Logistics 2020/2021

✓ Supply Chain Management: Concepts:

Logistics Management:

As defined by the Council of Supply Chain Management Professionals (CSCMP): "Logistics management is
that part of supply chain management that plans, implements, and controls the efficient, effective forward
and reverse flow and storage of goods, services, and related information between the point of origin and
the point of consumption in order to meet customers' requirements. Logistics management activities
typically include inbound and outbound transportation management, fleet management, warehousing,
materials handling, order fulfilment, logistics network design, inventory management, supply/demand
planning, and management of third-party logistics services providers.

Reverse Logistics:

The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials,
in-process inventory, finished goods, and related information from the point of consumption to the point
of origin for the purpose of recapturing or creating value or proper disposal” (Rogers and Tibben Lembke
1999, p. 2).

• Reverse Logistics/ Green Logistics

• Commons Reverse Logistics Activities

Products → Return to Supplier, Resell, Salvage, Refurbish, Recycle, Donate, etc.

Packaging → Reuse, Refurbish, Reclaim Material, Recycle, Salvage, Landfill.

 • Characterization of items in Reverse Flow by type and origin

Supply Chain Management encompasses the planning and management of all activities involved in
sourcing and procurement, conversion, and all logistics management activities. Importantly, it also
includes coordination and collaboration with channel partners, which can be suppliers, intermediaries,
third-party service providers, and customers. In essence, supply chain management integrates supply and
demand management within and across companies. Supply Chain Management is an integrating function
with primary responsibility for linking major business functions and business processes within and across
companies into a cohesive and high-performing business model. It includes all of the logistics
management activities noted above, as well as manufacturing operations, and it drives coordination of
processes and activities with and across marketing, sales, product design, finance and information
technology.

Supply Chain Definition:

The global network used to deliver products and services from raw materials to end customers through
an engineered flow of information, physical distribution, and cash.

1. In a supply chain management context, it is the subset of supply chain management that controls
the forward and reverse movement, handling, and storage of goods between origin and
distribution points
2. In an industrial context, the art and science of obtaining, producing, and distributing material and
product in the proper place and in proper quantities.
3. In a military sense (where it has greater usage), its meaning can also include the movement of
personnel.
Integrated logistics / Service Response Logistics:

Obtaining, producing, and distributing material for wholesaling and retailing; supply chain management
logistics focus on location, service, and capacity issues. A set of approaches to efficiently integrate
suppliers, manufacturers, warehouses and stores, so that products are produced and distributed in the
right quantities, to the right locations, and at the right time, in order to minimize system-wide costs while
satisfying service level requirements.

Logistics vs Supply Chain Management (SCM)

Supply Chain Management: Scope

Starting with unprocessed raw materials and ending with the final customer using the finished goods, the
supply chain links many companies together. The material and informational interchanges in the logistical
process stretching from acquisition of raw materials to delivery of finished products to the end user. All
vendors, service providers and customers are links in the supply chain.

Closed-loop Supply Chain - Definition:

The design, control, and operation of a system to maximize value creation over the entire life cycle of a
product with dynamic recovery of value from different types and volumes of returns over time.

Supply Chain Macro Processes

Supply chain processes can be classified into:

1. . Customer Relationship Management (CRM): all processes at the interface between the firm and
its customers
2. Internal Supply Chain Management (ISCM): all processes that are internal to the firm
3. Supplier Relationship Management (SRM): all processes at the interface between the firm and
its suppliers

Integration among the three macro processes is crucial for successful supply chain management.

Conflicting goals in the internal Supply Chain:

• The Purchasing managers wants:

o Volume? Stable; Large Quantities
o Variation in mix? Low
o Supplier quality? High
 o Supplier reliability (e.g., in terms of their delivery time)? High
o Supplier delivery time? Fast
o Acquisition costs? Low

(favored by standardization, large quantities and stable volumes)

• The Purchasing managers wants:

o Volume? Stable; Large Quantities
o Variation in mix? Low
o Raw materials availability? High
o Supplier delivery time? High
o Raw materials and production quality? High
o Productivity? High
o Production costs? Low

(favored by standardization, large quantities and stable volumes)

o Downstream delivery time? Not so fast

(so that production planning is easier)

• The Logistics manager wants:

o Inventory Levels? Low
o Handling and transportation costs? Low
o Replenishment? Fast (quick)

