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LOGISTICS MANAGEMENT
The origin of logistics is in the military context, where the importance of logistics was related to the delivery of goods
and armies. In the business context, a definition is provided by the Council of Supply Chain Management
Professionals (CSCMP): “Logistics Management is that part of supply chain
management 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.”
Logistics can be described from 4 different dimensions:
- activity carried out by the logistic system
- object (goods that are transported
- scope
- KPI à measurement of the performances)
There was an evolution of the meaning of logistics over the time, this was not the first definition à it is important to
study the evolution to understand the peculiarities and the novelties brought by this discipline in order to manage part
of a company
The Council of Supply Chain Management Professionals (CSCMP) was founded in 1963, and it is the preeminent
association for individuals involved in supply chain management. CSCMP was originally founded as the National
Council of Physical Distribution Management (NCPDM) in January 1963. NCPDM was formed by a visionary group
of educators, consultants, and managers who envisioned the integration of transportation, warehousing, and inventory
as the future of the discipline. At that time, physical distribution was just beginning to edge its way into the corporate
lexicon and make its considerable presence felt in the business community.
In 1985, recognizing the growing field of logistics, the association's focus broadened as it changed its name to the
Council of Logistics Management (CLM). It stayed that way until 2004 when CLM's Executive Committee voted to
become CSCMP, the Council of Supply Chain Management Professionals (CSCMP) à the change in names of the
association is related to the change of the scope of logistics
The first definition of logistics provided by the NCPD
(National Council of Physical Distribution Management)
in 1967 is: “A term employed in manufacturing and
commerce to describe the broad range of activities
concerned with efficient movement of finished products
from the end of production line to consumer , and in
some cases includes the movement of raw materials from
the source of supply to the beginning of the production
line.”
The novelty was not the presence of different activities
but the aim of CSCMP was to create a new discipline
with the aim to integrate the transportation, the
warehousing and the distribution. Logistics is not
focused on a single activity, but it takes into
consideration more activities at the same time.
In the 60s and 70s we talk about PHYSICAL DISTRIBUTION MANAGEMENT and the focus is on the
distribution of the end products or supply of raw materials necessary for production of a single company, reducing
distribution and supply/production costs à there is an integration of “parts” of the supply chain with a systemic view
of transportation, storage and material handling, inventory management and packing
The typical example on how to reduce transportation costs is full load , saturating the capacity of the truck à the
consequence is the increasing of inventory levels, concerning the storage of goods at destination point. It is necessary
to consider all the elements affected by the decision influencing the total cost. An important point is also the
management of the packaging because it is important for the handling of the goods
Logistics is the science of trade-off because there isn’t a solution that is good for every company, each company has
to find a compromise between inventory cost and carrying cost à systemic approach: total cost analysis and
operational research techniques (inventory management models, demand forecasting algorithms, site location, etc.)
In this period the manager is called distribution manager.
In the following 20 years the concept of logistics evolves from physical distribution to INTEGRATED LOGISTICS ,
with three definitions:
The NCPD (National Council of Physical Distribution Management) in 1976 says that logistics is “ The integration of
two or more activities for the purpose of planning, implementing, and controlling the efficient flow of raw materials,
in-process inventory and finished goods from point-of-
origin to point-of-consumption.” à it is not sufficient the
execution of the distribution but it is also necessary to
introduce planning and control for the creation of value
of the global optimization; the focus is not only on finished
products but also on raw materials
supply and distribution of the goods is to be treated in an
integrated way à enlargment of the integration that
grows from the suppliers to the factory – this is important
because the efficiency in the managing of the goods
coming from the suppliers could influence the high level
of stock, increasing the inventory costs (there is a change
in the scope) à logistics is considered as a business
management discipline and for the first time there is the
inclusion of the internal supply chain perspective
in 1985, the CLM (Council of Logistics Management
defines logistics as “ 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.” à it is the first
recognition that logistics is a process , since handling and
trasportation are connected to each other
this is the period of spread of computers into offices and
information can be used to take the right decision so
logistics is in charge not only of the distribution of goods
but also of the information (ex. Avaiability of goods,
delays); the ultimate obejective is to minimize the cost
and satisfy the customer requirements
in 1992, the CLM says that logistics is “ 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.” à introduction of services such as healthcare, engineering and
contracting (logistics applies and it is useful also to the world of services – ex. Hospitals)
logistics is not only cost-effective, but effective tout court à redcution of the overall logistics costs
in these 20 years the focus is on overall logistics system with the integration of the different sub-processes of materials
management, production management and physical distribution; there is still a systemic approach based on total cost
analysis and integrated planning principles with the goal to create competitive value of the customer service. In the
organization, there is the role of the logistics manager.
cohesive and high- performing business model. It includes all of the logistics management activities, as well as
manufacturing operations, and it drives coordination of processes and activities with and across marketing, sales,
product design, finance, and information technology” à the main role of supply chain management is to integrate
processes of different companies, so the processes which extend outside the boundaries of the company and span over
the whole supply chain – logistics, marketing, finance and new peoduct development are all integrated and handled by
the supply chain management; there is a collaboration among different companies for the dealing of cash flows.
