Procurement and supply chain management Essay Example for Free

Procurement and interpret image forethought Es adduceThis legions issue is concerned with the vital subject of commercial enterprise enterprise logistics and affix cooking stove caution, an airfield that nonify be essential to a business firms competitive st arraygy and r crimsonue generation. This monitorment bea has been showd by more than an(prenominal) take a shits, including natural statistical distri preciselyion, cloths oversight, transportation oversight, logistics, and bring home the bacon chain solicitude. Relevant occupancy activities whitethorn include one or to a coarseer extent of the following aras transportation, farm animal, order treat, purchasing, w behousing, materials handling, packaging, node proceeds criterions, and merchandise.The focussing of this Publication is on the think, organizing, and controlling of these activities key elements for successful steering in any organization. Special emphasis is t abateing( p) to strategic planning and decision devising as an every(prenominal)(a) important(predicate) part of the management process. Managerial efforts argon directed towarf atomic number 18ds setting the take aim of the logistics activities so as to make returns and serves functional to clients at the clock and rig required, and in the condition and mixed bag desired, in the n earliest profitable and make up-effective way.Logistical activities start out alship fuckal been vital to organizations, and so business logistics and cut chain management represents a synthesis of many another(prenominal) concepts, principles, and methods from the a lot tralatitiousistic atomic number 18as of marketing, business, accounting, purchasing, and transportation, as surface as from the disciplines of applied mathematics, organizational behaviour, and economics. This Publication attempts to unify these elements to cargon in the effective management of the affix chain.The Publica tion aims to present ideas, principles and techniques that argon fundamental to good business logistics lend oneself. It concentrates on important activities of management much(prenominal) as planning, organizing, and controlling, and also on a triangle of unified transportation, record, and arrangement strategies, which are at the heart of good logistics planning and decision making. Contemporary trends that affect the backcloth and practice of business logistics and cut chain management take a leak been integrated into the body of the text.Firstly, emphasis is set(p) on logistics and supply chain management in a initiationwide setting to reflect the maturement internationalization and globalization of business in general. Secondly, the shift towards inspection and repair-oriented economies by industrialized nations is emphasized by masking how logistics concepts and principles are applicable to both assistant-producing tirms and result-producing ones. Thirdly, attent ion is given to the integrated management of supply chain activities. 1 LSCTMMOD1 maneuver for a turn copy of our course catalogue phonograph record by airmail, telephone, fax or email, or via our website Britain. global render College House, Leoville, island of Jersey JE3 2DB, Britain Telefax +44 (0)1534 485485 telecommunicate emailprotected com Website www. cambridgecollege. co. uk The Publication contains many practical and modern examples that show the applicability of the textual material and assist in the understanding and encyclopaedism of the key transfers and concepts.each Chapter in this Cambridge transnational College Publication on Logistics, Chain add dis beam Management includes An introduction class Examples and/or figures and diagrams to explain the concepts beingness covered A summary of concluding comments Re pile Questions designed to reinforce learning and contemplation of what is covered in the Chapter Advice on How to teach this architectu ral plan E really unmarried CIC phallus approaches his/her study in a different manner, and different flock may get hold of a special(prenominal) study method that they find some effective for them.However, the following is a tested and proven Study Method, suggested to you as a CIC Member in order to assist in making your study and learning easier and enjoyable and to assist you to quickly master the contents of this CIC Publication on Logistics, Chain Supply Transport Management Step 1 Set yourself a flexible study enrolment, depending on the clock time you stir available and what is best for you. For example, the tar commove set could be to study for 1 or 2 hours a night, or for 8 or 9 hours a week, or to complete one Chapter every 2 weeks.There is no set or compulsory schedule, but simply setting a schedule or goal is often an important action in ensuring that study is undertaken successfully and in spite of appearance the contract timeframe. Step 2 Read the whole of the first Chapter at your normal reading pace, without trying to discover every topic covered or fact stated, but trying to get the tang of what is dealt with in the Chapter as a whole. Step 3 Start reading the Chapter again from the beginning, this time reading to a greater extent slowly, paragraph by paragraph and section by section.Make brief notes of any points, sentences, paragraphs or sections which you feel have your further study, consideration or thought. You may deprivation to keep any notes in a separate file or notebook. Try to absorb and memorise all the important topics covered. Step 4 Start reading the Chapter again from its start, this time paying particular attention to and if prerequisite studying much thoroughly those parts on which you ahead wrote notes for further study. It is best that you do not pass on to early(a) parts or topics until you are genuine you fully understand and re atom those parts you earlier noted as requiring your special attent ion.Try to fix everything taught firmly in your mind. 2 LSCTMMOD1 train for a FREE copy of our course catalog book by airmail, telephone, fax or email, or via our website Britain. internationalist military headquarters College House, Leoville, Jersey JE3 2DB, Britain Telefax +44 (0)1534 485485 Email emailprotected com Website www. cambridgecollege. co. uk Step 5 There are self-assessment review questions at the end of the Chapter, and you are strongly advised to try to answer or look at closely(predicate) them as best you can but do not send your answers to the College.If these questions/exercises highlight any areas that you feel you need to revise or re-read in the Chapter, then go ahead and do that before moving on to Step 6. Step 6 Once you have completed steps 1 to 5 above, trip on to the next Chapter and repeat steps 1 to 5 for each subsequent Chapter. 