Chapter 7 Logistics

Lecture Outline What is Logistics? Logistics Tasks Transportation Warehouse Third-Party Logistics (3PL) Providers Copyright 2011 John Wiley & Sons, Inc.

What is Logistics? Logistics is the business function responsible for transporting and delivering products to the right place at the right time throughout the supply chain organize and manage distribution network requires access to information in real time requires large investments in infrastructure often outsourced Copyright 2011 John Wiley & Sons, Inc.

Evolution of Logistics Since the growth of SCM in the 1990s, logistics has been extended to include the movement of goods through the entire supply chain, both upstream and downstream. Copyright 2011 John Wiley & Sons, Inc.

Types of Logistics Three types of Logistics: Business Logistics moving and storing goods throughout the entire supply chain Military Logistics supporting military needs Event Logistics organizing and deploying resources in preparation for an event Copyright 2011 John Wiley & Sons, Inc.

Impact on the Organization Look at the Impact on: Operations Marketing Packaging Finance Copyright 2011 John Wiley & Sons, Inc.

Impact on Operations Logistics plans the timing and quantity of inventory receipts throughout the supply chain Historical Manufacturing long production runs economies of scale, stored excess inventory less frequent, large quantity inventory deliveries Copyright 2011 John Wiley & Sons, Inc.

Impact on Operations Continued Just-in-Time (JIT) Manufacturing shorter production runs more frequent, small quantity inventory deliveries less safety stock precise timing is essential Copyright 2011 John Wiley & Sons, Inc.

Impact on Marketing Logistics works with marketing to understand customer requirements, as well as storage and delivery needs right timing of shipments right quantity of shipments Copyright 2011 John Wiley & Sons, Inc.

Impact on Packaging Logistics makes packaging decisions for goods as they are being transported assure materials are protected from damage decisions impact the ability to handle the materials Copyright 2011 John Wiley & Sons, Inc.

Impact on Finance Logistics is responsible for large capital expenditures: transportation, warehousing, and inventory Return on Assets (ROA) can be positively affected by: reducing inventory reducing investments in transportation and warehousing improving customer service with timely and accurate deliveries of goods Copyright 2011 John Wiley & Sons, Inc.

Impact on SCM Logistics provides SCM with three utilities: Place ensures goods arrive at the right place Quantity ensures correct quantities are delivered tradeoff between too many goods and having shortages Time ensures goods arrive at the right time Copyright 2011 John Wiley & Sons, Inc.

Copyright 2011 John Wiley & Sons, Inc.

Reverse Logistics Reverse logistics is the process of moving products upstream from the customer back toward manufacturers and suppliers items customer did not want returns of damaged items overstock items recalled items Copyright 2011 John Wiley & Sons, Inc.

Reverse Logistics Continued Considerations: reverse flow does not directly add value ability to easily return goods is becoming an “order qualifier” items returned for different reasons may have different paths Copyright 2011 John Wiley & Sons, Inc.

Reverse Logistics Continued The logistics function must: handle cash flows arrange for warehousing, transport, sorting, inspecting, and storage abide by “green” laws Copyright 2011 John Wiley & Sons, Inc.

Logistics Tasks Transportation Storage Material Handling Packaging Inventory Control Order Fulfillment Facility Location Copyright 2011 John Wiley & Sons, Inc.

Logistics Tasks Transportation Storage moves products throughout the supply chain high cost must decide mode of transportation consider required speed, security, and product characteristics/requirements Storage where goods will be stored # of warehouses and distribution centers amount of inventory to store at each center Copyright 2011 John Wiley & Sons, Inc.

Logistics Tasks Continued Material Handling loading and unloading goods from vehicles placement and order picking moving goods throughout a facility decide degree of automation vs. manual labor automated storage and retrieval systems (ASRS) Copyright 2011 John Wiley & Sons, Inc.

Logistics Tasks Continued Packaging protect products during transport and storage compatible with material handling equipment compatible with mode of transportation Inventory Control manage quantities of inventory arrange for timely replenishments maintain accurate counts of inventory electronic tracking and “cycle counting” Copyright 2011 John Wiley & Sons, Inc.

Logistics Tasks Continued Order Fulfillment pick and pack order arrange for transportation ship order assure lead time is not exceeded Facility Location determine best location of storage facilities consider relation to manufacturing facilities, customers, and suppliers Copyright 2011 John Wiley & Sons, Inc.

Transportation Transportation moves products and arranges for optimal modes of transportation Need to balance economies of scale and distance with customer service Copyright 2011 John Wiley & Sons, Inc.

Transportation Continued Economies of Scale the larger the amount shipped at one time, the lower the per unit cost avoid less-than-truck-load (LTL) shipments Economies of Distance the longer the distance moved at one time, the lower the per unit cost Copyright 2011 John Wiley & Sons, Inc.

