LM-1

Prof. Abhijit Nag

 DEFINITIONS
• LOGISTICS:
‘Logistics’ as we all have seen, is a process of
strategically managing the procurement,
movement and storage of materials, parts and
finished inventory through the organisation and
its marketing channels in such a way that the
current and future profitability are maximised
through the cost-effective fulfillment of orders.
 ….DEFINITIONS
• INBOUND LOGISTICS (UPSTREAM
LOGISTICS):
Generally activities associated with receiving,
storing and disseminating inputs to the product,
such as material handling, inventory control,
inbound inspection, scheduling, returns to
suppliers etc are part of the inbound logistics
function.
 ….DEFINITIONS
• OUTBOUND LOGISTICS (DOWNSTREAM
LOGISTICS):
Activities associated with collecting, storing
and physically distributing the product to buyers
such as finished goods, order processing,
warehousing, material handling, delivery vehicle
operations, scheduling, shipping etc are part of
the outbound logistics function.
 ….DEFINITIONS
• SUPPLY CHAIN & LOGISTICS:
Supply chain is the network of facilities and
distribution options that performs the functions of
procurement of materials, transformation of
these materials into intermediate/finished
products and distribution of these finished
products to customers. Its about Backward
Supply Chain (procurement of materials)
Operations and Forward Supply Chain
(distribution of finished products to customers)
Operations.
SUPPLY CHAIN & LOGISTICS
• There are four major decision areas in Supply
Chain Management. They are:

 Location.
 Inventory.
 Production.
 Transportation/Distribution.
 ….SUPPLY CHAIN & LOGISTICS

• Probably the trend of outsourcing various

activities started with outsourcing of
Transportation/Distribution. In Indian context,
transportation generally accounts for nearly 50%
of the total logistics cost.
• Today, logistics cost profoundly influences all
the four decision areas of the supply chain
management.
 ….SUPPLY CHAIN & LOGISTICS

• Buoyed by the initial success, companies are

outsourcing most the activities in supply chain.

• Companies are lowering their investment in fixed

assets by leasing and renting plants and
warehouses while outsourcing manufacturing
and transportation processes.
 ….DEFINITIONS
• INVENTORY:
It is said “Operational efficiency of a
company depends not only on how effectively it
manages its working capital but also on how the
company helps its suppliers and customers
manage their working capital”. In other words, it
is the efficiency of overall supply chain, from
customer’s customers to supplier’s suppliers, not
just the lead firm’s efficacy which gives a
competitive edge.
 ….INVENTORY
Till Japanese in general and Toyota, in
particular, with its widely acclaimed Toyota
Production System (TPS), of which Just In Time
(JIT) and Kanban are the two operating
principles demystified the concept of inventory
buffer, world viewed inventory as assets and
used it as hedge against uncertainties of
demand & supply and non-seamless information
flow across the supply chain.
 ….INVENTORY
The new understanding in holding inventory
is an evil. In manufacturing companies, nearly
50% of total assets are in the form of working
capital (current assets). One important area of
cost minimisation programme in procurement is
the inbound transportation expense. With
competitors becoming more aggressive and
customer focused, with growth flattening,
managing this cost centre, viz. Inventory,
became the priority.
 ….INVENTORY

• Today, inventory turnover is a leading metric for

working capital efficiency. In short, the overall
performance of supply chain significantly affects
the financial health of both P&L A/c and Balance
Sheet.
 ….DEFINITIONS
• SHRINKING PRODUCT LIFE CYCLE:
Ever changing preferences of customer’s
are making products obsolete much faster than
before. This fast changing customer preference
has compelled the companies not to carry
excess inventory. This has resulted in
companies insisting on suppliers supplying only
required quantity. Practices of procuring huge
quantities at a time gave away to procuring small
quantities frequently. This required perfect
coordination between procurement and
production.
….SHRINKING PRODUCT LIFE CYCLE

