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CHAPTER 9 DOMESTIC U.S. & INTERNATIONAL LOGISTICSPrinciples of Supply Chain Management: A Balanced Approach, 2e
© 2009 South-Western, a division of Cengage LearningChapter Nine Outline Introduction The Fundamentals of Transportation Warehousing and Distribution The Impacts of Logistics on Supply Chain Management Logistics Management Issues International Logistics Reverse Logistics © 2009 South-Western, a division of Cengage Learning
© 2009 South-Western, a division of Cengage LearningIntroduction Logistics is necessary to: Move goods from suppliers to buyers Move WIP within the firm Move finished goods to the customer Move returned goods back up S.C. Products have little value to the customer until they are moved to the customer’s point of consumption Time utility- products are delivered at the right time. Place utility- products are delivered to the desired location. © 2009 South-Western, a division of Cengage Learning
The Fundamentals of TransportationThe Objectives of Logistics Maximize value to the firm through price and delivery negotiations; provide profit contributions via cost reductions and better service. Make sure service is provided effectively Satisfy the customers’ needs ie, deliver at right time, right place, right quantity, in a way that minimizes cost. © 2009 South-Western, a division of Cengage Learning
The Fundamentals of Transportation (Cont.)Legal Forms of Transportation Transportation service companies are classified legally as either common, contract, exempt, or private carriers. Common carriers- offer transportation services to all shippers at published rates between designated locations without discrimination. Contract carriers- not bound to serve the general public. Contract carriers serve specific customers under contractual agreements. © 2009 South-Western, a division of Cengage Learning
The Fundamentals of Transportation (Cont.)Legal Forms of Transportation (Cont.)- Exempt carriers- exempt from regulation of services & rates & if they transport certain exempt products like produce, livestock, coal, or newspapers. Private carrier- not subject to economic regulation & typically transports goods for the company owning the carrier. © 2009 South-Western, a division of Cengage Learning
The Fundamentals of Transportation (Cont.)The Modes of Transportation Motor Carriers (trucks)- most flexible mode of transportation & carries > 80% of U.S. freight. Competes w/rail & air for short-to-medium hauls. Less-than-truckload (LTL) & truck-load (TL) carriers. LTL carriers move small shipments & fees are higher. General freight carriers carry the majority of goods shipped & include common carriers. Specialized carriers transport liquid petroleum, household goods, building materials, & other specialized items. © 2009 South-Western, a division of Cengage Learning
The Fundamentals of Transportation (Cont.)The Modes of Transportation (Cont.) Rail Carriers- compete when the distance is long & the shipments are heavy or bulky. Slow & inflexible, but have begun purchasing motor carriers & can thus offer point-to-point pickup & delivery service known as trailer-on-flatcar (TOFC) service. Rail companies use each other’s rail cars. Keeping track of rail cars & getting them where needed can be problematic. Railroad infrastructure & aging equipment are also problems for the U.S. railroads. © 2009 South-Western, a division of Cengage Learning
The Fundamentals of Transportation (Cont.)The Modes of Transportation (Cont.) Air Carriers- Expensive relative to other modes but fast. Air carriers transport about 5 % of U.S. freight. Airlines cannot carry extremely heavy or bulky cargo. For light, high value goods over long distances quickly. Most small cities do not have airports. Half of the goods transported by air are carried by freight–only airlines, like FedEx. © 2009 South-Western, a division of Cengage Learning
The Fundamentals of Transportation (Cont.)The Modes of Transportation (Cont.) Water Carriers- Inexpensive, slow & inflexible. Includes inland waterway, coastal & intercoastal, & deep-sea. Inland waterway transportation is used for heavy, bulky, low-value materials (e.g., coal, grain). Competes w/rail & pipeline. Water carriers are paired w/trucks for door-to-door delivery. Supertankers are +1,500 ft long & 200 ft wide. © 2009 South-Western, a division of Cengage Learning
The Fundamentals of Transportation (Cont.)The Modes of Transportation (Cont.) Pipeline Carriers- Limited in variety they can carry. Little maintenance once pipeline is running. Materials hauled in a liquid or gaseous state. © 2009 South-Western, a division of Cengage Learning
The Fundamentals of Transportation (Cont.)Intermodal Transportation Combinations of the various transportation modes, is becoming a popular method. Trailer-on-flatcar (TOFC), container-on-flatcar (COFC), piggy-back service. The same containers can be placed on board containerships & airliners. RO-ROs or roll-on-roll-off containerships truck trailers & containers to be directly driven on & off the ship, without the use of cranes. © 2009 South-Western, a division of Cengage Learning
