Fundamentals of Logistics

Prof. Dr. Klaus-Michael Fortmann

Slides for the course

Fundamentals of Logistics

Fachhochschule Gelsenkirchen
Fachbereich Wirtschaft
Standort Gelsenkirchen
Special thanks for my colleagues Mrs. Dipl. Kauffrau Angela Kallweit and Miss
Dipl.Betr.wirt. Angela Büttner, who helped me developing parts of the german version!

halotit.ppt


Fundamentals of Logistics

2 Weekly Semester Hour
Lecturer: Prof. Dr. Klaus-Michael Fortmann

Aim of unit and content:
Logistics is the process of planning, implementing, and controlling the efficient, cost-effective of
raw materials, in-process inventory, finished goods, and related information from the point of
origin to the point of consumption for the purpose of conforming to customer requirements. The
objectives of this course are to provide the student with:
• the basic-terms, concepts and principles of logistics,
• the information, how components of logistics interrelate and interface with other
functions of the firm,
• the traditional logistics functions such as customer service, transportation, warehousing, and
inventory management,
• analytical tools for solving logistics problems and

• the most important key data (key performance indicators KPI) which are used to ensure the
efficiency and effectiveness of logistics processes.
Method:
A combination of lecture, class discussions, logistics-videos and excursions to firms.
Literature:
Schulte, Christof: Logistik, München, 1999 ; Fortmann/Kallweit: Logistik, Stuttgart 2000
Douglas M. Lambert, James R. Stock, Lisa M. Ellram, Fundamentals of Logistics Management, Boston etc.
1998, ISBN 0-07-115752-2; Richard J. Tersine, Principals of Inventory and Materials Management, London
1994, ISBN 0-13-126484-2


" Fundamentals of Logistics "
- Definition of Terms -

Definition of Logistics
Logistics define the integrated planning, realising, usage and control of
• all kinds of transport processes,
• the storage of goods and
• the corresponding information processes
within companies and between companies.

Information Order
flow

Requirements
planning

I

Production

planning

I

I

Purchase
order
quantity
planning

I

Purchase
order

I = Information

Materials
flow

Client

T

Warehouse

T = Transport

T

Production

T

Warehouse

T

Supplier


" Fundamentals of Logistics "
- Definition of Terms -

Definition of Logistics: Explanations
A system contains subsystems. An integrated system is characterized by the
fact, that the subsystems are connected by adapted interfaces (physically, by
information technology or both). With reference to logistics this means: Entire
system = company logistics
Subsystems: procurement logistics, in-house logistics resp. production
logistics, distribution logistics, reverse logistics
Integrated planning: Logistics must be planned in context to all subsystems,
i.e. all interfaces shall work well together.
Realisation: building of logistic facilities (warehouses, materials flow systems),
organisation of logistic processes, design and programming of logistic ITSystems (PPC production planning and control system, MPC merchandise...);
Materials flow: In a broader sense all processes of transportation are subject
of logistic concepts, i.e. as well the transportation of men (train, ship, plane)

" Fundamentals of Logistics "
- Definition of Terms Definition of Logistics: Explanations
Relations between flow of information and
materials flow: examples
Opposite flow of information against the material
flow
Concurrent flow of information: reference manual,
invoice, delivery order, consignment note (way
bill), freight list
Advance flow of information:
lists of announced deliveries (package numbers)
(Packstücknummern), order confirmation (or
acknowledgement)
Onward flow of information: invoice with separate
mail


" Fundamentals of Logistics "
- Definition of Terms -

Sphere of Influence Converting Industry/Manufacturing Industry
of Logistics
Purchasing

Production

Selling
Purchasing

Selling

Primary
Industry

Cycle of
Logistics

Transforming

Selling

Recycling

Collecting

Recycling Industry
loingb06.ppt

Commerce

Selling

Mining

Raw
Materials

Storage

Final

Consumer


" Fundamentals of Logistics "
- Definition of Terms -

Hints on the german law of closed loop materials economy
(Kreislaufwirtschaftsgesetz KrWG)
Priority:
• Avoiding of waste is better than
• Recycling of waste is better than
• Elimination of waste
Therefore the law says that in the year 2010 all
rests of consumptiom must be returned into a
closed loop of materials.
The logistics in this context has a lot of tasks.


" Fundamentals of Logistics "
- Aims Main Aim of Logistics: Optimisation the Efficiency of Logistics
Efficiency of Logistics = Output/Input Ratio of the Logistics System
System Input:
Valued
Factor Input
• Costs of Inventory
• Costs of Storage
• Costs of Handling
• Costs of Control
• Costs of System
• Costs of Transp.

