Logistics Chapter 8

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 and discuss the role of multimodal solutions. 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. Calculate the percentage of perfect orders. Calculate landed costs. Explain what reverse logistics systems are, and describe some of the unique challenges they create for firms. Use the weighted center of gravity method to identify a potential location for a business. Develop and then solve, using Microsoft Excel’s Solver function, an assignment problem.

Logistics Management 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

Logistics Management Transportation Warehousing Material handling Packaging Inventory management Logistics information systems

Why Logistics Is Critical Impact on cost, flexibility, and delivery performance Advances in information systems Globalization of markets Push toward sustainability

Transportation Highway Water Air Rail Pipeline

Comparison of Modes from 1997-2007 Table 8.1

Highway Dominates the logistics infrastructure due to: Geographic extension of supply chains Greater emphasis on delivery speed and flexibility 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

Water Ideal for materials with high weight-to-value ratio, especially if delivery speed is not critical. Examples: farm produce, timber, petroleum-based products.

Air Ideal for customers with a low weight-to-value ratio, especially if delivery speed or delivery reliability is critical. Higher shipping costs and improvement in other modes have reversed the rise in air growth over the past decade.

Rail Characteristics similar to Water but 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.

Selecting a Transportation Mode Table 8.2

Multimodal Solutions 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.

Warehousing 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.

Consolidation Warehousing 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 Break-bulk Hub-and-spoke system

Consolidation Warehousing Figure 8.2

Cross-Docking Figure 8.3

Hub-and-Spoke System Figure 8.5

Postponement Warehousing 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.

Types of Warehouses Assortment warehouses – A form of warehouses 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 warehouses that attempts to position seasonal goods close to the marketplace.

Logistics Information Systems Decision support tools Real-time simulation and optimization Cost estimations Planning systems Carrier selection Scheduling deliveries Execution systems RFID

Material Handling and Packaging 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.

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.

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.

Owning vs. Outsourcing Does the firm have the volume needed to justify a private logistics system? Would owning a 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? Outsourcing options: Common carriers Contract carriers Third-party logistics providers (3PL)

Making Transportation/Warehousing Decisions Based on Order Winners Table 8.3

Measuring Logistics Performance The perfect order Delivered on time (according to buyer’s delivery dates) Shipped complete Invoiced correctly Undamaged in transit

Perfect order – Example 8.4

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

Reverse Logistics Systems 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. © 2010 APICS Dictionary

Reverse Logistics Systems 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.

Weighted Center of Gravity Method 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.

Weighted Center of Gravity Method

Example 8.6 – CupAMoe’s Current location and population of the three towns to be served by the warehouse Figure 8.6

Suggested location for the new warehouse Example 8.6 – CupAMoe’s Suggested location for the new warehouse Figure 8.7

Optimization 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.

Business problems that can be addressed through optimization modeling: Table 8.5

The Assignment Problem 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.

The Assignment Problem The generalized form of the assignment problem

Green Reverse Logistics in the Electronics Industry Logistics Case Study Green Reverse Logistics in the Electronics Industry

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