In 2009 the CSCPM gives the final definition: “ Logistics
Management is that part of supply chain management
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.”
The pilar of circular economy is the reverse flow of goods
and information and reverse logistics, which is
responsible for the forward and backward floors (ex.
Textile industry for unsold goods, drums of beer, water
bottles industry, washing machines)
There is the integration of the external supply chain and
the KPIs are used to measure the performance of the
entire supply chain.
This meaning of logistics is not common for all companies, it’s possible to find companies that are in one of the steps
above or as a combination of the steps.
The enlargement of the concept of logistic is important since the competitiveness of a company is affected by the
behaviour of the other supply chain members à it is difficult to sustain the uncertainty of suppliers (unreliable in
this case) so it is necessary to work on the stock, losing efficiency and profitability – company should work with
suppliers.
It is important to work with supply chain managers to improve the profitability of the company à supply chain based
competition where the focus is on the overall logistics cost to serve the final customer. Logistics is seen as a
differentiation lever and the methodologies used include the analysis of the supply chain performance and
collaborative planning models.
The supply chain based competition uses a strategic approach where competitiveness of the company is strongly
impacted by the actions of the other supply chain members and competitiveness is, first of all, between different
supply chains. The strategic implications are that competitiveness of the company can be improved focusing on the
interface processes with the other supply chain members, through integration and collaboration and in many cases
the action on the interface processes is more effective (in terms of impact on KPIs) than that on internal processes.
The supply chain is composed mainly by manufacturers and retailers à usually the average days of inventory for
manufacturers is 19 days (including both cycle and safety stocks) and for the retailers the days of inventory are 21
(including cycle, safety and speculative stocks)
Days of inventory = number of days of demand that can be covered without the replenishment of the warehouse
à it is possible to satisfy the demand for a period of 19 days (for manufacturers)
Speculative stock = during the promotional period the goods are sold with a string discount, so retailers buy an
amount of goods higher than the actual demand – increase of inventory levels and of the margin of the retailers (but
it’s risky)
19 + 21 = 40 days à number of days production can be stopped; it indicates a low level of collaboration between
manufacturers and retailers, which is also influence by the difficulty to predict the demand à higher cost for the
whole supply chain
The value of the on-shelf availability in the stores of the retailers is 93%, as an average of all the different types of
products, this means that 7 times out of 100, the consumer doesn’t find what he is looking for à despite the high
inventory levels, service level is low
Information flow : at the beginning there is the issue of an order, the retailers send an order to the manufacturers and
based on this order there is the delivery of the goods; after the delivery (sometimes before) manufacturers send the
invoice for the payment of the goods and then the payment is made.
Not looking at the physical activity but at the time spent in the offices by manufacturers and retailers (administrative
activities), the cost of the order-delivery-invoicing-payment cycle is on average 80€/cycle, of which 50% due to the
management of the activities generated by errors, equally split among manufacturer and retailer (ex. Invoice with the
wrong price, goods that changed, delivery of the wrong number of goods or damaged goods) à with a low level of
collaboration there is a high cost along the supply chain
Based on retailers’ orders the manufacturers fill the truck à the average saturation of the means of transportation
is 70% for the single trips (medium performance – ideal is 90/95%); the problem is that retailers don’t know the
quantity that saturates the truck and it is difficult to adopt “multi-drop” deliveries à high cost for the manufacturers,
so also for the retailers and for the final customers – still it’s important to collaborate
The main components of logistics management are represented by the 3 STACKS MODEL that can be used to
describe the logistic activities from different decision levels:
- OPERATIONAL à LOGISTICS EXECUTION = it includes the design and management of the processes
that support the flow of materials (handling, storage, physical transformation and transport activities) and
data/documents along the supply chain à it’s the most traditional “scope” of logistics (but it’s only part of its
most comprehensive scope) and it’s the base upon which all the other stacks are built
- TACTICAL à SUPPLY CHAIN PLANNING = is the process that plans for the adjustment of the
operational capacity and for the execution of the operational activities linking the demand and the supply sides
of the supply chain. It aims at “getting the supply chain aligned and tuned” à this is the stack that “plans and
capillarity of the warehouses, so they can deliver goods in a
few hours. When a good is not available, pharmacies
investigate the availability of the goods in the warehouses of
all the distributors.