• Customers (and Marketing Managers) wants:

o Order lead time? Low
o Inventory levels? High
o Variety of products? Enormous
o Production flexibility (ability to change product characteristics, quantities, etc.)? High
o Prices? Low

Supply Chain Management: integration of enterprise functions

Supply chain management: decision levels

o Strategic (next years): Decisions about the structure of the supply chain and what
processes each stage will perform – Expensive to Reverse
o Tactical (next quarter or year): Policies that govern short-term operations
o Operational (next days or weeks): Decisions regarding individual customer orders

Strategic SCM decision making

o Location and capacity of the various facilities

o Products to be made and/or stored at the various locations
o Modes of transportation
o Information systems
o Must support SC strategic objectives
o Must consider product / market characteristics
o Must take market uncertainty into account

Tactical SCM decision making

o Starts with the forecast of demand in the next year

o Which markets will be supplied from which locations
o Planned buildup of inventories
o Subcontracting, backup locations
o Inventory policies
o Timing and size of market promotions
o Must consider demand uncertainty, exchange rates, competition over the time horizon

Operational SCM decision making

o Allocate orders to inventory or production

o Set order due dates
o Generate pick lists at a warehouse
o Allocate an order to a particular shipment
o Set delivery schedules
o Place replenishment orders

A Slack (“give flexibility”) in the supply chain:

Is meant to convey an allowance in the system to accommodate uncertainty (e.g., in the demand or in
the delivery time of a supplier) or inflexibilities (e.g., long delivery times, limited capacity) in the supply
chain, or to take advantage of economies of scale or scope. Examples of slacks that can be used in a
supply chain: - excess capacity, - inventory storage, - queues (e.g., back-orders in a backlog), - redundant
suppliers.

The safety (slack Triangle)

 ✓ Demand Managements Forecasting:

Three types of forecasting types:

o Economical: Interest Rate, Inflation Rate, Crude price, etc.
o Technological: New Products and Processes
o Demand: Sales Forecast – Impact on production and capacity planning, on human and financial
resources planning, etc. (MAIS IMPORTANTE E A QUE ESTUDAMOS)

Tactical SCM decision making – How to start forecasting next year Demand:
o Which markets will be supplied from which locations
o Planned build-up of inventories
o Subcontracting, backup locations
o Inventory policies
o Timing and size of market promotion

The demand forecast is the only sales estimation available until real sales occur, therefore it has an
high impact on the whole supply chain. (VER A DEFINIÇÃO DO BULLWHIP EFFECT – SABER
RELACIONAR COM ISTO)

Demand Management:
How can we deal with demand from a SC point of view?

Why is anticipating demand important?

(ENCONTREI ESTE QUADRO PORÉM É PRECISO SABER LIGAR AS COISAS)

Alternative SC strategies for dealing with demand:
o Make-to-order (MTO): the company chooses to manufacture a product only after a
request form a customer is received
o Make-to-stock (MTS): bases on forecasts production is done in anticipation of future
demand.
Trade-offs between the two types of strategies:

Forecasting is important for both strategies

Types of Materials (Depending on their demand)

o With independent demand:
- Products that are sold to final customers
- Demand must be forecasted, using appropriate models
o With dependent demand:
- Materials that are incorporated in the production of a product
- Demand should be calculated

Ou seja:

Another way to understand inventory is to separate it into two broad categories: dependent and
independent demand. Understanding this difference is important as the entire inventory policy for an
item is based on this. Independent demand is demand for a finished product, such as a computer, a
bicycle, or a pizza. Dependent demand, on the other hand, is demand for component parts or
subassemblies. For example, this would be the microchips in the computer, the wheels on the bicycle, or
the cheese on the pizza.
Forecasting
o Context: a decision process in an uncertain situation
o Definition: determine the future behavior of the exogenous (uncontrollable) variables
that are relevant for the decision
o Better forecasts support better decisions
o Any forecast is grounded by historical data, and projects the patterns identified in this
data for the future
o The quality of the forecasts depends on:
- the data used to produce them
- the ability to identify and use the information contained in that data

Forecasting Methods
o Quantitative
- Time Series Methods
- Causal Methods
- Simulation
When can we use quantitative forecasting methods? – When we have historical data
about the variable we want to predict – When the conditions that explain the behavior of
that variable are relatively stable, i.e., we can assume that those conditions will continue
in the future
o Qualitative - used when there is no historical quantitative information to support the
forecasting process

