Introduction to Logistics

Exactly What is “Logistics?” Business Logistics –The planning, implementation, & control of the efficient & effective flow and storage of goods, services, & related information from point of origin to point of use or consumption in order to meet customer requirements Military Logistics –The design & integration of all aspects of support for the operational capability of the military forces (deployed or in garrison) and their equipment to ensure readiness, reliability, & efficiency

Exactly What is “Logistics?” Event Logistics –The network of activities, facilities, and personnel required to organize, schedule, and deploy the resources for an event to take place and to efficiently withdraw after the event Service Logistics –The acquisition, scheduling, and management of the facilities/assets, personnel, and materials to support and sustain a service operation or business

Logistics Costs as a Percentage of GDP

The Value-Added Role of Logistics Place Utility –Addition of economic value to goods by moving the goods from production surplus points to points where demand exists –Essentially extends the physical boundaries of the market area Time Utility –Addition of economic value to goods by having them at a demand point at a specific time Production Form Utility Logistics Place Utility Time Utility Marketing Possession Utility

A Simple Logistics Channel Raw materials supply point Production facility Market Customers Market Customers Market Customers Product Flow

A Multi-Echelon Logistics Channel Raw materials supply point Production facility Retailer Product Flow Retailer Warehouse Raw materials supply point

Logistics is a Game of Trade-offs Changing to a Higher Cost Mode of Transportation Cost CentersRailMotor Transportation$ 3.00$ 4.20 Inventory Packaging Warehousing Subtotal Cost of lost sales Total Cost/Unit$ 15.00$ 13.00

Logistics is a Game of Trade-offs Cost of Changing to More Warehouses Cost Centers System 1 3 Warehouses System 2 5 Warehouses Transportation$ 850,000$ 500,000 Inventory 1,500,000 2,000,000 Warehousing 600,000 1,000,000 Subtotal$ 2,950,000$ 3,500,000 Cost of lost sales 350, ,000 Total Cost$ 3,300,000$ 3,600,000 Expected cost of lost sales based on probabilities of not having stock/inventory available when customers want it

Factors Influencing Logistics Cost Competitive Relationships –Order cycle time Time it takes for a customer to receive an order once it has been placed The shorter the cycle, the less inventory is required –Substitutability The more substitutable a product is, the more willing customers are to use a competitor’s product in the event of stockouts –Cost of lost sales In order to reduce the cost of lost sales, more inventory typically must be carried –Transportation costs More expensive modes of transportation help reduce –inventory costs –cost of lost sales –order cycle time

Factors Influencing Logistics Cost Product Relationships –Higher Dollar Value of the Goods Transportation rates: costs the carrier more to reimburse in the event of damage, hence transportation rates are generally higher Warehousing costs: more money tied up in inventory & storage risk increases Packaging costs: more protective packaging must be used –Product Density An item that is lightweight compared to the space it occupies has low density (I.e., household furniture) Higher density products generally have lower warehousing & transportation costs

Factors Influencing Logistics Cost Product Relationships –Susceptibility to Damage The higher the risk of damage, the higher the transportation costs and warehousing costs –Special Handling Requirements As the specialized handling requirements increase, transportation costs & warehousing costs increase

Factors Influencing Logistics Cost Spatial Relationships –Location of fixed points in the logistics system with respect to market and supply points –Impacts landed cost and extent of market