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FIU EIN 5346 - Overview of Logistics & Supply Chain Systems

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Overview of Logistics Supply Chain Systems Lecture 1 ESD 260 1 260 15 770 Fall 2003 Sheffi Caplice Agenda What is Logistics Supply Chain Management Why is it important What are the specific components What are the core concepts of the course What is the schedule MIT Center for Transportation Logistics ESD 260 2 Chris Caplice MIT Some Definitions Logistics is 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 Council of Logistics Management Supply chain management encompasses every effort involved in producing and delivering a final product or service from the supplier s supplier to the customer s customer Supply Chain Management includes managing supply and demand sourcing raw materials and parts manufacturing and assembly warehousing and inventory tracking order entry and order management distribution across all channels and delivery to the customer The Supply Chain Council MIT Center for Transportation Logistics ESD 260 3 Chris Caplice MIT Some More Definitions Supply Chain Management deals with the management of materials information and financial flows in a network consisting of suppliers manufacturers distributors and customers Stanford Supply Chain Forum Logistics involves managing the flow of items information cash and ideas through the coordination of supply chain processes and through the strategic addition of place period and pattern values MIT Center for Transportation Logistics Call it distribution or logistics or supply chain management By whatever name it is the sinuous gritty and cumbersome process by which companies move material parts and products to customers Fortune 1994 MIT Center for Transportation Logistics ESD 260 4 Chris Caplice MIT Enough Definitions Logistics and Supply Chain are equivalent terms Key Observations Integrated activity X functions X divisions X companies etc Coordination of conflicting goals metrics etc Responsible for multiple flows Information orders status contracts Physical finished goods raw materials wip Financial payment credits etc Most analysis involves trade offs Across different entities Across metrics Cost Service Time Risk etc MIT Center for Transportation Logistics ESD 260 5 Chris Caplice MIT Why is Logistics Important Size of Market It Is Big Tough to estimate since it touches everything In pieces1 2002 US Total Inventory WH Carrying Transportation 1 444 M 298 M 571 M 14 GDP 3 GDP 6 GDP Strategic Advantage It Can Drive Strategy Manufacturing is becoming more efficient SCM offers opportunity for differentiation Dell or cost reduction Wal Mart Increased use of logistics outsourcing2 3PLs WH etc 65 B with 6 9 annual growth Globalization It Covers The World Requires greater coordination of production distribution Increased risk of supply chain interruption Increases need for robust and flexible supply chains MIT Center for Transportation Logistics ESD 260 6 Sources 1 14th Annual State of Logistics Report Wilson Delaney 2003 2 Armstrong Associates 2003 Chris Caplice MIT Why is Logistics Important At the company level logistics impacts COST For many products 20 to 40 of total product costs are controllable logistics costs SERVICE For many products performance factors such as inventory availability and speed of delivery are critical to customer satisfaction Logistics involves intelligent trade offs Purchase discounts versus Raw Materials Inventory Production efficiency versus Finished Goods Inventory Freight discounts versus Finished Good Inventory Lower planned cost versus More stable costs MIT Center for Transportation Logistics ESD 260 7 Chris Caplice MIT Traditional Logistics Functions Purchasing Procurement Inventory Control Warehousing Materials Handling Order Processing Transportation Customer Service Facility Location Network Design MIT Center for Transportation Logistics ESD 260 8 Chris Caplice MIT MIT Center for Transportation Logistics ESD 260 9 Chris Caplice MIT Traditional Logistics Management Typical silo approach each department operates in isolation Purchasing Inventory is the buffer between Production Marketing Finished Goods Inventory Raw Materials Inventory Key Insight Trade off inventory versus information because inventory is expensive and information is cheap MIT Center for Transportation Logistics ESD 260 10 Chris Caplice MIT Integrated Logistics Management Information Purchasing Information Production Material MIT Center for Transportation Logistics ESD 260 Marketing Material 11 Chris Caplice MIT MIT Center for Transportation Logistics ESD 260 12 Chris Caplice MIT Key Concepts Design operate and control the physical and information flows as though the channel were one seamless corporate entity Let the activities and costs migrate across corporate boundaries to where they make the most sense Rely on the benefits of channel integration to replace the benefits of open market forces Share the risks and the rewards between players MIT Center for Transportation Logistics ESD 260 13 Chris Caplice MIT Key SCM Concepts Each interface in the Supply Chain represents Raw Material Component movement of goods information flows transfer of title purchase and sale Manufacturer Strategic SCM consists of developing smarter ways to Retailer choose buy from and sell to your business partners MIT Center for Transportation Logistics ESD 260 Consumer 14 Chris Caplice MIT A Plethora of Approaches Just in Time Inventory Vendor Managed Inventory Quick Response Collaborative Planning Forecasting and Replenishment Cross docking Flow Through Centers Internet XML EDI Outsourcing 3PLs Activity Based Costing Build to Order SC Visibility Software SC Event Management Auctions Exchanges Merge In Transit Partnerships Alliances Postponement Strategies Cash to Cash Metrics Collaborative Transportation Management MIT Center for Transportation Logistics ESD 260 15 Chris Caplice MIT Core Concepts of ESD 260 Model Based Approach Use fundamental models to gain insights Analytical not necessarily OR approach Extensive use of real examples but not case studies Total System Cost Avoid the silo effect of traditional logistics Capture and integrate across different players in SC Service can be included Portfolio of Solutions Rarely is a single solution sufficient or practical A set of solutions is usually more applicable The context matters Management of Uncertainty Risk


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FIU EIN 5346 - Overview of Logistics & Supply Chain Systems

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