The Fundamentals of Transportation (Cont.)Transportation Pricing Cost-of-service pricing- varies based on fixed & variable costs. Value-of-Service Pricing- services priced at market bearing competitive levels. Terms of Sale- includes transportation FOB (free on board) destination. Pricing Negotiation- Since deregulation, negotiating prices has become more common. Rate Categories- Classified as line haul rates, class rates, exception rates, commodity rates, & miscellaneous rates. © 2009 South-Western, a division of Cengage Learning
The Fundamentals of Transportation (Cont.)Transportation Security Particularly important since Sept. 11, 2001 Aviation & Transportation Security Act (2001)- Transportation Security Administration (TSA) to oversee transportation security at all US airports Department of Homeland Security (DHS) (2003) created to provide overall U.S. security leadership. Not all measures have improved security as envisioned © 2009 South-Western, a division of Cengage Learning
The Fundamentals of Transportation (Cont.)Transportation Regulation Granger laws (1870s)- regulate the RRs. Interstate Commerce Act of Created the Interstate Commerce Commission (ICC). Transportation Act of Changes to IC Act. Motor Carrier Act of brought motor carriers under ICC control. Transportation Act of established ICC control over domestic water transportation. Federal Aviation Act of 1958 created air traffic & safety regulations & national airport system. Department of Transportation Act Coordination of all transportation-related matters. © 2009 South-Western, a division of Cengage Learning
The Fundamentals of Transportation (Cont.)Transportation Regulation - Pro- Regulation tends to assure adequate transportation service throughout the country while protecting consumers from monopoly pricing, safety, & liability. Con- Deregulation encourages competition & allows prices to adjust as demand & negotiations dictate. Today, U.S. transportation industry remains essentially deregulated © 2009 South-Western, a division of Cengage Learning
The Fundamentals of Transportation (Cont.)Transportation Deregulation Railroad Revitalization & Regulatory Reform Act (1976)- RRs could change rates w/o ICC approval. Air freight deregulated in 1977. Motor carriers deregulated in 1980 to promote competitive, safe & efficient motor transportation. Shipping Act of 1984 allowed ocean carriers to pool shipments, assign ports, publish rates, & enter into contracts with shippers. ICC Termination Act of 1995 & the Ocean Shipping Reform Act of ICC was eliminated, requirement for ocean carriers to file rates also came to an end. © 2009 South-Western, a division of Cengage Learning
Warehousing & Distributionallows firms to store purchases, WIP, & finished goods and perform break bulk and assessment services provides faster & more frequent deliveries & better customer service Crossdocking to receive, breakdown, repackage, & distribute components to a manufacturing location or finished products to customer’s warehouse. These activities are frequently seen in a distribution center © 2009 South-Western, a division of Cengage Learning
Warehousing & Distribution (Cont.)Importance & Types of Warehouses Support purchasing, production, & distribution. Consolidation warehouses collect LTL shipments for transport in TL or CL quantities. Private Warehouses owned by the firm storing goods. Pro- Reduces the cost, offers greater control, provides better workforce utilization, & can generate income & tax advantages through leasing of excess capacity &/or asset depreciation. Con- Owning a private warehouse represents a financial risk & loss of flexibility. © 2009 South-Western, a division of Cengage Learning
Warehousing & Distribution (Cont.)Public Warehouses Owned by for-profit orgs & contracted out Activities: Breakbulk Repackaging Assembly Incoming & outgoing quality inspections. Material handling, equipment maintenance, & documentation services Storage Pro - Provides flexibility & investment cost savings Con - Lack of control. © 2009 South-Western, a division of Cengage Learning
Warehousing & Distribution (Cont.)Warehouse Location Issue As the # of warehouses increases, the system becomes more decentralized. Responsiveness & delivery service increase. However, warehousing operating & inventory costs also increase. Trade-off between costs & customer service must be considered. Risk Pooling Describes the relationship between the # of warehouses, inventory, & customer service. Risk pooling is estimated by square-root rule © 2009 South-Western, a division of Cengage Learning
