assignment 8 &9

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Chapter 8

Logistics

Chapter Objectives

Be able to:

Describe why logistics is important and discuss the major decision areas that make up logistics.

List the strengths and weaknesses of the various modes of transportation, discuss the role of multimodal solutions, and identify the major types of warehousing solutions and their benefits.

Discuss the purpose of a logistics strategy and give examples of how logistics can support the overall business strategy.

Use the weighted center of gravity method to identify a potential location for a business, and develop and then solve, using Microsoft Excel’s Solver function, an assignment problem.

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Introduction

Logistics management – 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.

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Introduction

Logistics Management Activities

Transportation

Warehousing

Material handling

Packaging

Inventory management

Logistics information systems

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Why Logistics Is Critical

Challenges and opportunities in managing logistics

Advances in information systems

Globalization of markets

Push toward sustainability

Sustainability – Performing activities in a manner that meets the needs of the present without compromising the ability of future generations to meet their needs.

Significant impact on delivery speed and reliability

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Logistics Decision Areas

Five Transportation Modes

Highway

Water

Air

Rail

Pipeline

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Logistics Decision Areas

Table 8.1

Modal Shares of U.S. Domestic Freight for 2007 (% Change, 1997-2007)

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Logistics Decision Areas

Highway

Dominates the U.S. logistics infrastructure due to:

Geographic extension of supply chains

Greater emphasis on delivery speed and flexibility

Continues to grow because it is one of the most flexible modes of transportation

Very few goods are moved without highway transportation at some point in transit

Has become more cost effective over time due to:

Better scheduling and use of vehicle capacity

More efficient and reliable vehicles

Increased cost competition due to deregulation

Involves different types of shipments

Direct truck – Shipment made with no stops

Less than truckload (LTL) – Smaller shipment combined with other loads

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Logistics Decision Areas

Water

Ideal for materials with high weight-to-value ratio, especially if delivery speed is not critical.

Examples of these materials include farm produce, timber, petroleum-based products.

Has one of the lowest ton-mile rates of any mode which helps to keep costs down.

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Logistics Decision Areas

Air

Ideal for customers with a low weight-to-value ratio, especially if delivery speed or delivery reliability is critical.

Is the least-used mode in terms of tons and ton-miles.

Higher shipping costs and improvement in other modes have reversed the rise in air growth over the past decade.

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Logistics Decision Areas

Rail

Has characteristics similar to water transportation but is somewhat more flexible.

To accommodate growth, rail carriers have doubled the number of lines along busy corridors, changed the physical configuration of the trains, and utilized multimodal solutions.

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Logistics Decision Areas

Table 8.2

Strengths and Weaknesses of the Major Transportation Modes

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Logistics Decision Areas

Multimodal solution – A transportation solution that seeks to exploit the strengths of multiple transportation modes through physical, information, and monetary flows that are as seamless as possible

Roadrailer – A specialized rail car the size of a standard truck trailer that can be quickly switched from rail to ground transportation without changing the wheels.

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Logistics Decision Areas

Warehousing – Any operations that stores, repackages, stages, sorts, or centralizes goods or materials.

Warehousing can be used to:

Reduce transportation costs

Improve operational flexibility

Shorten customer lead times

Lower inventory-related costs.

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Logistics Decision Areas

Reducing Transportation Costs

Consolidation warehousing – A form of warehousing that pulls together shipments from a number of sources in the same geographic area and combines them into larger and more economical loads.

Cross-docking – A form of warehousing in which large incoming shipments are received and then broken down into smaller outgoing shipments to demand points in a geographic area.

Break-bulk warehousing – Incoming sources are from a single source or manufacturer.

Hub-and-spoke system – A form of warehousing in which strategically placed hubs are used as sorting or transfer facilities.

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Logistics Decision Areas

Figure 8.2

Consolidation Warehousing

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Logistics Decision Areas

Figure 8.3

Cross-Docking

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Logistics Decision Areas

Figure 8.5

Hub-and-spoke system

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Logistics Decision Areas

Improving Operational Flexibility

Postponement warehousing – A form of warehousing that combines classic warehouse operations with light manufacturing and packaging duties to allow firms to put off final assembly or packaging of goods until the last possible moment.

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Logistics Decision Areas

Shortening Customer Lead Times

Assortment warehouses – A form of warehousing in which a wide array of goods is held close to the source of demand in order to assure short customer lead times.

