This week we'll review the main components of logistics management in supply chains. I'll use an example of online ordering to explain the various logistics operations needed for an order to be processed, prepared, and delivered to end customer. I'll then specifically talk about facilities, inventory, and transportation as three main drivers of logistics operations that supply chain managers rely on to develop supply networks and optimize supply chain operations. A few days ago I went online to Amazon, and ordered a book called The Power of Resilience: How The Best Companies Manage the Unexpected, published by MIT Press, and written why Yossi Sheffi. I live in Sydney, the book was shipped from a bookstore in the United States. It took four days in total for the book to be delivered to my home. Pretty impressive, isn't it? This book has been on a journey of more than 14,000 kilometers, and it arrived at my door in less than a week. If we were to wind the clock back, say 30-40 years, it would have probably taken weeks or even months for me to receive the book, even if I could make such an order. It's probably would have cost me hundreds of dollars in transport and delivery fees. Not to mention that my order could have been lost and it would have been almost impossible to track it in transit, or after it went missing to find out what happened to it. What's happened in the last 30 years that has made such a huge impact on global trade and enabled online ordering and delivery in a fraction of the time and cost? The answer is improved logistics management of the online ordering supply chain. Let's take a closer look at this process. In simplest terms, when you make an order online, it's first processed by the seller of the product, and then dispatched from the seller's facilities through a carrier. Now if the destination for this delivery is offshore, your order is probably sent to a distribution center close to the delivery port, say in a harbor or airports along with others found for the same country, and then delivered as part of a full truckload for shipment to the destination country. Once your parcel has arrived at the destination country, it is likely to be gathered in a distribution center and sorted with all others according to region. From there local carriers will handle the last leg of the delivery. This is a simplified example of how the online ordering process works. In fact you get a glimpse into this process when you track your orders online. The RFID tags and RFID readers at entry and exit points of the facility is used in the delivery process, enable the tracking. Here's my question for you. What were the main components involved in this whole process to make it possible? What were the requirements to implement this complex operation? Logistics deals with all the elements of a complex operation to make that operation visible. In our example the main elements or logistics drivers, were the carrier that deliver the parcels, the distribution centers for warehousing and reassigning parcels, and the parcels themselves. We call the carrier the transport driver, distribution centers: the facilities driver, and parcels: the inventory driver of logistics in supply chain. You might argue that the online ordering system as well as management of the ordering information in this process are also important factors, and this is indeed correct. But here we are concentrating on facilities, inventory, and transport as the main driving forces of logistics management in supply chains since they are usually more costly and take more time and effort to optimize. What do you think are the main features of supply chain logistics drivers, and what do you need to pay attention to when choosing these features? I'd like you to pause this video for a couple of minutes, take a piece of paper and a pen, write down the headings: facilities, inventory, and transport, and start thinking about and writing down what you know about them. For example, what types of facilities do you know? What are the different types of inventory? What are the different modes of transport? What are some of the KPIs or key performance indices you can use to measure the efficiency of these logistics drivers in your supply chain? Pause the video now and resume when you're ready. Do you have your list? Let's start with facilities. These are the sites used for production or storage of inventory. Warehouses, distribution centers, factories, and retail stores in a supply chain are examples of facilities. The number and excess capacity of facilities in market responsive supply chains are usually higher compared to physically efficient supply chains. This increase number and capacity ensures the flexibility needed for aligning the changes in customer demand. Some of the main KPIs used for facilities management performance assessments are: total capacity, capacity loss due to change overs or breakdowns, cube utilization, availability for production, and production service level. Inventory. In any supply chain inventory has three main forms: raw material, work-in-process, and finished products. In a market responsive supply chain and for those types of inventory that are not perishable or limited by short life cycle, the stock levels of raw material and work-in-process are higher compared to physically efficient supply chains. This makes the inventory more accessible and the production of a variety of products conforming to customer demand more flexible. Some of the main KPIs used for inventory management performance assessments are: average inventory, average safety stock, components obsoletes, finished products obsoletes, stock value, and fill rate. Transport. Transport is the act of moving inventory between facilities and for the end customer in a supply chain. As you know, transportation can include various modes and routes corresponding to the designated timeline for delivery and types of inventory to be transported. Compared to physically efficient supply chains, usually market responsive supply chains use faster modes of transportation and do not necessarily consider dispatching full truckloads of inventory. Supply chain managers usually consider transportation costs in two main forms: outbound transportation costs and inbound transportation costs. Outbound transportation takes the inventory to the customers, while inbound transportation is the receipt of inventory from a supplier. Now take another look at your notes. What other types of KPIs did you write down that I haven't covered here? How do you choose the logistics drivers in your supply chain? Do you consider the type of the supply chain while planning for the logistics drivers? Or do you have another formula that helps you decide about the logistics in your supply chain? Thinking about these can help you put the idea of logistics drivers in context.
