Download - Logistics Mgmt
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Module 08LOGISTICS MANAGEMENT
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The Increased Importance of Logistics
A Reduction in Economic Regulation Recognition by Prominent Non-Logisticians
Technological Advances
The Growing Power of Retailers
Globalization of Trade
Three objectives of logistics strategy:
Cost reduction (variable costs)
Capital reduction (investment, fixed costs)
Service Improvement (may be at odds withthe above two objectives).
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Marketing
orientation
(competitive
advantage)
Time and
place utility
Efficient
movement to
customer
Proprietaryasset
Natural resources
(land, facilities,
and equipments)
Human resources
Financial resources
Information
resources
Management actions
Planning Implementation Control
Logistics Activities
Customer Service
Demand forecasting
Distribution
communications
Inventory control
Material handling
Order Processing
Parts and service
support
Plant and warehouse
site selection
Procurement
Packaging
Return goods handling
Salvage and scrap
disposal
Traffic and
transportation
Warehousing and
storage
Raw
materials
In-process
inventory
Finished
goods
Inputs into logistics
Suppliers
Logistics management
Customers
Outputs of
logistics
Components of
logistics management :
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To gain a better grasp of the fundamentaltrade-offs in logistics, logistics activitiesmay be divided into three categories:
ProductionStorageTransportation
The term Resource applies to all of the
factors of production, including
materials (e.g., Iron, fabric, parts),equipment (e.g., machines or vehicles),energy (e.g., oil, coal, electricity) andlabor.
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PRODUCTION: Fundamental logistics questions are: (1) when should aresource be produced; and (2) where should a resource beproduced.
The when question includes the topics ofaggregate resourceplanning, and production scheduling.
The where question includes the topics offacility location andproduction allocation.
Some of the important production questions are:
(a) What outside source should be used to supply a part?
(b) Where should a new facility be built?
(c) When should a facility produce different items, taking into account:
Seasonal demand patterns?
Demand uncertainty?
Cost of operating single, double, triple shifts?
Labor costs?
(d) When should a firm use two or more sources for a part?
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INVENTORY: Fundamental logistics questions are (1) when should a
resource (material, machine or labor) be put in inventory and takenout of inventory; and (2) where should a resource be stored.
The when question includes the general topics ofeconomic-order-quantity models, safety stock models and seasonal models, andspecialized topics of fleet management, and personnel planning.
The where questions includes the topic ofinventory echelons.
Some of the important inventory questions are:
(a) How much does it cost to store resources in inventory?
(b) How much safety stock should be carried in inventory to prevent
against running out of a resource?
(c) How much inventory should be carried in order to smooth outseasonal variations in demand?
(d) Where should replacement parts be stored in multi-echeloninventory system?
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TRANSPORTATION: Fundamental logistics are: (1) where shouldresources be moved to, and by what mode and route; (2) whenshould resources be moved.
The where question includes the topics ofterminal location,vehicle routing, and shortest path methods and network flowallocation.
The when question includes the topic ofdistribution rules.
Some of the important questions are:
(a) When should shipment be sent through terminals, and whenshould shipment be sent direct?
(b) Which, and how many, terminals should shipments be sentthrough?
(c) What are the best vehicle routes?
(d) When should a vehicle be dispatched over a route?
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Logistics - Science of managing (controlling) the movement and
storage of goods (or people) from acquisition to consumption.
Goods: Raw Materials Final products, and everything in between.Logistics for services & people similar to goods logistics.
Ex. Police, fire, ambulance, passenger airlines, taxi cabs, etc.
Movement = Transportation (between locations).
Storage = Inventory, Warehousing (at locations).
Difference between acquisition and consumption is a matter of spaceand time.
NOTE: Logistics does not dealwith Technology of Production, suchas the design of machines and vehicles and the design of finishedproducts.
Focus: Best way to overcome space and time that separates acquisitionand consumption.
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1998 CLM DEFINITION OF LOGISTICS
.is 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-
origin to the point-of-consumption in order to
meet customers' requirements.
