GlobalLogistics_Ch-2.ppt- for supply chain

supply chain

1. Global Supply Chain Global Supply Chain
ManagementManagement
Logistics A378Logistics A378
Spring 2004Spring 2004

2. Chapter #2
Logistics in the Organization

3. 09/10/24 3
The Logistics System
Customer
Service
Information
Systems
Materials
Management
Inventory
Management
Warehouse
Management
Transportation
LOGISTICS

4. 09/10/24 4
Overview
Marketing strategy requires the implementation of
distribution channels
Links the organization and its customers
The organization’s logistics system is designed to
support the marketing strategy
Chapters examines the relationship between
marketing channels and logistics
Must systematically manage the logistics to
support marketing's channel objectives

5. 09/10/24 5
Marketing/Logistics Partnership
Marketing must develop a strategy
Marketing must determine:
What products/services customers want
When they want it
Where they want it
And what level of customer service is desired
Marketing’s goal is to maintain a customer focus
and ensure that the organization meets the
customer’s requirements

6. 09/10/24 6
Marketing/Logistics Partnership
With a marketing strategy in hand, the
organization must implement it
Four key elements
Product (or Service)
Price
Promotion (communications)
Place

7. 09/10/24 7
The Marketing Mix
Product
Place
Price Promotion

8. 09/10/24 8
Alternative Channel Structures
Manufacturer
Host Country
Buying Office
Customer
Wholesaler
RetailerRetailerRetailerRetailer
Wholesaler
Wholesaler Wholesaler
Wholesaler
Parent Company
International
Division
Trading
Company/Agent
Trading
Company/Agent
Wholesaler
Distributor
Distributor
Trading
Company/Agent
WholesalerWholesaler
Wholesaler
Wholesaler
Source: Jain, Subhash C., International Marketing Management, Wadsworth, In 1993, p. 564
Domestic
International

9. 09/10/24 9
Marketing and Logistics Channels
Once marketing develops a strategy, we must
decide how to get the goods to the customers
Requires that we design a distribution channel
system (network)
Channels can be very simple
Producer sells directly to the customer
Or very complex
Multi-level global distribution networks

10. 09/10/24 10
Marketing and Logistics Channels
A little bit of history
When you live in a cabin and pursue a
subsistence life style, you don’t need to worry
about distribution
If someone else has something I need and can
not make for myself, I trade them something I
have for it …barter

11. 09/10/24 11
Marketing and Logistics Channels
With urbanization and specialization, barter is
replaced by formalized trade
We became dependent on others for basics at
first, e.g. food and fuel
Later we became dependent of others for
“luxuries”, e.g. a television
“Middlemen” (i.e., someone between the
producer and the consumer) were required to
support distribution logistics

12. 09/10/24 12
Marketing and Logistics Channels
Another way to view a distribution
channel is as a pipeline
Products and Customer Service
Money, information and returned Product
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Marketing and Logistics Channels
Channel design is not a new endeavor
Only recently, however, have we begun to address it
as part of overall system design
Environmental Issues
Global economy
Deregulation
Corporate reconfiguration
Technological innovation
Total quality management/customer service

14. 09/10/24 14
Environmental Issues
Global economy
Hard to be “just” a domestic company today
Specialization in manufacturing
Foreign markets, suppliers and raw materials
Fragmented distribution systems on a global scale
Cultural preferences
Formal and implied etiquette of each nation’s
business culture

15. 09/10/24 15
Environmental Issues
Government regulatory environment
Deregulation has led to an environment in which
the rules of channel management are constantly
changing
US and other western countries led the way
New phenomenon for many countries
International initiatives also affect channel
design, e.g. NAFTA and the European Union
Management must design flexible systems and
must emphasize adaptability while maintaining
focus on customer service

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Environmental Issues
Corporate reconfiguration forces continuous
realignment of channels
Mergers, acquisitions and spin-offs
Competitors become family members
Formers suppliers are purchased by competitors
Former internal partners become suppliers and/or
competitors
Such issues require we constantly reevaluate our
distribution channel system and adapt as necessary

17. 09/10/24 17
Environmental Issues
Technological Innovation
Big changes in the past two decades
Satellite communications

GPS/on-line tracking of vehicles
Automated handling systems
Bar coding, EDI, XLM the internet, RFID tags, etc.
Most significantly, the use of technology as a
competitive advantage
FedEx, UPS, DHL, etc.