With shorter Product Life Cycles (PLC)

companies were forced to sell quickly what they
produced. With shorter PLC, the problem of
obsolete inventory increases dramatically. With
the decrease in the prospects of offering one
product to entire market, companies were forced
to look for unfulfilled customer needs and
innovative ways of fulfilling them. These
developments rattled up the old supply chain.
Procuring and shipping in small quantities as
frequently as possible to and from diverse
locations became the order of the day.
 ….DEFINITIONS
• FORWARD VISIBILITY:
Though only material flow is highlighted in
supply chain, information and cash also flows
equally vigorously within the supply chain.
Material flow is mostly uni-directional (rejections,
damaged goods etc are exceptions) information
flow is two way and cash flow again is mostly
uni-directional in reverse order (from channel
partners – lead firms – suppliers). For a long
time, each link in supply chain functioned in
isolation. Information flow was many times not
present and at times if present, was untimely
and accurate.
 ….FORWARD VISIBILITY
• Experts attribute creation of inventory buffers,
which are pure cost centres, to lack of forward
visibility arising out of lack of information flow
within the supply chain. Communication was
the chief culprit in on-time delivery failures.
However, developments in Information
Technology (IT) entranced the pace of
information flow within the supply chain IT
allowed managers to see operations more
effectively and most instantaneously.
Fig. 1: Typical Links and Flows in
Supply Chain
• Enterprise Resource Planning (ERP) brought
about inward integration, mostly linking various
functions within a company, instantaneous.
Internet brought about a paradigm shift. It
made possible real time information sharing
across the chain. This gave enormous visibility
to everyone in the chain, thus drastically
reducing the need to hold inventory. But this put
enormous pressure on the logistics function of
the company. The global visibility enabled by
the internet, provided many companies with
access to new markets. Customers started
demanding shorter lead-times, higher reliability
and real time visibility into suppliers systems.
Table 1: Value Chain Benefits
• Value Chain survey respondents indicated the
above as the ‘Major Benefit’ from sharing
information with partners:
INCREASED SALES: 41%

COST SAVINGS: 62%

INCREASED MARKET SHARE: 32%

INVENTORY REDUCTION: 51%

IMPROVED QUALITY: 60%

ACCELERATED DELIVERY TIME: 54%

IMPROVED LOGISTICS MANAGEMENT: 43%

IMPROVED CUSTOMER SERVICE: 66%

 BENEFITS OF FORWARD
VISIBILITY
Improved visibility across the supply
chain has generally resulted in the following
benefits:

 Improved customer service through on-time

deliveries of complete orders to customers.

 Reduction in inventory carrying (cost 9cost of

holding excess inventory plus stock-out costs),
decreased chances of holding obsolete
inventory, reducing the cost of sales.
 ….BENEFITS OF FORWARD
VISIBILITY
 Since accurate and timely information about
requirements are provided to the suppliers,
relationship between the company with its
suppliers improved. Operating efficiency scaled
up by reducing both the suppliers inventory and
overall supply chain inventory.
 Faster pace of the inventory flow resulted in the
improvement of operating cash flow.
 Return on Assets (ROA) improves substantially,
since non-operating assets like warehouse,
distribution centres, trucks etc. would be
optimally handled.
 THE LOGISTICS EDGE
• The key battleground in the value chain seems
to be the concept of time. The focus is to make
the cycle time as fast as possible by taking out
redundant steps as well as appropriate logistical
interventions from supplier’s supplier to
customer’s customer, as this would improve
efficacy, productivity, cost keeping the price
competitive and yet making more profits. What
this essentially means is shifting the epicentre of
competition from price and broad-basing it.
 ….THE LOGISTICS EDGE
• With a responsive supply chain in place, a
company can compete:
 In terms of delivery time.
 Reduced obsolescence.
 Being more responsive to changing customer
needs.
What started off in a small way has hit
crescendo today. Outsourcing of transportation,
warehousing requirements to a specialist is now
an everyday matter. In India, the total market for
logistics services is estimated to be about 5000
million and is growing at about 30-40% every
year.
 Table 2: % of Companies Outsourcing
Supply Chain Applications to Logistics Firms
• Freight payment/accounting: 46%
• Transportation
planning/optimisation: 46%
• Warehouse Management: 27%
• Shipment Tracking: 19%
• International Documentation: 19%
• Supply Chain Planning: 6%
• Order Management: 4%

BASE: 65 Fortune 500 Logistics Managers. SOURCE: AMR Research

 ….THE LOGISTICS EDGE
• A recent study by consulting firm Accenture and
Northeastern University says that more than
70% of the Fortune 500 companies have
outsourced at least one major logistics function.

