SCM-

Logistics

Function

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.

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

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

Comparison of Modes

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

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.

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

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.

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

Cross-Docking

Figure 8.3

Hub-and-Spoke System

Figure 8.5

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.

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.

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.

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

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

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

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.

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

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.

Optimization

Business problems that can be

addressed through optimization

modeling:

Table 8.5