Logistics

Logistics
Logistics defined
Logistics decision areas
Logistics strategies in action
Kraft Foods, page 336.

Chapter 11, Slide 2

Logistics
Planning, implementing, and controlling
the effective flow and storage of goods
and materials from the point of origin to
the point of consumption (CLM)

Chapter 10, Slide 3

Key Decision Areas

Transportation
Warehousing (and more generally,
location)
Packaging
Material handling
Logistics information systems
Logistics service providers
(And some would put inventory here as
well!)
Chapter 11, Slide 4

Why the Increasing Interest?

Deregulation
Globalization
Technological breakthroughs
Environmental concerns
Performance impact

Chapter 11, Slide 5

Deregulation
Transportation providers

Elimination of artificial barriers

Unrestricted markets
Multi-modal solutions
Price, schedule, and terms flexibility

Buyers have greater freedom

Negotiate prices, terms, and conditions
Ownership issues

BUT
Chapter 11, Slide 6

Deregulation (continued)
With greater freedom comes
new responsibilities
Key point
Logistics has evolved from being a
tactical area to a strategic one

Chapter 11, Slide 7

Globalization
(US Statistics)
Year

Exports

Imports

1992

$449 Billion

$700 Billion

1998

$670 Billion

$917 Billion

Change

+49%

+31%

What is driving this activity?

Chapter 11, Slide 8

Technological
Breakthroughs I
Information Systems
Global positioning systems
Bar-coding applications
RFID on the horizon as replacement

Real-time simulation and optimization

Precise coordination of multi-modal
solutions

Chapter 11, Slide 9

Technological
Breakthroughs II
Transportation Systems
Standardized containers for ease of
transfer
Roadrailers, etc.
Multi-modal solutions
Ship Truck Train Truck ?

Chapter 11, Slide 10

Environmental Concerns
Even while certain aspects of logistics
have been deregulated, other areas
are being controlled more stringently
Fuel efficiency
Pollution
Recovery, recycling, and reuse of
packaging, containers, and products
Chapter 11, Slide 11

Performance Impact II
Customer touch points
Delivery reliability
Delivery speed
Delivery tracking
Quality

Ford is hiring UPS

Chapter 11, Slide 12

Performance Impact III

Total time to the customer at WolfByte
Computer
Manufacturing Time

2000
2 days

2004
0.5 days

Shipping Time

4 days

4 days

Total Time to the Customer

6 days

4.5 days

75% decrease in manufacturing time, but only 25% decrease in

time to customer. Where is the leverage now?
Chapter 11, Slide 13

The Evolution of Logistics

Strategy
From functional silos to
strategic positioning

Chapter 10, Slide 14

Strategic Disconnect

Chapter 11, Slide 15

New Logistics

Chapter 11, Slide 16

Logistics Decision Areas

Transportation
Modes
Formats
Pricing

Warehousing
Consolidation
Cross Docking and Break-Bulk
Hub and Spoke
Inventory
Chapter 11, Slide 17

Major Transportation Modes

Highway (truck)
Water
Rail
Air
Pipeline
2006 Pearson Prentice Hall
Introduction to Operations and Supply
Chain Management Bozarth &

Chapter 11, Slide 18

Modal Shares of Shipments

(within US, 1999)
Mode

Value (%)

Tons (%)

Ton Miles (%)

80.3

58.5

28.4

Water

2.5

11.1

20.4

Rail

4.8

11.2

26.7

Air

2.7

0.2

Pipeline

4.2

13.7

17.6

Other/Unknown

5.5

5.5

6.7

Highway (trucking,
parcel, postal, courier)

Chapter 11, Slide 19

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 be available 24/7

Weaknesses
Not the fastest
Not the cheapest

Chapter 11, Slide 20

Water Mode
Strengths
Highly cost effective
for bulky items
Most effective when
linked into multimodal
system

Weaknesses
Limited locations
Relatively poor
delivery
reliability/speed
Often limited
operating hours at
docks

Chapter 11, Slide 21

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

Chapter 11, Slide 22

Air Mode
Strengths
Quickest delivery over
longer distances
Can be very flexible
when linked to
highway mode

Weaknesses
Often the most
expensive, particularly
on a per pound basis

Chapter 11, Slide 23

Question
How can businesses design
solutions that exploit the
strengths of each mode?

Chapter 10, Slide 24

Multi-Modal Solutions

North Carolinas Global TransPark

Chapter 11, Slide 25

Justification
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 nations
population overnight and also provide a gateway to global markets.

Chapter 11, Slide 26

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

Chapter 11, Slide 27

Transportation Formats
Common carriers
Published rates and schedules
Nondiscriminatory pricing
Increased flexibility to partner

Contract carriers
Service for select customers
Unlimited number of customers

Private carriers
Chapter 11, Slide 28

Pricing Transportation
Services
Economic factors
Pricing versus distance
Price/pound versus density
Stowability, handling, and liability
Market factors

Ratings

Goods classification
Class index

Chapter 11, Slide 29

Economic Factors
Stowability, handling, and liability

versus

Chapter 11, Slide 30

Economic Factors
Market factors
this include?
West
Coast,
USA

What might

East
Coast,
USA

Chapter 11, Slide 31

Ratings
Translating economic factors
into actual prices

Chapter 10, Slide 32

Ratings (a simplified view)

Goods classification
Perishability, stowability,
handling, etc.

