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Logistics
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 2
Chapter ObjectivesBe 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.
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
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 4
Why the Increasing Interest?
• Deregulation
• Globalization
• Technological breakthroughs
• Environmental concerns
• Performance impact
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 5
Deregulation• Transportation providers
– Elimination of artificial barriers– Unrestricted markets– Multimodal solutions– Price, schedule, and terms flexibility
• Buyers have greater freedom– Negotiate prices, terms, and conditions– Ownership issues
BUT…
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 6
Deregulation (continued)
… with greater freedom comes new responsibilities
Key pointLogistics has evolved from being a
“tactical” area to a “strategic” one
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 7
Globalization(Worldwide Statistics)
Year Expenditures % GDP
1997 $5,095 Billion 13.4%
2002 $6,732 Billion 13.8%
Change +32% +3%
What is driving this activity?
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 8
Environmental Concerns
Even while certain aspects of logistics have been deregulated, other areas are being controlled more stringently
Fuel efficiencyPollutionRecovery, recycling, and reuse of packaging,
containers, and products
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 9
Management Areas
Transportation Warehousing (and more generally, location) Material handling Packaging Inventory management Logistics information systems
(And some would put logistics service providers here as well!)
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 10
Logistics Decision Areas
Transportation…– Modes– Formats– Pricing
Warehousing– Consolidation– Cross-Docking and Break-Bulk– Hub-and-Spoke– Inventory
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 11
Major Transportation Modes• Highway (truck)
• Water
• Rail
• Air
• Pipeline
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 12
Modal Shares of Shipments(within US, 1999/2002)
Mode Value (%) Tons (%) Ton Miles (%)Highway (trucking, parcel, postal, courier)
80.3/86.0 58.5/67.4 28.4/28.7
Water 2.5/1.1 11.1/11.1 20.4/13.6Rail 4.8/3.7 11.2/16.1 26.7/36.8Air 2.7/3.2 0 0.2/0.4Pipeline 4.2/1.8 13.7/5.9 17.6/20.5Multimodal/Unknown 5.6/5.6 5.5/5.5 6.8/6.8
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 13
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
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 14
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
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 15
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
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 16
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
Question
How can businesses design solutions that exploit the strengths
of each mode?
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 18
Technological Breakthroughs
• Standardized containers for ease of transfer• “Roadrailers,” etc.• Multimodal solutions
– Ship Truck Train Truck ?
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 19
Multi-Modal Solutions(An example)
North Carolina’s Global TransPark
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 20
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
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 21
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.
Warehousing
Any operation that stores, repackages, stages, sorts, or centralizes goods or materials
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 23
New View
Warehousing a key piece of logistics strategy– J. B. Hunt– Lowe’s
• More than just storage– “Warehousing” “Distribution Centers”
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 24
Warehousing Benefits
Economic benefits:Accrue directly to companyMust consider total system costs
Service benefits:Support customer service needsMay or may not reduce costs
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 25
Consolidation
Warehouse
Small shipments in ...
Large economical shipments out ...
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 26
Example 1
•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
Customer Shipment Weight
Venetian Artist Supply
100 boxes, artist supplies
3,000 lbs.
Kaniko 100 PC printers 3,000 lbs.
Ardent Furniture 10 dining room sets 4,000 lbs.
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 27
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 costs 10,000 lbs × $9/100 lbs = $900Cost of one truck to Atlanta $2,000Delivery to final customer 3 customers × $200 = $600
Total: $3,500
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 28
Cross-Docking
What about supply / demand mismatches?
Warehouse
Small shipments out ...
Large economical shipments in ...
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 29
Break-Bulk
Like cross-docking, but usually refers to a single source
Warehouse
Customer Delivery
Plant A
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 30
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.
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 31
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.
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 32
Hub-and-Spoke Systems
Syracuse
Phoenix
To Los Angeles
To El Paso
A
A
A
B
B
B
C
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 33
Postponement
Coca Cola syrupBulk food products,paints, etc.
high volumes containers
Postponement
Assembly, Packaging,Labeling, etc.
Customer A
Customer B
Customer C
Minimizes riskMinimizes inventory (how?)
Warehousing Service Benefits:
Spot stockAssortment
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 35
Spot Stock
Warehouse
Time sensitive, seasonal items Often temporary, public storage
Region 3
Region 2
Region 1
Manufactureror Centralized
Source
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 36
Assortment
Customer D
Customer C
Customer B
Customer ASupplier E
Supplier F
Supplier G
Supplier H
Broad product line and good inventory control key to success
Ass
ortm
ent
War
ehou
se
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 37
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)
Material Handling and Packaging
What are the typical marketing criteria?
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 39
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?
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 40
Packaging Implications
• Transportation– Class segmentation– Damage protection
• Material handling and warehousing– Storage requirements– Unitization– Container recycling– Ease of handling
Questions
What are the strengths and weaknesses of each?
How does the choice of format tie into the business strategy?
