Logistics. ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 2 Logistics Logistics.
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Logistics
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 2
Logistics
• Logistics defined
• Logistics decision areas
• Logistics strategies in action
– Kraft Foods, page 336.
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 10, Slide 3
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)
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 4
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!)
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 5
Why the Increasing Interest?
• Deregulation
• Globalization
• Technological breakthroughs
• Environmental concerns
• Performance impact
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 6
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…
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 7
Deregulation (continued)
… With greater freedom comes new responsibilities
Key pointLogistics has evolved from being a
“tactical” area to a “strategic” one
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 8
Globalization(US Statistics)
Year Exports Imports
1992 $449 Billion $700 Billion
1998 $670 Billion $917 Billion
Change +49% +31%
What is driving this activity?
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 9
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
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 10
Technological Breakthroughs II
Transportation Systems• Standardized containers for ease of
transfer• “Roadrailers,” etc.• Multi-modal solutions
– Ship Truck Train Truck ?
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 11
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
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 12
Performance Impact I
Region
Gross Domestic Product
Logistics Expenditure
Logistics % of GDP
North America 8,495 915 10.8
Europe 7,981 941 11.8
Pacific 5,605 652 11.6
Other 7,080 916 12.9
Total 29,161 3,424 11.7
Comparative GDP and Logistics Expenditures (billions of $, 1998)
Source: D. Bowersox and R. Calantone, “Executive Insights: Global Statistics,” Journal of International Marketing, Vol. 8, no. 4, 1998, pp 83-93.
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 13
Performance Impact II
Customer “touch points”Delivery reliabilityDelivery speedDelivery trackingQuality
“Ford is hiring UPS”
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 14
Performance Impact III
2000 2004
Manufacturing Time 2 days 0.5 days
Shipping Time 4 days 4 days
Total Time to the Customer 6 days 4.5 days
Total time to the customer at WolfByte Computer
75% decrease in manufacturing time, but only 25% decrease in time to customer. Where is the leverage now?
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 10, Slide 15
The Evolution of Logistics Strategy
From functional silos to strategic positioning
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 16
Strategic Disconnect
OrganizationStrategy
MarketingStrategy
OperationsStrategy
FinancialStrategy
Strategic Disconnect
TransportationDecisions
InformationSystems
InventoryDecisions
LocationDecisions
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 17
Who “Owns” Logistics?
OrganizationStrategy
MarketingStrategy
OperationsStrategy
FinancialStrategy
Executive-level of representationDifficult goal of functional integrationOrganizational question: Who really ‘owns’ logistics?
Transportation?Marketing?Operations?
LogisticsStrategy
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 18
Logistics Decision Areas
Transportation…– Modes– Formats– Pricing
Warehousing– Consolidation– Cross Docking and Break-Bulk– Hub and Spoke– Inventory
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 19
Major Transportation Modes
• Highway (truck)
• Water
• Rail
• Air
• Pipeline
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 20
Modal Shares of Shipments(within US, 1999)
Mode Value (%) Tons (%) Ton Miles (%)
Highway (trucking, parcel, postal, courier)
80.3 58.5 28.4
Water 2.5 11.1 20.4
Rail 4.8 11.2 26.7
Air 2.7 0 0.2
Pipeline 4.2 13.7 17.6
Other/Unknown 5.5 5.5 6.7
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 21
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
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 22
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
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 23
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
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 24
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
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 10, Slide 25
Question
How can businesses design solutions that exploit the strengths of each mode?
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 26
Multi-Modal Solutions
North Carolina’s Global TransPark
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 27
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 nation’s population overnight and also provide a gateway to global markets.
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 28
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
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 29
Kinston, NC
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 30
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
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 10, Slide 31
Questions
What are the strengths and weaknesses of each?
How does the choice of format tie into the business strategy?
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 32
Pricing Transportation Services
•Economic factors–Pricing versus distance–Price/pound versus density–Stowability, handling, and liability–Market factors
•Ratings–Goods classification–Class index
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 33
Economic Factors I
Distance
Pric
e
… why the “tapering principle”?
Density
Pric
e/po
und
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 34
Economic Factors II
Stowability, handling, and liability
versus
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 35
Economic Factors III
Market factorsWhat might this include?
EastCoast,USA
WestCoast,USA
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 10, Slide 36
Ratings
Translating economic factors into actual prices
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 37
Ratings (a simplified view)
• Goods classification– Perishability, stowability,
handling, etc.
• Class index?– From 35 - 400– “average product” = 100– Based on expected
transportation costs
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 38
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)
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 39
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.
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 40
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
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 41
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
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 42
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?
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 43
What to Do?
Separate shipments
50×$18.94 = $947
100×$14.74 = $1,474
70×$18.94 = $1,326
$3,747
Consolidated shipments
220×$9.22 = $2,028
Additional
drop-off
charges: $100
$2,128
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 44
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
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 10, Slide 45
Warehousing
Any operation that stores, repackages, stages, sorts, or
centralizes goods or materials
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 46
New View
Warehousing a key piece of logistics strategy
– Proctor & Gamble
– Kraft
– Lowe’s
• More than just storage
– “Warehousing” “Distribution Centers”
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 47
Warehousing Benefits
Economic benefits:Accrue directly to companyMust consider total system costs
Service benefits:Support customer service needsMay or may not reduce costs
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 48
Consolidation
Warehouse
Small shipments in ...
Large economical shipments out ...
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 49
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.
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 50
Cost Benefits of Consolidated Warehousing
How does this compare to the cost of separate dedicated shipments?
What about truck utilization (assume trucks hold 60,000 lbs.)
Warehousing costs 10,000 lbs × $9/100 lbs = $900
Cost of one truck to Atlanta $2,000
Delivery to final customer 3 customers × $200 = $600
Total: $3,500
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 51
Cross-Docking
What about supply / demand mismatches?
Warehouse
Small shipments out ...
Large economical shipments in ...
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 52
Break-Bulk
Like break-bulk, but usually refers to a single source
Warehouse
Customer Delivery
Plant A
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 53
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.
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 54
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.
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 55
Hub and Spoke Systems
Syracuse
Phoenix
To Los Angeles
To El Paso
A
A
A
B
B
B
C
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 56
Processing and Postponement
Coca Cola syrupBulk food products,paints, etc.
high volumes containers
Processing andPostponement
PackagingLabeling, etc.
Customer A
Customer B
Customer C
Minimizes riskMinimizes inventory (how?)
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 10, Slide 57
Service Benefits:
Spot stockAssortment
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 58
Spot Stock
Warehouse
Time sensitive, seasonal items Often temporary, public storage
Region 3
Region 2
Region 1
Manufactureror Centralized
Source
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 59
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
ii
n
iii
n
ii
n
iii
W
YWYcoordinateYWeighted
W
XWXcoordinateXWeighted
1
1*
1
1*
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 60
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
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 61
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
ort
men
tW
areh
ou
se
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 62
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 ???
(how do these compare to transportation formats?)
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 10, Slide 63
Question:
When would it make sense to combine private and public
ownership?
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 10, Slide 64
Packaging and Unitization
What are the typical marketing criteria?
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 65
Packaging Implications
• Transportation– Class segmentation– Damage protection
• Material handling and warehousing– Storage requirements– Unitization– Container recycling– Ease of handling
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield
Chapter 11, Slide 66
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?
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