Raw materials suppliers = suppliers of active principles
The logistics director of a distributor that has to decide the
strategy in terms of number of SKUs (Stock Keeping Units);
there are two options:
A) 30.000 (lower) à strategy to minimize the inventory
carrying costs when it is difficult to predict the
demand, but you offer a low satisfy level + obsolesce
risk (expiration date)
B) 50.000 (max) à increase of the competitiveness of
the competitors working on the service level, but the risk is that the strategy, if not well applied, is expensive –
higher inventory costs; when pharmacies order the goods they can choose the distributor, and with this
strategy the distributor becomes the back-up supplier of the supply chain (for the goods that cannot be
delivered by the other distributors with lower costs) à the service level can be used to give the priority to
some pharmacies, using this strategy to become a leader in the distribution – it’s possible to make an
agreement, guaranteeing the priority in the delivery of goods in exchange of a percentage of the revenues
(supply chain prospective)
GLOBALIZATION is the base of growth of many markets – the growth of world GDP is associated with an even
higher growth of international trade, so also the exports are becoming more important à company exchange
components, raw materials and products – complexity that can be managed with an efficient logistic system
International logistics requires to move merchandise and intermediate goods around the world and the main challenges
to be faced are:
- Uncertainty à ex. block of the Suez Canal,
duties with Trump
- Growth of e-commerce B2C à logistics is the
pillar of the success of e-commerce
- Omnichannel = different channels are
integrated in terms of data and information (new
challenge)
- Sustainability is an important challenge for
companies with a target on reduction, effective
logistic system to minimize the impact,
identification of priorities à trade-off between environment and service level
Logistics is important because is expensive and according to the scope of distribution the impact of logistics ranges
between 5 and 15%. In the years, there is a reduction of the cost, later an increase and now the average incidence of
logistics is 8% à the main logistics cost items are:
- Transportation , which accounts for the 5 0% of the overall logistics cost
- Warehousing
- Inventory
- Administration , which is related to the people dedicated to administrative and planning tasks + cost of the
software used by the company
The cost depends on the industry, in terms of different complexity and number of suppliers and variability of demand.
Industries have a different VALUE DENSITY = value of an item or SKU in relation to its weight or volume
example value weight Value density
Washing machine 300€/u 42,5 kg/u 300€/u ÷ 42,5kg/u = 7€/kg
Smartphone 400€/u 0,17 kg/u 400€/u ÷ 0,17kg/u = 2352€/kg
the difference in terms of value density is important. In the logistics process we only have the transportation activity,
and the cost is the same in the 2 cases and equal to 0,5€/kg. We can calculate the INCIDENCE OF LOGISTICS =
TRANSPORTATION ACTIVITY / VALUE DENSITY
- washing machine à incidence = 0,5€/kg ÷ 7€/kg = 7%
- smartphone à incidence = 0,5€/kg ÷ 2352€/kg = 0,02%
both the products have the same activity (transportation) and the same efficiency in terms of cost, but a different
incidence of logistics. In a benchmark activity, when we compare companies with different activities it is wrong to say
the company with the lower incidence is the more efficient (it depends on the weight) – it’s necessary to compare
companies with the same value density
The value density is a function of the value of the goods and price – important to know the strategy of the company
on the price because a reduction of the price can result on a higher incidence of logistics. Industries are characterized
by a different complexity in term of type of sales channels.
Example: Amazon – incidence of logistics = cost / revenues = 78.1 / 280 billions = 28% (best company on e-
commerce) but it’s still a high value à given the same industry, companies can be characterized by different incidence
because they have a different efficiency.
Fulfilment cost = warehousing + administrative and shipping costs are more or less the 50%.
L&SCM affects the top line of the profit and loss, such as revenues in terms of customer service and lost sales à it
contributes to the success of organizations in today’s complex and interconnected business environment.
Many customer service factors are strongly affected by the logistic process and should be considered as KEY
PERFORMANCE INDICATORS of the process itself:
- the order-delivery cycle time
- the delivery accuracy
- the order fill rate
- tracking information from order to delivery
LOGISTICS MANAGEMENT AND STRATEGY
The main goals of logistics are efficiency and effectiveness.
EFFECTIVENESS = company’s capability to reach one or more target values in terms of service level (delivery time
is on average 4 days) à if the target values are reached, the firm can satisfy the customers’ requirements
EFFICIENCY = company’s capability to produce and deliver a certain quantity of output given a certain quantity of
input à if the output is given, efficiency can be improved with the control of costs
Value comes from the effectiveness in serving the market (service level), which impacts on the revenues; value
comes also form a careful use of resources with the goal to minimize the costs. The aim of logistics is to produce
and delivery materials in the right quantities, of the right quality, in the right place, in the right time and at the
right price.