• This double-digit growth in logistics business has

attracted many players to the business with
diverse backdrops.
 ….THE LOGISTICS EDGE
• Some of them operating in India are as follows:
 Upgraded truckers, viz., GATI, Transportation
Corporation of India (TCI).
 Upgraded couriers, viz., Safexpress.
 Multinational Companies, viz., UPS, Elbee, Bax
Global etc.
 Large number of companies from the
unorganised sector. Each one of them come
with different set of competencies and different
business experiences.
 REVESE LOGISTICS
• Traditionally the supply chains are tuned to
handle forward movement of goods. However,
there is an increasing pressure in these days to
fine-tune the supply chain to handle the reverse
flow of materials too. In general, reverse
logistics is about handling:
 Products returned by customers.
 Products to be recycled.
 Reusable products/Packaging materials.
 Products to be repaired.
 Products damaged in transit etc.
 ….REVERSE LOGISTICS
• In fact with the emergence of e-commerce, there
is more pressure to put in place a smoothly
functioning reverse logistics network than ever
before. In a recent survey by BizRate, 89% of
the online buyers have responded that return
policies, not the product or price influence their
decision of from whom to shop with. In the
coming years, probably reverse logistics would
emerge as a new source of competitive
advantage.
 ….REVERSE LOGISTICS
• Fig. 2 shows the forces behind emergence
of current logistics practices, followed
world-wide.
 e-Logistics
• Emergence of internet as a medium to carryout
business has meant a lot to logistics in
particular. It is a well-known fact that when
doing business on internet, time and distance
are irrelevant. e-business has changed the
traditional model of doing business from Buy-
Store-Sell model to Sell-Source-Ship model.
This new way of doing business requires highly
responsive supply chain and logistics network.
 ….e-Logistics
• Fig: 3 below shows a typical schematic
diagram of e-logistics: New Paradigm.
 ….e-Logistics

• It is necessary to have a real-time knowledge of

business events to manage distribution
challenges proactively.

• e-Logistics upgrades the distributors from

merely taking orders and procuring them to
collaborating with suppliers and customers to
make fullest use of the business opportunities
on net.
 ….e-Logistics
• e-Logistics has even dramatically altered the
way traditional functions like receiving inventory,
inventory location, picking, replenishment,
shipping and inventory management.

• Companies that have succeeded in pulling in

place a working e-logistics networks have
gained enormously as the new model intends to
totally eliminate the inventory holding (store)
function since the products would be shipped
directly to the customer from the sourcing point.
 NEXT WAVE
• With the initial hype settling down and people
more, or, less convinced of the benefits of
outsourcing various logistics functions,
outsourcing has really gained momentum.

• Today more and more supply chain functions

are outsourced than before.

• “Logistics alliances are making US industry more

efficient and thus more competitive.
 ….NEXT WAVE

• It appears we are about to ride one more wave

in logistics services 4PL(fourth-partly logistics).
• A practice where a Lead Logistics Provider
(LLP) would take care of host of supply chain
activities on one behalf by outsourcing some of
the activities to 3PL providers, or, specialist
outfits, i.e., lead logistics provider to whom a
company outsources various logistics functions,
in turn would outsource some of the logistics
services from other service provider.
 ….NEXT WAVE

