel is composed by nodes and arches. In particular, the logistic channel includes: - The distribution network, whose nodes are the plants, the warehouses and the point of sale; - The transportation systems which connect the nodes of the network. The main functions of a warehouse are: - STORAGE: storage is needed to keep inventories, used to: o Guarantee a determined SS coverage; o o -

Decouple asynchronous processes (for instance production and consumption) Keep the goods safe.

FLOW MANAGEMENT AND MATERIAL HANDLING: to transform the flows into orders/products o From full pallet loads to customer orders (FPL, mixed PL, parcels); o From packed to unpacked products…

It is possible to classify the nodes depending on their functions: - Warehouses: if nodes have both the storage and flow management function. A warehouse needs material planning and management and it contains safety and cycle stock; it has a shorter CT because orders are fulfilled using inventories; upstream orders are done just to replenish the WH. -

Transit points: if the node is focused only on the flow management function. A transit point doesn’t need material planning because it doesn’t contain safety and cycle stock but only “in transit” stock. It performs only mostly sorting (ex. re-packing, cross-docking…) and consolidation activities of transport units. It has a longer CT because orders are sent upstream directly from downstream but delivered through TP, but optimizes transport to end customers Typically, in a warehouse there can be four main activities: - Receiving  schedule carrier, unload the vehicle, inspect for damage, compare to purchase order; - Put away (from dock to storage)  identify product, identify storage location, move products, update record - (Storage); - Picking  manage order info, pick goods, move goods, shipping package + shipping label - Shipping  schedule carrier, load the vehicle, sign bill of lading, record update Consistently with the four main activities, in a warehouse there are at least four main areas: - The receiving area; - The storage area  usually the storage area is the biggest one because the great part of goods is stored here. - The picking/order assembly area  the picking area is quite small because we want an efficient retrieval of small quantities. - The shipping area - New value adding activities: customization, technical support (repairing, replacing), return management (return, expired products)  What are the main performance indicators to control the warehou...