The impact of logistics on corporate profitability can be better understood by using an index, which is RETURN ON
ASSETS (ROA) = how much money a company can gain compared to the capital used
The current assets include the inventories.
Logistics affects the 4 dimensions of ROA and, so, of corporate profitability à there are 4 different sources of value:
1. REDUCING LOGISTICS OPERATING COSTS à the main logistics costs are transportation ,
warehousing – it can be split into picking and handling activities of warehousing costs, storage (if the
company pays for the rental) packaging (purchase of pallets used for the handling of goods) – administration
- inventory control (supply chain channel and administrative task), licences for software – and inventories –
disposal of obsolete materials and products and the lost sales because of stockouts (figurative cost, not used by
companies)
rate, the higher the capability to respond to customers’ orders; but there is a negative impact in terms of
complexity inventory management and sometimes also of inventory levels
the demand can be expressed in different terms
o ORDER FILL RATE = percentage of customer orders satisfied from stock on hand; it depends on the
order profile and item fill rate.
o ITEM FILL RATE = fill rate measured at the single item or SKU level; it can be calculated with the
reference to different “units”: lines, cases or pieces
o STOCKOUT = the opposite of the fill rate
§ TIME-RELATED = indicators that have to do with speed or punctuality in relation to what the customer
expects or was promised; there are 3 different KPIs:
o ORDER CYCLE TIME = it is the time elapsed between the order issuing and the order deliveryà
the shorter the time, the higher the service level but also the logistics complexity – the order delivery
cycle time is affected by 3 factors:
- Order process à the customer order is received (order entry), controls about the accuracy of the
order, check of the availability of goods and delivery scheduling (administrative activities) and
order confirmation
- Order preparation à handling of the order by the warehouse, retrieval of the goods and workers
bring the goods to the shipping area and packaging
- Delivery à truck load and shipment to the client
This is true when all the goods are available in stock; if there is a stockout, there is the replenishment
of the goods and a lengthening of the delivery cycle time.
o PUNCTUALITY/ON TIME = it is the ability of the supplier to deliver in compliance with the time
window (ΔT) arranged with the customer. In case there is no specific agreement on the time window,
punctuality is the ability to be compliant with the promised Order Cycle Time à when the time
window narrows, the logistics complexity increases – there is also a benefit for the customer in terms
of planning activity
o DELIVERY FREQUENCY = it is the number of deliveries planned in a reference time window
(day, week, month, etc.). It is affected by:
§ shelf-life of products à length of time the goods may be stored without becoming unfit for
the sale or for the consumption; when the product has a low shelf life, the delivery frequency
has to be high (risk of obsolecence);
§ storage capabilities of the customer, since the delivery frequency affects the size of the order;
§ incidence of transportation costs on the product value à it is how often the goods are
delivered to the customer in a certain period of time – from the point of view of the supplier,
the delivery frequency has an impact on the order size, which affects the transportation costs;
in case of how value density, it is cost effective to work with a high delivery frequency
the choice of delivery frequancy is combination of suppliers’ and customers’ point of view.
§ ACCURACY = it includes all the indicators that measures the capacity of the supplier to be accurate and
compliant with the requests of the customer ; some examples are:
o ORDER COMPLIANCE à it is the ability of the supplier to deliver goods that are compliant with
the order specifications, in terms of both items and quantities. It can be measured on different levels
(orders, order lines, units).
o DOCUMENT COMPLIANCE à it is the ability of the supplier to create and send documents
consistent with customer specifications and with the goods delivered.
o PACKAGING COMPLIANCE à it is the ability of the supplier to use packaging compliant with
customer expectations (i.e. consistent with the customer storage system, adequate protection of the
goods, ….) à sometimes the height of the pallets exceeds the height that can be managed by the
customer (in terms of storage capacity).
THE MARGIN – SERVICE RELATIONSHIP
From the graph we can observe how the logistics costs exponentially increase when the service level increases. As we
increase the service level the revenues increase but with a decreasing slope, because it is more difficult for the
customers to perceive the difference in performance (the impact becomes smaller). The aim of the company is to
create a margin = revenues – logistics costs à using a COST-TO-SERVE approach , we need to know the logistics
costs to provide a determined service level, and we have to assess if they are justified or not (in terms of impact on the
revenues). The margin is not maximized at the
maximum service level – it’s very difficult to set the
target service level that allows to maximize the margin
and it’s difficult also to estimate the cost of the service
level.
