Logistics

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 2 Logistics Logistics defined Logistics decision areas Logistics strategies in action –Kraft Foods, page 336.

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 10, Slide 3 Logistics Planning, implementing, and controlling the effective flow and storage of goods and materials from the point of origin to the point of consumption (CLM)

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 4 Key Decision Areas  Transportation  Warehousing (and more generally, location)  Packaging  Material handling  Logistics information systems  Logistics service providers (And some would put inventory here as well!)

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 5 Why the Increasing Interest? Deregulation Globalization Technological breakthroughs Environmental concerns Performance impact

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 6 Deregulation Transportation providers –Elimination of artificial barriers –Unrestricted markets –Multi-modal solutions –Price, schedule, and terms flexibility Buyers have greater freedom –Negotiate prices, terms, and conditions –Ownership issues BUT…

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 7 Deregulation (continued) … With greater freedom comes new responsibilities Key point Logistics has evolved from being a “tactical” area to a “strategic” one

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 8 Globalization (US Statistics) YearExportsImports 1992$449 Billion$700 Billion 1998$670 Billion$917 Billion Change+49%+31% What is driving this activity?

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 9 Technological Breakthroughs I Information Systems Global positioning systems Bar-coding applications –RFID on the horizon as replacement Real-time simulation and optimization Precise coordination of multi-modal solutions

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 10 Technological Breakthroughs II Transportation Systems Standardized containers for ease of transfer “Roadrailers,” etc. Multi-modal solutions –Ship  Truck  Train  Truck  ?

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 11 Environmental Concerns Even while certain aspects of logistics have been deregulated, other areas are being controlled more stringently  Fuel efficiency  Pollution  Recovery, recycling, and reuse of packaging, containers, and products

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 12 Performance Impact I Region Gross Domestic Product Logistics Expenditure Logistics % of GDP North America8, Europe7, Pacific5, Other7, Total29,1613, Comparative GDP and Logistics Expenditures (billions of $, 1998) Source: D. Bowersox and R. Calantone, “Executive Insights: Global Statistics,” Journal of International Marketing, Vol. 8, no. 4, 1998, pp

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 13 Performance Impact II Customer “touch points”  Delivery reliability  Delivery speed  Delivery tracking  Quality  “Ford is hiring UPS”

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 14 Performance Impact III Manufacturing Time 2 days0.5 days Shipping Time 4 days Total Time to the Customer 6 days4.5 days Total time to the customer at WolfByte Computer 75% decrease in manufacturing time, but only 25% decrease in time to customer. Where is the leverage now?

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 10, Slide 15 The Evolution of Logistics Strategy From functional silos to strategic positioning

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 16 Strategic Disconnect

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 17 Who “Owns” Logistics?

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 18 Logistics Decision Areas Transportation… –Modes –Formats –Pricing Warehousing –Consolidation –Cross Docking and Break-Bulk –Hub and Spoke –Inventory

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 19 Major Transportation Modes Highway (truck) Water Rail Air Pipeline

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 20 Modal Shares of Shipments (within US, 1999) ModeValue (%)Tons (%)Ton Miles (%) Highway (trucking, parcel, postal, courier) Water Rail Air Pipeline Other/Unknown

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 21 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 be available 24/7 Weaknesses Not the fastest Not the cheapest

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 22 Water Mode Strengths Highly cost effective for bulky items Most effective when linked into multimodal system Weaknesses Limited locations Relatively poor delivery reliability/speed Often limited operating hours at docks

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 23 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

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 24 Air Mode Strengths Quickest delivery over longer distances Can be very flexible when linked to highway mode Weaknesses Often the most expensive, particularly on a per pound basis

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 10, Slide 25 Question How can businesses design solutions that exploit the strengths of each mode?

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 26 Multi-Modal Solutions North Carolina’s Global TransPark

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 27 Justification  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.

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 28 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

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 29 Kinston, NC

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 30 Transportation “Formats” Common carriers –Published rates and schedules –“Nondiscriminatory” pricing –Increased flexibility to partner Contract carriers –Service for select customers –Unlimited number of customers Private carriers

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 10, Slide 31 Questions What are the strengths and weaknesses of each? How does the choice of format tie into the business strategy?

