1. Chapter 7
Logistics

2. Objectives
After reading the chapter and reviewing the materials presented the students will be able to:
Explain the impact of logistics on supply chain management
Identify and describe key logistics tasks
Explain the role of warehousing on logistics
Explain the role of third party logistics providers

3. The Logistics Function
Logistics is the business function responsible for transporting and delivering products to the right place at the right time throughout the supply chain.
Unlike marketing that focuses on the downstream part of the supply chain, and sourcing that focuses on the upstream part, logistics connects the organization to both its customers and suppliers.
The function of logistics is complex and requires a great deal of coordination.
This includes organizing and managing the entire distribution network, including location of warehouses, distribution centers and plants, and coordinating the modes of transportation between them.
Logistics must also have access to information in real time in order to be able to track product movement and plan exact timing and location of deliveries.
It must ensure security of goods from theft or tampering while the products are moved.
Companies such as United Parcel Service (UPS), Federal Express (Fed Ex), and DHL have made it their business to provide logistics service to their clients.
UPS, the world’ largest package delivery company, has extended their capabilities to include designing a distribution network, freight forwarding, customs brokerage, fulfillment, returns, financial transactions, and even repairs. UPS services more than 200 countries and has its own aircraft fleet and is considered the ninth largest airline in the world.

4. Evolution of Logistics
Today’s business logistics is actually rooted in military logistics.
Consider all the issues involved in moving military troops and convoys, planning optimal locations of depots, and delivery of supply items such as food, fuel, and spare parts.
Today there are three different types of logistics:
The first is business logistics, which is focused on the movement and storage of goods throughout the entire supply chain.
The second is military logistics, which is focused on supplying military needs.
Finally, there is event logistics, which involves organizing and deploying resources in preparation for an event. Examples would be logistics involved in setting up the Olympic Games or deploying resources to provide disaster relief when needed.

5. Impact on the Organization
Logistics has a significant impact on the organization by the mere fact that its role is to support all organizational functions by ensuring timely availability of products.
1. Impact on Operations: Logistics interfaces closely with operations through the planning of the amounts of inventory that must be received at various points throughout the supply chain, and the timing of those receipts. If too much inventory is delivered too soon, inventory costs become high, and storage becomes an issue. If too little inventory is delivered, manufacturing processes will not be able to operate without the needed materials.
2. Impact on Marketing: On the outbound side, logistics provides key support for marketing and order fulfillment. A key element in sales is ensuring that the product is available when needed. If quantities delivered are small, sales and marketing will suffer. If too much inventory arrives, the company will incur losses through markdowns.

6. Impact on the Organization
3. Impact on Packaging: Logistics has to make proper decisions on packaging, including insulation and temperature monitoring that ensures product integrity.
4. Impact on Finance: Logistics is responsible for large capital expenditures, such as transportation, warehousing, and inventory. We can increase ROA (return on assets) by increasing revenue, reducing expenses, or by reducing assets. All three are directly impacted by logistics. ROA = (Revenue – Expenses)/ Assets

7. Impact on the Supply Chain
Logistics is responsible for making for order processing and tracking, inventory management, transportation, warehousing, material handling, and packaging.
Supply chain could not function without logistics as there would be inventory stock outs at some locations and too much inventory at others.
Logistics provides SCM with three utilities: place, quantity, and time. Logistics provides place utility by ensuring that goods arrive at the right place in the supply chain. Logistics provides quantity utility by ensuring that the correct quantities are delivered at the right location. Logistics provides time utility by delivering goods at precisely the right time needed.

8. Reverse Logistics
Reverse logistics is a process of moving products upstream from the customer back to the manufacturer and suppliers.
This occurs for a variety of reasons such as return of damaged products or items the customer did not want.
Logistics has to organize transporting, storage, receiving, inspecting, sorting, and all other activities to ensure efficient flow.
Reverse logistics is especially challenging to design as this flow does not directly add value.
In retail and in internet sales, ease of returns is a major selling feature.

9. Logistics Tasks
1. Transportation: Transportation is probably the most important task logistics performs as it moves products through the supply chain. Perishable products may need climate controlled transportation. Highly innovative products may need rapid delivery to areas with high demand. Products with high value, such as diamonds may need high security.
2. Storage: This involves deciding where goods will be stored, such as the number of warehouses and distribution centers, and the amount of inventory that will be held at each center. The key is finding the optimal balance that minimizes costs but maximizes response to customers.
3. Materials Handling: This includes loading and unloading of goods from vehicles, placement and order picking of goods in the warehouse, and movement throughout facility, such as warehouse staging and dock areas. Efficient material handling saves cost, cuts down on time, and minimizes product damage.