At the same time, it’s not right to offer the same
service level for all the customers, because they are
not equal in terms of willingness to pay for a high
service level and in terms of logistics complexity.
There are some customers for which is difficult to
offer a high service level and other for which is more
feasible à it is necessary to have a strong
SEGMENTATION of the clients: the margin-service
relationship strongly depends on the customer’s
features. Customers should be clustered, according to
the different weights of the service level performances
and to the costs to provide them.
3. REDUCING THE CURRENT INVENTORIES
- By reducing inventories :
o removing “dead” inventories (products that are obsolete and can be disposed)
o right-sizing and deploying the safety stocks (centralization/decentralization)
o right-sizing the cycle stocks
- By reducing/controlling the “cash-to-cash” cycle time : working capital = account receivables +
inventories – account payables à the working capital can be expressed in terms of time: the CASH-TO-
CASH cycle can be defined as ‘‘the average days required to turn a dollar invested in raw material into a
dollar collected from a customer’’ (Steward, 1995) and can calculated as:
where:
o DSO (days of sales
outstanding) = are the average
days required to collect
accounts receivable from
customers à how long it takes
to be paid by the customers
o DIH (days of inventory
holding) = are the average day
of inventory holding à
number of days the goods stay
in the system
o DPO (days of payables outstanding) = are the average days allowed by suppliers to settle
accounts payable à how long it takes to pay the suppliers
The cash-to-cash can be estimated from the balance sheet:
- DIH à the overall value of the inventories is divided by the cost of goods sold (COGS) – to reduce the DIH
the inventories have to be reduced
− Reduction in Fixed assets: € - 5m
ROA = (100 – 91) / (50 + 45) = 9.47% < 10%
- evaluate what the increase in revenues should be to justify a Customer Service improvement project (i.e.
reducing order cycle time through more inventories and better information systems), assuming the following:
− Impact on Current assets (inventories): € +2m
− Increase in Fixed assets (warehouse and information systems): € +2m
What is the increase in revenues to have at least ROA = 10%? à the revenues can be increased by raising the
price keeping the same quantity , since there is a higher service level so customers are willing to pay a
premium price; on the other hand, the price can be kept constant and the units of products sold can increase ,
increasing the customer base. Given the two different strategies, the results are:
i) premium price strategy à ROA = 10% = (revenues – 90) / (52 + 52) à revenues = 100.400.
and the impact in terms of price is 0.4%
ii) customer base strategy à ROA = 10% = (revenues – costs) / (52 + 52) à assumption: the ratio
between the revenues and the costs is fixed and equal to the baseline case because the company
doesn’t want to modify the price à costs = 0.9 * revenues à 10% = (revenues – 0.9*revenues) / 104
à revenues = 104m with a difference in terms of quantity of 4%
All the dimensions of profitability have to be considered and there are different ways to get the expected result. When
a solution is evaluated, the ROA is not sufficient to understand all the possibilities.
LOGISTICS STRATEGIES
The main logistics strategies can be identified and classified in different ways. Two examples are:
A. LEAN vs AGILE supply chain strategies by Lee
B. TIME-BASED, ASSET-BASED, TECHNOLOGY-BASED, RELATIONSHIP-BASED supply chain
strategies by Coyle
HAU LEE’S FRAMEWORK = the main idea is that supply chain strategic approach and policies should be
CONSISTENT WITH THE “PROFILE” AND THE CHARACTERISTICS OF THE SUPPLY CHAIN in
which the company operates , otherwise it’s impossible to set a supply chain strategy.
The definition of the supply chain strategy follows 4 steps:
1. KNOW YOUR SUPPLY CHAIN (assumption on which we base the strategy) = the key point is the
understanding of the characteristics of the supply chain. According to Lee, given the position of the company,
it is necessary to look upstream to the suppliers and downstream
to the customers (focus on a part of the supply chain). Example :
for Barilla, the suppliers are the raw materials suppliers, and the
customers are retailers, such as Esselunga.
The main driver to consider is the uncertainty level and it can
be used to describe the characteristics of the supply chain à
there are two level of uncertainty, low and high, which is
considered in terms of variability and predictability. Crossing
the two dimensions, we have four possible quadrants regarding
the positioning of the company and of its supply chain.
The main factors that can be used to understand the uncertainty on demand side are:
- Product variety à easier to work with a short number of items
- Consumer demand volatility à variability is expressed by the coefficient of variation (CV) = standard
deviation / demand
- Incidence of sales induced by promotions/discounts
- Price fluctuation
- Product life cycle (length and position in the curve) à product’s sales during its life ; there are four main
phases: introduction, growth, maturity and decline and the variability of demand is lower during the
maturity phase. Another key point is the lenght of life of the products.