• Infact, Auto and Retailing industry were the first

ones to understand and appreciate the
importance of logistics function.
• Problem of dealing with too many suppliers and
too many components coupled with frequent
product changes at regular intervals in case of
Automobile industry and fast changing fashion
trends and the necessity to respond to these
changes in a very short time in case of Retailing
industry compelled them to seriously look into
their logistics practices.
 ….NEXT WAVE
• But today, more, or, less there is across the
industry recognition of the importance of
logistics. This recognition has also meant
demand for better and innovative services from
the user industry. And companies have
recognised that success in the market place
depends on the efficacy of the supply chain.
With increasing number of supply chain would
depend on not only how effectively the lead firm
performs its core activity but also on the efficacy
of the logistics provider. Therefore, given this it
is natural to expect the logistics provider to play
a crucial role in the days to come.
 THIRD PARTY LOGISTICS(3PL)
• More Domestic 3PLs Emerging From the Ranks
of Shippers:
 Large shippers look to leverage their logistics
assets and generate new revenue streams.
 These shippers have the capability to offer the
gamut of logistics services, including
warehousing, inventory management,
information systems, order fulfillment, call
centres, demand forecasting and planning,
transportation and so on.
 They are also well positioned to integrate
vertically in the supply chains in which they
participate.
…THIRD PARTY LOGISTICS(3PL)
• The Formation of Global 3PL Companies via
Mergers:
• A number of major providers have made
acquisitions to expand or strengthen their
international scope.
• Foreign-based 3PLs acquiring U5 3PLs fuelled
the latest wave of activity in this area.
• Mergers and acquisitions are creating 3PLs that
can provide one-stop shopping for logistics
services and that can manage global supply
chains for their clients.
…THIRD PARTY LOGISTICS(3PL)
• Top Ten 3PL Services Used:

•Direct Transportation Service: 63%

•Warehouse Management: 60%
•Freight Payment: 52%
•Shipment Forwarding: 48%
•Carrier Selection: 44%
•Customer Brokerage: 41%
•Rate Negotiation: 38%
•Tracking/Tracing: 33%
•Order Fulfillment: 33%
…THIRD PARTY LOGISTICS(3PL)
• Criterion in Final 3PL Selection:
 BENCHMARKING THE SUPPLY CHAIN
• The intense level of competitive activity
encountered in most markets has led to a new
emphasis on measuring performance not just in
absolute terms, but rather in terms relative to the
competition, and beyond that to ‘best-practice’.
• In the past it was usually deemed to be sufficient
simply to measure internal performance. In
other words the focus was on things such as
productivity, utilisation, cost per activity and so
on. Whilst it is clearly important that such things
continue to be measured and controlled it also
has to be recognized that such measures only
have meaning when they are compared against
a relevant ‘metric’ or benchmark. What should
be the metric that is used in assessing logistics
and supply chain performance?
 ….BENCHMARKING THE SUPPLY CHAIN
• There are in fact several dimensions to the
measurement problem. The first key point to
make is that the ultimate measuring rod is the
customer, hence it is customers’ perceptions of
performances that must be paramount.
Secondly, it is not sufficient just to compare
performance to that of immediate competitors.
We must also compare ourselves to the ‘best in
the class.’ Thirdly, it is not just outputs that
should be measured and compared but also the
processes that produce that output. These three
ideas lie at the heart of what today is termed as
competitive benchmarking.
 ….BENCHMARKING THE SUPPLY CHAIN

• Competitive benchmarking might simply be

defined as the continuous measurement of the
company’s products, services, processes and
practices against the standards of best
competitors and other companies who are
recognised as leaders. The measures that are
chosen for the comparison must directly or
indirectly impact upon customers’ evaluation of
the company’s performances.
….BENCHMARKING THE SUPPLY CHAIN

• One of the earliest firms to adopt benchmarking

was Xerox Corporation, who used it as a major
tool in gaining competitive advantage. Xerox
first started benchmarking in their manufacturing
activity and it was focused on product quality
and feature improvements. Following success in
the manufacturing area, Xerox top management
directed that benchmarking be performed by all
cost centres and business units, and by 1981 it
was adopted company wide.
….BENCHMARKING THE SUPPLY CHAIN
• Initially there was some difficulty in performing
benchmarking in departments such as repair,
service, maintenance, invoicing & collection and
distribution, until it was recognized that their
‘product’ was, in fact, a process. It was this
process which organisations. By looking at
competitors’ processes step-by-step and
operations-by-operation, Xerox were able to
identify best methods and practices in use by
their competitors.
• Initially benchmarking activities were
concentrated solely on competitors until it
become clear that Xerox’s objective in achieving
superior performance in each business function
was not being obtained by looking only at
competitors’ practices.
….BENCHMARKING THE SUPPLY CHAIN

• The objective of creating competitive advantage

involves outperforming rather than matching the
efforts of competitors. This, together with the
obvious difficulties in gaining all the information
required on competitors and their internal
systems and processes, led to a broader
perspective on benchmarking being adopted.
Thus benchmarking was expanded from a focus
solely on competitors to a wider, but selective,
focus on the products of top performing
companies regardless of their industry sector.
….BENCHMARKING THE SUPPLY CHAIN