Council of Logistics Management, 1998;www.CLM1.org
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Five Business Systems - Tightly Interconnected
Within The Organization
MeasurementDecisions
Management
Systems
RewardDecisions
StrategicDecisions
TransportationDecisions
SourcingDecisions
InventoryDecisions
LogisticsSystems{
PriceDecisions
Promotion
Decisions
Marketing
Systems
ProductDecisions
Place (How,where, how
much) }ProductionSchedulingDecisions
ProductionCapacityDecisions
Shop FloorDecisions
ManufacturingSystems}
ProductDesignDecisions
ProcessDesignDecisions Engineering
Systems}
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LogisticsMission [A Bill of Rights]
Logistics embodies the effort to deliver:the right product
in the right quantity
in the right conditionto the right place
at the right time
for the right customerat the right cost
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Activities and Logistics Decisions
Transportation
rate and contract negotiationmode and service selectionrouting and scheduling
Inventoriesfinished goods policiessupply scheduling
short term forecastingWarehousing
private vs. publicspace determinationwarehouse configurationStock layout and dock designstock placementCross-docking
Facility Location
determining location, numberand size of facilities
allocating demand to facilities
Customer Service
determining customer wantsdetermining customer responseto service changes
Materials Handlingequipment selectionequipment replacement
order picking proceduresPackaging designOrder Processing
order procedure determinationProduction Scheduling
aggregate production quantities
sequencing and timing ofproduction runs
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Logistics Planning
Decide what, when, how in three levels:
Strategiclong range > 1 year
Tactical - < 1 year horizon
Operationalfrequently on hourly or daily basis
Examples of Decisions
Type Strategic Tactical Operational
Location
Transportation
Order Processing
(CS)
#Facilities, size,
location
Mode
Selecting order
entry system
Inventory
positioning
Seasonal Service
Mix
Priority rules for
customers
Routing
Replenishment Qty
and timing
Expediting orders
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The Logistics (Strategic) Planning Triangle
Which mode?
Which carrier?
Which route?
Shipment size andfrequency?
Where?, Howmany? What size?
Allocation?
Strategy/Controlsystem?
How much?
Where?
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Transport Fundamentals
Transport involves
equipment (trucks, planes, trains, boats, pipeline),
people (drivers, loaders & un-loaders), and
decisions (routing, timing, quantities, equipment size,
transport mode).When deciding the transport mode for a given productthere are several things to consider:
Mode price
Transit time and variability (reliability)
Potential for loss or damage.
NOTE: In developing countries we often find it necessary tolocate production close to both markets and resources,while in countries with developed distribution systems peoplecan live in places far from production and resources.
Most important component of logistics cost.Usually 1/3 - 2/3 of total cost.
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Routes of Goods
Goods atshippers
Freightforwarderwarehouse
Airterminal
planeair
Freight
forwarderwarehouse
Goods atconsignees
Containerterminal
vessel
sea
Maychangetranspor-
tationmodes
truck
landrailway
land barge
mid-streampier
bulk goodssea
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Air
Rapidly growing segment of transportation industry
Lightweight, small items [Products: Perishable and timesensitive goods: Flowers, produce, electronics, mail, emergencyshipments, documents, etc.]
Quick, reliable, expensive
Often combined with trucking operations
Rail
Low cost, high-volume [Products: Heavy industry, minerals,chemicals, agricultural products, autos, etc.]
Improving flexibility
intermodal serviceTruck
Most used modeFlexible, small loads [Products: Medium and lightmanufacturing, food, clothing, all retail goods]
Trucks can go door-to-door as opposed to planes and trains.
Single-mode Service Choices and Issues
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WaterOne of oldest means of transport
Low-cost, high-volume, slowBulky, heavy and/or large items (Products: Nonperishablebulk cargo - Liquids, minerals, grain, petroleum, lumber,etc )]
Standardized shipping containers improve serviceCombined with trucking & rail for complete systemsInternational trade
Pipeline
Primarily for oil & refined oil productsSlurry lines carry coal or kaolinHigh capital investment
Low operating costs
Can cross difficult terrain
Highly reliable; Low product losses
Single-mode Service Choices and Issues (Contd.)
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Transport Cost Characteristics
Fixed costs:
Terminal facilities Transport equipment
Carrier administration
Roadway acquisition and maintenance
[Infrastructure (road, rail, pipeline,navigation, etc.)]
Variable costs:
Fuel
Labor Equipment maintenance
Handling, pickup & delivery, taxes
NOTE: Cost structure varies by mode
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Transport Cost Characteristics
Rail
High fixed costs, low variable costs
High volumes result in lower per unit (variable) costs
Highway
Lower fixed costs (dont need to own or maintain roads)
Higher unit costs than rail due to lower capacity per truck
Terminal expenses and line-haul expenses
Water
High terminal (port) costs and high equipment costs (both fixed)
Very low unit costs
Air
Substantial fixed costs Variable costs depend highly on distance traveled
Pipeline
Highest proportion of fixed cost of any mode due to pipelineownership and maintenance and extremely low variable costs
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Vehicle Routing:
- Separate single origin and destination:
Once we have selected a transport mode and have
goods that need to go from point A to point B, we
must decidehow to route a vehicle (or vehicles)
from point A to point B.