Casual Methods - a stable cause-effect relationship between the variable we want to predict
(effect) and another variable (cause) can be identified using statistical inference
- Underlying assumption: The cause-effect relationship will be stable during the forecasting
horizon; the cause can, however, vary
- Useful for long run forecasting
- Disadvantage: the analysis effort required is more time consuming and expensive than
when a Time Series method is used
Time Series Methods - characterize the way the variable has evolved (in the past) and extrapolate
the identified characteristics to the present and near future
- Underlying assumption: The causes that ruled the behavior of the variable in the past will
not change in the future
- Useful for short run forecasting, or forecasts that involve very stable variables
Simulation - these methods try to replicate the consumer behaviors that form demand; they can
combine causal and time series methods to answer questions like: What will be the impact of a
price promotion? What will be the impact of a new competitor in our neighborhood?

Selection of the forecasting method?

o Know (and understand) the available methods
o Compare the advantages and disadvantages of the various methods relatively to the
decision that has to be made in a systematic way
o Criteria (Ranked by their importance):
1. Precision
2. Behavior of the variable
3. Time horizon of the forecasting
4. Cost
5. Ease of use

ATÉ AGORA FOI A PARTE INTRODUTÓRIA DOS “FORECASTING METHODS” AGORA VAMOS
PASSAR A ANALIZAR OS DIFERENTES “QUANTITATIVE FORECASTING METHOD”

Time Series
Definition - ordered values of a variable, measured or observed periodically during a period of
time (Examples: temperature of a oven, measured every hour; daily sales of a product)
Components:
o Trend - long term pattern of a time series. A trend can be positive or negative depending
on whether the time series exhibits an increasing long-term pattern or a decreasing long-
term pattern
o Seasonality - occurs when the time series exhibits regular fluctuations during the same
month (or months) every year, during the same quarter(s) every year, or during the same
days every week (or month), etc…
- Multiplicative Seasonality
- Additive Seasonality
 o Cycle - Any pattern showing an up and down movement around a given trend is identified
as a cyclical pattern. The duration of a cycle depends on the type of business or industry
being analyzed; cycles last more than a year, and do not all have the same duration. The
predictions of cycles are made using qualitative or causal methods; then, the forecasts
are incorporated in the Time series model
o Irregular (random noise) - This component is unpredictable. Every time series has some
unpredictable component that makes it a random variable. In prediction, the objective is
to “model” all the components to the point that this is the only component that remains
unexplained.
o Stationary Time Series - is one whose statistical properties such as mean, variance,
autocorrelation, etc. are all constant over time

Ver os slides N.º 28 até 40 – Exemplos de gráfico que explicam as diferentes components

Time Series Method

o Classical Decomposition
- Advantages: Simplicity; it provides good approximations of many real series
- Disadvantages: It is effective only when the series are very stable, namely,
relatively to trend; it gives the same weight to old and recent observations; all
observations have to be kept to perform the calculations; when new observations
are considered, all calculations have to be repeated
o Moving Averages - Have the same advantages and one additional disadvantaged, when
compared with exponential smoothing methods (they do not take all available
information into account)
o Exponential Smoothing methods (Simple, Holt and Holt-Winters)
o Box and Jenkins models

For (locally) Stationary Series use the Simple Exponential Smoothing

 - Underlying idea: Each forecast is a weighted average of all available observations of
the variable, where the last observation is the one with the higher weight and
previous observations see their weight decrease as they become old. Of course, the
sum of the all observation weights is 1.
- Smoothing Constants:
▪ Must be a value between 0 and 1, that represents the weight of the more
recent (real) observation in the sample
▪ How to choose the smoothing constants values?
The smaller the smoothing constant, the more stable (less different from each
other) the forecasts will be. But, the detection of changes in the evolution
pattern of the series will slower.
▪ If the series is unstable, the constants should be smaller (so that the
forecast does not react too much to punctual/random variations)
▪ If the series is stable, the constants should be higher (so that a change
of pattern is rapidly incorporated in the forecasts)
Exemplo de como se calcula:

YP1 = 100 Igual ao ultimo registo de vendas

YP2 = 0,6 x (100) + 0,4 x (100) = 101,2

α Observações 1-α Previsões para

no dia anterior o dia

YP3 = 0,6 x (102) + 0,4 x (101,2) = 101,3

… Fazer o mesmo para os restantes períodos

YP8 = 0,6 x (103) + 0,4 x (108,3) =105,1

Como não temos mais registos de vendas concluímos que as previsões para os dias 8 , 9 e 10 são
iguais.

