Chapter 7

1. Chapter 7 Logistics

2. Lecture Outline • What is Logistics? • Logistics Tasks • Transportation • Warehouse • Third-Party Logistics (3PL) Providers

3. 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

4. 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.

5. Types of Logistics Three types of Logistics • Event Logistics • Military Logistics • Business Logistics organizing and deploying resources in preparation for an event supporting military needs moving and storing goods throughout the entire supply chain

6. Impact on the Organization Look at the Impact on: • Operations • Marketing • Packaging • Finance

7. 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 • Just-in-Time (JIT) Manufacturing • shorter production runs • more frequent, small quantity inventory deliveries • less safety stock • precise timing is essential

8. 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

9. 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

10. 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

11. 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

12. 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 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 The logistics function must: • handle cash flows • arrange for warehousing, transport, sorting, inspecting, and storage • abide by “green” laws

13. Logistics Tasks • Transportation • Storage • Material Handling • Packaging • Inventory Control • Order Fulfillment • Facility Location

14. Logistics Tasks • Transportation • 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

15. 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)

16. 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”

17. 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

18. Transportation • Transportation moves products and arranges for optimal modes of transportation • Need to balance economies of scale and distance with customer service • 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

19. Modes of Transportation Challenge is to select the right mode(s) Common modes include: • Truck • Water • Air • Rail • Pipeline • Multimode

20. 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

21. 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

22. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. LOCATION

30. SUPPLY NETWORK DESIGN • Weight Score method • Break Even analysis • Center of Gravity method

31. A company has decided to expand overseas by opening its first business in Europe. The rating sheet in the table below provides a list of qualitative factors that management has decided are important; their weightings and rating for two possible sites – Dijon, France and Copenhagen, Denmark – are shown.

35. Based on the weighted scores shown below, location C is the preferred site, although location B is a close second.

36. 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

37. 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.

38. SUPPLY NETWORK DESIGN • Weight Score method • Break Even analysis • Center of Gravity method

39. Center of Gravity method Suppose that the shipments of a product depicted in the figure are according to the following table. Determine the centre of gravity.

40. Center of Gravity method 10 8 D2 6 D4 4 D3 D1 2 0 2 4 6 8 10 12

41. Center of Gravity method x=ΣxiQi/Σqi = 2(800) +3(900) + 5(200)+8(100) /2,000 = ~3 y=ΣyiQi/Σqi = 2(800) +5(900) + 4(200)+5(100) /2,000 = 3.7

42. Center of Gravity method 10 8 6 D2 D4 4 (3, 3.7) D3 D1 2 0 2 4 6 8 10 12

43. Center of Gravity method New York (130,130) Chicago (30,120) 120 Pittsburgh (90,110) 60 Atlanta (60,40) 0 0 60 120 LocationVolume Chicago 200 Pittsburgh 100 New York 100 Atlanta 200

44. Center of Gravity method LocationVolume X-Coordinate Y-Coordinate Chicago 200 30 120 Pittsburgh 100 90 110 New York 100 130 130 Atlanta 200 60 40 X coordinate of warehouse: Cx=(200x30+100x90+100x130+200x60)/(200+100+100+200) = 66.7 Y coordinate of warehouse: Cy=(200x120+100x110+100x130+200x40)/(200+100+100+200) = 93.3

45. Center of Gravity method New York (130,130) Chicago (30,120) 120 Pittsburgh (90,110) 60 Atlanta (60,40) 0 0 60 120 LocationVolume Chicago 2000 Pittsburgh 1000 New York 1000 Atlanta 2000 X Center of gravity = (66.7, 93.3)

46. SUPPLY NETWORK DESIGN • Weight Score method • Break Even analysis • Center of Gravity method

47. An operations manager narrowed the search for a new facility location to four communities. The annual fixed costs (land, property taxes, insurance, equipment, and buildings) and the variable costs (labor, materials, transportation, and variable overhead) are as follows: Using Break-Even Analysis

48. An operations manager narrowed the search for a new facility location to four communities. The annual fixed costs (land, property taxes, insurance, equipment, and buildings) and the variable costs (labor, materials, transportation, and variable overhead) are as follows: Using Break-Even Analysis