08.d mst12.logistics

BWI
Eidgenössische Technische Hochschule
Swiss Federal Institute of Technology
ETH Zürich
Prof. Dr. Paul Schönsleben
Center for Industrial Management
Kreuzplatz 5, CH-8032 Zürich
Logistics, Operations, and
Supply Chain Management

Paul Schönsleben
Table of Contents
1 Basic Definitions, Issues, and
Challenges
2 Business Partners and Business Objects
3 Strategies in the Entrepreneurial Context
4 Performance Measurement
Logistics,Operations,andSupplyChainManagement

Paul Schönsleben
Definition: Good, Resp. Goods1.GrundlegendeDefinitionen
Books
Dry Goods
Cards and
Gifts
Grocery
Consumer
Products
Cars
 A good is something that has an
economic utility or satisfies an
economic want
 The noun form of an adjective
with the meaning
 formerly: ‘fitting in a building or
human society’
 today: ‘suitable, serviceable,
convenient or effective’
BasicDefinitions,Issues,andChallenges

Paul Schönsleben
Definition: Good, Resp. Goods1.GrundlegendeDefinitionen
Banking,
Insurance
Enter-
tainment
Travel
Government
Service
Health
Care
Logistics
and Trans-
portation
 A good is something that has an
economic utility or satisfies an
economic want
 The noun form of an adjective
with the meaning
 formerly: ‘fitting in a building or
human society’
 today: ‘suitable, serviceable,
convenient or effective’

Paul Schönsleben
Definition of Three Synonymous,
Logistics Related Terms (1)
 A produce
 is something produced as commodity or similar.

Paul Schönsleben
 A product
 is something brought about by intellectual or physical effort.

Paul Schönsleben
 An artifact
 is something created by humans, usually for a practical purpose.

Paul Schönsleben
 Materials
 are the elements, constituents or substances of which something is
composed or can be made. Beside raw materials, also documents,
evidence, certificates or similar things may serve as materials.
Definition of Input Goods for Product Development (not
synonymously used) (1)

Paul Schönsleben
 A component
 One of several parts that together make up a whole machine.
 With regard to a product, components are goods that become part of
a product during manufacturing (e.g. through installation) or arise from
a product during disposal.
Definition of Input Goods for Product Development (not
synonymously used) (2)

Paul Schönsleben
Transformation
Materials
Component
Produce
Product
Artifact
Input and Output in Value-Adding ProcessesBasicDefinitions,Issues,andChallenges

Paul Schönsleben
Dimensions of a Good (1)
 The nature of goods
 Material goods are produced or
traded mainly by companies in the
industrial sector.
 Goods of a non-material nature,
such as information, tend to be
produced, compiled or traded by
companies in the service industry
sector.

Paul Schönsleben
Dimensions of a Good (2)
 The use of goods
 Investment goods are
utilized by the consumer
mainly to develop and
manufacture other goods.
 Consumer goods are mainly
intended for direct
consumption.

Paul Schönsleben
Product in the most comprehensive
sense (incl. the company)
Product in a broad sense
(includes the service provided)
„Simple“ Product
Training of
Pilots and
Mechanics
by Airbus
Airline:
„We buy Airbus only!“
Dimensions of a Good (3):
the Degree of Comprehensiveness of a Product

Paul Schönsleben
disposal
The Product Life Cycle
nature
Consumer
‚uses (up)
the product‘
serviceand
use
design and manufacturing
re-
cyc-
ling

Paul Schönsleben
Company
Assignment of Terms to
Value-added Management (1)
Sales
Production
(Trans-
formation)
Procurement
Client
A
Client
B
Client
C
Client
D
Client
E
Logistics
Supp-
lier B
Supp-
lier C
Supp-
lier D
Supp-
lier A
Goods Flow Data/Control/Cash Flow

