1. Bases of pharmaceutical logistics

2. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 2 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 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.

3. Logistics Planning, implementing, and controlling the efficient, effective flow and storage of goods and materials between the point of origin and the point of consumption

4. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 4 Learning Objectives Understand the relationship between logistics and other important functional areas of a company, including manufacturing, marketing, and finance Discuss the important management activities in the logistics function Analyze logistics systems from several different perspectives to meet different objectives Determine the total costs and understand the cost tradeoffs in a logistics system from a static and dynamic perspective

5. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 5 Dimensions of Logistics Drucker – 1962 “The Economy’s Dark Continent” –Distribution is one of the most sadly neglected but most promising areas of American business… 15-25% of the cost of manufactured components goes to cover expenses before it hits the assembly line Origins date back to the military around WWII – Gulf War regarded as a ‘logistics war;

6. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 6 Definition of Logistics That part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services and related information from the point of order to the point of consumption in order to meet customers’ requirements

7. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 7 Seven R’s Ensuring the availability of the –Right product –Right quantity –Right condition –Right Place –Right time –Right customer –Right cost

8. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 8 Change in Logistics Emphasis on Quality and meeting customer requirements Change – influence of large buyers such as Wal-Mart Increasing sophistication of all buyer types –industrial and consumer

9. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 9 Macro Perspective Logistics impacts and has relationship with economy Cost of business logistics increasing Percentage of GDP decreasing Transportation largest percentage of logistics costs (rising due to inventory management practices)

10. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 10 Macro Perspective Logistics adds value to a product Place utility - moving goods to points where demand exists Time utility - moving goods to points at a specific time Allows for economic development and specialization Affects land values due to increased accessibility

11. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 11 Micro Perspective Interfaces with production in determining the length of the production run Interfaces with marketing in selling the product –price - size, quantity –product - dimensions, packaging –promotion - inventory, channels –customer service Relationship with all areas of a company

12. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 12 Logistics Activities Transportation - physical movement or flow of goods Storage - inventory management and warehousing Packaging - affected by product and transportation Materials handling - movement in, from, and within a warehouse

13. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 13 Logistics Activities Order fulfillment - completing customer orders, affects lead time Forecasting - predicting inventory necessary to fulfill customer demand Production planning - product necessary to cover market Purchasing - procurement of supplies, affects transportation

14. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 14 Approaches to Analyzing Logistics Systems Materials Management versus Physical Distribution –Balanced System –Heavy Inbound –Heavy Outbound –Reverse Systems Cost centers –Trade offs

15. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 15 Approaches to Analyzing Logistics Systems Nodes versus links –nodes - points where goods stop for processing –links - transportation connecting nodes Logistics Channels - network of intermediaries that contribute to efficient flow of goods

16. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 16 Logistics and Systems Analysis System - is a set of interacting elements, variables, parts or objects that are functionally related to one another and that form a coherent group. Optimization –always the best alternative (water transportation example)

17. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 17 Logistics and Systems Analysis Levels of optimality –Delivery timeframes Functional relationships –Interdepartmental cooperation Constraints

18. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 18 Logistics System Analysis Short-Run/Static Analysis –Look at short run situation and select the system with the lowest overall cost. Long-Run/Dynamic Analysis –Mathematically calculate the point of equality between the two systems Examples p.55/56

19. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 19 Factors Affecting the Cost and Importance of Logistics Competition via customer service –Order Cycle shorter order cycle, less inventory required –Substitution more substitutable product, higher customer service level required –Inventory Effect increase inventory, reduce cost of lost sales –Transportation Effect increase transportation costs, reduce cost of lost sales

20. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 20 Factors Affecting the Cost and Importance of Logistics Product factors Dollar Value - product value increases, cost of warehousing, transportation and inventory increases Density- higher the density, more efficient use of warehouse and transportation space Damage -greater the risk of damage, higher the transportation and warehousing cost Special Handling Requirments

21. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 21 Learning Objectives Understand the role and importance of logistics in private and public organizations Appreciate the impact of logistics on the economy and how effective logistics management contributes to the economy Understand the value-added roles of logistics Define logistics systems from several perspectives

22. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 22 Logistics Decision Areas Transportation… –Modes –Formats –Pricing Warehousing –Consolidation –Cross-Docking and Break-Bulk –Hub-and-Spoke –Inventory

23. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 23 Major Transportation Modes Highway (truck) Water Rail Air Pipeline

24. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 24 Highway Mode Strengths Flexibility to pick up and deliver where and when needed Often the best balance between cost/flexibility and delivery reliability/speed Can deliver straight to the customer (increasing) Can be available 24/7 Weaknesses Not the fastest Not the cheapest

25. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 25 Water Mode Strengths Highly cost effective for bulky items Works best for high weight-to-value items Most effective when linked into multimodal system Weaknesses Limited locations Relatively poor delivery reliability/speed Often limited operating hours at docks

26. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 26 Air Mode Strengths Quickest delivery over longer distances Can be very flexible when linked to highway mode Works best for low weight-to-value items Weaknesses Often the most expensive, particularly on a per pound basis Grew 90.5% in value of goods shipped from 1993 to 2002

27. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 27 Rail Mode Strengths Highly cost effective for bulky items Can be most effective when linked into multimodal system Weaknesses Limited locations, but better than for water. Better delivery reliability/speed than water Increasing part of multimodal solutions, dual tracks on major routes

28. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 28 Technological Breakthroughs Standardized containers for ease of transfer “Roadrailers,” etc. Multimodal solutions –Ship  Truck  Train  Truck  ?

29. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 29 Multi-Modal Solutions (An example) North Carolina’s Global TransPark

30. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 30 Global TransPark 15,700 acres at full development with two parallel runways of 11,500 feet and 13,000 feet Integrated air, rail, road, and nearby sea transportation capabilities Free trade zone status

31. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 31 Justification for Such a Facility  Shift from domestic to global economies  Emergence of just-in-time, flexible and agile manufacturing practices requiring sophisticated logistics solutions  The rapid growth of distribution via air freighters (roughly four times the growth rate of passenger service by the airlines)  The need to use air cargo, shipment by sea, and delivery by trucks and trains in an overall distribution system  The need for a commercial distribution hub in the Eastern United States that can reach more than 60 percent of the nation’s population overnight and also provide a gateway to global markets.

32. Warehousing Any operation that stores, repackages, stages, sorts, or centralizes goods or materials

33. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 33 New View Warehousing a key piece of logistics strategy –J. B. Hunt –Lowe’s More than just storage –“Warehousing”  “Distribution Centers”

34. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 34 Warehousing Benefits Economic benefits:  Accrue directly to company  Must consider total system costs Service benefits:  Support customer service needs  May or may not reduce costs

35. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 35 Consolidation

36. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 36 Cost Benefits of Consolidated Warehousing How does this compare to the cost of separate dedicated shipments? What about truck utilization (assume 3 trucks hold 60,000 lbs.) Warehousing costs10,000 lbs × $ 9/100 lbs =$900 Cost of one truck to Atlanta$2,000 Delivery to final customer3 customers × $200 = $600 Total:$3,500

37. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 37 Cross-Docking What about supply / demand mismatches?

38. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 38 Break-Bulk Like cross-docking, but usually refers to a single source

39. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 39 Example 2 Manufacturer  Customers 500 lb. average order size Direct shipments: $7.28 per hundred-wt. $7.28 × 5 = $36.40 > 20,000 lbs: $2.40 per hundred-wt. Local delivery: $1.35 per hundred-wt.

40. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 40 Insight: If we can run a warehouse for less than: 5 × ($7.28 – $2.40 – $1.35) = $17.65/500 lbs. Or $17.65 / 5= $3.53 per hundred-weight we should do it.

41. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 41 Hub-and-Spoke Systems

42. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 42 Postponement Coca Cola syrup Bulk food products, paints, etc.  high volumes  containers Postponement Assembly, Packaging, Labeling, etc. Customer A Customer B Customer C Minimizes risk Minimizes inventory (how?)

43. Warehousing Service Benefits: Spot stock Assortment

44. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 44 Spot Stock Time sensitive, seasonal items Often temporary, public storage Region 3 Region 2 Region 1

45. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 45 Assortment Customer D Customer C Customer B Customer A Supplier E Supplier F Supplier G Supplier H Broad product line and good inventory control key to success Assortment Warehouse

46. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 46 Information Systems Decision support tools –Real-time simulation and optimization –Location selection –Cost estimations Precise coordination of multimodal solutions Execution systems –Global positioning systems –Bar-coding applications –RFID on the horizon as replacement (NYK Logistics)

47. Material Handling and Packaging What are the typical marketing criteria?

48. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 48 Unitization Unit loads –Transport and handling efficiencies Non-rigid containers –pallets and unit load platforms –ropes, steel, shrink and stretch wrap Rigid containers –Maximum protection (Viper windshield frame) –Standard sizes? –Recycling?

49. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 12, Slide 49 Packaging Implications Transportation –Class segmentation –Damage protection Material handling and warehousing –Storage requirements –Unitization –Container recycling –Ease of handling