Logistics
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 11, Slide 2
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 10, Slide 3
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 4
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 5
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 6
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 7
Globalization
(US Statistics)
Year
Exports
Imports
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 8
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 9
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 10
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 11
Performance Impact I
Comparative GDP and Logistics Expenditures (billions of $, 1998)
Region
Gross
Domestic
Product
Logistics
Expenditure
Logistics % of
GDP
North America
8,495
915
10.8
Europe
7,981
941
11.8
Pacific
5,605
652
11.6
Other
7,080
916
12.9
Total
29,161
3,424
11.7
Source: D. Bowersox and R. Calantone, “Executive Insights: Global Statistics,”
Journal of International Marketing, Vol. 8, no. 4, 1998, pp 83-93.
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 12
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 13
Performance Impact III
Total time to the customer at WolfByte
Computer
2000
2004
Manufacturing Time
2 days
0.5 days
Shipping Time
4 days
4 days
Total Time to the Customer
6 days
4.5 days
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 11, Slide 14
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 10, Slide 15
Strategic Disconnect
Organization
Strategy
Marketing
Strategy
Operations
Strategy
Financial
Strategy
Strategic Disconnect
Transportation
Decisions
Inventory
Decisions
Location
Decisions
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Information
Systems
Chapter 11, Slide 16
Who “Owns” Logistics?
Organization
Strategy
Marketing
Strategy
Logistics
Strategy
Operations
Strategy
Financial
Strategy
Executive-level of representation
Difficult goal of functional integration
Organizational question: Who really ‘owns’ logistics?
Transportation?
Marketing?
Operations?
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 17
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 18
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 19
Modal Shares of Shipments
(within US, 1999)
Mode
Highway (trucking,
parcel, postal, courier)
Value (%)
Tons (%)
Ton Miles (%)
80.3
58.5
28.4
Water
2.5
11.1
20.4
Rail
4.8
11.2
26.7
Air
2.7
0
0.2
Pipeline
4.2
13.7
17.6
Other/Unknown
5.5
5.5
6.7
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 20
Highway Mode
Strengths
Weaknesses
• 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
• Not the fastest
• Not the cheapest
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 21
Water Mode
Strengths
Weaknesses
• Highly cost effective for
bulky items
• Most effective when
linked into multimodal
system
• 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 22
Rail Mode
Strengths
Weaknesses
• Highly cost effective for
bulky items
• Can be most effective
when linked into
multimodal system
• 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 23
Air Mode
Strengths
Weaknesses
• Quickest delivery over
longer distances
• Can be very flexible
when linked to highway
mode
• Often the most
expensive, particularly
on a per pound basis
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 24
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 10, Slide 25
Multi-Modal Solutions
North Carolina’s Global TransPark
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 26
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 27
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 28
Kinston, NC
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 29
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 11, Slide 30
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 10, Slide 31
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 32
Price
Economic Factors I
… why the “tapering principle”?
Price/pound
Distance
Density
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 33
Economic Factors II
Stowability, handling, and liability
versus
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 34
Economic Factors III
Market factors
What might this include?
West
Coast,
USA
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
East
Coast,
USA
Chapter 11, Slide 35
Ratings
Translating economic factors
into actual prices
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 10, Slide 36
Ratings (a simplified view)
• Goods classification
– Perishability, stowability,
handling, etc.
• Class index?
– From 35 - 400
– “average product” = 100
– Based on expected
transportation costs
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 37
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 38
Example 1
Shipping 800 lbs of glass slides from Atlanta, GA
to Lansing, MI
… Looking at a rate classification guide
Item
Articles
Class - LTL
Shipment
Class – TL
Shipment
Minimum TL
Weight
86770
Glass, microscopical
slide or cover, in
boxes
70
40
3,600 lbs.