Modes of Transportation Challenge is to select the right mode(s) Common modes include: Truck Water Air Rail Pipeline Multimode Copyright 2011 John Wiley & Sons, Inc.

Modes of Transportation Continued Truck most flexible mode government maintains infrastructure challenge to find qualified drivers Water ability to transport very large and heavy shipments very affordable extremely slow Copyright 2011 John Wiley & Sons, Inc.

Modes of Transportation Continued Air appropriate for lighter, smaller, and higher priority items fastest mode most expensive mode Rail appropriate for moving heavy loads very long distances long transit time low cost typically combined with another mode Copyright 2011 John Wiley & Sons, Inc.

Modes of Transportation Continued Pipeline limited to liquids and gases very specific infrastructure Multimode several modes are often combined for optimal cost and customer service coordination can be a challenge common for companies to use third- party-logistics (3PL) providers Copyright 2011 John Wiley & Sons, Inc.

Copyright 2011 John Wiley & Sons, Inc.

Warehouses in the Supply Chain Warehouses provide a centralized location that stores and organizes inventories before distribution often called distribution centers JIT and lean manufacturing can locate warehouses near the manufacturing facility for frequent deliveries can be utilized to create product assortments Copyright 2011 John Wiley & Sons, Inc.

Nontraditional Warehouse Tasks Increasingly warehouses are being used to perform nontraditional tasks such as: repair items add labels and price tags sequence items in preparation for the retail floor put garments on hangers Copyright 2011 John Wiley & Sons, Inc.

Cross-Docking Cross-docking is a popular form of warehouse sorting that attempts to move products “cross the dock” from inbound to outbound, without ever being stored arriving larger shipments are broken into smaller shipments for local delivery requires precise timing and coordination information technology tracks inventories especially used in retail industry Copyright 2011 John Wiley & Sons, Inc.

Copyright 2011 John Wiley & Sons, Inc.

Facility Location Factors to consider when locating warehouses and distribution centers: proximity to customers or manufacturing facilities availability of infrastructure and access to transportation cost and availability of labor overall business climate including tax structure Copyright 2011 John Wiley & Sons, Inc.

Factor Rating Factor Rating is a popular quantitative technique to help determine warehouse and distribution center location Evaluates multiple location alternatives based on selected factors Copyright 2011 John Wiley & Sons, Inc.

Factor Rating Steps Identify key decision factors Assign weights to each factor based on its importance (sum=100) Establish a scale to evaluate each location relative to each factor Evaluate each location based on factors Multiply factor weight by score for that factor and sum results for each location Select location with highest score Copyright 2011 John Wiley & Sons, Inc.

Factor Rating Example Urban Apparel has identified six factors it considers important in determining the location of its distribution center. There are two potential locations that have been evaluated for all six factors on a five-point scale (1 = poor to 5 = excellent). Factor weights have been assigned to the six factors. Copyright 2011 John Wiley & Sons, Inc.

Copyright 2011 John Wiley & Sons, Inc.

Third-Party Logistics (3PL) Providers 3PLs are companies that provide logistics and transportation services to other firms Common to outsource logistics many companies deem logistics activities as noncore activities logistics activities require significant assets potential for large cost savings 3PLs play comprehensive strategic role in customer’s supply chain activities Copyright 2011 John Wiley & Sons, Inc.

Review Logistics is the business function responsible for transporting and delivering products to the right place throughout the supply chain. There are three different types of logistics: business, which is focused on the movement and storage of goods throughout the entire supply chain; military logistics, which is focused on supporting military needs, and event logistics, which involves organizing and deploying resources in preparation for an event. Logistics impacts the organization on both the inbound and outbound side. On the inbound side it ensures that materials needed for operations are delivered when required. On the outbound side it ensures delivery of products to various customers when needed. Copyright 2011 John Wiley & Sons, Inc.

Review Continued Logistics is a function that supports supply chain management by being responsible for the flow of products. It provides SCM with three utilities: place, quantity, and time. Logistics tasks include: transportation, storage, material handling, packaging, inventory control, order fulfillment, and facility layout. Reverse logistics is the process of moving products upstream from the customer back toward manufacturers and suppliers. Copyright 2011 John Wiley & Sons, Inc.

Review Continued Transportation is the primary function of logistics that enables logistics to provide place utility. There are five primary modes of transportation: truck, water, air, rail, and pipeline. Cross-docking is a warehouse sorting approach used to reconfigure bundles of product where larger shipments are broken down into small shipments for local delivery in an area. Factor Rating is one tool that can be used to make location decisions. Copyright 2011 John Wiley & Sons, Inc.

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