Lecture 1 Flashcards
Chapter 1 & 2
What is the definition of logistics?
”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”
What is the mission of logistics?
The mission of logistics is 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.
What are the 14 activities associated with logistics?
- Customer Service: customer service is important to the firm
- Order Processing: the firms central nervous system (order entry, scheduling, tracking, collecting money…)
- Distribution communications: effective communication is vital
- Inventory (zapas) control: financially impacts the firm
- Demand Forecasting
- Traffic and Transportation: mode, regulations, routing
- Warehousing and Storage: Products must be stored
- Plant and warehouse site selection: Where?
- Material Handling: movement and flow of …
- Procurement: where to get it from?
- Parts and Service Support: after sales service e.g. KTM
- Packaging: Dual role (Marketing, Transport + Information)
- Salvage and Scrap disposal: waste disposal
- Return goods handling: reverse logistics
Explain the logistics system (PIPELINE).
A pipeline is a type of supply chain where materials are moved, in a linear fashion, from one stage of production to the next.
It starts with a raw materials getting transported to a storage then it can go to another storage or to Plants (here raw materials are changed into products); then they go to warehouses (finished products are storaged) & then to markets/customers.
- Physical Supply Materials Management - raw materials, storage, plant
- Physical Distribution Marketing Logistics - plant, warehouse, markets
What are the main components of the key decisions in logistics system design?
- Procurement
- Order Processing
- Inventory Policy
- Transport Policy
- Customer Service Policy
- Facilities Network
What kind of decisions in logistics system design are made in a PROCUREMENT component?
degree of centralization; supplier characteristics; multiple vs. single sourcing; degree of backward integration
What kind of decisions in logistics system design are made in a ORDER PROCESSING component?
order cycle design; information flows; degree of automation
What kind of decisions in logistics system design are made in a INVENTORY POLICY component?
coverage level; form/location of inventories
What kind of decisions in logistics system design are made in a TRANSPORT POLICY component?
transport modes; utilization; degree of forward integration
What kind of decisions in logistics system design are made in a CUSTOMER SERVICE POLICY component?
frequency of delivery; order communication Inventory coverage levels; order selection methods
What kind of decisions in logistics system design are made in a FACILITIES NETWORK component?
Degree of centralization
Number of echelons (szczeble)
For each:
Number of facilities/Location/Scale/Layout
Product/process specialization
Links between facilities:
Information flows
Sourcing Patterns
What are the differences between the international and domestic logistics?
International Logistics are:
- riskier & more complex
- attention is paid to cultural, political, and economic factors
- interpersonal management task is more difficult
- inventory costs are higher
- transportation is more difficult and costlier
- multiple transportation modes are used
- manager has to deal with: new institutions, new terms, complex documentation and intermediaries
- there is a need of consolidation - because of that planning effort grows (larger economic vessels)
- slower and costlier service, more frequent stockouts (zapasy)
- international facilities network is more difficult to control
- access to raw materials and local markets is harder/easier ??????????????
Why in international logistics interpersonal management task is more difficult?
- multiple players
- home office
- international business partners
- officials in central and local government
- workers in the venture
Why in international logistics inventory costs are higher?
- pipelines longer & slower -> pipeline inventory raises
- uncertainty (political and production) -> safety stock raises
- product proliferation -> more skus -> inv. of f.g. raises ?????????????????????????????????????????????
- pilferage and risk -> carrying cost raises
what are the transportation modes used in international logistics, and what are the transportation modes used in domestic logistics?
- international transportation: ocean and air carriage
- domestic transportation: rail and truck
Why international facilities network is more difficult to control in international logistics?
- many languages, customs, labor norms
- lack of infrastructure difficult communication (2 year wait to get a telephone!)
How cultural differences influence working in international logistics?
- On-the-job conflicts often arise out of conflicting values regarding time, change, material factors and individualism. This can be a problem when managing international logistics!
- Managers that listen and reflect can anticipate how to motivate people and co-ordinate work
(17 slajd) What are the 3 categories of nations?
The first world, the emerging economies, and the third world
What are the main categories in which logistics in different countries differs?
- the countries can be in different categories of nations (the first world, etc.)
- different measures (they can include strategies, organizational development, logistics performance, the use of information technology, and strategic alliances)
- different state of the road system (this is one of performance factors) - e.g. USA= 90 % paved; Zimbabwe=19% paved, 35% unimproved dirt..
Characterize the first world nations.