Spot stock warehouses – A form of warehousing that attempts to position seasonal goods close to the marketplace.

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Logistics Decision Areas

Lowering Inventory-Related Costs

Using inventory pooling can enable firms to reduce inventory-related costs.

Involves consolidating safety stock for stores into one centralized location to provide same-day service to all the stores.

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Logistics Decision Areas

Logistics Information Systems

Decision support tools

Cost and travel time estimations

Simulation and optimization

Planning systems

Selecting carriers

Scheduling deliveries

Execution systems

Monitor logistics systems and identify problems before they get out of hand

RFID

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Logistics Decision Areas

Material handling system – A system that includes the equipment and procedures needed to move goods within a facility, between a facility and a transportation mode, and between different transportation modes.

Packaging – The way goods and materials are packed in order to facilitate physical, informational, and monetary flows through the supply chain.

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Logistics Decision Areas

Inventory Management

Implications for transportation:

Using slower and cheaper transportation modes will cause inventory levels within the supply chain to rise.

Using faster and more expensive transportation modes will enable firms to lower inventory levels.

Implication for warehousing:

Warehousing and inventory managers must work closely to achieve the desired business outcome.

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Logistics Strategy

Logistics strategy – A functional strategy which ensures that an organization’s logistics choices are consistent with its overall business strategy and support the performance dimensions that targeted customers most value.

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Logistics Strategy

Owning versus Outsourcing

Does the firm have the volume needed to justify a private logistics system?

Would owning the logistics system limit the firm’s ability to respond to changes in the marketplace or supply chain?

Is logistics a core competency for the firm?

Common carriers

Contract carriers

Third-party logistics providers (3PL)

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Logistics Strategy

Table 8.3

The Linkage between Key Performance Measures and Transportation and Warehousing Choices

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Logistics Strategy

Measuring Logistics Performance

The perfect order represents the timely, error-free provision of a product or service in good condition that is:

Delivered on time (according to buyer’s delivery dates)

Shipped complete

Invoiced correctly

Undamaged in transit

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Example 8.4 – Bartley Company

Last year, Bartley Company experienced the following results:

5.4 million orders processed

30,000 orders delivered late

25,000 orders incomplete

25,000 orders damaged

20,000 orders billed incorrectly

These 100,000 failures were spread across 90,000 orders

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Logistics Strategy

Landed cost – The cost of a product plus all costs driven by logistics activities, such as transportation, warehousing, handling, customs fees, etc.

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Logistics Strategy

Reverse logistics system – A complete supply chain dedicated to the reverse flow of products and materials for the purpose of returns, repair, remanufacture, and/or recycling.

Challenges:

Firms have less control over the timing, transportation modes used, and packaging for goods flowing back up the supply chain.

Goods can flow back up the supply chain for a variety of reasons and a reverse logistics system needs to be able to sort and handle these different flows.

Forward logistics systems typically aren’t set up to handle reverse logistics flows.

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Logistics Decision Models

Weighted center of gravity method – A logistics decision modeling technique that attempts to identify the “best” location for a single warehouse, store, or plant given multiple demand points that differ in location and importance.

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Example 8.6 – CupAMoe’s

Robbie Roberts, owner of CupAMoe’s Coffee, is trying to determine where to locate his newest distribution warehouse.

Current location and population of the three towns

to be served by the warehouse

Figure 8.6

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Example 8.6 – CupAMoe’s

Robbie would like to locate the warehouse to minimize transportation costs and provide the best overall delivery speed to his three markets.

Using the Center of Gravity Method

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Example 8.6 – CupAMoe’s

Figure 8.7

Suggested Warehouse Location for CupAMoe’s based on the Weighted Center of Gravity Method

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Logistics Decision Models

Optimization model – A type of mathematical model used when the decision maker seeks to optimize some objective function subject to some constraints.

Objective function – A quantitative function that an optimization model seeks to optimize (minimize or maximize).

Constraint – A quantifiable condition that places limitations on the set of possible solutions. The solution to an optimization model is acceptable only if it does not break any of the constraints.

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Logistics Decision Models

Business Problems That Can Be Addressed through Optimization Modeling:

Table 8.5

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Logistics Decision Models

The assignment problem – A specialized form of an optimization model that attempts to assign limited capacity to various demand points in a way that minimizes costs.

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Logistics Decision Models

The generalized form of the assignment problem

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Logistics Case Study

Green Reverse Logistics in the Electronics Industry

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