10. Logistics Tasks
4. Packaging: In addition to protecting the product during transportation, packaging must be compatible to material handling equipment.
5. Inventory Control: This involves maintaining needed amounts of inventory, arranging for timely replenishments, and maintaining accurate counts of all inventories.
6. Order Fulfillment: Logistics is often responsible for order fulfillment, which is completing, shipping, and delivering a customer order. Order fulfillment typically occurs from a warehouse or distribution center.
7. Facility Location: Logistics is also involved in determining the best location of warehouses, distribution centers, and other storage areas in relation to manufacturing facilities, customers, and suppliers. Location decisions have a huge impact on transportation costs.

11. Transportation
Transportation deals with moving products and arranging for optimal modes of transportation.
Transportation must deal with both economies of scale (larger the amount, lower the per unit cost) and economies of distance (longer the distance moved at one time, lower the per unit cost).
Trucks: Trucks are the most flexible mode of transportation.
Water: Water has an advantage in its ability to transport very large and heavy shipments. It is used to transport large bulk items such as oil or coal. The disadvantage is that it is slow and is restricted to water access.
Air: Air is the fastest mode of transportation and is also the most expensive. It is most appropriate for lighter, smaller, and higher priority items.
Rail: Rail is used for moving heavy loads very long distances. The disadvantage is long transit time.
Pipeline: Limited to liquids and gases such as petroleum and natural gas.
Multimode: Often a combination of a few modes provides optimal cost and customer service.

12. Warehousing
In addition to providing storage, many warehouses are doing tasks traditionally done at retail such as repairs of items, putting garments on hangers, and adding labels and price tags.
Break bulk operation is breaking up a large shipment into smaller quantities for deliveries at multiple locations.
Cross docking is used to reconfigure bundles onto small shipments for local delivery. It is often done in a coordinated manner so that products are never stored in inventory. This method is very effective for replenishing fast moving inventory items at the store level.

13. Facility Location
It is important that the location be selected to be able to serve the largest geographic market size on the same or next day basis.
The cost and availability of labor is another important factor. This includes considering unemployment, work ethic, and degree of unionization.
Other considerations are business and personal taxes, and the overall business climate, and whether it is welcoming to new business.
Factor Rating: 1. Identify key decision factors (proximity to customers, transportation, infrastructure, taxes). 2. Assign weights to each factor based on its importance. Weights must add to Use a five point scale for evaluating each location with 1 being poor and 5 being excellent. 4. Evaluate each location. 5. Compute the score for each location by multiplying the weight of the factor by the score for that factor and summing the results for each alternative. 6. Select the location with the highest score.
See example in text book.

14. Third Party Logistics (3PL) Providers
Traditional logistics management activities such as transportation, warehousing, order processing, are deemed as non core activities for many firms and are thus outsourced.
The role of 3PL providers changed from initially offering transportation services to offering a broad array of bundled services that also includes warehousing, inventory management, packaging, cross docking, and technology management.

15. Summary
Logistics is the business function responsible for transporting and delivering products to the right place at the right time throughout the supply chain.
UPS, the world’ largest package delivery company, has extended their capabilities to include designing a distribution network, freight forwarding, customs brokerage, fulfillment, returns, financial transactions, and even repairs. UPS services more than 200 countries and has its own aircraft fleet and is considered the ninth largest airline in the world.
Logistics provides SCM with three utilities: place, quantity, and time. Logistics provides place utility by ensuring that goods arrive at the right place in the supply chain. Logistics provides quantity utility by ensuring that the correct quantities are delivered at the right location. Logistics provides time utility by delivering goods at precisely the right time needed.
Reverse logistics is a process of moving products upstream from the customer back to the manufacturer and suppliers. This occurs for a variety of reasons such as return of damaged products or items the customer did not want.
Inventory Control: This involves maintaining needed amounts of inventory, arranging for timely replenishments, and maintaining accurate counts of all inventories.
Transportation must deal with both economies of scale (larger the amount, lower the per unit cost) and economies of distance (longer the distance moved at one time, lower the per unit cost).
Break bulk operation is breaking up a large shipment into smaller quantities for deliveries at multiple locations.
Cross docking is used to reconfigure bundles onto small shipments for local delivery. It is often done in a coordinated manner so that products are never stored in inventory.
Factor Rating: 1. Identify key decision factors (proximity to customers, transportation, infrastructure, taxes). 2. Assign weights to each factor based on its importance. Weights must add to Use a five point scale for evaluating each location with 1 being poor and 5 being excellent. 4. Evaluate each location. 5. Compute the score for each location by multiplying the weight of the factor by the score for that factor and summing the results for each alternative. 6. Select the location with the highest score.
Traditional logistics management activities such as transportation, warehousing, order processing, are deemed as non core activities for many firms and are thus outsourced.

16. Home Work 1. What is logistics?
2. Explain the 3 utilities provided by logistics to SCM?
3. What does inventory control involve?
4. Why are traditional logistics management activities outsourced?