Warehousing & Distribution (Cont.)square-root rule (p. 324): Where: S1 = Total system stock for the N1 warehouses S2 = Total system stock for the N2 warehouses N1 = # of warehouses in the existing system, & N2 = # of warehouses in the proposed system Thus, as # warehouses decreases, total stock needed also decreases. Conversely, if we double the number of warehouses, what happens to the total inventory? S2 = (S1) © 2009 South-Western, a division of Cengage Learning
Warehousing & Distribution (Cont.)Warehouse Location Strategies Market-positioned strategy- warehouses close to customers to maximize distribution svcs & improve transp. economies of scale. Product positioned strategy- close to supply source for firm to collect goods & consolidate. Intermediately positioned strategy- midway between supply source & customers when distribution requirements are high & product comes from various locations. © 2009 South-Western, a division of Cengage Learning
Warehousing & Distribution (Cont.)Just-in-Time Warehousing Emphasis on warehousing to support JIT operations: Commitment to customers & service quality Reduced lot sizes & shipping quantities Emphasis on cross-docking Increased automation Increased assembly operations © 2009 South-Western, a division of Cengage Learning
Impacts of Logistics on Supply Chain ManagementThird Party Logistics (3PL) Provide reliable & timely delivery required by user Used to a significant degree in international logistics Favored by small businesses Some firms outsource all of their logistics needs to a lead logistics provider or fourth party logistics provider (4PL) © 2009 South-Western, a division of Cengage Learning
Logistics Management IssuesEnvironmental Sustainability in Logistics Green logistics is a response to the need for reducing carbon emissions and can also save money for the firm 3PL Supply Base Reduction by reducing the 3PL supply base a firm can achieve lower prices and better service as it becomes a larger customer © 2009 South-Western, a division of Cengage Learning
Logistics Management Issues (Cont.)Mode & 3PL Selection firms identify the optimum transportation services to minimize costs & improve customer service Firms often use transportation intermediaries, such as: Freight forwarders Transportation brokers Shipper Associations Intermodal marketing companies (IMCs) © 2009 South-Western, a division of Cengage Learning
Logistics Management Issues (Cont.)Logistics Management Software Applications Transportation management systems- used to select the best mix of transportation services & pricing. Warehouse management- track & control the flow of goods from receiving dock to outbound shipment. New technologies, such as RFID tags, facilitate tracking. Returns management systems (RMS) provide global visibility, standardization, & documentation of product returns, while minimizing reverse logistics costs. © 2009 South-Western, a division of Cengage Learning
Logistics Management Issues (Cont.)Use of e-Commerce Technologies in Logistics Electronic Invoice Presentment & Payment (EIPP)- sending & receiving invoices online. Supply Chain Visibility- time-related benefits that lead to SC success. Visibility allows better communication across org boundaries Third Party Electronic Transaction Platforms- Internet based transaction systems providing freight-matching services, auctions, & on-line marketplaces © 2009 South-Western, a division of Cengage Learning
International LogisticsInternational Logistics Intermediaries Customs Brokers- move through customs & handle documentation. International Freight Forwarders- move goods to foreign destination Trading Companies- Put buyers & sellers together & handle export/import arrangements. Non-Vessel-Operating Common Carriers- operate like freight forwarders but use scheduled ocean liners. © 2009 South-Western, a division of Cengage Learning
International Logistics (Cont.)Foreign Trade Zones- Secure sites in U.S. under supervision of U.S. Customs. FTZs offer storage, exporting, manufacturing, assembly, repacking, testing, & repairing services. North American Free Trade Agreement (NAFTA) Created in 1994 & removes most barriers to trade & investment among U.S., Canada & Mexico. © 2009 South-Western, a division of Cengage Learning
© 2009 South-Western, a division of Cengage LearningReverse Logistics Backwards flow of goods from customers in SC when goods are returned by a customer in the supply chain Retail returns range 6% to 40% of sales Often is an unwanted SC activity Poor reverse logistics can hurt firm Green reverse logistics programs- designed to return unneeded products for recycling. These programs reduce environmental impact on landfills & deal with dangerous contaminants. © 2009 South-Western, a division of Cengage Learning
© 2009 South-Western, a division of Cengage LearningHere are some links to interesting logistics sites: The Aalsmeer flower auction—world’s largest: World’s largest ship: World’s fastest train: World’s longest trucks: World’s biggest air transport plane: © 2009 South-Western, a division of Cengage Learning
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