Traditional View: Logistics in the Us Economy

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Overview:
Traditional View: Logistics in the US Economy (2006, 2007)
* Freight Transportation$809, $856 Billion
* Inventory Expense$446, $487 Billion
* Administrative Expense$50, $54 Billion
* Total Logistics Costs$1.31, $1.4 Trillion
* Logistics Related Activity 10%, 10.1% of GNP

Traditional View: Logistics in the Manufacturing Firm
-Profit4%
* Logistics Cost21%
* Marketing Cost27%
* Manufacturing Cost48%

Supply Chain Management: The Magnitude in the Traditional View

Estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics and supply chain strategies Example: A typical box of cereal spends 104 days from factory to sale A typical car spends 15 days from factory to dealership

Supply Chain Management: The True Magnitude
* Compaq estimates it lost $.5 billion to $1 billion in sales in 1995 because laptops were not available when and where needed * When the 1 gig processor was introduced by AMD, the price of the 800 mb processor dropped by 30% * P&G estimates it saved retail customers $65 million by collaboration resulting in a better match of supply and demand

SUPPLY CHAIN
* All stages involved, directly or indirectly, in fulfilling a customer request * Includes manufacturers, suppliers, transporters, warehouses, retailers, and customers * Within each company, the supply chain includes all functions involved in fulfilling a customer request (product development, marketing, operations, distribution, finance, customer service) * Customer is an integral part of the supply chain

* Includes movement of products from suppliers to manufacturers to distributors, but also includes movement of information, funds, and products in both directions * Probably more accurate to use the term “supply network” or “supply web” * Typical supply chain stages: customers, retailers, distributors, manufacturers, suppliers * All stages may not be present in all supply chains

(e.g., no retailer or distributor)

The Objective of a Supply Chain
* Maximize overall value created
* Supply chain value: difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customer’s request * Value is correlated to supply chain profitability (difference between revenue generated from the customer and the overall cost across the supply chain) * Sources of supply chain revenue: the customer

* Sources of supply chain cost: flows of information, products, or funds between stages of the supply chain * Supply chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability

Decision Phases of a Supply Chain
1. Supply Chain Strategy or Design - decisions about the structure of the supply chain and what processes each stage will perform; supply chain design must support strategic objectives and supply chain design decisions are long-term and expensive to reverse – must take into account market uncertainty

Strategic supply chain decisions:
-Locations and capacities of facilities
-Products to be made or stored at various locations
-Modes of transportation
-Information systems

2. Supply Chain Planning - Definition of a set of policies that govern short-term operations -Fixed by the supply configuration from previous phase
-Starts with a forecast of demand in the coming year
Planning decisions:
-Which markets will be supplied from which locations
-Planned buildup of inventories
-Subcontracting, backup locations
-Inventory policies
-Timing and size of market promotions

3. Supply Chain Operation- Decisions regarding individual customer orders -Time horizon is weekly or daily
-Supply chain configuration is fixed and operating policies are determined -Goal is to implement the operating...
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