Usem a calculadora Simple Exponential Smoothing.xlsx

For time series with trend, but no seasonality use Holt Model

For time series with trend and seasonality use Holt-Winters Model

Para perceber como se calcula a previsão usando estes métodos fiz uma calculadora que
explica passo a passo. Holts Method.xlsx

• Forecasting Errors:
o The main causes of forecasting errors are:
▪ Long lead times, seasonality, short product life cycles, reduced number of
clients, lumpy demand, and the bullwhip effect (when the number of
supply chain echelons is high)
o Forecasting errors may cause important resource allocations problems related
to:
▪ inventory, production, transportation, sourcing and price, and
information management
o Contingency strategies: increase the responsiveness of the supply chain; use
demand pooling strategies

• Demand forecast: practical issues

o Develop Collaborative Forecasting – sharing information with supply chain
partners originates more accurate forecasts
o Share only useful information - the value of information depends on our
position in the supply chain
o Distinguish between Demand and sales - usually, companies have sales
historical data. To obtain the demand, sales have to be corrected for inventory
stock-outs and unsatisfied demand.

FIM
Procurement, Sourcing, Purchasing Supplier Selection:
• Role in the Supply Chain:
o Set of business processes required to purchase goods and services
o Will tasks be performed by a source internal by a source internal to the company
or a third party?
o Globalization: many more sourcing options
▪ Considerable opportunity and potential risk
• Role in the Competitive Strategy:
o Procurement affects the level of efficiency and responsiveness in a supply chain
o Outsource to efficient third parties if it is too expensive to develop their own
o Keep responsive process in-house to maintain control

A possible View:

• Procurement Decisions
1. Perform In-house / Outsource to a third party
2. Supplier Selection:
▪ Number of suppliers
▪ Evaluation and selection of suppliers (using appropriate criteria)
▪ Direct negotiations or auction
3. Purchasing: the supplier sends product in response to customer orders
• Supplier Base Rationalisation:

• Procurement Key Processes

• Examples of Supplier Assessment Criteria – The most relevant criteria depend on the
product and on the desired supply chain competitive capabilities for that product
• Definition of Total cost of Ownership (TCO): TCO includes all of the direct and indirect
costs associated with an asset or acquisition over the entire life cycle of the product or
service. It includes not just the purchase price, but also such things as transportation,
handling and storage, damage and shrinkage, taxes and insurance, and redistribution
costs. In some cases, one must also add installation, upgrade costs, training, support,
service, maintenance, downtime, retirement costs and/or disposal.

Assess and score suppliers

• Possible situations:
1. All potential suppliers are similar
2. One potential supplier outperforms all the other relatively to all criteria
3. The possible suppliers are very different: A supplier may be better than others
relatively to one criterion, but he is worst in other
o How to compare these potential suppliers?

Frequently, suppliers are accessed using multiple criteria, measured using different
(quantitative and qualitative) scales
A method to standardize scales (Example):
The scores can now be compared and aggregated.

Frequently, different weights are assigned to the various criteria. For example, if we consider that price
is more important and give a weight of 0.5 to price, 0.25 to delivery time and 0.25 to quality, the score of
supplier A would be:

SA=(0x0.5) + (1x0.25) + (0.5x0.25) = 0.375

Quality
Price
Delivery Time

• Some procurement performance evaluation metrics

o Days Payable Outstanding – number of days between the moment when a supplier
finishes a task and the moment it is paid
o Average purchase price – average purchase price weighted by quantity purchased
o Range of purchase price – difference between the maximum and the minimum price (can
we find a correlation between the price and the purchased quantity?)
o Average purchase quantity – For example, comparisons between different locations can
be made to evaluate levels of quantity aggregation)
o Supply quality – Quality problems → increased inventory needs
 o Supply lead time – Long lead times → Increased inventory needs and decreased
responsiveness)
o Proportion of on-time deliveries
o Supplier reliability – e.g., supplier lead time variability, delivery quantity deviations
relatively to plans (Supplier reliability problems → increased inventory needs and
decreased responsiveness)

• Procurement related SC trade-offs

o Evaluate impact on:
▪ Sales
▪ Service
▪ Production costs
▪ Inventory costs
▪ Transportation costs
▪ Information cost
o Outsource if it raises the total supply chain surplus more than the firm can on its own
o Keep function in-house if the third party cannot increase the supply chain surplus or if the
outsourcing risk is significant
• Impact of developments on the complexity of initial purchasing decisions

FIM Capítulo 2