Logistics

1. Logistics

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.

3. 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

4. Why the Increasing Interest? • Deregulation • Globalization • Technological breakthroughs • Environmental concerns • Performance impact

5. Deregulation • Transportation providers • Elimination of artificial barriers • Unrestricted markets • Multimodal solutions • Price, schedule, and terms flexibility • Buyers have greater freedom • Negotiate prices, terms, and conditions • Ownership issues BUT…

6. Deregulation (continued) … with greater freedom comes new responsibilities Key point Logistics has evolved from being a “tactical” area to a “strategic” one

7. Globalization(Worldwide Statistics) What is driving this activity?

8. 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

9. Management Areas • Transportation • Warehousing (and more generally, location) • Material handling • Packaging • Inventory management • Logistics information systems (And some would put logistics service providers here as well!)

10. Logistics Decision Areas Transportation… • Modes • Formats • Pricing Warehousing • Consolidation • Cross-Docking and Break-Bulk • Hub-and-Spoke • Inventory

11. Major Transportation Modes • Highway (truck) • Water • Rail • Air • Pipeline

12. Modal Shares of Shipments(within US, 1999/2002)

13. 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 Highway Mode

14. 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 Water Mode

15. 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 Air Mode Grew 90.5% in value of goods shipped from 1993 to 2002

16. 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 Rail Mode Increasing part of multimodal solutions, dual tracks on major routes

17. Question How can businesses design solutions that exploit the strengths of each mode?

18. Technological Breakthroughs • Standardized containers for ease of transfer • “Roadrailers,” etc. • Multimodal solutions • Ship  Truck  Train  Truck  ?

19. Multi-Modal Solutions(An example) North Carolina’s Global TransPark

20. 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

21. 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.

22. Warehousing Any operation that stores, repackages, stages, sorts, or centralizes goods or materials

23. New View Warehousing a key piece of logistics strategy • J. B. Hunt • Lowe’s • More than just storage • “Warehousing”  “Distribution Centers”

24. 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

25. Consolidation

26. 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

27. 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.)

28. Cross-Docking What about supply / demand mismatches?

29. Break-Bulk Like cross-docking, but usually refers to a single source

30. 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.

31. 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.

32. Hub-and-Spoke Systems

33. Postponement Customer A Customer B Customer C Coca Cola syrup Bulk food products, paints, etc.  high volumes  containers Postponement Assembly, Packaging, Labeling, etc. Minimizes risk Minimizes inventory (how?)

34. Warehousing Service Benefits: Spot stock Assortment

35. Region 3 Spot Stock Region 1 Region 2 Time sensitive, seasonal items Often temporary, public storage

36. Supplier E Supplier F Supplier G Supplier H Customer D Customer C Customer B Customer A Assortment Broad product line and good inventory control key to success Assortment Warehouse

37. 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)

38. Material Handling and Packaging What are the typical marketing criteria?

39. 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?

40. Packaging Implications • Transportation • Class segmentation • Damage protection • Material handling and warehousing • Storage requirements • Unitization • Container recycling • Ease of handling

41. Questions What are the strengths and weaknesses of each? How does the choice of format tie into the business strategy?

42. The Evolution of Logistics Strategy From functional silos to strategic positioning

43. Logistics Strategy Choices Performance Dimension Transportation Mode Warehousing System

44. Who “Owns” Logistics?

45. Owning Versus Outsourcing • Does the firm’s volume justify a private system? • Would ownership limit firm’s ability to respond to marketplace changes? • Is logistics a core competency? • Are outsource capabilities are available? Kellogg logistics strategy example in text

46. Transportation “Outsources” • Common (public) carriers • Published rates and schedules • “Nondiscriminatory” pricing • Increased flexibility to partner • Contract carriers • Service for select customers • Unlimited number of customers • Third-Party Logistics Providers (3PLs) • Service firms specializing in logistics for other companies

47. Warehouse Ownership Issues Public Contract Private EOS EOS ??? High Moderate Low High Moderate Low Less Varies Highest High High ??? Cost structure Financial flexibility Location flexibility Managerial control Expertise

48. Question: When would it make sense to combine private and public ownership?

49. Measuring Performance • Perfect Order • Delivered on time • Shipped complete • Invoiced correctly • Undamaged in transit • Landed Costs • Packing • Insurance • Customs, other fees • Warehousing • Transportation • Documentation (Redwing Automotive Example)

50. Reverse Logistics Systems • Customer returns • Warranty failures • Incorrect or damaged orders • Repair and remanufacture process support • Recycling (increasing importance!) Generally independent systems because of low volume and mix complexity