Unit 1: Logistics Management Concepts

7 February 2018

Ester Kalipi(M.LSCM.; B. Hons Logistics; B-tech. BA.; Dip. BA.; Cert. BA.)

Operational Logistics Management (OLM612S)

Table of contents • Unit Objectives

• Introduction to Operations Management

• Relationship between Operations & Logistics Management

• Relationship between Logistics Management & Supply Chain

Management

• Material Management & Physical Distribution Management Activities

• Reverse Logistics

• Classification of Logistics Decisions

• Logistics Analysis Instruments

• Unit summary

• References

Objectives By the end of this unit, students should be able to:

Define operations management

Identify the relationship between business logistics and supply

chains

Describe the development of supply chain management within

organisations

What is operations Management

• The systematic design, direction, and control of processes that transform inputs into services and products for internal, as well as external, customers (Krajewski, Ritzman & Malhotra, 2010).

• Processes can be linked together to form a supply chain – interrelated processes within a firm and across different firms that produce a service or product to the satisfaction of the customers

• OP is also defined as the activity of managing the resources which produce and deliver goods and services (Porter, 2011).

Across the Organization

Material & Service Inputs

Sales Revenue

Product & Service Outputs

Finance

Acquires financial resources and capital

for inputs

Marketing

Generates sales of outputs

Operations

Translates materials and service into

outputs

Support Functions

• Accounting• Information Systems• Human Resources• Engineering

Figure 1 Krajewski, Ritzman & Malhotra, 2010

A Process View

External environment

Information on performance

Internal and external customers

Processes and operations

1

2

3

4

5

Inputs

• Workers

• Managers

• Equipment

• Facilities

• Materials

• Land

• Energy

Outputs

• Goods

• Services

Figure 2Krajewski, Ritzman & Malhotra, 2010

A Process View

• Physical, durable output

• Output can be inventoried

• Low customer contact

• Long response time

• Capital intensive

• Quality easily measured

• Intangible, perishable output

• Output cannot be inventoried

• High customer contact

• Short response time

• Labor intensive

• Quality not easily measured

More like a manufacturing

process

More like a service process

Figure 3 Krajewski, Ritzman & Malhotra, 2010

Relationship between Operations & Logistics Management

Council of Logistics Management definition:

“Logistics is that part of the supply chain process 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.”

OM- designing and controlling the process of production and business operations dealing with good or services.

• Get the maximum production results from the resources available to the company.

• Operations oversee the production activities of goods and services, while logistics is concerned with efficient and effective flow of goods and services from producer to consumers.

Operational Logistics Management

Definition: Logistics Management & Supply Chain

Management

• Logistics Management includes inbound and outbound logistics, transportation management, fleet management, warehousing, Materials handling, inventory management, Supply/Demand Planning, Procurement, sourcing, Third party logistics. Logistics Management is an integration function.

• Supply chain management (SCM) is the management of the flow of goods, movement and storage of raw materials, work-in-process inventory, and finished goods from the point of origin to point of consumption. Organized and interlinked networks, channels are involved in the provision of products and services required by end customers in a supply chain.

Relationship between OLM and SCM• The terms supply chain and logistics management are inseparably intertwined. While

different enough to be recognized as individual terms or processes, the two are so tightly interlinked that they should not be considered separately.

• The term logistics has a narrower focus on activities involving product distribution and the strategic coordination of flows between marketing and production. In the case of the global transport industry this would translate into the relationship between transportation and distribution.

• The focus of supply chain, on the other hand, additionally encompasses manufacturing, purchasing and procurement, which by their very nature enhance the focus by including third party suppliers, manufacturers and retailers. Even with these differences it is clear that logistics areas often cut across supply chain functions and vice versa.

• Although the complexity and structure of supply chains vary depending on the industry and the organization’s size, in a nutshell it can be said that supply chain management encompasses the entire process from raw materials to the final customer. Effective SCM involves oversight and management of suppliers, buyers, vendors, customers, and any others on whom the organization depends on to deliver a product or service.