Paul Schönsleben
Assignment of Terms to
Value-added Management (2)
Operations
Delivery Delivery
Demand,
Feedback
Demand
Feedback
Input:
Materials,
technology,
energy, time,
labor, capital
Process:
Transfor-
mation
Output:
Goods,
Services
Waste, noise,
energy
Value-added management
Logistics managementProcurement management
Operations managementSales and distribution management
Production management

Paul Schönsleben
Basic Problem: The Temporal Synchronisation between
Supply and Demand
con-
sum-
er
serviceand
use
Lead time (by the manufacturer)
customer
tolerance time
Actual demand (by the consumer)
store
procurement, or
manufacturing
lead time
=delivery lead time
cumulated lead time (by the manufacturer)
!!!Spare Part
+

Paul Schönsleben
Storage of Goods within Logistics and
the Problem of Demand Forecast
con-
sumer
serviceand
use
1.GrundlegendeDefinitionen
Demand (by the consumer)
store of goods, warehouses (= decoupling points)

Paul Schönsleben
Three Organizational Units in a Logistics Chain
nature consumer
1st organiza-
tional unit
2nd organiza-
tional unit
3rd organiza-
tional unit
A Supply Chain is the global network to deliver products and
services from raw materials to end customers through an engi-
neered flow of information, physical goods, and cash [APICS]

Paul Schönsleben
An Example of Cooperation in a Logistics Chain:
the Supply Chain of the B777
 Partners in the Pacific
arena, in particular in
Japan, manufacture the
greater part of the
airplane bodies.
 The cooperation was
undertaken with the
explicit view to the
Asian market.

Paul Schönsleben
Supply chain management (SCM) is the design, planning,
execution, control, and monitoring of supply chain activities.
SCM is applied to the comprehensive supply chain, that is,
along the entire product life cycle, within and across companies.
Multidimensional Supply Chains for the Design and
Manufacturing of Investment Goods
Service
Use
Design
Manufact.
Service
Use
Design
Manufact.
Service
Use
Design
Manufact.
Design
Manufact.
Service
Use
Re-
disposal
ReuseRedesign
Remanufact.
DisposalService
Use
Design
Manufact.

Paul Schönsleben
Table of Contents
1 Basic Definitions, Issues, and Challenges
3 Strategies in the Entrepreneurial
Context

Paul Schönsleben
Entrepreneurial Objectives Affected by Logistics,
Operations and Supply Chain Management
 Target Area Quality:
 Main objective: to meet high demands for product quality
 Main objective: to meet high demands for process quality
 Main objective: to meet high demands for organizational quality
 Partial objective: high transparency of product, process and organization
 Target Area Costs:
 Main objective: low on-hand balance, low in-process or in-transit inventory
 Main objective: high capacity utilization
 Main objective: low cost rates for administration
 Partial objective: complete and detailed bases for calculation and accounting
 Target Area Delivery:
 Main objective: high fill rate (high customer service ratio, or short delivery lead
time)
 Main objective: high delivery reliability rate
 Main objective: short lead times in the flow of goods
 Partial objective: short lead times in the data and control flow
 Target Area Flexibility:
 Main objective: high degree of flexibility to enter as a partner in supply chains
 Main objective: high degree of flexibility in achieving customer benefit,
e.g. by product and process innovation (that is by innovative power)
 Main objective: high degree of flexibility in the use of resources
StrategiesintheEntrepreneurialContext

Paul Schönsleben
Opportuneness and Opportunity Costs
 Opportuneness
 is the suitability of an action in a particular
situation.
 Opportunity costs
 is defined as the return on capital that
could have resulted, had the
capital been used for some purpose
other than its present use.

Paul Schönsleben
Opportunity Cost of the Objective “Fill Rate”
 What does a reduction of the fill rate cost?
 You may think on a loss of…
 ….
 ….
 ….

Paul Schönsleben
Potential for Conflicting Entrepreneurial Objectives
High Quality
Low
Costs
High Degree of Flexibility
Short Delivery
Lead Times
Possible
Profiles :
1.
2.
3.
4.