3 LSCTMMOD1 shoot d k flatledge for a FREE copy of our Prospectus book by airmail, telephone, fax or email, or via ou r website Britain. International Headquarters College House, Leoville, Jersey JE3 2DB, Britain Telefax +44 (0)1534 485485 Email emailprotectedcom Website www. cambridgecollege. co. uk LOGISTICS, SUPPLY CHAIN TRANSPORT MANAGEMENT class MODULE ONE BUSINESS LOGISTICS/SUPPLY CHAIN A VITAL SUBJECT (based on Chapter 1 of Logistics, Supply Chain and Transport Management by Ronald H Ballou) Contents Introduction note Logistics defined The Supply Chain The action Mix Importance of Logistics/Supply Chain (SC) Costs Are remarkable Logistics Customer Service Expectations Are Increasing Supply and Distribution Lines Are Lengthening with Greater complexness Logistics/SC Is Important to StrategyLogistics/SC Adds Significant Customer Value Customers Increasingly Want Quick, Customized response Logistics/SC in Non-Manufacturing Areas Service Industry Military Environment melodic line Logistics/SC in the pixilated Objectives of Business Logistics/SC Questions and Problems Introduction As far back as history records, the goods that people cute were not perpetually produced where they wanted to strike 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 go uped transportation and storage systems yet existed, the suit of goods was restrain to what an individual could personally move, and storage of perishable commodities was possible for only a short time. This limited faeces-storage system generally constrained people to live close to the sources of work and to consume a or else narrow range of goods. scour today, in some areas of the world consumption and harvest-feastion take keister only at bottom a very limited geographic domain. Striking exampl es 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 secured in the immediate vicinity. Few goods are imported from other areas. Therefore, production capability and the economic standard of living are generally low.In this type of economy, a well-developed and inexpensive logistics system would encourage an metamorphose of goods with other producing areas of the country, or even the world. 4 LSCTMMOD1 Send for a FREE copy of our Prospectus book by airmail, telephone, fax or email, or via our website Britain. International Headquarters College House, Leoville, Jersey JE3 2DB, Britain Telefax +44 (0)1534 485485 Email emailprotected com Website www. cambridgecollege. co. uk As logistics systems improved, consumption and production began to separate geographically.Regions would specialize in those commodities that could be produced most efficiently. Excess production could be shipped economically to other producing (or consuming) areas, and needed goods not produced topically were imported. This exchange process follows the principle of comparative advantage. This same principle, when applied to world markets, helps to explain the high level of international business that takes part today. Efficient logistics systems allow world businesses to take advantage of the fact that lands, and the people who occupy them, are not equally productive.Logistics is the very essence of trade. It brooks to a higher economic standard of living for us all. To the individual firm operating in a high-level economy, good management of logistics activities is vital. Markets are often national or international in range of a function, whereas production may be intemperate at relatively a few(prenominal) points. Logistics activities provide the bridge mingled with production and market locations that are confused by time and distance. Effective management of these activities is the major concern of this Program. Business Logistic DefinedBusiness logistics is a relatively new field of integrated management study in comparison with the traditional fields of finance, marketing, and production. As previously noted, logistics activities have been carried out by individuals for many years. Businesses also have continually engaged in movestore (transportation-inventory) activities. The newness of the field results from the concept of coordinated management of the related activities, kind of than the historical practice of managing them separately, and the concept that logistics adds look on to products or helpings that are essential to customer satisfaction and sales.Although co-ordinated logistics management has not been generally practiced until recently, the idea of co-ordinated management can be traced back to at least 1844. In the writings of Jules Dupuit, a French engineer, th e idea of trading one cost for another (transportation be for inventory be) was evident in the excerption between road and water transport The fact is that carriage by road being quicker, more reliable and less subject to loss or damage, it possesses advantage to which businessmen often attach a considerable nourish.However, it may well be that a saving induces the merchandiser to use a canal he can buy warehouses and increase his floating capital in order to have a sufficient supply of goods on hand to protect himself against slowness and impairment of the canal, and if all told the saving in transport