assignment 8 &9

Chapter 8

Logistics

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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.
© CSCMP – Council of Supply Chain Management Professionals
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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
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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Printed in the United States of America.
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