• Xerox have successfully used this broader

perspective on benchmarking as a major
element in increasing both quality and
productivity. Collaborative cooperation between
firms in non-competing industries offers
significant opportunity in this regard. For
example, in the Xerox logistics and distribution
unit, annual productivity has doubled as a result
of benefits obtained from non-competitive
collaborative benchmarking.
….BENCHMARKING THE SUPPLY CHAIN

• Today Xerox is a world role model for quality

improvement with some 240 different functional
areas of the company routinely involved in
benchmarking against comparable areas. Gains
can come from widely different industries. Table
1.1 shows five practices relevant to improving
productivity gains in Xerox that were identified
from such widely disperate businesses as
photographic film manufacturers and drug
wholesalers.
 Table 1.1: Practices uncovered by Xerox
via Noncompetitive Benchmarking
Type of Company Practice
• Drug Warehouse: • Electronic ordering between store
& distribution Centre.
• Appliance • Forklift handling of upto six
Manufacturer: appliances at once.
• Electrical • Automatic in line weighing, bar
Components code labelling, & scanning of
Manufacturer: packages.
• Photographic Film • Self directed warehouse work
Manufacturer: teams.
• Catalogue fulfillment • Recording of item dimensions
Service Bureau: and weight to permit order-filling
quality assurance based on
calculated compared with actual
weight.
Company has identified a number of benefits a
company derives from benchmarking. These
includes:
• It enables the best practices from any industry to be
creatively incorporated into the processes of the
benchmarked function.
• It can provide stimulation and motivation to the
professional whose creativity is required to perform and
implement benchmark findings.
• Benchmarking breaks down ingrained reluctance of
operations to change. It has been found that people are
more receptive to new ideas and their creative adoption
when those ideas did not necessarily originate in their
won industry.
• Benchmarking may also identify a technological
breakthrough that would not have been recognised, and
thus not applied, in one’s own industry for some time to
come, such as bar coding, originally adopted and proven
in the grocery industry.
 What to Benchmark?
• One useful framework for benchmarking is that
devised by a cross-industry association – The
Supply Chain Council. Their model, known as
SCOR (Supply Chain Operations Reference), is
buil around four major processes:
o Plan
o Source
o Make
o Deliver
 ….What to Benchmark?
• These four covers the key supply chain
activities from identifying customer
demand through to delivering the product
and collecting the cash. The aim of SCOR
is to provide a standard way to measure
supply chain performance and to use
common metrics to benchmark against
other organisations. A summary of the
SCOR process elements is shown in
Table 1.2.
 Table 1.2: Supply Chain Council’s
Integrated Supply Chain Metric Framework
Metric Type Outcomes Diagnostics
Customer 1. Perfect Order Fulfillment. 1. Delivery to Commit Date.
Satisfaction/ 2. Customer Satisfaction. 2. Warranty Costs, Returns,
Quality & Allowances.
4. Product Quality. 3. Customer Inquiry
Response Time.
1. Order Fulfillment Load 1. Source/Make Cycle Time.
Time. 2. Supply Chain Response Time.
Time
3. Production Plan Achievement.

Costs 1. Total Supply Chain Costs. 1. Value-Added Productivity.

1. Cash-to-Cash Cycle Time. 1. Forecast Accuracy.

Assets 2. Inventory days of Supply. 2. Inventory Obsolescence.
3. Asset Performance. 3. Capacity.
 Benchmarking the Logistics Process

• Many organisations now recognise the need to

improve processes if outputs are to be
enhanced. In the same way that, some years
ago, manufacturing managers found that the kay
to quality was not to inspect the output but rather
to control the process, so too in logistics we are
coming to recognise the importance of process
improvement and process control. This is the
underlying philosophy of logistics process
benchmarking.
….Benchmarking the Logistics Process

• The key to success in quality improvement is not

to rely upon inspection of the output of the
process but rather to improve the process itself.
Imagine that this process is a ‘pipeline’ that
begins with suppliers, runs through our own
business (whether it involves manufacturing or
any form of value-adding activity) through
intermediaries and on to customers. To ensure
that customer satisfaction is achieved at the end
of the pipeline requires that everything that
happens in the pipeline must be carefully
monitored and controlled.
….Benchmarking the Logistics Process