gives him a cost advantage, he will decide in favour of the new route. The first textbook to suggest the wins of co-ordinated logistics management appeared around 1961, in part explaining wherefore a generally accepted comment of business logistics is still emerging.Therefore, it is worth age to explore some(prenominal) definitions for the scope and content of the subject . A dictionary definition of the term logistics is The branch of military science having to do with procuring, maintaining, and transporting material, personnel, and facilities. This definition puts logistics into a military context. To the extent that business objectives and activities differ from those of the military, this definition does not capture the essence of business logistics management.A better representation of the field may be reflected in the definition promulgated by the Council of Logistics Management (CLM), a professional organization of logistics 5 LSCTMMOD1 Send for a FREE copy of our Prospectus book by airmail, telephone, fax or email, or via our website Britain. International Headquarters College House, Leoville, Jersey JE3 2DB, Britain Telefax +44 (0)1534 485485 Email emailprotected com Website www. cambridgecollege. co. uk managers, educators, and practitioners formed in 1962 for the purposes of continuing education and fostering the interchange of ideas.Its definition Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective fly the coop and storage of goods, services, and related knowledge from the point of origin to the point of consumption in order to meet customers requirements. This is an excellent definition, conveying the idea that product flows are to be managed from the point where they exist as raw materials to the point where they are finally discarded. Logistics is also concerned with the flow of services as well as strong-arm goods, an area of growing opportunity for improvement.It also suggests that logistics is a process, meaning that it includes all the activities that have an impact on making goods and services available to customers when and where they wish to acquire them. However, the definition implies that logistics is part of the supply chain process, not the entire process. So, what is the supply chain process or, more popularly, supply chain management? Supply chain management (SCM) is a term that has emerged in recent years that captures the essence of integrated logistics and even goes beyond it.Supply chain management emphasizes the logistics interactions that take place among the functions of marketing, logistics, and production inside a firm and those interactions that take place between the legally separate firms within the product-flow line of business. Opportunities for cost or customer service improvement are achieved by means of co-ordination and col stabation among the channel members where some essential supply chain activities may not be under the direct control of the logistician.Although early definitions much(prenominal) as physical scattering, materials management, industrial logistics and channel management all call used to describe logistics have promoted this broad scope for logistics, there was light attempt to implement logistics beyond a ships companys own enterprise boundaries, or even beyond its own internal logistics function. Now, retail firms are showing success in sharing data with suppliers, who in turn agree to maintain and manage inventories on retailers shelves.Channel inventories and product stockouts are lower. Manufacturing firms operating under just-in-time production scheduling build relationships with suppliers for the benefit of both companies by reducing inventories. Definitions of the supply chain and supply chain management reflecting this broader scope are The supply chain (SC) encompasses all activities associated with the flow and transformation of goods from the raw materials stage (extraction), through with(predicate) to the end user, as well as the associated information flows.Materials and information flow both up and down the supply chain. Supply chain management (SCM) is the integration of these activities, through improved supply chain relationships, to achieve a sustainable competitive advantage. After careful study of the various definitio ns being offered, Mentzer and other writers propose the broad and rather general definition as followsSupply chain management is defined as the systematic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of better the long-term performance of the individual companies and the supply chain as a whole. 6 LSCTMMOD1 Send for a FREE copy of our Prospectus book by airmail, telephone, fax or email, or via our website Britain. International Headquarters College House, Leoville, Jersey JE3 2DB, Britain Telefax +44 (0)1534 485485 Email emailprotectedThe supply chain management framework in normal 1-1 viewed as a pipeline shows the scope of this definition. It is important to note that supply chain management is about the co-ordination of product flows across functions and across companies to achieve competitive advantage and profitability for the individual companies in the supply chain and the supply chain members collectively. It is difficult, in a practical way, to separate business logistics management from supply chain management.In so many respects, they promote the same mission To get the right goods or services to the right place, at the right time, and in the desired condition, while making the greatest contribution to the firm. Some claim that supply chain management is just another name for integrated business logistics management (IBLM) and that the broad scope of supply chain management has been promoted over the years. Conversely, others say that logistics is a subset of SCM, where SCM considers additional issues beyond those of product flow. For example, SCM may be concerned with product pricing and manufacturing quality.Although SCM promotes viewing the supply channel with the broadest scope, the reality is that firms do not practise this ideal. Fawcett and Magan found that companies that do practi se supply chain integration limit their scope to one tier upstream and one tier downstream. The focus seems to be concerned with creating seamless processes within their own companies and applying new information technologies to improve the quality of information and speed of its exchange among channel members. The boundary between the logistics and supply chain management terms is fuzzy.