Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin1-1JAMES R. STOCK DOUGLA S M. LAMBERTSTRATEGIC LOGISTICS MANAGEMENTFOURTH EDITIONCHAPTER 1Logistics Role in the Economy and the OrganizationCopyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin1-3That part of the supply chain process that 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 customers requirements.Council of Logistics ManagementLogistics Management DefinedCopyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin1-4Components of Logistics ManagementCopyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Management actionsPlanningImplementationControlRaw materialsIn-process inventoryFinished goodsNatural resourcesHuman resourcesFinancial resourcesInformation resourcesTime and place utilityEfficient movement to customerProprietary assetCompetitive advantageLogistics managementSuppliersCustomersInputs into logisticsOutputs of logisticsCustomer service Demand forecasting Inventory management Logistics communications Material handling Order processing Parts and service supportPlant g., low, medium, highprice levels) for major vendor5.01.34.41.54.61.65.11.55.21.44.31.63.91.610177Store layout planning assistance from manufacturer2.91.64.21.73.01.53.41.64.71.63.01.43.41.2Note: Mean (average score) based on a scale of 1 (not important) through 7 (very important).Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin3-38Internal Audit Questions How is customer service currently measured? What are the units of measurement? What are the performance standards? What is the current level of attainment?3-9 aCopyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin3-39Internal Audit Questions cont. How are these measures derived from corporate information flows and the order processing system? What is the internal customer service reporting system? How do the functional areas of the business perceive customer service? What is the relation between these functional areas in terms of communication and control?3-9 bCopyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin3-40Importance And Performance Evaluations For Selected Customer Service AttributesRelative Performance-0.36* Performance evaluations of A and B are significantly different at p 11015%Above parity 103-110 25Parity 98-10220Below parity 98 40Source: PIMS Database. Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin17-187THE VALUE QUESTION Considering the products and services that you purchased. How would you rate them as being worth what you paid for them?Calculating CVACVA =Perceived Value of Companys OfferPerceived Value of Competitive OffersCopyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin17-188Order Fulfillment Customer Satisfaction Survey Results Delivering MaterialCopyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin17-189Total Cost AnalysisPurchase Price plusnTransportation costsnInventory turnsnTerms of salenOrdering costsnReceiving costsn_ n_ n_Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin17-190Segment Profitability Analysis: A CONTRIBUTION APPROACH WITH CHARGE FOR ASSETS EMPLOYEDSUPPLIER A SUPPLIER B SUPPLIER C SUPPLIER DSALESCOST OF GOODS SOLD VARIABLE MARKETING & LOGISTICS COSTS: ASSIGNABLE NONVARIBLE COSTS:SALARIESADVERTISING INVENTORY CARRYING COSTS LESS:GROSS MARGINTRANSPORTATION RECEIVING ORDER PROCESSINGPLUS: DISCOUNTS AND ALLOWANCESMARKET DEVELOPMENT FUNDSSLOTTING ALLOWANCES CO-OP ADVERTISINGNET MARGIN_ _CHARGE FOR ACCOUNTS PAYABLECONTRIBUTION MARGINSEGMENT CONTROLLABLE MARGIN_ _Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin17-191IMPACT OF LOGISTICS ON RETURN ON NET WORTH net sales total assetsSTRATEGIC PROFIT MODELX$%Net Profit Marginnet profit net salesNet ProfitSales_Gross MarginTotal ExpensesSales_Cost of Goods SoldVariable Expenses- Sales increase due to better customer service- Fewer LTL shipments - Fewer freight claims - Lower freight costs- Insurance - Taxes - Variable Storage costs - Inventory risk costs$SalesTotal Assets+Fixed AssetsCurrent AssetsInventory+ Accounts Receivable+ OtherCurrent Assets%Return on Net WorthNet profit net worthTotal assets net worthNet profit total assets=Financial LeverageRe