Logistics System:
Logistics of
Company
Personnel and Equipment in the Areas
• Procurement Logist.
• Production Logistics
• Distribution Logist.
• Reverse Logistics

System Output:
The 6 "R" of
Logistics
• Right Product
• Right Place
• Right Quantity
• Right Time
• Right Quality
• Right Costs

loingb01a.ppt Source: Associated with: H.-Chr.Pfohl, Marketing Logistik, Berlin Heidelberg 1972p.28;H.-Chr.Pfohl, Logistikssysteme, Berlin Heidelberg 1996, p.19


" Fundamentals of Logistics "
- Aims Components of Logistics Service
Delivery Time = Time between issue of order and availability for
the client
Delivery Reliability (on-time delivery performance) = Percentage
of keeping the guaranteed delivery time
Delivery Service Level = Percentage of articles directly deliverable

from warehouse
Quality of Delivery = Accuracy of delivery concerning type,
quantity and quality of the delivered articles
Flexibility of Delivery = Possibility of consideration of special wishes
of the clients concerning delivery time or delivery quantity

loingz03.ppt

Source: Associated with Christof Schulte: Logistik, 2.Edition, München 1995, p. 6


" Fundamentals of Logistics "
- Aims Alternative Strategies
Optimal Delivery Service
Costs

Postulated Delivery Service
Costs

Actual
Target

Total
Costs

Target
Actual
Costs of Delivery
Service

Delivery Service
Source: Associated with Christof Schulte: Logistik, 1995, p. 10.
loingz01.ppt

Costs of
Shortfalls

100 %

s
st
o
C

Delivery Service

y
er
v
i
el
D
of

e
ic
v
r
Se

100 %


" Fundamentals of Logistics "
- Aims -

Example of a statistic Evaluation of Delivery Reliability
Quantity of deliverd Orders within the first Quarter
120
100
80
60
40
20
0
-8 -6 -4 -2 0

2

4

6

8 10 12 14
Weeks of delay

Comparision between the guaranteed date
and the real delivery date: Negative values indicate too-early-dates.
Positive values point out on dates too late.
loingz05.ppt

" Fundamentals of Logistics "
- Aims -

Important Types of Logistics Costs
Costs of Inventory = Interest rate of the bounded capital, insurance,

depreciation, loss by theft
Costs of Storage = Fix costs of the warehouse equipment, efforts for

transfer to and release from stock
Costs of Handling = Picking, Handling, Packing
Costs of Tansport = Costs of internal and external transportation
Costs of Control = Planning of production programm, production planning

and control, order processing, shop-floor scheduling ...
Costs of System = Planning, realisation and control of the material flow
The costs of logistics can reach between 15 and 20 percent of the total costs,
therefore they have considerable influence to the company profit!
loingz04.ppt

Source: Associated with Christof Schulte: Logistik


" Fundamentals of Logistics "
- Influencing Factors -

Selling Conditions and Requirements of the Market
The Boston Matrix

Market
Growth
high

low

Question
Marks

Stars

Poor
Dogs

Cash Cows

The Boston Matrix is a
Classification of
products for building
norm strategies.

?
?
?

low
Source: />loinge03.ppt

high

Market Share


" Fundamentals of Logistics "
- Influencing Factors -

Selling Conditions and Requirements of the Market
Logistic Consequences:
: Optimisation of: material flow, production and planning control systems,
shop-floor scheduling, delivery service, customer service, purchasing
management, distribution system, order processing

?

: Search for a suitable production location, increasing or decreasing of the
distribution system, improvement of the delivery service, orientation of
the logistics to special market segments
: Hold up of the delivery and customer service, rationalise of logistics,
rigorous realisation of inventory management and valuation policy
: Stock minimisation, hold up of delivery service only in selected market
segments, minimisation of distribution costs

Source: Associated with Christof Schulte: Logistik
loinge02.ppt


" Fundamentals of Logistics "
- Influencing Factors -

Influences of the Production Program

Product

Logistics

Consistency and
type (Size, weight,
sensibility,
deterioration) of
products, value

Storage,
packing,
transport

Source: Associated with Christof Schulte: Logistik
loinge05.ppt

Range of goods,
variety of goods,
frequency of
selling

Life cycle of
products,
changes in
demand

Inventory,
inventory

turnover

demands on
delivery service,
warehouse
locations


" Fundamentals of Logistics "
- Company Organisation Structure -

Questions before fixing the Company Organisation Structure
y Which functions should be part of the logistics organisation ?
y Level of centralisation resp. decentralisation?
y What kind of organisation should be used within the
logistics departement?
y Amount of costs of the above mentioned logistic functions?
y Desired delivery service?
y Complexity of product structure and vertical range of manufacture?
y Typology of operation: Production of individual orders
or large-scale production?
y Order-oriented manufacturing / anonymous market?
y Structure of suppliers (Quantity, geographical distribution)?
y Structure of customers (Quantity, geographical distribution)?