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 maximum managerial control that can be looked is over the immediate physical supply and physical distribution channels, as shown in fig 1-2.The physical supply channel refers to the time and pos t gap between a firms immediate material sources and its processing points. Similarly, the physical distribution channel refers to the time and space gap between the firms 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) 8 LSCTMMOD1 Send for a FREE copy of our Prospectus book by airmail, telephone, fax or email, or via our website Britain.International Headquarters College House, Leoville, Jersey JE3 2DB, Britain Telefax +44 (0)1534 485485 Email emailprotected com Website www. cambridgecollege. co. uk 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 much(prenominal) as value nets, value stream, and lean logistics to describe a similar scope and purpose. The evolution of the management of product flows tow ard SCM is captured in Figure 1-3.Although it is easy to think of logistics as managing the flow of products from the points of raw material learnness to end customers, for many firms there is a reverse logistics channel that must be managed as well. The smell of a product, from a logistics viewpoint, does not end with deliverance to the customer. Products mother obsolete, damaged, or nonfunctioning and are returned to their source points for impact or appetite. Packaging materials may be returned to the shipper due to environmental regulations or because it makes good economic mind to reuse them.The reverse logistics channel may utilize all or a portion of the forwards 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. The Activity Mix The activities to be managed that make up business logistics (supply c hain process) vary from firm to firm, depending on a firms particular organizational structure, managements honest differences of opinion about what constitutes the supply chain for its business, and the importance of individual activities to its trading trading operations.Follow along the supply chain as shown in Figure 1-2 and note the important activities that take place. Again, according to the CLM 9 LSCTMMOD1 Send for a FREE copy of our Prospectus book by airmail, telephone, fax or email, or via our website Britain. International Headquarters College House, Leoville, Jersey JE3 2DB, Britain Telefax +44 (0)1534 485485 Email emailprotected com Website www. cambridgecollege. co. ukThe components of a typical logistics system are customer service, pick up forecasting, distribution communications, inventory control, material handling, order processing, parts and service allow, plant and warehouse site selection (location analysis), purchasing, packaging, return goods handling, s alvage and mite disposal, traffic and transportation, and warehousing and storage. Figure 1-4 shapes these components, or 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.Customer service standards co-operate with marketing to a. Determine customer needs and wants for logistics customer service b. Determine customer response to service c. Set customer service levels 2. superman 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 10 LSCTMMOD1Send for a FREE copy of our Prospectus book by airmail, telephone, fax or email, or via our website Britain. International He adquarters College House, Leoville, Jersey JE3 2DB, Britain Telefax +44 (0)1534 485485 Email emailprotected com Website www. cambridgecollege. co. uk d. Number, size, and location of stocking points e. Just-in-time, push, and pull strategies 4. randomness flows and order processing a. Sales order-inventory interface procedures b. Order information transmittal methods c. Ordering rules Support Activities 1. Warehousing a. Space use b. Stock layout and dock design c.Warehouse configuration d. Stock placement 2. Materials handling a. Equipment selection b. Equipment second-stringer policies c. Order-picking procedures d. Stock storage and retrieval 3. Purchasing a. Supply source selection b. bargain for timing c. Purchase quantities 4. Protective packaging designed for a. Handling b. Storage c. Protection from loss and damage 5. Co-operate with production/operations to a. Specify aggregate quantities b. Sequence and time production create c. Schedule supplies for production/operat ions 6. Information maintenance a. Information collection, storage, and manipulation b. Data analysisControl 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 firms immediate physical distribution channel, as shown in Figure 1 to 5. They contribute most to the full(a) cost of logistics or they are essential to the effective co-ordination and completion of the logistics task. 11 LSCTMMOD1 Send for a FREE copy of our Prospectus book by airmail, telephone, fax or email, or via our websiteBritain. International Headquarters College House, Leoville, Jersey JE3 2DB, Britain Telefax +44 (0)1534 485485 Email emailprotected com Website www. cambridgecollege. co. uk Customer service standards set the level of output and degree of readiness to which the logistics system must respond. Logistics be increase in proportion to the level of customer service provided, such that setting the standards for service also affects the logistics be to support that level of service. Setting very high service requirements can force logistics cost 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 