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 39
Specific Rates for Shipments
FROM Atlanta TO Lansing
Rates express $ charged per hundred-weight
Rates fall as rate class falls and volume increases
Rate Class
< 500 lbs
$98.37
500 to 1,000
lbs
$61.97
1,000 to 30,000
lbs
$17.00
200
100
$52.62
$43.68
$9.22
70
$40.48
$33.59
$8.10
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 40
Result
• $33.59 × 8 = $268.72 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 41
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 42
What to Do?
Separate shipments
Consolidated shipments
50×$18.94
220×$9.22 = $2,028
= $947
100×$14.74 = $1,474
70×$18.94
= $1,326
$3,747
Additional
drop-off
charges:
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
$100
$2,128
Chapter 11, Slide 43
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 11, Slide 44
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 10, Slide 45
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 46
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 47
Consolidation
Small shipments in ...
Warehouse
Large economical shipments out ...
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 48
Example 1
Customer
Shipment
Weight
Venetian Artist Supply 100 boxes, artist
supplies
Kaniko
100 PC printers
3,000 lbs.
Ardent Furniture
4,000 lbs.
10 dining room sets
3,000 lbs.
•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
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 49
Cost Benefits of
Consolidated Warehousing
Warehousing costs
Cost of one truck to Atlanta
Delivery to final customer
10,000 lbs × $9/100 lbs =
$900
$2,000
3 customers × $200 =
$600
$3,500
Total:
How does this compare to the cost of separate
dedicated shipments?
What about truck utilization (assume trucks
hold 60,000 lbs.)
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 50
Cross-Docking
Large economical shipments in ...
Warehouse
Small shipments out ...
What about supply / demand mismatches?
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 51
Break-Bulk
Like break-bulk, but usually refers to a single source
Plant A
Warehouse
Customer Delivery
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 52
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 53
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 54
Hub and Spoke Systems
A
To Los Angeles
A
C
Syracuse
A
B
B
Phoenix
B
To El Paso
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 55
Processing and
Postponement
Coca Cola syrup
Bulk food products,
paints, etc.
 high volumes
 containers
Customer A
Processing and
Postponement
Customer B
Packaging
Labeling, etc.
Customer C
Minimizes risk
Minimizes inventory (how?)
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 56
Service Benefits:
Spot stock
Assortment
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 10, Slide 57
Spot Stock
Region
1
Manufacturer
or Centralized
Source
Region
2
Warehouse
Time sensitive, seasonal items
Often temporary, public storage
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Region
3
Chapter 11, Slide 58
Weighted Center of Gravity
A method to determine best location for central
warehouse from n demand points.
– Requires position of each demand point (Xi, Yi)
– Requires weight of each demand point (Wi), based on importance,
demand volume, market strategy, etc.
n
 Wi X i
Weighted X coordinate  X  i 1n
*
 Wi
i 1
n
 W i Yi
Weighted Y coordinate  Y  i 1n
*
 Wi
i 1
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 59
CupAMoe’s Coffee
6
(1,5)
5
Capital City
(Pop. 400,000)
4
Y
CupAMoe’s
Springfield
(Pop. 200,000)
(2.57,3.6)
3
(4.5,3)
2
Shelbyville
(Pop. 170,000)
1
(4,1)
0
0
1
2
3
4
5
6
X
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 60
Assortment
Broad product line and good inventory
control key to success
Customer A
Supplier F
Supplier G
Assortment
Warehouse
Supplier E
Customer B
Customer C
Supplier H
Customer D
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 61
Warehouse Ownership
Issues
Public
Contract
Private
Cost structure
EOS
EOS
???
Financial flexibility
High
Moderate Low
Location flexibility
High
Moderate Low
Managerial control
Less
Varies
Highest
Expertise
High
High
???
(how do these compare to transportation formats?)
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 62
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 63
Packaging and Unitization
What are the typical marketing
criteria?
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 10, Slide 64
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 65
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?
©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain
Management — Bozarth & Handfield
Chapter 11, Slide 66