- Introduction of new products
- Obsolescence risk
- Number and characteristics of the market segments served
- Competition level of the market à if the marlet is not stable, that is a source of uncertainty
- Number of echelons in the downstream supply chain
- Importance of time-to-market
- Penetration of new markets
From the supply side , the main factors that influence uncertainty are:
- Overall number and number per item of suppliers à higher efficiency in the relationship but riskier in case of
failure, so it’s imporant to know the number of suppliers for each product
- Localization of suppliers/Country risk of suppliers à differentiation in order to reduce the country risk
- Stability of the supplier base à if suppliers are changed with a high frequency the risk is higher
- Duration of supply contracts
- Level of dependency on the supplier base à percentage of revenues that the company represents for the
supplier; with a high percentage of revenues, the relationship is stronger – the company has the priority since
it’s the main customer
- Number of echelons in the upstream supply chain
- Financial performance of suppliers
- Maturity level of processes and technologies
- Product complexity/Number of components
- Quality level required
- Evolution of raw materials
At the end of the first step it is possible to map the
positioning of the company on the matrix.
Sometimes and especially in big companies, a product is
in one quadrant and another in a different one.
2. CHOOSE YOUR SUPPLY CHAIN STRATEGIC APPROACH = Lee introduces four different strategic
approaches and for each of them it is necessary to:
3. DEFINE THE SUPPLY CHAIN STRATEGIC POLICIES needed to pursue the goal
LEAN SUPPLY CHAIN STRATEGY = it aims to maximize the “expected” Return On Assets (ROA)
creating both cost and value competitive advantages à optimization of the logistics system. We are assuming to know
the future flows or that we can predict them (strong assumption at the basis of this strategic approach)
Some examples of policies that allow us to optimize the logistics system are:
- Non value adding activities elimination à cost cutting
- Focus on economies of scale à possible to minimize the logistics costs
- Stock control and centralized management à inventories centralized in one node
- Optimization techniques aimed at distribution and production capacity maximization
- Client-supplier info sharing automation
AGILE SUPPLY CHAIN STRATEGY = it aims to reduce risks on both the supply and the demand side à it
doesn’t make sense to optimize something that will change for sure; if don’t know the future how can we optimize it?
à the strategy aims to minimize the variability of return on asset , since the main important thing is
FLEXIBILITY = ability in changing the logistics system in a short time at the minimum cost
Consistently with this strategy capproach, we can implement different policies to minimize the probability that the
negative event happens:
The lean approach works well with low uncertainty on both demand and supply side because it assumes that the
future is known. The agile side is suitable with high levels of uncertainty both the supply and demand side. In the
intermediate cases we use the responsive strategy or the risk hedging strategy.
4. REVIEW THE STRATEGY OVER TIME à last step of Lee’s framework. If the assumptions at the base of
the first step change, it’s necessary to start again with the analysis of the characteristics of the supply chain.
COYLE’S FRAMEWORK = Coyle proposed other four strategies that
have an impact on all the dimensions of corporate profitability :
1. TIME BASED STRATEGY = the main aim is to shorten the
order delivery cycle time and the replenishment cycle time as
much as possible:
o cycle time reduction à reducing logistics processes time,
faster and more accurate Information and Communication
Technology (ICT) and faster decision making (managers
often need autorization of the boss)
o time-reduction logistics initiatives à cross docking (no storage, products flow faster) and
collaborative planning (such as VMI = Vendor Managed Inventory) to reduce the order cycle times
o passing from the push approach to the pull approach à fast manufacturing systems to reduce cycle
time for ATO (Assembly-To-Order) productions and postponement
2. ASSET PRODUCTIVITY STRATEGY = the aim is to pursue a high efficiency in the use of logistics
resources:
o Inventory reduction à collaborative planning allows inventory reduction for both the trade partners
and cross docking
o Equipment utilization à reduction of logistic facilities, use of technology (such as handheld
terminals) to improve the utilization rate of the assets to move and store products and direct delivery
(if possible)
o Third party or contract logistic services à outsourcing of transportation and of the whole logistic
process
3. TECHNOLOGY BASED STRATEGY = the aim is to favour the adoption of the technologies seen as
factors that allow companies to improve the efficiency and effectiveness of the logistics system
o eCommerce B2b à eProcurement and eSupply chain (logistics apps)
o automatic identification projects à RFId (Radio Frequency Identification) to enable processes
o automation of warehousing and material handling à automated warehouses, automated picking and
sorting systems, wireless technology (Wi-Fi in the warehouses, mobile workspace, etc.)