primitive 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 determined 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. Inventories are also essential to logistics management because it is usually not possible or practical to provide exigent production or ensure delivery times to customers. They serve as buffers between supply and demand so that needed product availability may be maintained for customers while providing flexibility for production and logistics in seeking efficient methods for manufacture and distribution of the product. Order processing is the final key activity.Its costs usually are minor compared to transportation or inventory maintenance costs. Nevertheless, order processing is an important element in the total time that it takes for a customer to receive goods or services. It is the activity triggering product movement and service delivery. Although support activities may be as critical as the key activities in any particular circumstance, they are considered here as contributing to the logistics missi on. In addition, one or more of the support activities may not be a part of the logistics activity mix for every firm.For example, products such as finished automobiles or commodities such as coal, iron ore, or gravel not needing the digest and security protection of warehousing will not require the warehousing activity, even though inventories are maintained. However, warehousing and materials handling are typically conducted wheresoever products are temporarily halted in their movement to the marketplace. 12 LSCTMMOD1 Send for a FREE copy of our Prospectus book by airmail, telephone, fax or email, or via our website Britain.International Headquarters College House, Leoville, Jersey JE3 2DB, Britain Telefax +44 (0)1534 485485 Email emailprotected com Website www. cambridgecollege. co. uk Protective packaging is a support activity of transportation and inventory maintenance as well as of warehousing and materials handling because it contributes to the efficiency with which these ot her activities are carried out. Purchasing and product scheduling often may be considered more a concern of production than of logistics.However, they also affect the overall logistics effort, and specifically they affect the efficiency of transportation and inventory management. Finally, information maintenance supports all other logistics activities in that it provides the needed information for planning and control. The extended supply chain refers to those members of the supply channel beyond the firms immediate suppliers or customers. They may be suppliers to the immediate suppliers or customers of the immediate customers and so on until raw material source points or end customers are reached.It is important to plan and control the previously noted activities and information flows if they affect the logistics customer service that can be provided and the costs of supplying this service. Management of the extended supply chain has the potential of improving logistics performance beyond that of just managing the activities within the immediate supply chain. Importance of Logistics/Supply Chain Logistics is about creating value value for customers and suppliers of the firm, and value for the firms stakeholders. Value in logistics is primarily expressed in terms of time and place.Products and services have no value unless they are in the possession of the customers when (time) and where (place) they wish to consume them. For example, concessions at a sports event have no value to consumers if they are not available at the time and place that the event is occurring, or if inadequate inventories dont meet the demands of the sports fans. goodly logistics management views each activity in the supply chain as contributing to the process of adding value. If little value can be added, it is questionable whether the activity should exist.However, value is added when customers are willing to pay more for a product or service than the cost to place it in their hands. To many firms throughout the world, logistics has become an increasingly important value-adding process for a number of reasons. Costs Are Significant Over the years, several studies have been conducted to determine the costs of logistics for the whole economy and for the individual firm. There are widely vary estimates of the cost levels. According to the International Monetary Fund (IMF), logistics costs average about 12 part of the 13 LSCTMMOD1Send for a FREE copy of our Prospectus book by airmail, telephone, fax or email, or via our website Britain. International Headquarters College House, Leoville, Jersey JE3 2DB, Britain Telefax +44 (0)1534 485485 Email emailprotected com Website www. cambridgecollege. co. uk worlds egregious domestic product. Robert Delaney, who has tracked logistics costs for more than two decades, estimates that logistics costs for the U. S. economy are 9. 9 part of the U. S. gross domestic product (GDP), or $921 billion. For the firm, logistics cost s have ranged from 4 percent to over 30 percent of sales.The results from a cost survey of individual firms are shown in Table 1-3. Although the results show physical distribution costs at about 8 percent of sales, this survey does not include physical supply costs. Probably another one-third may be added to this total to represent average logistics costs for the firm at about 11 percent of sales. Over the experience decade, physical distribution costs have ranged between 7 percent and 9 percent of sales. There may be a trend of increasing costs for individual firms, although Wilson and Delaney show over the same period that logistics costs as a percent of U. S.GDP have declined by about 10 percent. Logistics costs, substantial for most firms, set out second only to the cost of goods sold (purchase costs) that are about 50 percent to 60 percent of sales for the average manufacturing firm. Value is added by minimizing these costs and by