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Lecturer:

Ho Trung Thao (thao.hotrung@hoasen.edu.vn)

Course Objectives
Understand the definitions Logistics and Supply Chain
Understand the concept and key points of Supply Chain

Management.
Understand how to manage Supply Chain and Logistics in
real companies.
Apply to a group project.

Chapter 1
Fundamentals of Logistics

Learning Objectives
DEFINE logistics and associated terms

UNDERSTAND the role and structure of supply chains


LIST different activities of logistics and understand the

relationships between them


DISCUSS the aims of logistics
SHOW how logistics contributes to customer satisfaction
RECOGNISE the importance of logistics to every
organization.

1. Basics Definition
All organizations move materials.

Manufacturers: raw materials


finished goods.
Definition of Logistics: Logistics is the function that is
responsible for the movement of materials (and
information). It is responsible for the transport and
storage of materials between suppliers and customers.
According to the Council of Supply Chain Management
Professionals (CSCMP), a professional organization for
Logistics and SCM professionals, logistics is defined as:
the process of planning, implementing and controlling the
efficient, effective flow and storage of goods, services and
related information from point of origin to point of consumption
for the purpose of conforming to customer requirements

Basic Definition (contd.)


What is products?

what is products?

Basic Definition (contd.)


Products: Goods (tangible) and Services (intangible)
Operations: Operations include manufacturing, serving,
transporting, selling, training, and so on. The main outputs
are products.
OPERATIONS
INPUT

- People
- Buildings
- Raw materials
- Equipment
- Information
- Investment
etc. . .

OUTPUT

- Manufacture
- Serve
- Supply
- Transport
- Sell
- Train
etc

- Goods
- Services
- Profit
- Waste
- Wages
etc

Fig. 1.2. Operations of a organization


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Basics Definition (contd.)


LOGISTICS is the function responsible for the flow of

materials from suppliers into an organization,


through operations within the organization, and then
out to customers.

Inbound logistics: activities between external suppliers and the


organization
Outbound logistics: activities between external customers and
the organization
Operations within the organization: activities between internal
suppliers and internal customers
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Link:
http://www.youtube.com/watch?v=V4JRH3e4xrg&featur
e=related

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2. THE SUPPLY CHAIN


-Different names for these chains of activities and organizations.
emphasize the operations, refer to the process;
emphasize marketing, call it a logistics channel;
look at the value added, call it a value chain,
see how customer demands are satised, call it a demand chain. --Here we are emphasizing the movement of materials and will use
the most general term of supply chain.

A SUPPLY CHAIN consists of the series of activities and


organizations that materials move through on their journey
from initial suppliers to final customers.

Supply Chain of Sheets of Paper?

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Inbound logistics: activities between external

suppliers and the organisation


Outbound logistics: activities between external
customers and the organisation
Operations within the organisation: activities between
internal suppliers and internal customers

Fig. 1.5. Supply Chain

Structure of the supply chain


SUPPLY CHAIN = a series of activities and organizations

that move materials from initial suppliers to final


customers
Upstream supply chain activities: involve initial supplier,
third tier supplier, second tier supplier, first tier supplier
Downstream supply chain activities: involve first tier
customer, second tier customer, third tier customer, final
customer

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Benefit from Supply Chain


Do you want to avoid supply chain?
EG: The market of vegetables
the sugar and sugar cane, beet
Well , You can get answer from figure!

3. ACTIVITIES OF LOGISTICS
Procurement or purchasing.
Inward transport or traffic management
Receiving

Warehousing or stores
Stock control, Order picking and Materials handling.
Outward transport
Physical distribution management
Recycling, returns and waste disposal
Location and Communication
Logistics is the process of planning, implementing and controlling the
efficient, cost-effective flow and storage of raw materials, in-process
inventory, finished goods and related information from point of origin to
point of consumption for the purpose of conforming to customer
requirements (Council of Logistics Management (CLM) http://cscmp.org/default.asp)
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Summary of logistics activities

Case Study
NIKE logistics center

http://www.youtube.com/watch?v=NkfHVYv5nUo&feature=
related
How UPS Cargo Containers Work

http://www.youtube.com/watch?v=MyeqlieHhi4
Simulation

http://www.youtube.com/watch?v=_0UJ0lKnn_o&feature=r
elated

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Organizing Logistics

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4. Aims of logistics
When you buy an item, what kind of contents will be take

into your consider?

Aims of Logistics
Logistics is responsible for the ow of materials through a

supply chain. This function is also called supply chain


management.
LOGISTICS is the time-related positioning of resources, or

the strategic management of the total supply-chain


The SUPPLY-CHAIN is a sequence of events intended to
satisfy a customer.
The overall AIM OF LOGISTICS is to achieve high

customer satisfaction. It must provide a high quality


service with low or acceptable costs.

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Importance of Logistics
profits earned
Return on Assets=
assets employed
Stocks,
money etc.
Property,
Equipment,
Plant, etc.