Given a map of all of our route choices between A andB we can create a network representing these
choices The problem then reduces tothe problem of
finding the shortest path in the network from point
A to B.This is a well solved problem that can use Dijkstras
Algorithm for quick solution of small to medium
(several thousand nodes) sized problems.
V hi l R ti
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Suppose we havemultiple sources and multipledestinations, that each destination requires some integer
number of truckloads, and that none of the sources have
capacity restrictions [No Capacity Restriction].
In this case we can simply apply thetransportation method
of linear programming to determine the assignment of
sources to destinations.Sources Destinations
Vehicle Routing:
- Multiple Origin and Destination Points
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- Coincident Origin and Destination: The TSP
Ifa vehicle must deliver to more than two customers, wemust decide the order in which we will visit those customersso as to minimize the total cost of making the delivery.
We first suppose that any time that we make a delivery tocustomers we are able to make use of only a single vehicle,
i.e., that vehicle capacity of our only truck is never an issue. In this case, we need to dispatch a single vehicle from our
depot to n - 1 customers, with the vehicle returning to thedepot following its final delivery.
This is the well-known Traveling Salesman Problem (TSP).The TSP has been well studied and solved for probleminstances involving thousands of nodes. We can formulate theTSP as follows:
Vehicle Routing:
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TSP Formulation
Minimize
Subject to:
c xij ijj Ji I x i I
x j J
x U U N
x i I j J
ij
j J
ij
i I
ij
i j E U
ij
1
1
1
,
,
,
{0,1},
( , ) ( )
,
In the TSP formulation if we remove the third constraint set wehave the simple assignment problem, which can be easilysolved.The addition of the third constraint set, commonly called sub-tour elimination constraints, makes this a very difficult problem
to solve.
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Vehicle Routing: TSP, inventory routing, and vehicle routing
Traveling Salesman Problem (TSP): salesman visits n cities atminimum cost
vehicle routing problem (VRP): m vehicles with capacity todeliver to n customers who have volume requirement, timewindows, etc.
Inventory Routing: m vehicle to delivery to n customer withtime windows, vehicle and storage capacity constraints, and un-specificed amount to be delivered.
Heuristics
1. Load points closest together on the same truck
2. Build routes starting with points farther from depot first
3. Fill the largest vehicle to capacity first4. Routes should not cross
5. Form teardrop pattern routes.
6. Plan pickups during deliveries, not after all deliveries havebeen made.
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Illustration of VRP
(Outlier)
Depot
50
76
39
112
88
2912344
5890
77
89
57
115
124
59 176
65
98 125Truck Capacity = 250
What is the minimum # of trucks we would need? Maximum?
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Vehicle Routing
Find best vehicle route(s) to serve a set of ordersfrom customers.
Best route may be
minimum cost, minimum distance, or
minimum travel time.
Orders may be Delivery from depot to customer.
Pickup at customer and return to depot.
Pickup at one place and deliver to anotherplace.
Complications
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Complications
Multiple vehicle types.
Multiple vehicle capacities.
Weight, Cubic feet, Floor space, Value.
Many Costs: Fixed charge.
Variable costs per loaded mile & per empty mile.
Waiting time; Layover time.
Cost per stop (handling).
Loading and unloading cost.
Priorities for customers or orders.
Pure Pickup or Delivery Problems.
Mixed Pickups and Deliveries.
Pickup-Delivery Problems.
Backhauls
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More Complications
Time windows for pickup and delivery. Hard vs. soft
Compatibility
Vehicles and customers. Vehicles and orders.
Order types.
Drivers and vehicles.
Driver rules (DOT)
Max drive duration = 10 hrs. before 8 hr. break.
Max work duration = 15 hrs. before 8 hr break.
Max trip duration = 144 hrs.
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Simple Models
Homogeneous vehicles.
One capacity (weight or volume).
Minimize distance.
No time windows or one time window percustomer.
No compatibility constraints.
No DOT rules.
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VRP Solutions
Heuristics Construction: build a feasible route.
Improvement: improve a feasible route.
Not necessarily optimal, but fast.
Performance depends on problem.
Worst case performance may be very poor.
Exact algorithms
Integer programming.
Branch and bound.
Optimal, but usually slow and applicable for small sizeproblem
Difficult to include complications.