18. 09/10/24 18
Environmental Issues
Total quality management continues to be a
significant driver in business
Through the 80’s into the 90’s it was an issue we
focused on through design and manufacturing
improvement
Today it is a critical concern of channel design
The distribution channel provides a major step in
delivering customer quality

19. 09/10/24 19
Marketing and Logistics Channels
Marketing Issues
Must decide what type of distribution best
supports the marketing strategy
Must maintain focus on customer service
Extremely complex problem for global companies
But…must define the channel that will meet our
constraints while minimizing overall system cost
and thus maximizing system (channel) profit

20. 09/10/24 20
Channel Management Issues
Inevitably, one channel member dominates
Manufacturer may dominate when customer demand is
brand name driven
Retailers may be large enough to drive the channel (Wal-
Mart)
Sometimes a wholesaler or distributor dominates the
channel (Numerous small retailers)
Channel leader must manage for overall efficiency
and mutual benefit...or the channel fails to remain
competitive

21. 09/10/24 21
Formal and Informal Relationships
Channel management is highly dependent on
relationship management
Can be formalized through contracts
Articulate participating members’ rights and
obligations
Required for complex channel systems

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Formal and Informal Relationships
Informal relationships are often the first step
More flexibility
Chance to get to know each other and build trust
Can be the first step toward a formalized
relationship
Often all that is needed for simple channel
systems

23. 09/10/24 23
Domestic vs. Global Channels
Focus of the channel is the customer
Social, cultural, economic and historical
conditions force channels to be country
specific
US, Europe, Japan, India, China, Brazil, etc.
In many countries, consumers as we know them
in western society, are still evolving

24. 09/10/24 24
Domestic vs. Global Channels
For global firms, sourcing, production and
distribution may involve 10s of alternatives
Challenge is to define the system that best
focuses on the customer and is most efficient

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Future Trends
Supply Chain Management
An extended enterprise model enabled by technology
and required by competition
Quick response logistics
Boeing and spare parts
Strategic alliances and partnerships
One way to expand into new markets both
product/service wise and geographically
Third-party logistics providers
Providing a variety of functions more efficiently than
we can ourselves.

26. 09/10/24 26
Managing the Logistics System
Logistics systems support the marketing
strategy and provide channel realization
Once the channel is defined the logistics must be
designed
Numerous trade-offs are available
Fast vs. slow transport
Bulk vs. small quantities
JIT vs. local/regional warehousing, etc.
Focus must always remain on customer
service and overall system profit

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The Logistics Mix as a System
Customer
Service
Information
Systems
Materials
Management
Inventory
Management
Warehouse
Management
Transportation

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Trade-Off Analysis
Logistics activities must be managed as an
integrated system
Individual decisions affect the overall cost
Total cost view must be adopted by management
Impossible to minimize one cost without affecting
others
Failure to consider the system as a “whole”
results in suboptimal decision making

29. 09/10/24 29
Trade-Off Analysis
Ordering Costs
Inventory Costs
Total Cost
Transport Costs
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•Computerized Order- Processing
•Premium Transport
•Little Inventory
•Manual Order-Processing
•Low-cost Transport
•High Inventory

30. 09/10/24 30
Trade-Off Analysis
•Computerized Order- Processing
•Premium Transport
•Little Inventory
•Manual Order-Processing
•Low-cost Transport
•High Inventory
Inventory
Cost
Ordering Costs
Transport Costs
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Total Cost

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Trade-Off Analysis
Ordering Costs
Transport Costs
Inventory
Costs
Total Cost
•Computerized Order- Processing
•Premium Transport
•Little Inventory
•Manual Order-Processing
•Low-cost Transport
•High Inventory
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Trade-Off Analysis
Static Analysis of Quantum Chemical (50,000 lbs of production)
Plant Logistics Costs System A System B
Packaging 500$ 0
Storage and handling 150 50
Inventory carrying 50 25
Administrative 75 25
Fixed Cost 4,300 2,400
Transportation costs
To market warehouse 0 150
To customer 800 100
Warehouse Costs
Packaging 0 500
Storage and handling 0 150
Inventory carrying 0 75
Administrative 0 75
Fixed Cost 0 2,400
TOTAL COSTS 5,775$ 5,950$

33. 09/10/24 33
Trade-Off Analysis
Dynamic Analysis of Quantum Chemical
System ASystem B
Total Fixed Costs 4,200$ 4,800$
Variable Costs
Production Level 50,000 50,000
Variable Costs/lb 0.0315 0.023
Total Variable Costs 1575 1150
TOTAL COSTS 5,775$ 5,950$
Dynamic  changing over time, i.e. the production level may change over time

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Trade-Off Analysis
Break-Even Analysis
4000
4500
5000
5500
6000
6500
7000
7500
8000
1 2 3 4 5 6 7 8 9 10
Lbs of Production (x1000)
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(
$
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System A
System B
Break Even Point

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Trade-Off Analysis
Algebraically…and more accurately
Y
1 = 4,200 + 0.0135x
Y
2 = 4,800 + 0.0230x
Where Y
1
is the total cost of System A, Y
2
is the total cost of
System B and x is the level of production in pounds, then:
Y
1 = Y
2 defines the Break-even point
4,200 + 0.0135x = 4,800 + 0.0230x
0.085x = 600
x = 70,588 lbs
That is, below 70,588 system A is preferred and
above that point, system B is bests (lowest TC)

36. 09/10/24 36
Summary
Logistics decisions can not be made until a
marketing strategy is developed
Logistics supports the “place” and “price”
components of marketing
Management must view logistics as a set of
interacting activities
The goal is overall system efficiency which
yields lowest system cost and maximizes profit