Source: Associated with Christof Schulte: Logistik
loinga02.ppt


" Fundamentals of Logistics "

- Company Organisation Structure -

Staff-Line-Organisation
Board
Staffs
Plant I

Plant II

Logistics
Plant III

Plant IV

Plant
Logistics

Plant
Logistics

Plant
Logistics

Plant
Logistics

Research and
Developement

Research and

Developement

Research and
Developement

Research and
Developement

Production
Management

Production
Management

Production
Management

Production
Management

Sales

Sales

Sales

Sales

Finance and
Accounting

Finance and
Accounting

Finance and
Accounting

Finance and
Accounting

Source: Associated with Christof Schulte: Logistik
loinga05.ppt


" Fundamentals of Logistics "
- Company Organisation Structure Grading within the Hierarchy
Definition of levels
• Executive board

Board

• Area management
• Sector management
• Department
Positioning of Logistics within the
level of executive board is
recommended, when the costs of
logistics are relatively high and the
flow of material and information is
very complex.

Source: Associated with Christof Schulte: Logistik, 2.Edition, München 1995, p. 6
loinga07.ppt

Area 1

Sector 1

Area 2

Sector 2

Sector1

Sector 2

Department 1

Department 1

Department 1

Department 1

Department 2

Department 2

Department 2

Department 2

Department 3

Department 3

Department 3

Department 3

Department 4

Department 4

Department 4

Department 4


" Fundamentals of Logistics "
- Company Organisation Structure -

Effects of an integrated Organisation of Logistics
• Avoiding redundancies
• Higher transparency
• Reduction of logistic costs
• Reduction of stock
• Optimal use of central und decentral information
Source: Associated with Christof Schulte: Logistik
loinga13.ppt

" Fundamentals of Logistics "
- Process Organisation -

Processes within the company
Thinking in processes
Thinking restricted to area

Process 1 Process 2 Process 3

T
R
E
N
D
Order process

loingg02.ppt

Development

Offer

Order
process


" Fundamentals of Logistics "
- Process Organisation -

Processes within the company
Example of an order process within a small company

Client
Order center
Materials
management
Construction/
Work scheduling

Order
confirmation

Order
Order receipt
processing

Procurement of
Remaining
material

Material
provision

Shipping

Construction

Production
order

Production

Production

Finance and
accounting
Supplier

Invoice

Confirm
order

Date
check
Procurement of
long delivery
time material

Product

Preparing
invoice
Purchase
order

Purchase
Delivery
order

Time
loingg04.ppt


" Fundamentals of Logistics "
- Process Organisation Flow of a logistical Organisation Process

Phases

Results

Decision about the Goal setting, project team, limitation of the area of
investigation, project schedule, budget
project
As-Is analysis

Analysis of activities incl. related efforts, flow of
information, inspection of documents etc.

Recognition of the
weaknesses

Duplication of work, overlap of competencies,
laborious ways of information, missing information

Development of the Valued alternatives, plan of realisation by stages,
To-Be concept
job charts, job descriptions
Introduction of the Trained employees, new process organisation,

instrumental support of work, higher logistics
new logistics
performance
organisation
Associated with Christof Schulte: Logistik, 2.Edition, München 1995, p. 341
loingg08.ppt


" Fundamentals of Logistics "
- Process Organisation Explanation
Important are all results of the decision phase: The project team should be
involved in the planning: this leads to a better motivation within the project
work. A team coworker who planned his own tasks concerning the timeline
and the project results will do all to reach his goals.
The definition of the aims of project is essential because every decision
within the daily routine depends on their contribution to the project success.
„Without target every way doesn‘t care“. „Without target every shot is a hit“.
The task designation of a project consists in doing all necessary works to
reach the defined aims.
Generally an aim is a status in the future which must be desirable,
reachable and measurable .
The project schedule should be differentiated and the phases as well as the
activites must be briefly described and planned in the right order.
Typically this is done in form of a critical path diagram with the
corresponding Gantt-diagram.


" Fundamentals of Logistics "
- Process Organisation Explanation
The area of investigation must be limited prototypically for reducing the

project effort. The portability of the project results to the not considered
areas must be ensured.
The budget for the „paper-phases“ must be defined exactly, whereas for
the realisation phase it is enough to give a qualified estimation.
At the end of the To-Be-concept it is also necessary to develop an exact
investment calculation. Each phase will be terminated by a milestone i.e.
there must be issued an interim report with interim results, deadline check
and, if necessary, a new scheduling for the rest time of the project.
One of the concept results consists in developing alternative proposals for
solution and in comparing them by means of a value benefit analysis. It
must be clear, which solution is preferred by the team. Otherwise it is
possible that the project owner (that is the „client“ of the project) opts for
another solution because of special information which only he knows: that
can be for example a planned corporate merger which leads to other
criteria weights within the value benefit analysis.


" Fundamentals of Logistics "
- Transport Systems Criteria for the Choice of the adapted Transport System
Requirements
of market

requirements for
products

logistical
requirements

loingtal.ppt

Material to be
transported
in-house
production

bought-in part

Source: Associated with Christof Schulte: Logistik

Auxiliary
means of
Transport
extern
package

intern
mesh box pallet

Transport
System
extern (truck)

Intern (fork lift)