• The first step in improving performance in the

service pipeline is to understand the structure of
the process. Unlike in oil pipeline, the network
of materials and information flows, activities and
procedures that link suppliers with end users, is
complex. A recommended approach to defining
the pipeline structure is to flowchart the steps
along the chain which begin with a customer’s
order and ends with delivery. A greatly
simplified example is shown in Fig 1.3. The
detailed flow chart from which this summary was
taken covered a very large sheet of paper.
Fig: 1.3: The Path of a Customer’s Order
….Benchmarking the Logistics Process

• The next step is to identify the critical points

where, if something goes wrong, the entire
process will be affected – for instance, a stock-
out in the warehouse, or, a failure to meet a
production plan. These critical points are where
process control must be applied and where
benchmarking against the ‘best in class’
companies – in any industry – can bring
significant benefits.
….Benchmarking the Logistics Process

• If we think of the chain of events from source of

material through to the end user as a series of
supplier/customer relationships then it will
become clear that what we are advocating is the
benchmarking of process and performance at
each of the supplier/customer interfaces.
• Fig. 1.4 provides an example of a series of
monitors of service level from the source of
supply through to the end user which involved to
be continuously appraised.
Fig. 1.4: Process Control & Service
Quality
 Mapping Supply Chain Processes
• Flowcharting supply chain processes is the first
step towards understanding the opportunities
that exist for improvements in productivity
through reengineering those processes. A
critical concept that underpins such
reengineering opportunities is the idea of ‘value-
adding’ time versus ‘non-value-adding’ time.
• Value-adding time is the time spent in doing
something which creates a benefit for which
customer is prepared to pay. Thus we could
classify manufacturing as a value-added activity
as well as physical movement of the product and
the means of creating the exchange.
…Mapping Supply Chain Processes
• The old adage “the right product in the right
place at the right time” summarises the idea of
customer value-adding activities. Thus any
activity that contributes to the achievement of
that goal could be classified as value adding.
• On the other hand, non-value-adding time is
time spent on an activity whose elimination
would lead to no reduction of benefit to the
customer. Some non-value-adding activities are
necessary because of the current design of our
processes but they still represent a cost and
should be minimised.
• The difference between value-adding time and
non-value adding time is crucial to an
understanding of how logistical processes can
be improved. First, one has to flowchart.
 ….Mapping Supply Chain Processes

• The processes and then involve managers in

those processes to debate and agree exactly
which elements of the process can truly be
described as value-adding. Agreement may not
easily be achieved as no one likes to admit that
the activity they are responsible for does not
actually add any value for customers.
• The next step is to do a rough-cut graph
highlighting visually how much time is consumed
in both non-value-adding and value-adding
activities. Fig. 1.5 shows a generic example of
such a graph.
Fig: 1.5 Production, Storage & Transport
Costs & The Time Cost of Money
 ….Mapping Supply Chain Processes

• Fig. 1.6 shows an actual analysis where

the total process time was 40 weeks and
yet value was only being added for 6.2%
of that time.
Fig. 1.6: Value-Added Through Time
 ….Mapping Supply Chain Processes

• It will be noted from this example that most of

the value is added early in the process and
hence it is more expensive when held as
inventory. Furthermore, much of the flexibility is
probably lost as the product is configured and/or
packaged in specific forms early in that process.
Fig 1.7 shows that this product started as a
combination of three active ingredients but very
rapidly became 25 stock-keeping units because
it was packaged in different size, formats etc and
then held in inventory for the rest of the time in
the company’s pipeline.
Fig. 1.7: Variety Through Time
 ….Mapping Supply Chain Processes

• Longest period is spent at the maximum variety

level.
• Greatest flexibility is available when the product
is generic.