passing the benefits on to customers and to t he firms shareholders. Logistics Customer Service Expectations Are Increasing The Internet, just-in-time operating procedures, and continuous replenishment of inventories have all contributed to customers expecting speedy processing of their requests, quick delivery, and a high degree of product availability.According to the Davis Survey of hundreds of companies over the last decade, world-class competitors have average order cycle times (the time between when an order is placed and when it is received) of seven to eight days and line item fill rates of 90 percent to 94 percent. LogFac summarizes world-class logistics performance for domestic companies as Error rates of less than one per 1,000 orders shipped Logistics costs of well under 5 percent of sales Finished goods inventory turnover of 20 or more times per year Total order cycle time of five working daysTransportation cost of one percent of sales revenue enhancement or less, if products sold are over $5 per 500 gms As might be expected, the average company performs below these cost and customer service benchmarks, when compared with the statistics in Tables 1-3 and 1-4. Supply and Distribution Lines Are Lengthening with Greater Complexity The trend is toward an integrated world economy. Firms are seeking, or have developed, global strategies by designing their products for a world market and producing them wherever the low-cost 14 LSCTMMOD1Send for a FREE copy of our Prospectus book by airmail, telephone, fax or email, or via our website Britain. International Headquarters College House, Leoville, Jersey JE3 2DB, Britain Telefax +44 (0)1534 485485 Email emailprotected com Website www. cambridgecollege. co. uk raw materials, components, and labor can be found (e. g. , Fords Focus automobile), or they simply produce topically and denounce internationally. In either case, supply and distribution lines are stretched, as compared with the producer who wishes to manufacture and sell only locally.Not only ha s the trend occurred naturally by firms seeking to cut costs or expand markets, but it is also being encouraged by political arrangements that promote trade. Examples of the latter are the European Union, the North America Free Trade Agreement (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 heavy on logistics performance and costs, as companies take more of a world view 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. For example, if a firm seeks foreign suppliers for the raw materials that make up its final product or foreign locations to build its product, the motivation is to increase profit. Material and labor costs may be reduced, but logistics costs are likely to increase du e to increased transportation and inventory costs. The tradeoff, as shown in Figure 1-6, may clue to higher profit by reducing materials, labour, and overhead costs at the expense of logistics costs and tariffs.Outsourcing adds value, but it requires careful management of logistics costs and product-flow times in the supply channel. 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 firms 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.When a firm incurs the cost of moving the product toward the customer or making an inventory available in a timely manner, for the customer value has been created that was not there previously. It is value as surely as that created through the production of a quality product or through a low price. It is generally recognise 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 accountability 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.Custo mers Increasingly Want Quick, Customized Response Fast sustenance retailers, automatic teller machines, long package delivery, and electronic mail on the Internet have led us as consumers to expect that products and services can be made available in increasingly shorter times. In addition, improved information systems and flexible manufacturing processes have led the marketplace toward mass customization. Rather than consumers having to accept the one size fits all philosophy in their purchases, suppliers are increasingly offering products that meet individual customer needs.Companies besides have been applying the concept of quick response to their internal operations in order to meet the service requirements of their own marketing efforts. The quick response philosophy has been used to create a marketing advantage. Saks Fifth driveway applied it, even though big profits are made through big margins and not on cost reductions that might be achieved from good logistics managemen t. Supply chain costs may even rise, although the advantage is to more than cover these costs through increased profits. Logistics/SC in Non-manufacturing AreasIt is perhaps easiest to think of logistics/SC in terms of moving and storing a physical product in a manufacturing setting. This is too narrow a view and can lead to many missed business opportunities. The logistics/SC principles and concepts learned over the years can be applied to such areas as service industries, the military, and even environment management. Service Industry The service vault of heaven of industrialized countries is large and growing. In the United States, over 70 percent of all creases are in what the federal government classifies as the service sector.The size of this sector exclusively forces us to ask if logistics concepts are not equally applicable here as they are to the manufacturing sector. If they are, there is a tremendous untapped opportunity yet to be fulfilled. Many companies designated a s service firms in fact produce a product. Examples include McDonalds community (fast foods) Dow Jones Co. , Inc. (newspaper publishing) and Sears, Roebuck and Co. (merchandise retailing). These companies carry out all the typical supply chain activities of any manufacturing firm.However, for service companies such as Bank One (retail banking), Marriott