operations and supply chain...

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Logistics

Chapter 8

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 8 - 2

Chapter Objectives

Be 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 describe 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.

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Logistics Management

Logistics management – That part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers’ requirements. © CSCMP – Council of Supply Chain Management Professionals


Logistics Management

Transportation

Warehousing

Material handling

Packaging

Inventory management

Logistics information systems

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Why Logistics Is Critical

Impact on cost, flexibility, and delivery performance

Advances in information systems

Globalization of markets

Push toward sustainability


Transportation

Highway

Water

Air

Rail

Pipeline

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Comparison of Modes from 1997-2007

Table 8.1


Highway

Dominates the logistics infrastructure due to:

Geographic extension of supply chains

Greater emphasis on delivery speed and flexibility

Has become more cost effective over time due to:

Better scheduling and use of vehicle capacity

More efficient and reliable vehicles

Increased cost competition due to deregulation

Involves different types of shipments

Direct truck – Shipment made with no stops

Less than truckload (LTL) – Smaller shipment combined with other loads

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Water

Ideal for materials with high weight-to-value ratio, especially if delivery speed is not critical.

Examples: farm produce, timber, petroleum-based products.


Air

Ideal for customers with a low weight-to-value ratio, especially if delivery speed or delivery reliability is critical.

Higher shipping costs and improvement in other modes have reversed the rise in air growth over the past decade.

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Rail

Characteristics similar to Water but more flexible.

To accommodate growth, rail carriers have doubled the number of lines along busy corridors, changed the physical configuration of the trains, and utilized multimodal solutions.


Selecting a Transportation Mode

Table 8.2

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Multimodal Solutions

Multimodal solution – A transportation solution that seeks to exploit the strengths of multiple transportation modes through physical, information, and monetary flows that are as seamless as possible

Roadrailer – A specialized rail car the size of a standard truck trailer that can be quickly switched from rail to ground transportation without changing the wheels.


Warehousing

Warehousing – Any operations that stores, repackages, stages, sorts, or centralizes goods or materials.

Warehousing can be used to:

Reduce transportation costs

Improve operational flexibility

Shorten customer lead times

Lower inventory-related costs.

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Consolidation Warehousing

Consolidation warehousing – A form of warehousing that pulls together shipments from a number of sources in the same geographic area and combines them into larger and more economical loads

Cross-docking

Break-bulk

Hub-and-spoke system


Consolidation Warehousing

Figure 8.2

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Cross-Docking

Figure 8.3


Hub-and-Spoke System

Figure 8.5

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Postponement Warehousing

Postponement warehousing – A form of warehousing that combines classic warehouse operations with light manufacturing and packaging duties to allow firms to put off final assembly or packaging of goods until the last possible moment.


Types of Warehouses

Assortment warehouses – A form of warehouses in which a wide array of goods is held close to the source of demand in order to assure short customer lead times.

Spot stock warehouses – A form of warehouses that attempts to position seasonal goods close to the marketplace.

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Logistics Information Systems

Decision support tools

Real-time simulation and optimization

Cost estimations

Planning systems

Carrier selection

Scheduling deliveries

Execution systems

RFID


Material Handling and Packaging

Material handling system – A system that includes the equipment and procedures needed to move goods within a facility, between a facility and a transportation mode, and between different transportation modes.

Packaging – The way goods and materials are packed in order to facilitate physical, informational, and monetary flows through the supply chain.

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Inventory Management

Implications for transportation:

Using slower and cheaper transportation modes will cause inventory levels within the supply chain to rise.

Using faster and more expensive transportation modes will enable firms to lower inventory levels.

Implication for warehousing:

Warehousing and inventory managers must work closely to achieve the desired business outcome.


Logistics Strategy

Logistics strategy – A functional strategy which ensures that an organization’s logistics choices are consistent with its overall business strategy and support the performance dimensions that targeted customers most value.

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Owning vs. Outsourcing

Does the firm have the volume needed to justify a private logistics system?

Would owning a logistics system limit the firm’s ability to respond to changes in the marketplace or supply chain?

Is logistics a core competency for the firm?

Outsourcing options:

• Common carriers

• Contract carriers

• Third-party logistics providers (3PL)


Making Transportation/Warehousing Decisions Based on Order Winners

Table 8.3

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Measuring Logistics Performance

The perfect order

Delivered on time (according to buyer’s delivery dates)

Shipped complete

Invoiced correctly

Undamaged in transit


Perfect order – Example 8.4

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Landed Costs

Landed cost – The cost of a product plus all costs driven by logistics activities, such as transportation, warehousing, handling, customs fees, etc.


Reverse Logistics Systems

Reverse logistics system – A complete supply chain dedicated to the reverse flow of products and materials for the purpose of returns, repair, remanufacture, and/or recycling. © 2010 APICS Dictionary

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Reverse Logistics Systems

Challenges: Firms have less control over the timing, transportation

modes used, and packaging for goods flowing back up the supply chain.

Goods can flow back up the supply chain for a variety of reasons and a reverse logistics system needs to be able to sort and handle these different flows.

Forward logistics systems typically aren’t set up to handle reverse logistics flows.


Weighted Center of Gravity Method

Weighted center of gravity method – A logistics decision modeling technique that attempts to identify the “best” location for a single warehouse, store, or plant given multiple demand points that differ in location and importance.

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Weighted Center of Gravity Method


Example 8.6 – CupAMoe’s

Current location and population of the three towns to be served by the warehouse

Figure 8.6

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Example 8.6 – CupAMoe’s

Suggested location for the new warehouse

Figure 8.7


Optimization

Optimization model – A type of mathematical model used when the decision maker seeks to optimize some objective function subject to some constraints.

Objective function – A quantitative function that an optimization model seeks to optimize (minimize or maximize).

Constraint – A quantifiable condition that places limitations on the set of possible solutions.

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Optimization

Business problems that can be addressed through optimization modeling:

Table 8.5


The Assignment Problem

The assignment problem – A specialized form of an optimization model that attempts to assign limited capacity to various demand points in a way that minimizes costs.

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The Assignment Problem

The generalized form of the assignment problem

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