Logistics

1
Chapter 7

• Logistics

2
Objectives

• After reading the chapter and reviewing the
  materials presented the students will be able
  to
• Explain the impact of logistics on supply chain
  management
• Identify and describe key logistics tasks
• Explain the role of warehousing on logistics
• Explain the role of third party logistics
  providers

3
The Logistics Function

• Logistics is the business function responsible
  for transporting and delivering products to the
  right place at the right time throughout the
  supply chain.
• Unlike marketing that focuses on the downstream
  part of the supply chain, and sourcing that
  focuses on the upstream part, logistics connects
  the organization to both its customers and
  suppliers.
• The function of logistics is complex and requires
  a great deal of coordination.
• This includes organizing and managing the entire
  distribution network, including location of
  warehouses, distribution centers and plants, and
  coordinating the modes of transportation between
  them.
• Logistics must also have access to information in
  real time in order to be able to track product
  movement and plan exact timing and location of
  deliveries.
• It must ensure security of goods from theft or
  tampering while the products are moved.
• Companies such as United Parcel Service (UPS),
  Federal Express (Fed Ex), and DHL have made it
  their business to provide logistics service to
  their clients.
• UPS, the world largest package delivery company,
  has extended their capabilities to include
  designing a distribution network, freight
  forwarding, customs brokerage, fulfillment,
  returns, financial transactions, and even
  repairs. UPS services more than 200 countries and
  has its own aircraft fleet and is considered the
  ninth largest airline in the world.

4
Evolution of Logistics

• Todays business logistics is actually rooted in
  military logistics.
• Consider all the issues involved in moving
  military troops and convoys, planning optimal
  locations of depots, and delivery of supply items
  such as food, fuel, and spare parts.
• Today there are three different types of
  logistics
• The first is business logistics, which is focused
  on the movement and storage of goods throughout
  the entire supply chain.
• The second is military logistics, which is
  focused on supplying military needs.
• Finally, there is event logistics, which involves
  organizing and deploying resources in preparation
  for an event. Examples would be logistics
  involved in setting up the Olympic Games or
  deploying resources to provide disaster relief
  when needed.

5
Impact on the Organization

• Logistics has a significant impact on the
  organization by the mere fact that its role is to
  support all organizational functions by ensuring
  timely availability of products.
• 1. Impact on Operations Logistics interfaces
  closely with operations through the planning of
  the amounts of inventory that must be received at
  various points throughout the supply chain, and
  the timing of those receipts. If too much
  inventory is delivered too soon, inventory costs
  become high, and storage becomes an issue. If too
  little inventory is delivered, manufacturing
  processes will not be able to operate without the
  needed materials.
• 2. Impact on Marketing On the outbound side,
  logistics provides key support for marketing and
  order fulfillment. A key element in sales is
  ensuring that the product is available when
  needed. If quantities delivered are small, sales
  and marketing will suffer. If too much inventory
  arrives, the company will incur losses through
  markdowns.

6
Impact on the Organization

• 3. Impact on Packaging Logistics has to make
  proper decisions on packaging, including
  insulation and temperature monitoring that
  ensures product integrity.
• 4. Impact on Finance Logistics is responsible
  for large capital expenditures, such as
  transportation, warehousing, and inventory. We
  can increase ROA (return on assets) by increasing
  revenue, reducing expenses, or by reducing
  assets. All three are directly impacted by
  logistics. ROA (Revenue Expenses)/ Assets

7
Impact on the Supply Chain

• Logistics is responsible for making for order
  processing and tracking, inventory management,
  transportation, warehousing, material handling,
  and packaging.
• Supply chain could not function without logistics
  as there would be inventory stock outs at some
  locations and too much inventory at others.
• Logistics provides SCM with three utilities
  place, quantity, and time. Logistics provides
  place utility by ensuring that goods arrive at
  the right place in the supply chain. Logistics
  provides quantity utility by ensuring that the
  correct quantities are delivered at the right
  location. Logistics provides time utility by
  delivering goods at precisely the right time
  needed.

8
Reverse Logistics

• Reverse logistics is a process of moving products
  upstream from the customer back to the
  manufacturer and suppliers.
• This occurs for a variety of reasons such as
  return of damaged products or items the customer
  did not want.
• Logistics has to organize transporting, storage,
  receiving, inspecting, sorting, and all other
  activities to ensure efficient flow.
• Reverse logistics is especially challenging to
  design as this flow does not directly add value.
• In retail and in internet sales, ease of returns
  is a major selling feature.

9
Logistics Tasks

• 1. Transportation Transportation is probably the
  most important task logistics performs as it
  moves products through the supply chain.
  Perishable products may need climate controlled
  transportation. Highly innovative products may
  need rapid delivery to areas with high demand.
  Products with high value, such as diamonds may
  need high security.
• 2. Storage This involves deciding where goods
  will be stored, such as the number of warehouses
  and distribution centers, and the amount of
  inventory that will be held at each center. The
  key is finding the optimal balance that minimizes
  costs but maximizes response to customers.
• 3. Materials Handling This includes loading and
  unloading of goods from vehicles, placement and
  order picking of goods in the warehouse, and
  movement throughout facility, such as warehouse
  staging and dock areas. Efficient material
  handling saves cost, cuts down on time, and
  minimizes product damage.