4. RELATIONSHIP BASED STRATEGY = it aims to optimize the performace of logistics system by
working on the interface between suppliers and customers , therefore the aim of this strategy is to improve
the performace of logistics system working outside the boundaries of the company:
o Integration of supply chain processes à digitalisation and integration of the order-to-payment cycle
(the process at the interface between supplier and buyer) and standardization of industrial labels and
packaging (barcode on the unit load)
o Collaboration à exchange of supply chain planning information, collaborative planning (VMI, CRP
= Continuous Replenishment Program, CPFR = Collaborative Planning, Forecasting and
Replenishment, etc.) and restructuring of the logistics network/process to streamline the flow of goods
The best strategy depends on the context and on the general strategy of the company à sometimes it’s a combination
of different strategies, but it’s always imporant to have consistency.
VALUE CREATION AND LOGISTICS EVOLUTION – MONCLER
What are the peculiarities of luxury fashion industry?
- Exclusive à very expensive items and small production for each item
- Prestige and minimal stock à items sold in Moncler’s stores, which are in peculiar and expensive location
with the goal to use each square meter for selling, no place for storage
• Experience à the customer receives a message, doesn’t go there only to shop. They replenish of the store
happens also during the season and they start the project for the collection two years before the season à
collaboration and coordination to give the idea of novelty during the season
- Global multichannel network à need to be in contact with stakeholders
- Fashion backstage à event management
- Complexity à production of big items which are difficult to handle, so the processes have to be carefully
planned; it derives from the characteristics of the items and from the global commerce of the products
What is the scope of logistics?
Inbound logistics : raw materials are collected all over the world and collected in the main warehouse near Milan,
Castel San Giovanni; then there is the quality control of raw material. The raw materials are send all over the world
for production of the items and when finished they are sent make in Italy for a quality control on each item. From the
10 market warehouses, all the world is served – Multi-channel à retail, wholesale and ecommerce
Logistics manages internal flows but also interact with manufacturing and final customers, becoming operative
logistics for end customers à they start form the raw materials and their distribution, sometimes they involve
manufacturers for the purchase of certain materials or products – the control on raw materials guarantees the quality of
the goods and the risk on obsolence of products is reduced because they manage the stocks
Traceability of items = it guarantees the history of the product, ex. where it was produced, in order to be able to give
a warrant to the client and avoid contrafacted items.
Integration with supplies and wholesalers where they work as logistics provider à the wholesaler goes to
Moncler’s website and orders items and Moncler is the one delivering the goods (commercial agreement) – Moncler is
owner of wholesaler’s stocks in their facilities in order to reduce the value of stock.
The initial allocation is the same for each shop, but then each region or climate has its own allocation strategy.
How can logistics create value?
- Agile approach à to face the unpredictability of the fashion industry; ex. if the snow comes before the
season it is important to be ready to face the challenge.
- Global à brand present all around the world, standardization of the process in market warehouses, which
enables to be agile and face uncertainty à cloud-based warehouse management system , with the same
software they have access to all the activities in all the warehouses in real time
- Innovative
- Resilient
- Efficient à logistics strategy has to create value, through automation in terms of information: the pillars of
AUTOMATION are that the system has to be replicable, scalable and high-performance
AUTOMATION in the new warehouse is used for:
1. Receiving of goods à create automation able to cover both the formats (hanger or flat) and able to manage
pieces
2. Storage à high density storage system
3. Movement of goods à conveyors to bring the garments and the flat items are transformed in hanger items
**_4. Picking
- Packaging_**
Moncler focus also on sustainability à they have a 3 years plan in order to achieve certain goals, like zero plastic in
packaging. The new step in the evolution of logistics is the SUSTAINBLE SUPPLY CHAIN MANAGEMENT ,
with the introduction of sustainability and environmental impact in the KPIs (ex. reduction of the impact on the carbon
footprint); also the management of the reverse flows helps to improve sustainability.
safe and to decouple asynchronous processes – in a MTO process, if the production capacity is not consistent,
it is necessary to start the production (with the same production rate) before receiving the order and therefore
having inventories of finished products. When the deliveries start, the delivery rate is higher than the
produciton rate and the difference accumulated reprensents the inventories, which are present even if the
goods are already sold (ex. Fashion industry) – the warehouse manages the different operative rhythm of the
cycles of production and delivery and the need of stock arises from the lack of syncronization. In a MTO
process we work without the risk of obsolence.
- FLOW MANAGEMENT or MATERIAL HANDLING = consolidaiton of the goods coming from the
upstream part of the logistics network; sometimes we need the warehouses to transform the flows :
o from full pallet loads to customer orders : when the warehouse receives the orders, customers may ask
for a quantity that is smaller than a full pallet and the output of the warehouse is a mixed pallet;
o from unpacked products to packed products : in ecommerce B2C the goods are inside a shipping
carton and in the warehouse there is the picking of goods that are packed;
o from untailored products to tailored products : warehouse are used to customize the products.
