Bases of pharmaceutical logistics. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield,

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


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


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;


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


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


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


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)


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



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



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



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



Approaches to Analyzing Logistics Systems

• Materials Management versus Physical Distribution– Balanced System

– Heavy Inbound

– Heavy Outbound

– Reverse Systems

• Cost centers– Trade offs



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



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)



Logistics and Systems Analysis

• Levels of optimality– Delivery timeframes

• Functional relationships– Interdepartmental cooperation

• Constraints



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



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



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



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



Logistics Decision Areas

Transportation…– Modes– Formats– Pricing

Warehousing– Consolidation– Cross-Docking and Break-Bulk– Hub-and-Spoke– Inventory



Major Transportation Modes

• Highway (truck)

• Water

• Rail

• Air

• Pipeline



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



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



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



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



Technological Breakthroughs

• Standardized containers for ease of transfer• “Roadrailers,” etc.• Multimodal solutions

– Ship Truck Train Truck ?



Multi-Modal Solutions(An example)

North Carolina’s Global TransPark



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



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



New View

Warehousing a key piece of logistics strategy

– J. B. Hunt

– Lowe’s

• More than just storage

– “Warehousing” “Distribution Centers”



Warehousing Benefits

Economic benefits:Accrue directly to companyMust consider total system costs

Service benefits:Support customer service needsMay or may not reduce costs



Consolidation

Warehouse

Small shipments in ...

Large economical shipments out ...



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



Cross-Docking

What about supply / demand mismatches?

Warehouse

Small shipments out ...

Large economical shipments in ...



Break-Bulk

Like cross-docking, but usually refers to a single source

Warehouse

Customer Delivery

Plant A



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.



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.



Hub-and-Spoke Systems

Syracuse

Phoenix

To Los Angeles

To El Paso

A

A

A

B

B

B

C



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



Spot Stock

Warehouse

Time sensitive, seasonal items Often temporary, public storage

Region 3

Region 2

Region 1

Manufactureror Centralized

Source



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



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?



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?



Packaging Implications

• Transportation– Class segmentation– Damage protection

• Material handling and warehousing– Storage requirements– Unitization– Container recycling– Ease of handling

Documents

Bases of pharmaceutical logistics. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield,