1/15/2015

Chapter 2:
Logistics

Course
Overview

Process
Power
Concepts

Ch 1: Supply Chains
Ch 2: Logistics
Ch 3: CRM
Ch 4: Procurement
Ch 6: Integrated Ops
Ch 8: Transportation
Ch 9: Warehousing

Ch 10: Packaging
Ch 11: Global SCM
Ch 12: Network Design
Ch 13: Ops Analysis
Ch 14: Collaboration
Ch 15: Perf Measurement
Ch 16: Risk/Sustainability

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Process
Power
Concepts

Working
Definitions

Logistics: design & admin of systems to

control the movement & geographic
positioning of raw materials, work-inprocess, & finished goods inventory.
Logistics goal: meet customer service
objectives at lowest total cost

Process
Power
Concepts

Presentation
Game Plan

Logistics: History & Value

Logistics Operations
Integration & Arrangements
Structure & Synchronization

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Process
Power
Concepts

Logistics:
History & Value

Process
Power
Concepts

Progress in
Logistics

Postwar U.S. (1945-1995)

Global leader in distribution and logistics, as a

direct result of World War II

Rise of EC and Asia (1980-2000)

Both regions became major exporters and

distributors

e-Commerce (1998-Present)

Global logistics capability almost everywhere

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Process
Power
Concepts

Logistics Costs:
an Aggregate View

Source: Adapted from Rosalyn Wilson, 22nd Annual State of Logistics Report
Council of Supply Chain Management Professionals and Penske: Oak Brook,
IL, 2011.
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Process
Power
Concepts

Logistics
Cost Trends

Transportation Costs relative to Total Cost

of Logistics have gone up

Because of fuel prices and movement of

manufacturing to Asia

Inventory Costs relative to Total Cost of

Logistics have gone down

Adoption of JIT and Lean practices have

reduced these

Administrative Costs relative to Total Cost

of Logistics are roughly flat
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Logistics
and U.S. GDP

Process
Power
Concepts

Process
Power
Concepts

Logistics:
Whats Trending

Information technologies will automate

traditionally manual logistics functions:

Automated port and rail operations

RFID tagging of materials

Advanced technologies for warehousing and

inventory operations

Removal of trade barriers will continue to

expand global trade and logistics

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Process
Power
Concepts

Logistics:
Value Propositions

Logistics value proposition: commitment to

key customer expectations & requirements
at minimum cost
The two elements of this value proposition
are service and cost minimization

Firms must make appropriate tradeoffs between

service & cost for each of their key customers

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Process
Power
Concepts

Logistics:
Service Benefits

Availability: having inventory to meet

customer material or product requirements
Delivery (operational performance): time
required to deliver a customers order

Key metrics involve delivery speed and

consistency

Service reliability: quality attributes of

logistics

Accurately measure availability and operational

performance over time
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Process
Power
Concepts

Logistics: One Size

Fits All (NOT!)

Basic logistics service: the level of service

a firm provides to all established customers

However, some customers require unique or

special value-added services

But customers are different

Services must be matched to unique

requirements & customers potential profitability

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Process
Power
Concepts

The Total Logistics

Cost Model

Traditional Logistics Cost Model:

Focus: achieve lowest possible

cost for each individual
function of logistics

Example: Transport materials

the cheapest way possible

Expected lowest cost based on

decisions that were cheapest
for individual functions
Ignores the impact of cost
decisions across other logistics
functions

Total Logistics Cost Model:

Focus: achieve the lowest total

cost across all logistics
functions
A cost decision in one function
should consider cost impacts
on all other logistics functions
Example: The cheapest
transportation is slower. This
increases storage cost as we
hold the material longer.

Does it still cost less overall to

use the cheapest transport?

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Process
Power
Concepts

Alternative Views:
Cost Minimization

Traditional Logistics Cost Model:

Total Logistics Cost Model:

Minimize order processing cost

+
Minimize inventory cost
+
Minimize transportation cost
+
Minimize warehousing, materials
handling and packaging cost
+
Minimize facility cost
__________________________
Lowest logistics cost

Minimize (order processing +

inventory + transportation +
warehousing, materials
handling and packaging +
facility) cost
_________________________
Lowest total logistics cost

*** See the Classroom Practice

Problem in Blackboard ***

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Process
Power
Concepts

BMW Comes to
Charleston, SC

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Process
Power
Concepts

Logistics
Operations

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Process
Power
Concepts

Logistics: Major
Work Functions

Order Processing
Inventory
Warehousing,
Materials Handling,
and Packaging
Transportation
Integrated through a
network of facilities
e.g., warehouses and
distribution centers
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Process
Power
Concepts

The Integrated
Logistics Framework

Goal is to achieve customer satisfaction at

the lowest Total Cost
Decisions in one functional area will impact
cost of all others
We integrate logistics functions into a
coherent framework:

starting with the customer (order processing)

and ending with the customer (transportation &

delivery)

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Process
Power
Concepts

Functional
Linkage

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Order
Processing

Process
Power
Concepts

Order processing: transmission of customer

requirements to the supply chain
Accurate information is needed to achieve
superior logistics performance
Responsive supply chains require accurate
& timely info on cust purchase behavior
Fast information flow enables improved
work scheduling & balancing