• Throughput efficiency in a supply chain can be

measured as:

Value-Added Time/End-to-End Pipeline Time x 100

 ….Mapping Supply Chain Processes
• As we have noted this can be as low as 10%,
meaning that most time is spent in a supply-
chain in non-value adding. To begin, to make
significant improvements in throughput efficiency
first requires a detailed understanding of the
process and activities that together comprise the
supply chain. A useful tool here is supply chain
mapping (or, the value stream mapping).
• A supply-chain map is essentially a time-based
representation of the processes and activities
that are involved as the materials, or, products
move through the chain. Simultaneously, the
map highlights the time that is consumed when
those materials, or, products are simply standing
still, i.e., as inventory.
 ….Mapping Supply Chain Processes

• In these maps, it is usual to distinguish between

‘horizontal’ time and ‘vertical’ time. Horizontal
time is spent in process. It could be in-transit
time, manufacturing or assembly time, time
spent in production planning or processing and
so on. It may not necessarily be time when
customer value is being created but at least
something is going on. The other type of time is
vertical time, this is time when nothing is
happening and hence, material or product is
standing still as inventory. No value is being
added during vertical time, only cost.
 ….Mapping Supply Chain Processes

• The labels ‘horizontal’ and ‘vertical’ refer to he

maps themselves where the two axes reflect
process time and time spent as static inventory
respectively.

• Fig. 1.8 depicts such a map of e manufacture

and distribution of men’s underwear.
Fig 1.8: Supply-Chain Mapping –
An Example
 ….Mapping Supply Chain Processes

• From this map it can be seen that horizontal

time is 60 days. In other words the various
processes of gathering materials, spinning,
knitting, dyeing, finishing, servicing and so on
take 0 days to complete from start to finish. This
is important because horizontal time determines
the time that it would take for the system to
respond to an increase in demand.
 ….Mapping Supply Chain Processes

• Hence, if there were to be a sustained increase

in demand, it would take that long to ‘ramp up’
output to the new level. Conversely, if there was
a downturn in demand then the critical measure
in pipeline volume, i.e., the sum of both
horizontal and vertical time. In other words, it
would take 175 days to ‘drain’ the system of
inventory. So in volatile fashion markets, for
instance, pipeline volume is a critical
determinant of business risk.
 ….Mapping Supply Chain Processes

• Pipeline maps can also provide a useful internal

benchmark. Because each day of process time
requires a day of inventory to ‘cover’ that day
then, in an ideal world, the only inventory would
be that needed to cover the process lead time.
So a 60-day total process time would result in 60
days inventory. However, in the case
highlighted here there are actually 175 days of
inventory in the pipeline. Clearly unless the
individual processes are highly time variable, or
unless demand is very volatile, there is more
inventory than can be justified.
 ….Mapping Supply Chain Processes

• It must be remembered that in multi-product

business each product will have a different End-
End pipeline time. Furthermore where products
comprise multiple components, packaging
materials, or, sub-assemblies total pipeline time
will be determined by the speed of the slowest
moving item, or, element in that product. Hence,
in procuring materials for and manufacturing a
household aerosol air freshener, it was found
that the replenishment lead time for one of the
fragrances used added to the total pipeline.
 ….Mapping Supply Chain Processes

• Mapping pipelines in this way provides a

powerful basis for logistics reengineering
projects. Because it makes the total process
and its associated inventory transparent, the
opportunities for reducing non-value-adding time
become apparent. In many cases much of the
non-value-adding time in a supply chain is there
because it is suf-inflicted through the ‘rules’ that
are imposed, or, that have been inherited. Such
rules include: economic batch quantities,
economic order quantities, minimum order sizes,
fixed inventory review periods, production
planning cycles and forecasting review periods.
 ….Mapping Supply Chain Processes

• The importance of strategic lead-time

management is that it forces us to challenge
every process and every activity in the supply
chain and to apply the acid test of “does this
activity add value for a customer, or, consumer,
or, does it simply add cost?”
 FOURTH PARTY LOGISTICS

• Outsourcing, listed by Harvard Business Review

as one of the most important management
concepts of the past 75 years, has become a
readily accepted means of increasing
performance of non-core supply chain activities.
Outsourcing allows organisations to focus on
there core competencies, to provide a
differential level of customer service and to take
advantage of greater operational flexibility.
 ….FOURTH PARTY LOGISTICS
• While outsourcing often provides solid one-time
cost reductions, it does not deliver the
continuous ongoing savings that business
desire.