The Evolution of Logistics Strategy
From functional silos to strategic positioning
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 43
Logistics Strategy Choices
Delivery Reliability Highway, Air Direct Ship, Assortment, Spot Stock
Delivery Speed Air, Highway Direct Ship, Assortment, Spot Stock
Mix Flexibility Highway, Air, Rail Assortment, Spot Stock
Design Flexibility Highway, Air Postponement
Volume Flexibility Highway, Air Direct Ship, Assortment, Spot Stock
Cost Rail, Water, Pipeline, Highway
Consolidation, Cross-Docking, Hub-and-Spoke
Performance Dimension Transportation Mode Warehousing System
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 44
Who “Owns” Logistics?
OrganizationStrategy
MarketingStrategy
OperationsStrategy
FinancialStrategy
Executive-level of representationDifficult goal of functional integrationOrganizational question: Who really ‘owns’ logistics?
Transportation?Marketing?Operations?
LogisticsStrategy
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 45
Owning Versus Outsourcing
• Does the firm’s volume justify a private system?
• Would ownership limit firm’s ability to respond to marketplace changes?
• Is logistics a core competency?• Are outsource capabilities are available?
Kellogg logistics strategy example in text
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 46
Transportation “Outsources”
• Common (public) carriers– Published rates and schedules– “Nondiscriminatory” pricing– Increased flexibility to partner
• Contract carriers– Service for select customers– Unlimited number of customers
• Third-Party Logistics Providers (3PLs)– Service firms specializing in logistics for other
companies
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 47
Warehouse Ownership Issues
Cost structure
Financial flexibility
Location flexibility
Managerial control
Expertise
Public Contract Private
EOS EOS ???
High Moderate Low
High Moderate Low
Less Varies Highest
High High ???
Question:
When would it make sense to combine private and public
ownership?
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 49
Measuring Performance
• Perfect Order– Delivered on time– Shipped complete– Invoiced correctly– Undamaged in transit
• Landed Costs– Packing– Insurance– Customs, other fees– Warehousing– Transportation– Documentation (Redwing Automotive Example)
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 50
Reverse Logistics Systems
• Customer returns– Warranty failures– Incorrect or damaged orders
• Repair and remanufacture process support
• Recycling (increasing importance!)
Generally independent systems because of low volume and mix complexity
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 51
Logistics Decision Models
• Weighted Center of Gravity Method• Optimization• Assignment Problem
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 52
Weighted Center of GravityA 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
ii
n
iii
n
ii
n
iii
W
YWYcoordinateYWeighted
W
XWXcoordinateXWeighted
1
1*
1
1*
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 53
CupAMoe’s Coffee
Y
X0
01
1
2
2 3
3
4
4 5
5
6
6
(4,1)
(1,5)
(4.5,3)
Shelbyville(Pop. 170,000)
Springfield(Pop. 200,000)
Capital City(Pop. 400,000)
(2.57,3.6)
CupAMoe’s
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 54
Optimization • Requires an objective function to be maximized or minimized.• Decision variables — values to be manipulated to affect
outcome of objective function• Constraints — limits set on range of decision variables to be
used or on other aspects of the solution possibleFor Example:
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 55
Assignment Problem• Specialized optimization model.• Decision variables are the shipment quantities• Known values are demand, capacity, and shipping cost
between warehouses• Constraints:
– Sum of shipments from a warehouse cannot exceed its capacity– Sum of shipments to meet demand must be greater than or equal to the
demand– Sum of shipments from each warehouse must be greater than or equal to
zero(Flynn Boot Company Excel example in text)
Case Study in Logistics
Just-In-Time Shipping
Supplemental Slides on Transportation Costs and Factors
Pricing, Distance, Economic Factors
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 58
Pricing Transportation Services
•Economic factors–Pricing versus distance–Price/pound versus density–Stowability, handling, and liability–Market factors
•Ratings–Goods classification–Class index
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 59
Economic Factors I
Distance
Pric
e
… why the “tapering principle”?
Density
Pric
e/po
und
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 60
Economic Factors II
Stowability, handling, and liability
versus
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 61
Economic Factors III
Market factorsWhat might this include?
EastCoast,USA
WestCoast,USA
Ratings
Translating economic factors into actual prices
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 63
Ratings (a simplified view)
• Goods classification– Perishability, stowability, handling,
etc.• Class index?
– From 35 - 400– “average product” = 100– Based on expected transportation
costs
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 64
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– FAK (freight of all kinds)
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 65
Example 1
Shipping 800 lbs of glass slides from Atlanta, GA to Lansing, MI
… Looking at a rate classification guide
Item Articles Class - LTL Shipment
Class – TL Shipment
Minimum TL Weight
86770 Glass, microscopical slide or cover, in boxes
70 40 3,600 lbs.
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 66
Rates express $ charged per hundred-weightRates 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
Specific Rates for Shipments FROM Atlanta TO Lansing
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 67
Result
• $33.59 × 8 = $268.72 shipping cost
• Key points– Classification tables standardized, BUT– Rate tables vary by transportation provider– Real-time updating of provider tables
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 68
Example 2
• 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?
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 69
What to Do?Separate shipments at
costs below:
50×$18.94 = $947
100×$14.74 = $1,474
70×$18.94 = $1,326 $3,747
Consolidated shipments at costs below:
220×$9.22 = $2,028
Additionaldrop-offcharges: $100
$2,128
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 70
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