1. Definition of Logistics and historic evolution Flashcards
The CSCMP: Council of Supply Chain Management Professionals, define logistics management as:
*Part of Supply Chain Management
*that plans, implement and controls
*the efficient and effective
*forward, reverse flow and storage
*of goods, services and information
*from a point of origine to a point of destination
*meeting with customer requirements
+and sustainable development goals.
Define Efficiency
Use of resources to achieve goals
Define Effectiveness
Achievement of right goals
Logistics definition has evolved with time, how the radar chart explains it?
The radar chart explains the evolution split in the 4 main areas (axis) in which Logistics has evolved into what it is today.
The main areas are:
* Activity (y+ 4)
* System (y- 3)
* Product (x+ 4)
* Performance(x- 3)
In the exam:
+LM definition & areas description!
Talking about the radar chart, explain the “Activity” axis.
The activity axis explains the evolution of LM in terms of “what was done”.
1.Execution: Physically moving goods.
2. Planning/Control: Managing the execution of LM as a core business function.
3. Process: Integrating LM as an input-process-output system interacting with other business areas and stakeholders.
4. Reverse Logistics: Managing the efficient return of goods.
execution-planning/control-process-reverse.
Talking about the radar chart, explain the “Product” axis.
The product axis show the evolution in terms what is about to be stored, handled, transported and/or delivered in function of customers demand.
- FG: emphasis in physical goods from end of the line to the customer.
- Goods: from POO to POD. ex. RM
- Information: needed to coordinate the SC
- Services: intangible activities to meet customer needs. ex after sales
Talking about the radar chart, explain the “System” axis.
The System axis explains the evolution starting from isolated processes to fully integrated and collaborative supply chains.
- Distribution: product delivery from production to consumers.
- Internal Supply Chain: Integrated processes within an organization
- External Supply Chain: Expanded coordination between multiple organizations
Talking about the radar chart, explain the “Performance” axis.
Logistics performance evolves by shifting priorities, aiming to meet objectives more comprehensively focusing on achieving specific goals while optimizing resources.
1. Efficient: minimizing costs and maximizing resource utilization.
2. Effective: Prioritizes meeting customer requirements.
3. Sustainable: Aims to balance economic, environmental, and social factors for long-term impact.
Taking again the radar chart of logistics, which axis we make reference and what is the trend:
- Logistics performance indicators
Axis: Performance
From cost reduction to customer service and profit optimisation to sustainability.
Taking again the radar chart of logistics, which axis we make reference and what is the trend:
- The 3 stacks of logistics management
Axis: Activity
From execution to planning to design
Taking again the radar chart of logistics, which axis we make reference and what is the trend:
- Types of logistics
Axis: Product
From direct flow of products to info, money, services… till reverse flow.
Taking again the radar chart of logistics, which axis we make reference and what is the trend:
- Integrated Logistics and Supply Chain Management
Axis: System
From the optimisation of single activities to an integrated function
Logistics Performance Indicators:
What are the main costs related to activities?
- Transportation
- Warehousing
- Administrative
+Packaging
+Poor Service
Logistics Performance Indicators:
Cost related to the activity:
Transportation
Can be split in 2 mainly because of their cost drivers:
1. Primary transportation (saturation)
2. Secondary Transportation (time btw points/customers)
Logistics Performance Indicators:
Cost related to the activity:
Transportation:
Primary transportation
Long-haul, full loaded, point-to-point
Long distance transportation, Aim is to use all the capacity of the transportation means, driver = saturation.
Logistics Performance Indicators:
Cost related to the activity:
Transportation:
Secondary transportation
Last mile, less than full load, multi-point
Normally in the low part of the distribution network, it has to reach multiple points = customers. Real. constrain = time. How many customer I can reach in that period and how to increase that number.
Logistics Performance Indicators:
Cost related to the activity:
Warehousing
Related to warehouses and factories.
Within a warehouse two types of costs can be
distinguished:
1.Handling (driver: flows)
2. Inventory related (driver: inventory level)
Main difference = drivers
Logistics Performance Indicators:
Cost related to the activity:
Warehousing:
Handling cost
Driver: flows
Cost related to movements of the products within the nodes of the chain.
Logistics Performance Indicators:
Cost related to the activity:
Warehousing:
Inventory-related cost
Driver: inventory level
Cost to keep inventory within the nodes of a chain.
Define flow when talking about handling
how many IU enters/exit the system
Logistics Performance Indicators:
Cost related to the activity:
Administrative costs
Network management and information flows.
Order to payment cycle.
- Logistics accounting (inventory control, planning, order & invoice)
- Information systems
Logistics Performance Indicators:
Cost related to the activity:
Packaging costs
Packaging influences the transportation and warehouse
Hierarchy…
Primary packaging: connected to the product
Secondary: ex. carton
Tertiary: (pallet for instance)
Logistics Performance Indicators:
Cost related to the activity:
+Impact of production costs
Set up costs: lot size & freq
Logistics Performance Indicators:
Cost related to the activity:
+Poor service cost
Lost sales, Obsolescence
If no inventory, no sales
If we talk about:
Target Service Level
Complexity of Logistics’ Process
What they refer to?
Main drivers of logistics cost
How do we calculate the Incidence of logistics cost in a company
(equation)
Is the ratio between the Logistics cost divided the Revenues.
