copyright 2011 john wiley & sons, inc. chapter 7 logistics 7-1

Copyright 2011 John Wiley & Sons, Inc.

Chapter 7

Logistics

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Lecture Outline

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• What is Logistics?

• Logistics Tasks

• Transportation

• Warehouse

• Third-Party Logistics (3PL) Providers


What is Logistics?

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Logistics is the business function responsible for transporting and delivering products to the right place at the right time throughout the supply chain

– organize and manage distribution network

– requires access to information in real time

– requires large investments in infrastructure

– often outsourced


Evolution of Logistics

Since the growth of SCM in the 1990s, logistics has been extended to include the movement of goods through the entire supply chain, both upstream and downstream.

7-4Copyright 2011 John Wiley & Sons, Inc.

Types of Logistics

Three types of Logistics:

• Business Logistics– moving and storing goods throughout the

entire supply chain

• Military Logistics– supporting military needs

• Event Logistics– organizing and deploying resources in

preparation for an event7-5Copyright 2011 John Wiley & Sons, Inc.

Impact on the Organization

Look at the Impact on:

• Operations

• Marketing

• Packaging

• Finance


Impact on Operations

Logistics plans the timing and quantity of inventory receipts throughout the supply chain

• Historical Manufacturing

– long production runs

– economies of scale, stored excess inventory

– less frequent, large quantity inventory deliveries


Impact on Operations Continued

• Just-in-Time (JIT) Manufacturing

– shorter production runs

– more frequent, small quantity inventory deliveries

– less safety stock

– precise timing is essential


Impact on Marketing

Logistics works with marketing to understand customer requirements, as well as storage and delivery needs

– right timing of shipments

– right quantity of shipments


Impact on Packaging

Logistics makes packaging decisions for goods as they are being transported

– assure materials are protected from damage

– decisions impact the ability to handle the materials


Impact on Finance

Logistics is responsible for large capital expenditures: transportation, warehousing, and inventory

• Return on Assets (ROA) can be positively affected by:

– reducing inventory

– reducing investments in transportation and warehousing

– improving customer service with timely and accurate deliveries of goods


Impact on SCM

Logistics provides SCM with three utilities:

• Place– ensures goods arrive at the right place

• Quantity– ensures correct quantities are delivered– tradeoff between too many goods and having

shortages

• Time– ensures goods arrive at the right time


Reverse Logistics

Reverse logistics is the process of moving products upstream from the customer back toward manufacturers and suppliers

– items customer did not want

– returns of damaged items

– overstock items

– recalled items


Reverse Logistics Continued

Considerations:

– reverse flow does not directly add value

– ability to easily return goods is becoming an “order qualifier”

– items returned for different reasons may have different paths


Reverse Logistics Continued

The logistics function must:

– handle cash flows

– arrange for warehousing, transport, sorting, inspecting, and storage

– abide by “green” laws


Logistics Tasks

• Transportation

• Storage

• Material Handling

• Packaging

• Inventory Control

• Order Fulfillment

• Facility Location


Logistics Tasks

• Transportation– moves products throughout the supply chain

– high cost

– must decide mode of transportation• consider required speed, security, and product

characteristics/requirements

• Storage– where goods will be stored

– # of warehouses and distribution centers

– amount of inventory to store at each center7-18Copyright 2011 John Wiley & Sons, Inc.

Logistics Tasks Continued

• Material Handling

– loading and unloading goods from vehicles

– placement and order picking

– moving goods throughout a facility

– decide degree of automation vs. manual labor

• automated storage and retrieval systems (ASRS)



• Packaging– protect products during transport and storage

– compatible with material handling equipment

– compatible with mode of transportation

• Inventory Control– manage quantities of inventory

– arrange for timely replenishments

– maintain accurate counts of inventory

– electronic tracking and “cycle counting”



• Order Fulfillment– pick and pack order

– arrange for transportation

– ship order

– assure lead time is not exceeded

• Facility Location– determine best location of storage facilities

– consider relation to manufacturing facilities, customers, and suppliers


Transportation

• Transportation moves products and arranges for optimal modes of transportation

• Need to balance economies of scale and distance with customer service


Transportation Continued

• Economies of Scale

– the larger the amount shipped at one time, the lower the per unit cost

• avoid less-than-truck-load (LTL) shipments

• Economies of Distance

– the longer the distance moved at one time, the lower the per unit cost


Modes of Transportation

Challenge is to select the right mode(s)

Common modes include:

• Truck

• Water

• Air

• Rail

• Pipeline

• Multimode7-24Copyright 2011 John Wiley & Sons, Inc.