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 32 Pricing Transportation Services Economic factors –Pricing versus distance –Price/pound versus density –Stowability, handling, and liability –Market factors Ratings –Goods classification –Class index

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 33 Economic Factors I Distance Price … why the “tapering principle”? Density Price/pound

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 34 Economic Factors II Stowability, handling, and liability versus

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 35 Economic Factors III Market factors What might this include? East Coast, USA West Coast, USA

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 10, Slide 36 Ratings Translating economic factors into actual prices

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 37 Ratings (a simplified view) Goods classification –Perishability, stowability, handling, etc. Class index? –From –“average product” = 100 –Based on expected transportation costs

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 38 Determining Transportation Rates Rate Determination –By weight (Less-than-truckload shipment) –By distance (truckload shipments) Minimum charges and surcharges Exceptions to the rule –Seasonal commodities –FAK (freight of all kinds)

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 39 Example 1 Shipping 800 lbs of glass slides from Atlanta, GA to Lansing, MI … Looking at a rate classification guide ItemArticlesClass - LTL Shipment Class – TL Shipment Minimum TL Weight 86770Glass, microscopical slide or cover, in boxes 70403,600 lbs.

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 40 Rates express $ charged per hundred-weight Rates fall as rate class falls and volume increases Rate Class< 500 lbs500 to 1,000 lbs 1,000 to 30,000 lbs 200$98.37$61.97$ $52.62$43.68$ $40.48$33.59$8.10 Specific Rates for Shipments FROM Atlanta TO Lansing

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 41 Result $33.59 × 8 = $ shipping cost Key points –Classification tables standardized, BUT –Rate tables vary by transportation provider –Real-time updating of provider tables

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 42 Example 2 3 Shipments of Class 100 to Lansing: –5,000 lbs., 10,000 lbs., 7,000 lbs. Different stops in Lansing Can consolidate, but extra $100 for two additional stops What to do?

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 43 What to Do? Separate shipments 50×$18.94 = $ ×$14.74 = $1,474 70×$18.94 = $1,326 $3,747 Consolidated shipments 220×$9.22 = $2,028 Additional drop-off charges: $100 $2,128

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 44 Key Points Choosing a mode –Five choices –Speed? Cost? Flexibility? Choosing a format –Flexibility versus control Controllable factors affecting cost –Density, stowability, packaging, and containerization

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 10, Slide 45 Warehousing Any operation that stores, repackages, stages, sorts, or centralizes goods or materials

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 46 New View Warehousing a key piece of logistics strategy –Proctor & Gamble –Kraft –Lowe’s More than just storage –“Warehousing”  “Distribution Centers”

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 47 Warehousing Benefits Economic benefits:  Accrue directly to company  Must consider total system costs Service benefits:  Support customer service needs  May or may not reduce costs

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 48 Consolidation

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 49 Example 1 Dedicated truck from Los Angeles to Atlanta: $2,000 Cost to run consolidation warehouse: $9 per hundred-weight Local delivery in Atlanta: $200 per customer CustomerShipmentWeight Venetian Artist Supply100 boxes, artist supplies 3,000 lbs. Kaniko100 PC printers3,000 lbs. Ardent Furniture10 dining room sets4,000 lbs.

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 50 Cost Benefits of Consolidated Warehousing How does this compare to the cost of separate dedicated shipments? What about truck utilization (assume trucks hold 60,000 lbs.) Warehousing costs10,000 lbs × $ 9/100 lbs =$900 Cost of one truck to Atlanta$2,000 Delivery to final customer3 customers × $200 = $600 Total:$3,500

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 51 Cross-Docking What about supply / demand mismatches?

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 52 Break-Bulk Like break-bulk, but usually refers to a single source

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 53 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.

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 54 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.

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 55 Hub and Spoke Systems

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 56 Processing and Postponement Coca Cola syrup Bulk food products, paints, etc.  high volumes  containers Processing and Postponement Packaging Labeling, etc. Customer A Customer B Customer C Minimizes risk Minimizes inventory (how?)

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 10, Slide 57 Service Benefits: Spot stock Assortment

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 58 Spot Stock Time sensitive, seasonal items Often temporary, public storage Region 3 Region 2 Region 1

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 59 Weighted Center of Gravity A method to determine best location for central warehouse from n demand points. – Requires position of each demand point (X i, Y i ) – Requires weight of each demand point (W i ), based on importance, demand volume, market strategy, etc.

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 60 CupAMoe’s Coffee

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 61 Assortment Customer D Customer C Customer B Customer A Supplier E Supplier F Supplier G Supplier H Broad product line and good inventory control key to success Assortment Warehouse

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 62 Warehouse Ownership Issues Cost structure Financial flexibility Location flexibility Managerial control Expertise Public ContractPrivate EOS EOS??? High ModerateLow Less Varies Highest High High ??? (how do these compare to transportation formats?)

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 10, Slide 63 Question: When would it make sense to combine private and public ownership?

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 10, Slide 64 Packaging and Unitization What are the typical marketing criteria?

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 65 Packaging Implications Transportation –Class segmentation –Damage protection Material handling and warehousing –Storage requirements –Unitization –Container recycling –Ease of handling

©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Chapter 11, Slide 66 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?