• As consumer expectations around service speed and quality, cost, and choice continue to rise, an organization will compete to try and meet consumer demand. Successful SCM organizes the process to make this happen in a way that also keeps costs low while turning a profit.

MATERIAL MANAGEMENT & PHYSICAL DISTRIBUTION

Material Management• It is concerned with planning, organizing and controlling the flow of materials

and storage process from their initial purchase through internal operations to the service point through distribution. Concerned with Planning, Organizing & Control of flow of materials, from their initial purchase to destination with the aim to get: The Right quality, Right quantity of supplies, At the Right time, At the Right place, For the Right cost

Purpose of material management

• To gain economy in purchasing

• To satisfy the demand during period of replenishment

• To carry reserve stock to avoid stock out

• To stabilize fluctuations in consumption

• To provide reasonable level of client services

Physical distribution Management

• The activities associated with the movement of material, usuallyfinished goods or service parts, from the manufacturer to thecustomer. Physical distribution refers to the movement of thefirm’s finished products to its customers, consisting oftransportation, warehousing, inventory, customer service/order entry,and administration.

• Physical Supply

• goods moving from supplier to manufacturer

• “inbound”

• Physical Distribution

• goods moving from manufacturer to customers

• “outbound”

Reverse Logistics

• Reverse logistics is part of the returns management processthat plans, implements and controls the efficient andeffective flow of goods and related information between thepoint of origin in order to recapture value or properlydispose of the goods

• It is also the Flow of surplus or unwanted material, goods, orequipment back to the firm, through its logistics/supply chain,for reuse, recycling, or disposal.

Role of Reverse Logistics

• Products that have failed; are unwanted, damaged, or defective; but can be repaired or remanufactured and resold

• Products that are old, obsolete, or near the end of their shelf life but still have some value for salvage or resale

• Products that are unsold from retailers, usually referred to as overstocks that have resale value

• Products being recalled due to a safety or quality defect that may be repaired or salvaged

• Products that can be recycled such as pallets, containers, computer inkjet cartridges, etc.

• Products or parts that can be remanufactured and resold

• Scrap metal that can be recovered and used as a raw material for further manufacturing

The Impact of reverse logistics

• Increased Customer Wait Times resulting into loss of Confidence in the Supply System

• Multiple orders for the same items, resulting into excess supplies in the forward pipeline

• Greater transport costs than during forward logistics and there are smaller quantities,

• Little or no holding costs, as products are moved quickly through the reverse chain to the point where they can be reused, repaired, remanufactured, refurbished, recycled or disposed of,

• Higher sorting costs as each product need to be inspected closely as before

• Change in book value of product,

Importance of implementing Reverse Logistics Strategies:

• Allows the receiving of products back from the consumer or send unsold productsback to the manufacturer to be taken apart, sorted, reassembled or recycled;minimising overall costs for an organisation.

• Reverse logistics can be valuable in increasing product lifecycles, supply chaincomplexity, maintainable practices and consumer preferences; which have to beimproved on to maintain productivity and growth.

• Gains can include; increasing speed of production, reducing costs (transportation,administrative, and aftermarket maintenance, repair and replacement), retainingcustomers by improving service goals and meeting sustainability goals.

• More value can be extracted from used/returned goods instead of wastingmanpower, time and costs of raw materials involved in the original supply chain.

• Improved customer satisfaction and loyalty by paying more attention to faultygoods, and repairs of merchandise. Reverse logistics can include gaining feedbackto make improvements and to improve the understanding of real reasons for productreturns.

Classification of Logistics Decision Making

• Supply Chain Management processes and technology work to ensure thesupply chain is operating efficiently at the lowest cost with optimum customersatisfaction. To this end, decisions are made at three distinct levels:

• Strategic: At the strategic level, organizations focus on high level decisionsthat impact the entire organization. Decisions often revolve aroundmanufacturing site size and/or location, supplier partnerships, sales markets,or the products or services to be manufactured or delivered.