- An Evolved Logistics Infrastructure
- Performance
- Information Systems
- Human Resources
- Strategic and Financial Resources
Characterize the emerging nations.
- Emphasis on Infrastructure Renewal and Development
- Influence of Firms versus Government
- Economic “Stepchild” or Financial Spheres of Influence-Companies investing in countries
Give examples of emerging countries.
Russia, Brazil, Taiwan, CHINA; Indonesia, and Eastern Europe
What are the problems from Russia/Ukraine war? As they both are the emerging countries.
Example of SUP and winter tyres - ???????????????????
Characterize the third world countries.
- They are defined by low levels of industrialization, literacy, and per-capita income
- Focus on subsistence and maintenance, and are often agrarian-based or have large nomadic populations
- Infrastructure Insufficiency (based on export)
- Transportation
- Information
- Human Resources
- Trade Issues
- Governmental Stability
- Ethical Considerations
- Warehousing /inventories/customer service
Give examples of the third world countries.
Sudan, Afghanistan, Haiti, and Ethiopia
Characterize the modern global logistics industry.
Political, economic, social and technological factors have facilitated major changes in the way in which multinational manufacturers supply global consumer markets, and how retailers source their goods.
How LSPs (Larger logistics service providers) can differentiate their service offering from smaller competitors?
LSPs can differentiate their service offering from smaller competitors by leveraging the following:
o Global scale
o Technological capabilities
o Financial resources
o Human capital
The world’s economy is moving from globalization to regionalization of supply chains. What does it mean?
This involves a transformation from East–West and West–East Flows to complex networks of developed and emerging markets. This shows that trade is re-balancing – with obvious consequences to shipping lines, air cargo carriers and freight forwarders.
What are mega-cities?
They are the cities with over 10 million people, which are the ‘localization’ of supply chains in emerging markets.
Why should mega-cities have an impact on supply chains?
- Mega-cities will create their own economies of scale, supplied by local/regional production facilities.
- Consumer goods will be customized to local tastes.
- Own unique ecosystem, which takes into account the movement of people, data, finance, energy, waste, goods and services.
- Transport demands will be specific to each city’s needs and capabilities: poor planning and infrastructure will result in high logistics costs.
- Fulfilment, packaging, miniaturization and reverse logistics will require increased intensity of logistics
Define the 20th century supply chain management practice: Just-In-Case manufacturing
The predominant manufacturing strategy was based around creating economies of scale. Long production runs that created high levels of stock at low unit costs. Products were then ‘pushed’ out into the market. This was termed Just-in- Case manufacturing.
What was the transport market characterized by during 20th century (Just-In-Case manufacturing)?
- full loads (inbound and outbound)
- low levels of service provision required
- long lead times
- regular, stochastic (random) movements
What were the negative aspects of 20th century transport market (Just-In-Case manufacturing)?
- Demand could often be volatile and manufacturers, retailers and other supply chain partners held high levels of inventory.
- Stock would become quickly redundant or be lost or stolen.
- Fast-moving sectors such as the fashion or electronics industry, product life cycles were becoming increasingly measured by months, rather than years.
- They also need the flexibility to release new products on short lead times.
Tell the history of modern supply chain management practice
- 1980s/1990s: Japanese manufacturing processes were adopted throughout the world e.g. Toyota.
- Smaller production runs were adopted with production lines running on an ‘as and when’ basis depending on demand – the ‘kanban’ system.
- This Build-to-Order (BTO) strategy reduced the need for buffer stocks.
- Just-in-Time (JIT) delivery schedules were introduced that complemented the on-demand nature of manufacturing.
- Japanese Sea
What does BTO mean?
Build-to-Order
What does JIT mean?
Just-in-Time
What does the Japanese Sea mean?
It illustrates the impact which lowering inventory has on various parts of the production and distribution process. As the inventory (the water in the metaphor) falls, the business (boat) becomes far more vulnerable to the hidden rocks beneath (like supply disruption, rework, damage in transit, machine breakdowns, mixed materials, delay in deliveries, generating defective products). From a transport perspective, the hazards include mis-delivery, damage of goods in transit or late delivery.
What was one of the driving forces behind the trend of free movement of goods between countries?
WTO - the World Trade Organization
What does TPP mean? What countries does it include?
Trans-Pacific Partnership
Agreement between 9 trading partners: Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, USA (and later also Japan)
What does TTIP mean? What is it? Between whom?