10
Logistics Tasks

• 4. Packaging In addition to protecting the
  product during transportation, packaging must be
  compatible to material handling equipment.
• 5. Inventory Control This involves maintaining
  needed amounts of inventory, arranging for timely
  replenishments, and maintaining accurate counts
  of all inventories.
• 6. Order Fulfillment Logistics is often
  responsible for order fulfillment, which is
  completing, shipping, and delivering a customer
  order. Order fulfillment typically occurs from a
  warehouse or distribution center.
• 7. Facility Location Logistics is also involved
  in determining the best location of warehouses,
  distribution centers, and other storage areas in
  relation to manufacturing facilities, customers,
  and suppliers. Location decisions have a huge
  impact on transportation costs.

11
Transportation

• Transportation deals with moving products and
  arranging for optimal modes of transportation.
• Transportation must deal with both economies of
  scale (larger the amount, lower the per unit
  cost) and economies of distance (longer the
  distance moved at one time, lower the per unit
  cost).
• Trucks Trucks are the most flexible mode of
  transportation.
• Water Water has an advantage in its ability to
  transport very large and heavy shipments. It is
  used to transport large bulk items such as oil or
  coal. The disadvantage is that it is slow and is
  restricted to water access.
• Air Air is the fastest mode of transportation
  and is also the most expensive. It is most
  appropriate for lighter, smaller, and higher
  priority items.
• Rail Rail is used for moving heavy loads very
  long distances. The disadvantage is long transit
  time.
• Pipeline Limited to liquids and gases such as
  petroleum and natural gas.
• Multimode Often a combination of a few modes
  provides optimal cost and customer service.

12
Warehousing

• In addition to providing storage, many warehouses
  are doing tasks traditionally done at retail such
  as repairs of items, putting garments on hangers,
  and adding labels and price tags.
• Break bulk operation is breaking up a large
  shipment into smaller quantities for deliveries
  at multiple locations.
• Cross docking is used to reconfigure bundles
  onto small shipments for local delivery. It is
  often done in a coordinated manner so that
  products are never stored in inventory. This
  method is very effective for replenishing fast
  moving inventory items at the store level.

13
Facility Location

• It is important that the location be selected to
  be able to serve the largest geographic market
  size on the same or next day basis.
• The cost and availability of labor is another
  important factor. This includes considering
  unemployment, work ethic, and degree of
  unionization.
• Other considerations are business and personal
  taxes, and the overall business climate, and
  whether it is welcoming to new business.
• Factor Rating 1. Identify key decision factors
  (proximity to customers, transportation,
  infrastructure, taxes). 2. Assign weights to each
  factor based on its importance. Weights must add
  to 100. 3 Use a five point scale for evaluating
  each location with 1 being poor and 5 being
  excellent. 4. Evaluate each location. 5. Compute
  the score for each location by multiplying the
  weight of the factor by the score for that factor
  and summing the results for each alternative. 6.
  Select the location with the highest score.
• See example in text book.

14
Third Party Logistics (3PL) Providers

• Traditional logistics management activities such
  as transportation, warehousing, order processing,
  are deemed as non core activities for many firms
  and are thus outsourced.
• The role of 3PL providers changed from initially
  offering transportation services to offering a
  broad array of bundled services that also
  includes warehousing, inventory management,
  packaging, cross docking, and technology
  management.

15
Summary

• Logistics is the business function responsible
  for transporting and delivering products to the
  right place at the right time throughout the
  supply chain.
• UPS, the world largest package delivery company,
  has extended their capabilities to include
  designing a distribution network, freight
  forwarding, customs brokerage, fulfillment,
  returns, financial transactions, and even
  repairs. UPS services more than 200 countries and
  has its own aircraft fleet and is considered the
  ninth largest airline in the world.
• Logistics provides SCM with three utilities
  place, quantity, and time. Logistics provides
  place utility by ensuring that goods arrive at
  the right place in the supply chain. Logistics
  provides quantity utility by ensuring that the
  correct quantities are delivered at the right
  location. Logistics provides time utility by
  delivering goods at precisely the right time
  needed.
• Reverse logistics is a process of moving products
  upstream from the customer back to the
  manufacturer and suppliers. This occurs for a
  variety of reasons such as return of damaged
  products or items the customer did not want.
• Inventory Control This involves maintaining
  needed amounts of inventory, arranging for timely
  replenishments, and maintaining accurate counts
  of all inventories.
• Transportation must deal with both economies of
  scale (larger the amount, lower the per unit
  cost) and economies of distance (longer the
  distance moved at one time, lower the per unit
  cost).
• Break bulk operation is breaking up a large
  shipment into smaller quantities for deliveries
  at multiple locations.
• Cross docking is used to reconfigure bundles onto
  small shipments for local delivery. It is often
  done in a coordinated manner so that products are
  never stored in inventory.
• Factor Rating 1. Identify key decision factors
  (proximity to customers, transportation,
  infrastructure, taxes). 2. Assign weights to each
  factor based on its importance. Weights must add
  to 100. 3 Use a five point scale for evaluating
  each location with 1 being poor and 5 being
  excellent. 4. Evaluate each location. 5. Compute
  the score for each location by multiplying the
  weight of the factor by the score for that factor
  and summing the results for each alternative. 6.
  Select the location with the highest score.
• Traditional logistics management activities such
  as transportation, warehousing, order processing,
  are deemed as non core activities for many firms
  and are thus outsourced.

16
Home Work

• 1. What is logistics?
• 2. Explain the 3 utilities provided by logistics
  to SCM?
• 3. What does inventory control involve?
• 4. Why are traditional logistics management
  activities outsourced?