Current Assets

Assets
Fixed Assets

Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes

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Importance of Logistics (cont.)


profits earned
Return on Assets=
assets employed
Customer
Satisfaction

Sales

Operating
Costs

Profit
Margin

Product
Features

Price

Source: From Assoc. Prof. Ho Thanh Phong, IU lecture notes

Profit

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Example:
ABC currently has sales of $ 20 mil. a year, with a stock level of 35% of
sales. Annual holding cost for the stock is 20% of value. Operating
costs are $8 mil./ year and other assets are valued at $15 mil. What is
the current return on assets? How does this change if stock levels are
reduced to 25% of sales?
Solution: Taking costs over a year, the current position is:
Cost of stock = stock holding cost = (20 0.35) 0.2 = 1.4 mil./year
Total costs = operating cost + cost of stock = 8 + 1.4 = 9.4 mil./year
Profit = sales total costs = 20 9.4 = 10.6 mil. /year
Total assets = other assets + stock = 15 + (20 0.35) = 22 mil.
Return on assets = profit / total assets = 10.6 / 22 = 0.4818 (48.18%)

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Example (cont.):
The new position with stock reduced to 25% of sales has: ???
Cost of stocks = 20 0.25 0.2 = 1 mil. /year
Total costs = 8 + 1 = 9 mil. /year
Profit = 20 9 = 11 mil./year
Total assets = 15 + (20 0.25) = 20 mil.
Return on assets = 11 / 20 = 0.55 or 55%
Reducing stocks gives lower operating costs, higher profit
and a significant increase in Return on Asset (ROA).

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Development of logistics
pressures to the use of logistics
Changes of Customers.
Changes of Competition
Other changes in retail markets
International trade continues to grow.
Organizations become to outsource peripheral activities and

concentrate on their core operations.

Current trends
Improving communication
Electronic data interchange (EDI)
Electronic point-of-sales data (EPOS)
e-purchasing of e-procurement

Support of EDI:

Item coding (often bar-coding)


Electronic Fund Transfer (EFT)

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Current trends
Improving customer service
Lower lead-times
synchronized material movement
mass customization
Other significant tendencies
Globalization
Reduced number of suppliers
Concentration of ownership
Outsourcing.
Make or Buy.

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Current trends
Other significant tendencies
Cross-docking
Direct delivery
Stock reduction methods
Increasing environmental concerns
More collaboration along the supply chain

Three important themes for logistics consider


LEANNESS, AGILITY and INTEGRATION. Ideally,
logistics should aim for all three of these

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Current themes
LEAN Logistics
faster deliveries, reduce stock levels, reduce handling, lower
costs, reduce waste etc.
AGILE Logistics
flexible and responsive, customized service, respond quickly
to a changing demand.
INTEGRATION Logistics
co-operate with other organizations

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Summary
Every organization creates products to satisfy customer demand.
The operations that create these products need an effective and
efficient flow of materials. In this sense, materials are all the goods
and services needed to create products.
Logistics is the function that is responsible for the flow of materials
into, through and out of an organization.
Materials move through a series of related activities and
organizations between initial suppliers and final customers. These
form a supply chain. Each product has its own supply chain.
There are many possible structures for supply chains, but the
simplest view has materials converging on an organization through
tiers of suppliers, and products diverging through tiers of
customers.
Logistics consists of a series of related activities. These range from
procurement at the beginning of operations, through to physical
distribution at the end.
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Summary (cont.)
An overall aim for logistics is to achieve high customer
satisfaction or perceived product value. This must be achieved
with acceptable costs.
Every organization depends on the movement of materials, and
the way this is done affects costs, profits, relations with suppliers
and customers, customer service, and virtually every other
measure of performance.
There are a lot of pressures for improving logistics. Current
trends are: Improving communication, Improving customer service,
some other significant tendencies.
Current themes:
LEAN logistics, AGILE logistics, INTEGRATION logistics.

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Quiz 01
Prob.01
ABC currently has sales of $ 20 mil. a year, with a stock
level of 35% of sales. Annual holding cost for the stock is
20% of value. Operating costs are $8 mil./ year and
other assets are valued at $15 mil. What is the current
return on assets? How does this change if stock levels are
reduced to 25% of sales?
Prob.02
Draw a Supply Chain for Bottle of water

Homework 01
(Due: next class)
5. The cost of logistics varies widely from organization to

organization. What factors affect these costs? Are the costs


fixed or can they be controlled?
6. How could you find the best balance between service level

and costs?

Customers
Manufacturers

Suppliers

Transportation
Material

Production Inventory &


Warehousing

Fig. 1.3. Logistics Network

Transportation

Transportation

In practice, most organizations get materials from many

different suppliers, and sell products to many different


customers.
The supply chain converges as raw materials move in
through the tiers of suppliers, and diverges as products
move out through tiers of customers.
A manufacturer might see sub-assembly providers as rst
tier suppliers, component makers as second tier suppliers,
materials suppliers as third tier suppliers, and so on. It
might see wholesalers as rst tier customers, retailers as
second tier customers, and end users as third tier
customers .

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