The Transatlantic Trade and Investment Partnership
A trade agreement between the European Commission and USA
What is the name of The worlds largest economic bloc?
ASEAN - the Association of Southeast Asian Nations
What is the world’s largest free trade area?
The European Union
What does SEM mean?
Single European Matket (it’s about the European Union)
What does NAFTA mean? What does USMCA mean?
The North America Free Trade Agreement. It has had major impact on the flows of goods. Now USMCA
Why many manufacturers are choosing to supply the giant US consumer markets from production locations and distribution facilities in Mexico?
Because the costs of production locations and distribution facilities in Mexico are substantially lower
What are the BRIC countries?
Brazil, Russia, India, China
How did modern supply chain management practices impact logistics?
- Freight operators were required to provide more frequent services, moving smaller consignments on a less predictable basis.
- Efficiency was also affected as, in terms of transport costs, it is far more economic, on a per kilo basis, to run larger trucks than smaller ones.
- There were also modal consequences as the flexibility of road services placed rail operators at a considerable competitive disadvantage when competing within the new paradigm
- However, despite rising transport costs overall, logistics costs (including inventory financing) fell, making the trade off more than worthwhile for shippers
How long is Breakeven road to rail in Sweden?
circa 500 km
Talk about most important aspects of centralization of inventory
- Distribution strategies have been largely influenced by the trade off between the cost of moving goods to market and the cost of holding inventories.
- The relative cheap cost of transport has allowed manufacturers and retailers to store goods in centralized locations, and supply them over longer distances.
- When goods are stored in close proximity to the end market, transport costs are low. If a regional distribution strategy is implemented, the number of national warehouses fall and so do stock levels. Transport costs will rise due to the increasing distance to market.
What are the benefits of centralization of inventory?
- cost of inventory holding falls
- less buffer stock is required in each warehouse
- there is less ‘shrinkage’ that is, loss of stock through theft or damage
- lower levels of redundancy occur
- warehouse costs are lower.
What are the most important aspects of out-sourcing?
- The first stage of out-sourcing usually involves the transportation function. Transport providers often have more buying power than the client they are working for, which allows them to get better deals for trucks and materials.
- They may also have invested in specialist technology and be better able to hire and manage driving staff.
- There is also the question of managing peaks and troughs of demand; working for multiple clients, a transportation provider is better able to manage spare capacity.
- The next stage of out-sourcing is usually warehousing. This is a labour intensive activity, and one which many companies are happy to be undertaken by a third party.
(slajd 30 - część) What are the 7 main reasons to outsource logistics services?
Top Reasons to Outsource Logistics Services:
1. Simplifying the Process
2. Great Accountability
3. Global Opportunities
4. Access to logistic tech software
5. Reduced Freight Cost
6. Improved Customer Service
7. In house benefits
Why out-source logistics?
- Companies can out-source their logistics functions for many different reasons, from the purely financial to the expectation of using a company as a catalyst for change management.
- One of the primary aims of vehicle contract hire will be to take assets off balance sheet.
Explain the evolution towards value adding services. What changed?
Logistic outsourcing 3PLs –> Logistics & value adding services - Lead Logistics Providers –> global supply chain management services 4PLs –> ?transformational partnering?
From: ————-> To:
- single function transactional relationship –> strategic multi-functional partnerships
- local, regional reach –> global door-to-door coverage
- physical asset heavy, process execution –> integrated IT solution ready to use
- one time cost reduction –> continues innovation (cost & service)
- cost plus managerial fee –>risk/gain share (tomorrow’s lower cost, today)
- fixed upfront cost to charge –> no/reduced need for capital
What are the consequences of the consolidation & fragmentation in the logistic industry?
- Changes in the logistics industry have been driven by a number of imperatives, both demand- and supply-side led.
- The speed at which change has taken place over the last decade is as a result of the mutual benefit and opportunities to both logistics service providers and users, which these trends have created
Explain the steps of consolidation in the logistic industry
- Stage 1: Until the 1970-80’s, each of the functions highlighted were largely discrete, with little overlap.
- Stage 2: The largest companies, already dominating their national markets, expand into neighbouring sectors.
- Stage 3: This shows the reverse pressures that have existed since the recession of 2008. Due to the absence of expected synergies or poor integration, companies have sold off their loss-making acquisitions.
What are the key industry trends in the way towards consolidation (the process of uniting)?