Corporation (lodging) and Consolidated Edison (electric power), supply chain activities, 16 LSCTMMOD1 Send for a FREE copy of our Prospectus book by airmail, telephone, fax or email, or via our website Britain. International Headquarters College House, Leoville, Jersey JE3 2DB, Britain Telefax +44 (0)1534 485485 Email emailprotected com Website www. cambridgecollege. co. uk especially those associated with physical distribution, are not as obvious.Even though many service-oriented companies may be distributing an intangible, nonphysical product, they do engage in many physical distribution activities and decisions. A hospital may w ant to extend emergency medical care throughout the community and must make decisions as to the locations of the centers. United Parcel Service and Federal Express must locate terminals and route pickup and delivery trucks. The East Ohio Gas Company inventories natural gas in underground wells during the off-season in the region where demand will occur. Bank One must locate and have cash inventory on hand for its ATMs.The Federal Reserve Bank must select the methods of transportation to move cancelled cheques among member banks. The Catholic Church must decide the number, location, and size of the churches needed to meet shifts in size and location of congregations, as well as to plan the inventory of its pastoral staff. Xeroxs repair service for copying equipment is also a good example of the logistics decisions encountered in a service operation. The techniques, concepts, and methods discussed throughout this Program should be as applicable to the service sector as they are to the manufacturing sector.The key, according to Theodore Levitt, may be in transforming an intangible service into a tangible product. Problems will remain in carefully identifying the costs associated with the distribution of an intangible product. Perhaps because of this, few service firms or organizations have a physical distribution manager on their staff, although they frequently do have a materials manager to handle supply matters. However, managing logistics in service industries does represent a new direction for the future development of logistics practice. MilitaryBefore businesses showed much interest in co-ordinating supply chain processes, the military was well organized to carry out logistics activities. much than a decade before business logistics developmental period, the military carried out what was called the most complex, best-planned logistics operation of that time-the attack 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 through such organizations as the RAND Corporation and the Office of Naval Research. With this background, the field of business logistics began to grow. Even the term logistics seems to have had its origins in the military.A recent example of military logistics on a large scale was the battle between the United States and Iraq over Iraqs 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. Lt General William Pagonis, in inject of logistics support for Desert Storm, observed When the Middle East started heating up, it seemed like a good time to pull out some history books on desert warfare in this region . tho there was nothing on logistics. Logistics is not a best seller. In a couple of his diaries, Rommel talked about logistics. He thought the Germans lost the battle not because they didnt have great soldiers or equipment in fact, the German tanks outfought ours almost throughout World War II but because the British had better logistics. 17 LSCTMMOD1 Send for a FREE copy of our Prospectus book by airmail, telephone, fax or email, or via our websiteThe first wave of 200,000 troops and their equipment was deployed in a month and a half, whereas troop deployment took nine months in the Vietnam conflict. In addition, the application of many goo d logistics concepts was evident. Take customer service, for example We believed that if we took care of our troops, the objectives would be over(p) no matter whatever else happened. The soldiers are our customers. It is no different than a determined, single focus on customers that many successful businesses have.Now, you take care of your soldiers not only by providing them cold sodas, and burgers, and good food you make sure they have the ammunition on the front line, so that when they go fight the war they know they have what they need. This meant that when 120 mm guns rather than 105 mm guns were desired on tanks, they were changed. When dark-brown vehicles were preferred over the traditional camouflage green, they were repainted at the rate of 7,000 per month. Environment Population growth and successive economic development have heightened our awareness of environmental issues.Whether it is recycling, packaging materials, transporting hazardous materials or refurbishing p roducts for resale, logisticians are touch in a major way. After all, the United States alone produces more than 160 million loads of waste each year, enough for a convoy of 10-ton garbage trucks reaching halfway to the moon. In many cases, planning for logistics in an environmental setting is no different from that in manufacturing or service sectors. However, in a few cases additional complications arise, such as governmental regulations that make the logistics for a product more costly by extending the distribution channel.Business Logistics in the Firm It has been the tradition in many firms to organize around marketing and production functions. Typically, marketing means selling something and production means making something. Although few business people would agree that their organization is so simple, the fact remains that many businesses emphasize these functions while treating other activities, such as traffic, purchasing, accounting, and engineering, as support areas. S uch an attitude is justified to a degree, because if a firms products cannot be produced and sold, little else matters.However, such