Class index?
From 35 - 400
average product = 100
Based on expected
transportation costs
Chapter 11, Slide 33

Determining Transportation
Rates
Rate Determination
By weight (Less-than-truckload shipment)
By distance (truckload shipments)
Minimum charges and surcharges

Exceptions to the rule

Seasonal commodities

Chapter 11, Slide 34

Specific Rates for Shipments

FROM Atlanta TO Lansing
Rates express $ charged per hundred-weight
Rates fall as rate class falls and volume increases

Rate Class

< 500 lbs

500 to 1,000
lbs

1,000 to 30,000
lbs

200

$98.37

$61.97

$17.00

100

$52.62

$43.68

$9.22

70

$40.48

$33.59

$8.10

Chapter 11, Slide 35

Example
3 Shipments of Class 100 to Lansing:
5,000 lbs., 10,000 lbs., 7,000 lbs.

Different stops in Lansing

Can consolidate, but extra $100 for two
additional stops
What to do?

Chapter 11, Slide 36

What to Do?
Separate shipments

Consolidated shipments

50$18.94
$947

220$9.22 =
$2,028

100$14.74 =
$1,474
70$18.94 =
$1,326
$3,747

Additional
drop-off
charges:

$100
$2,128
Chapter 11, Slide 37

Key Points
Choosing a mode
Five choices
Speed? Cost? Flexibility?

Choosing a format
Flexibility versus control

Controllable factors affecting cost

Density, stowability, packaging, and
containerization

Chapter 11, Slide 38

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

Chapter 10, Slide 39

New View
Warehousing a key piece of logistics
strategy
Proctor & Gamble
Kraft
Lowes

More than just storage

Warehousing Distribution Centers

Chapter 11, Slide 40

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

Chapter 11, Slide 41

Consolidation

Chapter 11, Slide 42

Example 1
Customer

Shipment

Weight

Venetian Artist Supply 100 boxes, artist

supplies
Kaniko
100 PC printers

3,000 lbs.

Ardent Furniture

4,000 lbs.

10 dining room sets

3,000 lbs.

Dedicated truck from Los Angeles to Atlanta: $2,000

Cost to run consolidation warehouse: $9 per hundred-weight
Local delivery in Atlanta: $200 per customer

Chapter 11, Slide 43

Cost Benefits of Consolidated

Warehousing
Warehousing costs
10,000 lbs $9/100 lbs =
Cost of one truck to Atlanta
Delivery to final customer
3 customers $200 =
Total:

$900
$2,000
$600
$3,500

How does this compare to the cost of separate

dedicated shipments?
What about truck utilization (assume trucks
hold 60,000 lbs.)
Chapter 11, Slide 44

Cross-Docking

What about supply / demand mismatches?

Chapter 11, Slide 45

Break-Bulk
Like break-bulk, but usually refers to a single source

Chapter 11, Slide 46

Example 2
Manufacturer Customers
500 lb. average order size
Direct shipments:
hundred-wt.
$36.40

$7.28 per
$7.28 5 =

> 20,000 lbs: $2.40 per hundred-wt.

Local delivery: $1.35 per hundred-wt.

Chapter 11, Slide 47

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.
Chapter 11, Slide 48

Hub and Spoke Systems

Chapter 11, Slide 49

Processing and
Postponement
Coca Cola syrup
Bulk food products,
paints, etc.
high volumes
containers

Customer A
Processing and
Postponement
Packaging
Labeling, etc.

Customer B
Customer C

Minimizes risk
Minimizes inventory (how?)
Chapter 11, Slide 50

Service Benefits:
Spot stock
Assortment

Chapter 10, Slide 51

Spot Stock
Region
1
Region
2

Time sensitive, seasonal items

Often temporary, public storage

Region
3

Chapter 11, Slide 52

Weighted Center of Gravity

A method to determine best location for central
warehouse from n demand points.
Requires position of each demand point (Xi, Yi)
Requires weight of each demand point (Wi), based on importance, demand
volume, market strategy, etc.
n

Wi X i

Weighted X coordinate X i 1n
*

Wi

i 1

W i Yi

Weighted Y coordinate Y i 1n
*

Wi

i 1

Chapter 11, Slide 53

Assortment
Broad product line and good inventory
control key to success
Customer A

Supplier F
Supplier G
Supplier H

Assortment
Warehouse

Supplier E

Customer B
Customer C
Customer D
Chapter 11, Slide 54

Packaging and Unitization

What are the typical
marketing criteria?

Chapter 10, Slide 55

Packaging Implications
Transportation
Class segmentation
Damage protection

Material handling and warehousing

Storage requirements
Unitization
Container recycling
Ease of handling

Chapter 11, Slide 56

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?
Chapter 11, Slide 57