APPLICATIONS OF VRP
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The VRP is applicable in many practical situations directly related to
the physical delivery of goods such as
distribution of petroleum products, distribution of industrial gases,
newspaper deliveries,
delivery of goods to retail store,
garbage collection and disposal,
package pick-up and delivery,
milk pick-up and delivery, etc.
the non-movement of goods such as
picking up of students by school buses, routing of salesmen,
reading of electric meters,
preventive maintenance inspection tours,
employee pick-up and drop-off , etc.
APPLICATIONS OF VRP
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Is it different from SCM?
Not really!
Supply Chain Management deals with the
management of materials, information, andfinancial flows in a network consisting ofsuppliers, manufacturers, distributors, andcustomers. (Stanford Supply Chain Forum)
So, Logistics and Supply Chain are equivalentterms.
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A List of Approaches in Log. Man.
Just in Time Inventory
Vendor Managed Inventory
Quick Response
Collaborative Planning,Forecasting, and Replenishment
Outsourcing / 3PLs
Cross-docking / Flow ThroughCenters
Build to Order
SC Visibility Software
Internet / EDI
Collaborative TransportationManagement
Auctions / Exchanges
Merge - In - Transit
Partnerships / Alliances
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Cross Docking
a logistics activity that attempts to reduce costsand total lead time.
breaks down received items on the loading dockand immediately matches them with outgoingshipment requirements, instead of stocking the
items in warehouse locations and returning to pickfor orders at a later time.
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Cross Docking
eliminates the need to place inventory in
storage.
This can mean moving pallets across the
docking areas (hence the name) for loading
onto delivery vehicles.
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Cross Docking
Crossdocking essentially eliminates the inventory-
holding function of a warehouse while still
allowing it to serve its consolidation and shippingfunctions.
The idea is to transfer incoming shipments directly
to outgoing trailers without storing them inbetween.
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Cross Docking
In a traditional warehouse, goods are received
from vendors and stored in devices like pallet
racks or shelving.
When a customer (e.g., the consumer or perhaps a
retail outlet) requests an item, workers pick it from
the shelves and send it to the destination.
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Cross Docking
In a crossdock, goods arriving from the vendoralready have a customer assigned, so workersneed only move the shipment from the inbound
trailer to an outbound trailer bound for theappropriate destination.
The already part should make you think of
information system requirements--a chief obstacleto implementing crossdocking successfully.
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Cross Docking(classification)
One way to classify crossdocking operations is accordingto when the customer is assigned to an individual pallet orproduct.
Inpre-distribution crossdocking, the customer is assignedbefore the shipment leaves the vendor, so it arrives to thecrossdock bagged and tagged for transfer.
Inpost-distribution crossdocking, the crossdock itselfallocates material to its stores.
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Cross Docking(classification)
Pre-distribution is definitely more difficult to implementbecause the vendors of the crossdock must know whichcustomers of the crossdock need what before they send the
shipment.
This involves quite a bit of information transfer, systemintegration, and coordination.
For a distributor with hundreds of vendors, the problem isbig, big, big!
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Logistics Experience will be
different from one sector to anotherTextiles
speed and variety due to seasonality concerns
Retailing (FMCG) prevents stores from having empty shelves or shelves with overstocks
Frozen storage and transportation
Health hygienic, have limited shelf life, require special storage conditions and
entertain high inventory risks
Automotive just in time (JIT), delivering parts from thousands of kilometers, special
packaging
Fuel and Petroleum Transportation very special tanker security systems
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What is Intermodal (Combined)
Transport?It is a transport method that more than onetransport mode is used for the same transportcontainer.
The process can also be defined as a transportationmethod where transport mode changes for thesame transport container or land vehicle, but the
goods themselves are not handled during thesechanges.
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What is Intermodal (Combined)
Transport?
In other words, it is a transport method that
integrates advantages of different transport modes.
In intermodal transport, the aim is to achieve an
effective combination of cost, delivery time and
service quality.
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What is Milk Run Distribution?
It is the combination of shipments from
multiple vendors in close geographic
proximity into one shipment received by thecustomer,
normally done for a defined route on a recurring basis.
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What is Milk Run Distribution?...
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What is a Freight Forwarder?
An independent business that handles export/importshipments for a fee.
A freight forwarder is among the best sources ofinformation and assistance on export regulations anddocumentation, shipping methods, and foreign importregulations.
Forwarder assembles, collects and consolidates less-than-truckload (LTL) freight .
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What is a Freight Forwarder?...
The freight forwarder does not actually carry the cargo orconduct business for the ship.
It is an intermediary between carrier and owner of goodsbeing transported.
The forwarding agent assists the exporter in finding themost economic and efficient methods of transporting andstoring cargo.
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