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Dimensions of Logistics
Dimensions of Logistics:
Introduction
Logistics has come a long way since the 1960s. The big challenge is to manage the whole logistics system in such a way that order fulfillment meets or exceeds customer expectations. Focus of this chapter is upon the individual firms logistics system but also recognizing that no logistics system operates in a vacuum.
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What is Logistics?
Popular logistics terms: Logistics Management Business Logistics Management Integrated Logistics Management Materials Management Physical Distribution Management Marketing Logistics Industrial Logistics Distribution
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Definition of Logistics:
Logistics is the process of planning, implementing and controlling the efficient, effective flow and storage of raw materials, in-process inventory, finished goods and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.
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Transportation: movement of goods. Storage: affected by transportation. Packaging Materials Handling: goods from storage to order picking and to docks. Inventory control: Assuring adequate level Order fulfillment: filling and shipping orders. Forecasting Production Planning, Procurement. Customer Chapter 2 Management of Business Logistics, 7 Ed. 6
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The macro environment of Logistics: Economy Perspective The micro environment of Logistics: Firm dimension. The logistics components and its internal relationship
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A Macro Perspective
As indicated in Figure 2-2, logistics costs as a percentage of GDP have declined from 16 percent in 1980, to under 10 percent in 1999. Early to mid-1970s saw the figure closer to 20 percent. This reflects a serious improvement in the efficiency of logistics systems. Figure 2-3 shows a further breakdown of logistics costs for 1999.
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Percentage of GDP
1999 1998 1996 1995 1990 1985 1980 0
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A Macro Perspective
The two largest cost categories in logistics systems are transportation and inventory. The most frequent trade-off in logistics is between transportation and inventory cost.
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A Macro Perspective
Contributing to this decline Improvement in transportation cost Better inventory management Turnover has had a very positive impact upon the return on investment for companies
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a. Logistics Interfaces with Operations/Manufacturing b. Logistics Interfaces with Marketing c. Logistics Interfaces with Other Areas
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Carrier pricing Generally, since the larger the shipment, the cheaper the transportation rate, shipment sizes should be tailored to the carriers vehicle capacity where possible. Volume relationships Volumes sold will affect inventory requirements.
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Consumer packaging Generally, since the size, shape, weight and other physical characteristics of the product impact on its storage, transportation and handling, the logistics managers should be included in any decisions regarding these product traits. A minor correction in any of the above could conceivably cost (or save) millions of dollars in logistical costs. Logistics costs are not necessarily paramount, but they need to be considered in the decision making process.
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Push versus pull The most important factor is that the logistics division is aware of any changes in demand patterns so that it can plan for any consequences. Pull strategies tend to be more erratic. Push strategies tend to more predictable. Channel competition The more popular a product, the easier it is to persuade channel members to promote your product.
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Wholesalers Generally, since wholesalers are combining purchases for multiple retailers, the shipment sizes tend to be larger and the number of transactions that have to be processed are fewer, with the result that logistics costs are smaller. Retailers With the exception of very large retailers who act more like wholesalers, smaller sales are the norm. These generally cost more for transportation and order processing.
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Manufacturing and marketing are probably the two most important internal, functional interfaces with logistics. Other important interfaces now include finance and accounting. Logistics can have a major impact on return on assets.
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The Relationship between Required Inventory and Order Cycle Length from a Customer Perspective
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Figure 2-14
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This technique is illustrated in Table 2-4. Comprised a matrix-like table which presents each of the logistics and other relevant costs for two or more alternative logistics systems. The major downside to the model is that it presents a solution which is not necessarily the correct one at all possible volume levels. Examine the data presented in Table 2-4.
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On the Line:
Toyota Distribution
Moves more than 8 million parts and accessories every month. Computer modeling re-designed the 30 year old distribution network. Software looked first at Lexus Division and then at the entire network. Resulted in two DCs, one in California, another in Kentucky, feeding nine smaller DCs located around the country. The new network both improved customer service and lowered costs.
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Distribution
Frequently the movement and storage of raw materials is far different from the movement and storage of finished goods. Four different classifications of logistics systems Balanced system - e.g., consumer products Heavy inbound - e.g., aircraft, construction Heavy outbound - e.g., chemicals Reverse systems - e.g., returnable products
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Cost Centers Treating logistics activities as cost centers makes it easier to study cost trade-offs between the centers. (see Tables 2-2 and 2-3) Nodes versus Links Nodes are spatial points (warehouses, plants, etc.); Links are the transportation network (rail, motor, air, pipe and water). (see Figure 2-6) Logistics Channel The network of intermediaries involved in the logistics system. (see Figures 2-7, 2-8, and 2-9)
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Transportation
Inventory
$ 3.00
5.00
$ 4.20
3.75
Packaging
Warehousing
4.50
1.50
3.20
.75
2.00
$ 15.00
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1.00
$ 13.00
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Inventory
Warehousing
1,500,000
600,000
2,000,000
1,000,000
350,000
$ 3,300,000
100,000
$ 3,600,000
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Logistics System
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Figure 2-7
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Figure 2-8
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Figure 2-9
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Cost Perspective Keep in mind that the most efficient systems are not always comprised of each system component operating at its lowest possible cost. The critical concern is to have the entire system operating at its lowest total cost.
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Level of Optimality There are often constraints working which result in sub-optimal outcomes. Additionally, logistics systems must work in harmony with marketing, finance, production, etc.--- this may also result in sub-optimal logistics performance. See Figure 2-10 on next slide.
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in Economic Environments
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This technique is illustrated in Table 2-4. Comprised a matrix-like table which presents each of the logistics and other relevant costs for two or more alternative logistics systems. The major downside to the model is that it presents a solution which is not necessarily the correct one at all possible volume levels. Examine the data presented in Table 2-4.
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This technique is illustrated in Figure 2-11. Comprised a graph of the fixed and variable costs of at least two alternative logistics systems. The graph may have at least one indifference point, but may have multiple points of indifference. Examine the data presented in Figure 2-11.
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Figure 2-11
Dynamic Analysis
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Dynamic Analysis
System 1 System 2
Total Cost = Fixed Costs + Variable Cost/unit x number of units y = $4200 + 0.0315x Total Cost = Fixed Costs + Variable Cost/unit x number of units y = $4800 + 0.0230x
Trade-off Point
System 1 Total Costs = System 2 Total Costs $4200 + 0.0315x = $4800 + 0.0230x 0.0085x = $600 x = 70,588 pounds
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Competitive Relationships Inventory/order cycle length see Figure 2-12. Inventory/lost sales effect see Figure 2-13. Transportation/lost sales effect - see Figure 2-14. Product Relationships Product dollar value/logistics costs see Figure 2-15. Weight density/logistics costs see Figure 2-16. Susceptibility to loss & damage/logistics costs see Figure 2-17. Spatial Relationships Examine Figure 2-18.
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Figure 2-14
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Figure 2-15
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Figure 2-18
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Dimensions of Logistics