- The push for globalization - Manufacturers and retailers have increased both the level of global sourcing and the scope of the markets that they supply. Many logistics companies have chosen to globalize their operations in line with the changing requirements of their clients.
- Liberalization of markets - The liberalization of the European postal markets has been one of the driving forces behind the high level of M&A activity in the late 1990s and early 2000s. Deregulation in Europe’s rail industry, which prompted some state owned railways to prepare for a more competitive environment.
- Product differentiation - The largest companies have sought to address this challenge by making targeted acquisitions which increases their exposure to vertical sectors or supply chain segments in which there is less competition. They can leverage their own competitive advantages, such as access to finance, intellectual capital, IT capabilities and global scale
- Supplier rationalization - Logistics companies are increasingly being asked to provide a range of value added services, rather than just one element of transportation or warehousing. Using a smaller number of logistics suppliers benefits the manufacturer or retailer by reducing the amount of supplier administration required.
What are the options for growth?
- Organic growth
- Alliances
- Joint ventures
- ‘Piggybacking’
What is the organic growth and what does it depend on?
- It is a growth a company achieves by increasing output and enhancing sales internally
- It is the safest way to develop presence in new markets.
- In the race to build European and global platforms it has become increasingly unfashionable.
- Acquisitions can deliver immediate revenue streams and an operational presence, which organic growth cannot.
What does the growth through alliances mean?
- A quick and easy way to offer clients enhanced services in different geographies or to add functionality.
- Common in the freight forwarding sector as they allow national or regionally based operators to compete effectively on a global basis.
- Works best in stable, conservative markets where the threat of competitors acquiring alliance members is low.
What does the growth through joint ventures mean?
- JVs are typically used by companies that have complementary services or attributes to exploit a particular market.
- In some markets it is a legal requirement for a foreign company to work with a local partner.
- In China, following deregulation, some express companies chose to maintain their links with the local partner due to contacts with local officials and market knowledge.
What does the growth through ‘piggybacking’ mean?
- Expansion by ‘piggybacking’ involves developing services geographically on the back of the volumes of a key client.
- A frequently used mode of expansion due to the internationalization of manufacturing and retailing.
What are the acquisition strategies?
- ‘Blockbuster’ deals
- Evolution strategies
Why a small number of global logistics companies have undertaken one or more ‘blockbuster’ deals?
It gives the company immediate scale and market presence, therefore providing competitive advantage over smaller players.
Reduces the level of M&A (mergers & acquisitions) activity required in identifying a series of potential targets
What do evolution strategies involve?
Involves increasing presence in the home market, and consolidating market position in a core competence.
When this has been achieved, the company develops into associated competences and markets in close proximity or with similar attributes.
In this way, a portfolio of capabilities and markets can be built without the risks of the ‘blockbuster’ approach.
What does the emergence of the ‘mega-carrier’ rely on?
The largest freight forwarders, distribution companies, express operators, shipping lines, in-house operators and post offices have engaged in a strategy of developing into ‘one- stop shop’ providers of multiple functions.
A convergence towards the ‘mega-carrier quadrant’. Contract logistics companies in particular have tended to offer clients the most sophisticated logistics activities.
What are the results of the ‘mega-carrier’s emergence?
A period of acquisition, as companies have extended their capabilities horizontally into adjoining logistics segments as well as geographically.
Whilst some companies are still building a global presence, others including even DHL, TNT and Wincanton, have retreated towards the core competency/home market quadrant
In the next five years, deals will be driven by a number of drivers. Name and explain them.
- Technology is becoming the most important competitive differentiator as consumer behaviour and expectations change. Companies with specialist capabilities will be targeted by larger players.
- Traditional retailing patterns are changing, due not least to the advance of low-cost retailers such as Aldi and Lidl. This will mean logistics companies will need to diversify into other sectors where there is a greater demand for value adding logistics services.
- The development of e-commerce will also be a major disruptive force. Logistics companies will need to add niche services both in fulfilment and last mile delivery.
- Near-sourcing will increase the need for logistics capabilities in emerging markets at the periphery of Europe, such as Turkey and North Africa. Geographic expansion through acquisition will be widespread.
- Fast-growing sectors, such as healthcare/pharmaceutical, offer higher margin opportunities, especially in the temperature-controlled market. Logistics companies will continue to target these niche markets for inorganic expansion, buying operations and capabilities.
- European logistics companies will also be targeted as stronger, profitable Asian companies expand their networks into Europe.