• Tactical: Tactical level decision making focuses on measures to generate costbenefits like adopting best practices, or creating a purchasing strategy withselected suppliers.

• Operational: Decisions at this level are made on a daily basis and impact howproducts/services move through the supply chain. Examples includeproduction schedule changes or warehouse product movement.

Logistics Analysis Instruments

• Logistics analysis is the planning a company decides to use tomanage the flow of its goods or information or services throughvarious supply chains and business channels. Logistics analysishelps a company decide where to locate facilities for thetransportation of physical goods.

• Integer programming

• Feasibility Analysis

• Transportation Modelling

• Deterministic & Probalistic

• Mathematical understanding in the supply chain

Homework

what are these instruments and how are they useful in making Logisticsdecisions?

• Integer programming:

• Feasibility Analysis

• Transportation Modelling

• Deterministic & Probabilistic

• Mathematical understanding in the supply chain

Homeworkwhat are these instruments and how are they useful in making Logistics decisions?

• Integer programming- A mixed-integer programming model (Mathematical modellingapproach to find the best outcome of the system that has constraints) is formulated todetermine the optimal fleet components, route plans, and warehouse control in two countries.

• Feasibility Analysis: to assess if there are opportunities to significantly increase productivityand reduce operating costs with minimum or no capital expenditure.

• Transportation Modelling: (mathematical, logical or structured representation of reality)Integrate inventory, track and trace shipping, Customer Interaction Management, financialmanagement reporting, and RFID support data.

• Deterministic & Probabilistic: A deterministic mathematical model is meant to yield a singlesolution describing the outcome of some "experiment" given appropriate inputs (dependentrelationship). A probabilistic model is, instead, meant to give a distribution of possibleoutcomes (i.e. it describes all outcomes and gives some measure of how likely each is tooccur). Assumptions on how much to order, when to order, demand over lead time etc.

• Mathematical understanding in the supply chain: Supply chains are global, with challengessuch as cost, tax laws, skills, material availability, and new market entry which have drivenorganizations to redesign and reconfigure their supply chains. Mathematical understandingovercome that inadequacy and complexity in managing supply chains.

Quiz 1

• What is supply chain management? 2 Marks

• What is logistics Management? 2 Marks

• Discuss the relationship between LM and SCM? 4 Marks

• List any two instruments that help in making decisions in supply chain? 2 Marks

Total 10 Marks

Summary Operations Management is the systematic design, direction, and control of processesthat transform inputs into services and products for internal, as well as external,customers (Krajewski, Ritzman & Malhotra, 2010). Operational LogisticsManagement model all operations into an input-transformation-output process, inorder to create and deliver service and/or products by changing inputs into outputsand in the end value is added to such an activity.

Logistics management and supply chain management share an intertwinedrelationship. Every partner in the supply chain performs the logistics managementactivities and supply chain management facilitates efficient flow raw materials,goods, services, and information between the point of origin and the point ofconsumption. The supply chain management is made up of the series ofinterconnected logistics activities, i.e. materials management, physical distributionand reverse logistics. Decisions affecting logistics management activities are made atthree levels, namely, strategic, tactical and operational level. Decision makinginstruments may be used to support and evaluate decision made with regards tocertain logistics activities.

References

• Bowersox, D. J., Closs, D. J., Cooper, M. B. Bowersox, J. C. (2013). Supply Chain Logistics Management (4th ed) . New York: McGraw-Hill

• Krajewski, L.J., Ritzman, L.P. & Malhotra, M.K. (2010). Operations management: processes and supply chains. United States of America: Pearson Prentice Hall

• Pienaar, W.J., & Vogt, J.J. (2009). Business logistics management: A supply chain perspective (3rd Ed.). Cape Town: Oxford University Press.

• Porter, A., (2011). Operations Management (2nd ed). Bookboon. ISBN: 978-87-7681-464-9