Modes of Transportation Continued

• Truck

– most flexible mode

– government maintains infrastructure

– challenge to find qualified drivers

• Water

– ability to transport very large and heavy shipments

– very affordable

– extremely slow7-25Copyright 2011 John Wiley & Sons, Inc.


• Air– appropriate for lighter, smaller, and

higher priority items– fastest mode– most expensive mode

• Rail– appropriate for moving heavy loads very

long distances– long transit time– low cost– typically combined with another mode



• Pipeline– limited to liquids and gases

– very specific infrastructure

• Multimode– several modes are often combined for

optimal cost and customer service

– coordination can be a challenge

– common for companies to use third-party-logistics (3PL) providers


Warehouses in the Supply Chain

Warehouses provide a centralized location that stores and organizes inventories before distribution

– often called distribution centers

– JIT and lean manufacturing can locate warehouses near the manufacturing facility for frequent deliveries

– can be utilized to create product assortments


Nontraditional Warehouse Tasks

Increasingly warehouses are being used to perform nontraditional tasks such as:

– repair items

– add labels and price tags

– sequence items in preparation for the retail floor

– put garments on hangers


Cross-Docking

Cross-docking is a popular form of warehouse sorting that attempts to move products “cross the dock” from inbound to outbound, without ever being stored

– arriving larger shipments are broken into smaller shipments for local delivery

– requires precise timing and coordination

– information technology tracks inventories

– especially used in retail industry7-31Copyright 2011 John Wiley & Sons, Inc.

Facility Location

Factors to consider when locating warehouses and distribution centers:

– proximity to customers or manufacturing facilities

– availability of infrastructure and access to transportation

– cost and availability of labor

– overall business climate including tax structure


Factor Rating

• Factor Rating is a popular quantitative technique to help determine warehouse and distribution center location

• Evaluates multiple location alternatives based on selected factors


Factor Rating Steps

1. Identify key decision factors

2. Assign weights to each factor based on its importance (sum=100)

3. Establish a scale to evaluate each location relative to each factor

4. Evaluate each location based on factors

5. Multiply factor weight by score for that factor and sum results for each location

6. Select location with highest score7-35Copyright 2011 John Wiley & Sons, Inc.

Factor Rating Example

Urban Apparel has identified six factors it considers important in determining the location of its distribution center. There are two potential locations that have been evaluated for all six factors on a five-point scale (1 = poor to 5 = excellent). Factor weights have been assigned to the six factors.


Third-Party Logistics (3PL) Providers

3PLs are companies that provide logistics and transportation services to other firms

• Common to outsource logistics– many companies deem logistics activities as

noncore activities

– logistics activities require significant assets

– potential for large cost savings

• 3PLs play comprehensive strategic role in customer’s supply chain activities


Review

1. Logistics is the business function responsible for transporting and delivering products to the right place throughout the supply chain.

2. There are three different types of logistics: business, which is focused on the movement and storage of goods throughout the entire supply chain; military logistics, which is focused on supporting military needs, and event logistics, which involves organizing and deploying resources in preparation for an event.

3. Logistics impacts the organization on both the inbound and outbound side. On the inbound side it ensures that materials needed for operations are delivered when required. On the outbound side it ensures delivery of products to various customers when needed.


Review Continued

4. Logistics is a function that supports supply chain management by being responsible for the flow of products. It provides SCM with three utilities: place, quantity, and time.

5. Logistics tasks include: transportation, storage, material handling, packaging, inventory control, order fulfillment, and facility layout.

6. Reverse logistics is the process of moving products upstream from the customer back toward manufacturers and suppliers.


Review Continued

7. Transportation is the primary function of logistics that enables logistics to provide place utility. There are five primary modes of transportation: truck, water, air, rail, and pipeline.

8. Cross-docking is a warehouse sorting approach used to reconfigure bundles of product where larger shipments are broken down into small shipments for local delivery in an area.

9. Factor Rating is one tool that can be used to make location decisions.


Copyright 2011 John Wiley & Sons, Inc.All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.

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copyright 2011 john wiley & sons, inc. chapter 7 logistics 7-1

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