Logistics and supply chain management

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Logistics and supply chain management

• If its not in store you cant show it. If you
  cant show it you cant sell it.

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Supply chain management

• a strategy to reduce costs and improve the level
  of consumer service by removing excess stocks and
  other inefficiencies in the supply process. It
  does this by working back through each stage of
  the supply chain from consumer to retailer, to
  supplier and suppliers supplier and so on
• (Supply Chain Today 2001)

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Logistics

• plans, implements and controls the efficient,
  effective flow and storage of goods, services and
  related information from the point of origin to
  the point of consumption in order to meet
  customer requirements
• (Council of Logistics Management)

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Supply chain key elements
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Competitive advantage
CUSTOMERS Seeking benefits at Acceptable prices
Value
Value
Cost differentials
COMPANY Assets and utilisation
COMPETITOR Assets and utilisation
Based on Ohmae 1983
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The supply chain becomes the value chain

• Competitive advantage cannot be understood by
  looking at the firm as a whole. It stems from the
  many discrete activities a firm performs in
  designing, producing, marketing, delivering and
  supporting its product. Each of these activities
  can contribute to a firms relative cost position
  and create a basis for differentiation. The value
  chain disaggregates a firm into its
  strategically relevant activities in order to
  understand the behaviour of costs and the
  existing and potential sources of
  differentiation. A firm gains competitive
  advantage by performing these strategically
  important activities more cheaply or better than
  its competitors (Michael Porter)

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Value chain and competitive advantage
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Pressures for supply chain efficiency
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The marketing and logistics interface

• Competitive advantage means delivering more
  customer value than competitors
• Perception of value PB/PC
• A significant cost penalty is incurred by both
  manufacturers and retailers when a stock-out (37
  shop elsewhere, 9 do not buy Corsten and Gruen
  2004)

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Strategic importance of supply chain
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The marketing and logistics interface
1 2
3
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• CUSTOMER
• FRANCHISE
• Service
• Partnership
• Quick response

• SUPPLY
• CHAIN
• EFFICIENCY
• Flexibility
• Reduced asset
• base
• low cost supplier

• CONSUMER
• FRANCHISE
• Brand values
• Corporate image
• Availability

• MARKETING
• EFFECTIVENESS
• Market share
• Customer retention
• Superior ROI

X
X

1 traditional view of retail marketing
effectiveness 1 2 3 current view of retail
marketing effectiveness
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Customer service and customer retention

• Average transaction value
• X
• Yearly frequency of purchase
• X
• Customer life expectancy
• CUSTOMER LIFETIME VALUE

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Customer service objectives

• The purpose of logistics and supply chain
  management is to provide customers with the level
  and quality of service that they require at less
  cost to the total supply chain
• The perfect order is OTIFEF
• On time
• In full
• Error free

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Monitoring the perfect order

• On time 90 X
• In full 80 X
• Error free 70
• Perfect order 50.4

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Costs of the perfect order
Costs of service increase with target service
level
Daily sales more than average 50
Daily sales lower than average 50
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Service levels and normal distribution
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Logistics and the bottom line

• Importance of strong positive cashflow
• Improve the productivity of capital make the
  assets sweat
• Return on investment (ROI) Profit
• 
  Capital employed

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Logistics and ROI
Customer service
Sales revenue
PROFIT
Logistics efficiency
Costs
Pipeline management
Cash
RETURN ON INVESTMENT
Cash to cash Cycle time
Accounts Receivable/ Payable
CAPITAL EMPLOYED
JIT logistics
Inventory
Asset utilisation
Fixed assets
Christopher 2005
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Distribution and retailing key points

• Effective management of distribution is a key
  driver of improved profitability
• Reducing distribution costs (transport,
  warehousing, inventory) is a major concern for
  retailers
• Holding more stock than necessary denies
  retailing space to more products and extra profit
• Efficient distribution relieves pressure on space
  and margins

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Basic elements of a retailing supply chain
OTHER ACTIVITIES Warehousing, transport to
producer Design, warehousing, selling through
agents, transport to wholesaler Warehousing,
transport to retailer, cash and carry Regional
and local distribution centres, transport to
store/ home
INSTITUTION Materials supplier Producer Whol
esaler Retailer Consumer
ACTIVITY Sourcing materials Producing the
product Wholesale distribution Retail
distribution
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Production stage

• Design
• Organisation of production facilities
• Management of production operations
• Delivery of products to initial customers
• Involuntary or forced inventory due to falls in
  demand
• Safety inventory as buffer against fluctuations
  in demand/extra seasonal stocks
• Own label products/own label designers take
  active role in production process
• Shift in balance of power with major retailers
  more actively involved in production and
  distribution processes

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Wholesaling

• Important part of supply process for smaller
  retailers
• Storage of items until retailers require them
• Picking of items from stock for retailer
  assortments
• Transport to retailers store
• Takes ownership of goods, assumes some of
  producers risk of non-saleability due to damage,
  obsolescence or lack of customer demand

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Retailing

• Final stage in supply chain between producer and
  consumer
• Growth in local/national distribution centres
• Inventory
• Replenishment system
• Manufacturers response time

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Adversarial and competitive supply chain activity

• Traditional adversarial or win-lose relationship
  between retailer and producer
• Each member of the chain tries to optimise its
  own position
• Costs can be pushed up or down stream
• In sub-optimal supply chain consumers pay for
  inefficiencies
• Development of co-operative supply chain
  partnerships based on shared information and
  reduced costs to improve customer service level

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Supply chain cooperation

• Reducing total costs of supplying the consumer by
  reducing levels of stock and time for which stock
  is held requires
• Synchronised interacting activities through
  information exchange and order postponement
• Using technology in new strategies
• Restructuring and re-skilling

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Efficient Supply Chain drives on shelf
availability
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Collaborative supply chains and customer
satisfaction
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Synchronising activities through Electronic Data
Interchange and EPOS

• Improve the quality of information to be shared
  with supply chain partners
• EDI through EPOS (barcode scanning) provides
• Sales based ordering
• Reduced stock levels
• Reduced wastage
• Promotional analysis and sales analysis
• Improved transaction accuracy
• Speed, efficiency, productivity

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Quick Response and Efficient Consumer Response

• QR passes EPOS data back up the supply chain to
  enter the order based on actual consumer demand
  (WalMart stores connected to Heinz production
  facilities)
• ECR is a consumer demand based system where
  supply chain members work together to satisfy
  consumer needs at the lowest cost

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Elements of ECR
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Physical distribution and inventory management

• Physical movement of goods from producer to
  consumer in one or more stages
• Large retail groups have added consolidation or
  distribution centres to their own internal
  distribution
• Automated warehouse management systems
• Stores make smaller more frequent orders reducing
  inventory costs supporting large number of
  product lines
• Sales based ordering system

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Tescos customer-driven supply chain

• Reconfiguring supply chains around customers is a
  huge challenge for retailers. It needs new
  thinking, innovative processes and ultimately,
  perhaps infrastructure change
• Consumers themselves will no longer be strangers.
  Far from it, they will be an integral and crucial
  value adding link in the supply chain
• Distinguish between actions necessary to create
  value that customers want, and actions which just
  add cost from raw material to end consumer
• Yesterdays supply chains worked to the logic of
  better centralised and distant. Tomorrows
  watchwords will be fresher, simpler and closer.

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Soft drink value stream
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Creating value streams which flow

• One touch continuous replenishment products and
  orders flow quickly
• Harness the data to allow customers to pull the
  right products through the value stream quickly
• Develop ways to reduce handling and streamline
  the flow of goods to the shelf
• Reduce in-store replenishment labour