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Process
Power
Concepts

Inventory
Management

Inventory reqts: directly linked to the facility

network & desired customer service level

Inventory strategy: achieve desired cust service w/

minimum inventory commitment

Inventory strategy is based on

Core customer segmentation

Product profitability

Transportation integration

Time-based performance

Competitive performance

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Process
Power
Concepts

Transportation
Management

Transportation: the operational area that

geographically moves & positions inventory
Three basic ways to satisfy transportation
requirements:

Operate a private fleet of equipment

Contract with dedicated transport specialists

Engage carriers to provide different transport

services as needed on a per shipment basis

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Process
Power
Concepts

Warehousing, Mtrl
Handling & Packaging

These are parts of other logistical functions

Inventory typically must be warehoused at

selected times during the logistics process

Transportation requires material handling for

loading and unloading

Individual products are most efficiently handled

when packaged in shipping cartons

Effective integration facilitates speed &

efficiency of product flow across the
logistics system
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The Facilities
Network

Process
Power
Concepts

Number, size & geographic relationship of

logistics facilities impacts customer service
capability and cost
Logistics facilities types:

Manufacturing plants

Warehouses

Cross-dock operations

Retail stores

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Process
Power
Concepts

Integrated
Logistics Operations

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Inventory
Flow

Process
Power
Concepts

Managers address
inventory movement &
storage in 3 major forms:

Materials

Work-in-process

Finished products

Logistical operations add value by moving

inventory when and where needed

Materials & components gain value at each step

of their transformation into finished inventory
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Process
Power
Concepts

Value-Added:
Three Areas

Customer relationship management: move

finished product to customers
Manufacturing: manage work-in-process
inventory flows in manufacturing
Procurement: purchase & arrange inbound
movement of materials, parts, and/or
finished goods inventory

from suppliers

into manufacturing or assembly plants,

warehouses or retail stores
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Process
Power
Concepts

Information
Flow

Information flow identifies specific locations

that have requirements

Also integrates the three operating areas

Information facilitates coordination of

planning & control of day-to-day operations
Logistics info has two major components

Planning / coordination information

Operational information needed to do work

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Process
Power
Concepts

Integration &
Arrangements

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Process
Power
Concepts

Integration: Baseline
Objectives

Responsiveness
Variance reduction
Inventory reduction
Shipment consolidation
Quality
Life cycle support

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Process
Power
Concepts

Operating
Arrangements

Logistical arrangements: commonalities

Designed to manage inventory

Range of alternatives limited by technology

Three widely utilized structures

Echelon (traditional): linear flow from origin to

destination through buffers or warehouses/DCs

Direct: ship products directly to customers

destination from one or a few central locations

Combined: based on product, market, customer

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Process
Power
Concepts

Echelon-Structured
Logistics

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Process
Power
Concepts

Combo: Echelon- and

Direct-Delivery

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Process
Power
Concepts

Structure and
Synchronization

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Process
Power
Concepts

Flexible Logistics
Structures

Flexible operations: preplanned contingency

strategies to prevent logistics failures

Example: W/H is out of an item. A contingency

policy assigns the total order to another W/H.

Structure looks like a combo arrangement

but can change to meet service needs

Different approaches for different situations

Common with factory-less companies like Nike

and Best Buy

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Process
Power
Concepts

Flexible Logistics:
Situations

Customer destination near a point of equal

logistics cost/delivery time from two W/Hs
Size of an order offers more logistical
efficiency if shipped via alternative channel
Decision to use a selective inventory
stocking strategy
Agreements among firms to move selected
shipments outside of established channels

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Process
Power
Concepts

Flexible Echelonand Direct-Delivery

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Process
Power
Concepts

Supply Chain
Synchronization

Supply chain synchronization: operational

integration of mult firms in a supply chain

Coordinate flow of materials, products & info

among S/C partners; reduce duplicate effort

Reengineer internal ops of individual firms;

leverage overall supply chain capability

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Process
Power
Concepts

Basics: The Logistics

Performance Cycle

Performance cycle: logistics work elements

for customer accommodation, manufacturing
or procurement
Performance cycle elements:

Nodes

Links

Inventory (base stock & safety stock)

Input and output requirements

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Process
Power
Concepts

Logistics Performance
Cycles Illustrated

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Process
Power
Concepts

Performance Cycle
Uncertainty

Major objective of logistics in all areas is to

reduce performance cycle uncertainty
Operational variance is randomly introduced
during the cycle through

Structure of the performance cycle

Operating conditions

Quality of logistics operations

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Process
Power
Concepts

Cycle Times: Paths

to Improvement

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Process
Power
Concepts

Performance Cycle
Synchronization

Varying performance at any point along the

supply chain causes potential disruptions

Even faster performance can disrupt supply

chain partners

Recipe: First achieve consistent operations,

then work to reduce performance cycle time.

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Process
Power
Concepts

Ways to Improve
Perf Cycle Time

EDI (Electronic Data Interchange) or Internet

order management & tracking
RFID or Bar code material tracking
Automated inventory management
Automated order selection and picking
Communicate w/ customers to determine
their needs
Communicate w/ suppliers to determine
their capabilities
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Process
Power
Concepts

Presentation
Recap

Logistics: History & Value

Logistics Operations
Integration & Arrangements
Structure & Synchronization

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Chapter 2:
Logistics

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