LC/R
There are two drivers that makes the Logistics Costs and Revenues variate:
- Complexity and Target Service Level
- Value density
LC/R
If Complexity and target SL increases:
L increases
R slight increase
Incidence … increases
LC/R
If value density increases:
R increases
L slight increase
Incidence … decreases
Importance of LM, cost depends on 3 reasons:
Non-dicretionary activities
Costs between 5-15% Rev
Impacts the assets
In terms of LM cost incidence, rank some examples
<5 luxury & pharma
>5 fashion E-commers
10 food
15 water RM
>15 ecommers of food
True or false:
External factors should be considered when looking at logistic costs.
Like production factors and reduction of capacity
True
How is the incidence of Logistic costs in a Supply chain
Is the sum of the incidence of the manufacturers portion over the Transfer price of the manufacturer and the portion of the transfer price of the retailer.
Being TPM<TPR
In the objective function of logistics other than cost we have:
customer service
List the indicators related to Customer service:
Time related (OCT, punctuality, frequency)
Availability (order fill rate, Item fill rate, completeness)
Accuracy/compliance/quality (order, packaging, documents)
This indicators has to be with speed in punctuality in relation to customers expectations and promises made
Time related
Time related:
Speed perceived by the customer, from order to delivery.
Order Cycle Time OCT
Time related:
Supply Chain lead time = OCT
No.
There is a decoupling point were forecasting and ordering is divided. the OCT is about the order side of the chain.
Time related:
Related to the ability to deliver compliant UL in the time window.
Punctuality / on time
Time related:
number of deliveries planned in a reference window
Frequency
they measure the capability of the supplier to satisfy the request through inventory inhand
Availability (filtrate)
A=on hand/ demand
Availability indicators
Order Fill Rate OFR= all items 100%, missing 0%
Order completeness = 100% lines
Item Fill Rate IFR= How many lines available
OFR= IFR elevado N
if IFR=99%
N lines = 10
OFR=90%
Give me an example of a compound indicator for customer service
DIFOT
Delivered InFull InTime
Sustainability Indicators
Sustainability related goals (ONU)
GHG
Materials
Energy
Water
Emissions
Waste
3 stacks:
If we say transportation, handling, storage, physical transformation
Execution
3 stacks:
Getting the supply chain aligned and tuned
plans for the adjustment of operations and executions linking the demand and supply side
Planning
3 stacks:
Logistics network structure
Transportation modes
MVB
decisions aligned with overall company
Design
What is the heart of logistics
Integration
Interconnection of activities on order to influence/impact/improve performances
Why is wrong to consider only transportation cost to select a transportation mode
The objective function of logistic cost is:
LC= Transportation + Inventory (CS + IT)
Define Supply Chain Management
Integration of business process along the supply chain.
What means IFR = 95%
5 out of 100 times that a customer wants a product, the product is not available
True or False
ISC < IManufacturer + IRetailer
True
Example Vendor Managed Inventory VMI
Where manufacturer manages the inventory directly at the retailers facilities and they get to have insights about customers demand
collaboration is fundamental
Types of logistics, list them.
From direct flow to reverse logistics
Focused on systems
Materials
Other flows (information)
Compare direct vs reverse flow in terms of:
Flow shape
Items
Transformation
Direct:
Flow shape - divergent
Items: identified
Transformation: might need
Reverse:
Flow shape - convergent
Items: non identified
Transformation: Needed
Which models can we use to understand:
1. What is the connection between logistics strategy and corporate strategy?
2. What are the possible approaches to logistics strategy?
a) ROA Model - IMPACT: Analyzes the return on assets, a measure of the company’s profitability.
b) Supply Chain Strategy Model - STRATEGY: Examines the overall strategy for managing the flow of goods and services.
Explain the profit optimization approach
Graph 1: Profit Optimization
This graph shows how to maximize profit by balancing service level and costs.
X-axis: Service Level (from 85% to 100%). This represents how well the distribution network meets customer needs (e.g., on-time delivery).
Y-axis: Euros per year (€/year). This represents the monetary value of costs and profits.
Gross Margin (Purple Line): This is the overall revenue minus other non-logistic costs (like manufacturing). It generally increases with better service levels (as happy customers buy more). Notice it flattens out towards the highest service levels, meaning the extra cost to achieve perfect service may not yield much additional revenue.
Logistic Costs (Orange Line): This is the cost of operating the distribution network (warehousing, transportation, etc.). It increases with higher service levels because providing faster and more reliable delivery requires more investment (more warehouses, faster shipping options).
Margin (Gap between the lines): The space between the Gross Margin and Logistic Costs curves represents the actual profit. The biggest gap shows the optimal service level for maximum profit (indicated by MMAX on the graph). In this example, it’s somewhere between 95% and 99%. Pushing for 100% service might not be the most profitable strategy, as the logistic costs rise sharply.
Explain the cost of poor service and total cost optimization
Graph 2: Total Cost Optimization
This graph shows how the total cost changes with different service levels.
X-axis: Service Level (from 85% to 100%)
Y-axis: Euros per year (€/year)
Logistic Costs (Purple Line): Same as before – cost of the distribution network. It goes up with higher service levels.
Cost of Poor Service (Orange Line): This is the cost associated with not meeting the desired service level. This includes lost sales due to late deliveries, customer service expenses for handling complaints, etc. This cost goes down as service level improves.
Total Cost (Green Line): This is the sum of Logistic Costs and the Cost of Poor Service. The goal is to find the lowest point on this curve, which represents the most cost-effective service level. In this example, the optimal point is again somewhere around 95%. This shows that balancing the cost of logistics with the cost of unhappy customers is key to minimizing total costs.