a pattern is riskinessously simple for many firms to follow in that it fails to recognize the importance of the activities that must take place between points and times of production or purchase and the points and times of demand. These are the logistics activities, and they affect the efficiency and effectiveness of both marketing and production. Scholars and practitioners of both marketing and production have not neglected the importance of logistics. In fact, each area considers logistics within its scope of action.For example, the following definition of marketing management includes physical distribution Marketing (management) is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges with target groups that satisfy individual and organizational objectives. Mark etings concern is to place its products or services in convenient distribution channels to facilitate the exchange process. The concept of production/ operations management often includes logistics activities.Now, viewing product flow activities as a process to be coordinated, product flow aspects within marketing, production, and logistics are collectively managed to achieve customer service objectives. The difference in operating objectives (maximize revenue versus minimize cost) for marketing and production/operations may lead to a fragmentation of interest in, and responsibility for, logistics activities, as well as a lack of co-ordination among logistics activities as a whole. This, in turn, may lead to lower customer service levels or higher total logistics costs than are necessary.Business logistics represents a regrouping, either by formal organizational structure or conceptually in the minds of management, of the move-store activities that historically may have been partial ly under the control of marketing and production/ operations. If logistics activities are looked upon as a separate area of managerial action, the relationship of logistics activities to those of marketing and production/ operations would be as is shown in Figure 1-7. Marketing would be primarily responsible for market research, promotion, sales-force management, and the product mix, which create possession value in the product.Production/ operations would be concerned with the creation of the product or service, which creates form value in the product. Key responsibilities would be quality control, production planning and scheduling, job design, capacity planning, maintenance, and work quantity and standards. Logistics would be concerned with those activities (previously defined) that give a product or service time and place value. This separation of the activities of the firm into three groupings rather than two is not always necessary or advisable to achieve the coordination of logistics activities that is sought.Marketing and production/operations, when broadly conceived and co-ordinated, can do an effective job of managing logistics activities without creating an additional organizational entity. Even if a separate functional area is created for logistics within the firm so as to achieve effective control of the firms immediate logistics activities, logisticians will need to view their responsibility as one of coordinating the entire supply chain process rather than being just a local logistics activity administrator. To do otherwise may miss substantial opportunities for cost reduction and logistics customer service improvement.The interface is created by the arbitrary separation of a firms activities into a limited number of functional areas. Managing the interface activities by one function alone can lead to sub-optimal performance for the firm by subordinating broader company goals to individual functional goals-a potential danger resulting from the departmental form of organizational structure so common in companies today. To achieve interfunctional coordination, some measurement system and incentives for cooperation among the functions involved need to be established.This is equally true of the inter-organizational co-ordination required to manage product flows across company boundaries. It is important to note, however, that establishing a third functional group is not without its disadvantages. Two functional interfaces now exist where only one between marketing and production/ operations previously existed. Some of the most difficult administrative problems arise from the interfunctional conflicts that occur when one is attempting to manage interface activities.Some of this potential conflict may be dissipated if a new organizational arrangement is created whereby production/ operations and logistics are merged into one group called supply chain. Just as managers are beginning to understand the benefits of interfunctional logistics management, inter-organizational management is being encouraged. Supply chain management proponents who view the area more broadly than some logisticians have been strongly promoting the need for collaboration among supply channel members that are outside the immediate control of a companyslogistician, that is, members who are legally separate companies.Collaboration among the channel members that are linked through buyer-seller relationships is essential to achieving cost-service benefits unable to be realized by managers with strictly an internal view of their responsibilities. Supply chain managers consider themselves to have responsibility for the entire supply channel of the scope as illustrated in Figure 1-8. Managing in this broader environment is the new challenge for the contemporary logistician. Objectives of Business Logistics/SCWithin the broader objectives of the firm, the business logistician seeks to achieve supply channel process goals that will move the fi rm toward its overall objectives. Specifically, the desire is to develop a logistics activity mix that will result in the highest possible return on enthronisation 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.