• The next significant evolution in supply chain

management has emerged, and it is called
fourth-party logistics, or 4PL. Fourth-Party
logistics enables companies to respond to
today’s supply chain requirements more
effectively.
What is Fourth-Party Logistics?
• Fourth-party logistics is the evolution of supply
chain outsourcing. The convergence of
technology and the rapid acceleration of e-
capabilities have heightened the need for an
over-arching integrator for supply chain
spanning activities. Fourth-party logistics is the
shared sourcing of supply chain activities
between a client and select teaming partner,
under the direction of a 4PL integrator.
• In essence, the fourth party logistics provider is
a supply chain integrator that assembles and
manages the resources, capabilities, and
technology of its own organisation with those of
complimentary service providers to deliver a
comprehensive supply chain solution.
 ….What is Fourth-Party Logistics?
• As conceptually illustrated and examined in
Strategic Supply Chain Alignment by John
Gattorna, supply chain evolution has occurred,
with the organisations moving from insourcing to
outsourcing to 4PL arrangements (Fig.1).
According to Gattorna, “While outsourcing third-
party logistics is now accepted business
practice, fourth-party logistics in emerging as a
breakthrough solution to modern supply chain
challenges….to provide maximum overall
benefit.”
Fig. 1: Evolution in Supply Chain
Outsoucing
 ….What is Fourth-Party Logistics?

• Central to the 4PLs’ success is the ‘best of

breed’ approach to providing services to a client.
The development of 4PL solutions leverages
the capabilities of 3PLs, technology service
providers, and business process managers to
provide the client organisation with greater
cross-functional integration and broader
operational autonomy.
 …What is Fourth-Party Logistics?
• Two key distinctions make the concept of 4PL
unique and set it apart from other supply chain
outsourcing options available to the market
today:

 A 4PL delivers a comprehensive supply chain

solution;
 A 4PL delivers value through the ability to have
an impact on the entire supply chain.
Is 4PL Right For Your Organisation
• In determining whether your organisation should
further investigate a 4PL arrangement, consider
the following key questions:

 Do you consider the supply chain critical to your

organisation’s success but not every supply
chain process a core competency?
 Does your organisation struggle to manage
increasing levels of supply chain complexity?
 Do your customers’ supply chain demands
exceed your organisation’s capability to deliver?
…..Is 4PL Right For Your Organisation

 Do you have the technology capabilities to

integrate across your supply chain processes?
Across your logistics service providers?

 Can you make better use of the capital that is

now dedicated to supply chain assets?
Supply Chain Value Proposition
• The second key distinction between 4PL and
current approaches to supply chain outsourcing
is 4PL’s unique ability to deliver value to client
organisations across the entire supply chain.
• The 4PL approaches the concept of supply
chain integration through four key drivers of
shareholder value: increased revenue, operating
cost reduction, working capital reduction and
fixed capital reduction (Fig. 2). Traditional
approaches have tended to focus only on
operating cost reduction and asset transfer.
Fig. 2: The 4PL Value Proposition
….Supply Chain Value Proposition
• Revenue growth is driven by enhanced product
quality, product availability and improved
customer service. Experience has shown that
customer service measures, such as stockouts
and ship complete, can be improved in excess of
100%. With the 4PL focusing on the entire
supply chain – not just the efficiency associated
with warehousing, or, low-cost transportation –
dramatic customer service improvements can be
attained.
….Supply Chain Value Proposition
• Operating cost reductions of upto 15% are
driven through operational efficiencies, process
enhancements and procurement savings.
Savings are achieved through the complete
outsourcing of the supply chain function – not
just components – and economies of scale.
Synchronisation of supply activities by supply
chain participants leads to operating cost
reductions and a lower cost of goods sold, due
to integration of processes and improved
planning and execution of supply chain activities.
….Supply Chain Value Proposition

• Working-capital reductions of upto 30% can be

realised through inventory reductions and
reduced order-to-cash cycle times. The
proactive use of technology to manage the order
and SKU movement throughout the pipeline
minimizes. The amount of inventory required,
and increases item availability to reduce cycle
times.
….Supply Chain Value Proposition

• Fixed capital reductions result from capital asset

transfer and enhanced asset utilisation. The
4PL’s logistics service providers can take
ownership of physical assets, thus freeing up
assets. This allows the client organisation to
invest in its core competencies (e.g., research
and design, product development, sales and
marketing), rather than in bricks and mortar.