Paul Schönsleben
Table of Contents
1 Basic Definitions, Issues, and Challenges
3 Strategies in the Entrepreneurial Context

Paul Schönsleben
Logistics Performance Indicators
 … analyze the effect of logistics on company
objectives in the four target areas of quality, cost,
delivery, and flexibility.
 In the following, we introduce a balanced set of
global measures from a logistics perspective.
also requirement of balanced scorecard.
PerformanceMeasurement

Paul Schönsleben
Practical Applicability of Performance Indicators in the
Form of Practical Methods (1)
 Too general performance indicators:
 Easily measurable, but:
 Often general and qualitative in meaning
 No practical steps can be derived from them
without making additional, non-quantitative, and
implicit assumptions.
 Lack of comprehensive measurement
methods:
 Simple, applicable performance indicators often
cannot be measured directly.
 Distortion of the processes:
 Each measurement affects the process being
measured.

‚Customer
Satisfaction‘

Paul Schönsleben
 Meaning of the performance indicators:
 The absolute value of a performance indicator
has little meaning as such.
Practical Applicability of Performance Indicators in the
Form of Practical Methods (2)
 Comparability of performance indicators:
 Benchmarking against competitors has meaning
only if the competitor has used the same
measurement.
 Practical applicability in supply chains:
 All of the important performance indicators can
be applied in the total logistics network as well as
in the individual company.

Paul Schönsleben
 Target area costs
 Stock-inventory turnover
 Work-in-process-inventory
turnover
 Work center efficiency
 Capacity utilization
 Administration cost
rate (such as inventory
control, purchasing)
 Target area flexibility
 Bid proposal success rate
 Order success rate
 Breadth of qualifications
 Temporal flexibility
Performance Indicators in
Operations and Logistics Management
 Target area quality
 Scrap factor (or
yield factor)
 Complaint rate
 Target area delivery
 Fill rate or customer service
ratio
 Delivery reliability rate
 Lot size (batch size)
 Capacity utilization
 Value-added rate of lead
time
 Variance in work content
 Response time
 Order confirmation time

Paul Schönsleben
Performance Indicators in the Target Area of Delivery:
Fill Rate and Delivery Reliability Rate (1)
Fill rate or customer service ratio
Number of products delivered on desired delivery date divided
by number of products ordered
Poor fill rate results in opportunity cost and, depending on
a) item, b) business partner, c) part logistics (e.g. sales)
For a): item demand, or order position
For b) and c): order position or order
Indicator
Definition
Reason for
measuring
Reference obj.
Fact to
measure
contract, penalty costs.
Delivery reliability rate
Number of products delivered on confirmed delivery date divided
by number of confirmed products
Poor delivery reliability rate results in opportunity cost and,
depending on the contract, penalty costs.
a) item, b) business partner, c) part logistics (e.g. sales)
For a): item demand, or order position
For b) and c): order position or order
Indicator
Definition
Reason for
measuring
Reference obj.
Fact to
measure

Paul Schönsleben
Example: determine the fill rate
 Order A:
 Item 4711: 10 ordered, 10 delivered
 Order B:
 Order C:
 Determine the fill rate!

Paul Schönsleben
Performance Indicators in Operations und Logistics
Management – Possible Measures
 Target area quality
 Educate employees for
specific tasks
 Target area costs
 Dismiss employees
 Reduction of inventories (Lot
size “1”)
 Target area flexibility
 Educate employees for
different tasks
 Motivate employees for a
more flexible work schedule
 Communication in the
company
 Group work
 Target area delivery
 Layout change
 Harmonize content of work and
processes
 Customer order forecasting
system
 Decentralized storage
 Lot size “1”
 Transportation within company
and trans-corporate
 automate
 by those employees
producing the products

08.d mst12.logistics

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