Depending on the their function, we can have two different types of nodes:
§ WAREHOUSES, DEPOTS or DISTRIBUTION CENTERS = the node is characterized by both the
storage and the flow management functions à downstream orders are sent to the warehouse and the
inventories present in the warehouse are used for the fulfillment and delivery of the order; there are also
upstream orders that aim at replenishing the inventories in the warehouse.
§ LOGISTICS PLATFORMS or TRANSIT
POINTS = the only function is the flow
management (goods are stored only for sorting
purposes) à the orders are fullfilled in an
upstream warehouse and then sent to the transit
point where a CROSS DOCKING ACTIVITY is
carried out – the goods are unloaded and
reloaded right away, in a few hours; we work
without stocks, so the transit point is smaller
than a warehouse à the main activity perfomed
is sorting
WAREHOUSE TRANSIT POINT
- It needs materials planning and management
- It contains safety and cycle stocks
- It accomplishes all the activities/tasks typical of
a depot
- It does not need any activity of materials
planning and management
- It generates only “in transit” stocks
- It accomplishes only sorting activities: cross
docking, delivery and re-packing
WAREHOUSE OPERATIONS
The 4 main macro “flow management” activities carried out in a warehouse are:
- RECEIVING = transferring of the goods into the facility from the
upstream supply chain
o Schedule carrier à The carrier is scheduled to deliver the
goods at a specific time in order to improve the warehouse labor
productivity. It’s important to spread the arrival of the trucks
during the hours of the day, because of the pick of workload that
causes an increase of the resources
o Unload vehicle à the goods are unloaded from the vehicle and moved to the receiving dock
o Inspect for damage à quality control of the goods – any damage is noted on the carrier receipt
o Compare to P/O à the received goods are compared to the purchase order to check if the goods are
compliant with the ordered goods – accuracy of the delivery
- PUT-AWAY = the goods are moved from the docks to the storage area
o Identify product à the product is identified, for example through the barcode scanning
o Identify storage location à the location of the product is identified
o Move products à product moved to the location
o Update records à the warehouse inventory records are updated to reflect the receipt of the item and
its location
- ORDER FULFILLMENT = the unit loads are retrieved in order to satisfy the customers’ orders. Based on
order size, orders can be fulfilled by means of full pallet retrieval or picking activity à FULL PALLET
RETRIEVAL : in the storage location the full pallet is taken; PICKING ACTIVITY : the number of items
needed is taken (smaller than a full pallet) – case or unit, it’s necessary to visite more locations
o Manage order info à when picking is needed, the order information is provided to personnel on a
picking list
o Pick goods à the items on the picking list are arranged so as to minimize the distance the picker has
to walk through the aisles
o Move goods à once they arrive to the shipping preparation area, the items are placed in a shipping
package (or a pallet that could be wrapped)
o Label package à the shipping label (i.e. a label that indicates the customer address) is attached to the
shipping package
- SHIPPING = loading of the trucks for the delivery
o Schedule carrier à the carrier is scheduled to pick up the goods at a specific time
o Load vehicle à the goods are moved from the staging area to loading dock and then they are loaded
to the carrier vehicle
o Bill of lading à the carrier signs a bill of lading
o Record update à the warehouse management system is updated to reflect the removal of the products
from the warehouse
The warehouse can be subdivided in 4 main FUNCTIONAL AREAS :
1. RECEIVING AREA à there is the stocking of the unloaded goods ready to be stored in the storage area –
it’s not small, since after the unloading of the goods, they are stored momentarly for inspection and quality
control
2. STORAGE AREA or RESERVE AREA à area where companies store the great part of their
inventories, so it’s really important the exploitation of the space (vertical development with the use of racks to
exploit the space) – 50 or 60% of the whole space
3. PICKING AREA or FORWARD AREA à during the same mission for the order assembly, more
locarions are visited by the workers – activity labour intensive and in the design of the picking activity is
important to have a small area and to use solutions that allow the maximization of the productivity
4. SHIPPING AREA à consolitation of the goods coming from different parts of the warehouse; when all the
goods required by the customer are ready it is possible to load the truck
Goods usually follow a U shape à the
loading and receiving doors and docks
are on the same side. But this is not
always the case and the key factor that
influences this decision is the amount of
flows managed by the warehouse: the
higher the flows, the more doors and
docks are needed.
There also spaces needed for other
activities, such as offices for
administrative tasks and the space for
the forklifts charging station
