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Bases of pharmaceutical
logistics
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 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 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
Learning Objectives
• Understand the relationship between logistics and other important functional areas of a company, including manufacturing, marketing, and finance
• Discuss the important management activities in the logistics function
• Analyze logistics systems from several different perspectives to meet different objectives
• Determine the total costs and understand the cost tradeoffs in a logistics system from a static and dynamic perspective
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 5
Dimensions of Logistics
• Drucker – 1962 “The Economy’s Dark Continent”– Distribution is one of the most sadly neglected but
most promising areas of American business…
• 15-25% of the cost of manufactured components goes to cover expenses before it hits the assembly line
• Origins date back to the military around WWII – Gulf War regarded as a ‘logistics war;
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 6
Definition of Logistics
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 order to the point of consumption in order to meet customers’ requirements
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 7
Seven R’s
• Ensuring the availability of the – Right product– Right quantity– Right condition– Right Place– Right time– Right customer– Right cost
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 8
Change in Logistics
• Emphasis on Quality and meeting customer requirements
• Change – influence of large buyers such as Wal-Mart
• Increasing sophistication of all buyer types –industrial and consumer
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 9
Macro Perspective
• Logistics impacts and has relationship with economy
• Cost of business logistics increasing
• Percentage of GDP decreasing
• Transportation largest percentage of logistics costs (rising due to inventory management practices)
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 10
Macro Perspective
• Logistics adds value to a product• Place utility - moving goods to points where
demand exists• Time utility - moving goods to points at a
specific time• Allows for economic development and
specialization• Affects land values due to increased
accessibility
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 11
Micro Perspective
• Interfaces with production in determining the length of the production run
• Interfaces with marketing in selling the product– price - size, quantity– product - dimensions, packaging– promotion - inventory, channels– customer service
• Relationship with all areas of a company
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 12
Logistics Activities
• Transportation - physical movement or flow of goods
• Storage - inventory management and warehousing
• Packaging - affected by product and transportation
• Materials handling - movement in, from, and within a warehouse
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 13
Logistics Activities
• Order fulfillment - completing customer orders, affects lead time
• Forecasting - predicting inventory necessary to fulfill customer demand
• Production planning - product necessary to cover market
• Purchasing - procurement of supplies, affects transportation
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 14
Approaches to Analyzing Logistics Systems
• Materials Management versus Physical Distribution– Balanced System
– Heavy Inbound
– Heavy Outbound
– Reverse Systems
• Cost centers– Trade offs
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 15
Approaches to Analyzing Logistics Systems
• Nodes versus links– nodes - points where goods stop for
processing– links - transportation connecting nodes
• Logistics Channels - network of intermediaries that contribute to efficient flow of goods
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 16
Logistics and Systems Analysis
• System - is a set of interacting elements, variables, parts or objects that are functionally related to one another and that form a coherent group.
• Optimization –always the best alternative (water transportation example)
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 17
Logistics and Systems Analysis
• Levels of optimality– Delivery timeframes
• Functional relationships– Interdepartmental cooperation
• Constraints
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 18
Logistics System Analysis
• Short-Run/Static Analysis– Look at short run situation and select the
system with the lowest overall cost.
• Long-Run/Dynamic Analysis– Mathematically calculate the point of equality
between the two systems
• Examples p.55/56
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 19
Factors Affecting the Cost and Importance of Logistics
• Competition via customer service– Order Cycle
• shorter order cycle, less inventory required
– Substitution• more substitutable product, higher customer service level
required
– Inventory Effect• increase inventory, reduce cost of lost sales
– Transportation Effect• increase transportation costs, reduce cost of lost sales
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 20
Factors Affecting the Cost and Importance of Logistics
• Product factors• Dollar Value - product value increases, cost of
warehousing, transportation and inventory increases
• Density- higher the density, more efficient use of warehouse and transportation space
• Damage -greater the risk of damage, higher the transportation and warehousing cost
• Special Handling Requirments
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 21
Learning Objectives
• Understand the role and importance of logistics in private and public organizations
• Appreciate the impact of logistics on the economy and how effective logistics management contributes to the economy
• Understand the value-added roles of logistics• Define logistics systems from several
perspectives
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 22
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 23
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 24
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 25
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 26
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 27
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
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 28
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 29
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 30
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 31
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 33
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 34
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 35
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 36
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 37
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 38
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 39
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 40
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 41
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 42
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 44
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 45
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
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Chapter 12, Slide 46
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 48
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 49
Packaging Implications
• Transportation– Class segmentation– Damage protection
• Material handling and warehousing– Storage requirements– Unitization– Container recycling– Ease of handling
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