Principles of Supply Chain Management (5e)
Chapter 9
DOMESTIC U.S. &
GLOBAL LOGISTICS
Prepared by Cynthia Wisner, MBA
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Principles of Supply Chain Management (5e)
LEARNING OBJECTIVES, PART 1
You should be able to:
• Understand the strategic importance of
logistic
• Identify the various modes of transportation
• Understand how U.S. regulation and
deregulation have impacted transportation
• Discuss the global aspects of logistics
• Describe how logistics affects supply chain
management
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
LEARNING OBJECTIVES, PART 2
You should be able to:
• Examine and understand the interrelatedness of
transportation, warehousing, and material
handling
• Identify a number of third-party logistics service
providers
• Describe the various reverse logistics activities.
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
CHAPTER OUTLINE
• Introduction
• Transportation Fundamentals
• Warehousing and Distribution
• The Impacts of Logistics on Supply Chain
Management
• Environmental Sustainability in Logistics
• Logistics Management Software Applications
• Global Logistics
• Reverse Logistics
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otherwise on a password-protected website or school-approved learning management system for classroom use.
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Principles of Supply Chain Management (5e)
Introduction, Part 1
Logistics is necessary to:
• Move goods from suppliers to buyers
• Move finished goods to the customer
• Move work-in-process materials within a
firm
• Return or recycle goods
• Store items along the way in supply chains
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Principles of Supply Chain Management (5e)
Introduction, Part 2
Products have little value to the customer until
they are moved to the customer’s point of
consumption
Logistics provides:
• Time utility- products are delivered at the
right time
• Place utility- products are delivered to the
desired location
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otherwise on a password-protected website or school-approved learning management system for classroom use.
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Principles of Supply Chain Management (5e)
Introduction, Part 3
Official definition of logistics
“The process of planning, implementing, and
controlling procedures for the efficient and effective
transportation and storage of goods including
services, and related information from the point of
origin to the point of consumption for the purpose of
conforming to customer requirements.”
Council of Supply Chain Management
Professionals
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otherwise on a password-protected website or school-approved learning management system for classroom use.
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 1
The Objective of Transportation
 Maximize value to firm through negotiation to provide profit
contribution
 Make sure service is provided effectively
 Satisfy customer requirements while minimizing costs
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otherwise on a password-protected website or school-approved learning management system for classroom use.
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 2
Legal Forms of Transportation
Transportation service companies are classified
legally as either common, contract, exempt, or
private carriers.
• Common carriers- offer transportation services
to all shippers at published rates between
designated locations without discrimination
• Contract carriers- not bound to serve the
general public. Contract carriers serve specific
customers under contractual agreements
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otherwise on a password-protected website or school-approved learning management system for classroom use.
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 3
Legal Forms of Transportation
• Exempt carriers - exempt from regulation of
services & rates & if they transport certain
exempt products like produce, livestock,
coal, or newspapers
• Private carrier - not subject to economic
regulation & typically transports goods for
the company owning the carrier
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otherwise on a password-protected website or school-approved learning management system for classroom use.
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 4
Modes of Transportation
Motor Carriers (trucks) - most flexible mode of transportation
• Account for 70 percent of all freight tonnage moved in the U.S.
• Competes w/rail & air for short-to-medium hauls
• Less-than-truckload (LTL) & truck-load (TL) carriers move small
shipments & fees are higher
• General freight carriers carry the majority of goods shipped &
include common carriers
• Specialized carriers transport liquid petroleum, agricultural
commodities, building materials, & other specialized items
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 5
Modes of Transportation
Rail Carriers - compete when the distance is long &
the shipments are heavy or bulky
• Slow & inflexible
• New - purchasing motor carriers to offer point-to-point
pickup & delivery service known as trailer-on-flatcar
(TOFC) service
• One trend is use of high-speed trains which range in
the U.S. from 85 to 120 miles per hour
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otherwise on a password-protected website or school-approved learning management system for classroom use.
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 6
Modes of Transportation
Rail Carriers• Rail companies use each other’s rail cars but can be
problematic keeping track of rail cars & getting them
where needed.
• Real-time location systems (RTLSs) on rail cars have
helped the problem. It uses active, Wi-Fi-enabled
radio frequency identification (RFID) tags to track rail
cars (and their assets) in real time.
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 7
Modes of Transportation
Air Carriers - Expensive relative to other modes but
fast
• Account for a small portion of total freight hauled
• Cannot carry extremely heavy or bulky cargo
• For light, high value goods over long distances
quickly
• Limited in terms of geographic coverage
• Half of the goods transported by air are carried
by freight–only airlines, like FedEx.
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 8
Modes of Transportation
Water Carriers- Inexpensive, slow & inflexible.
Includes inland waterway, coastal & intercoastal, &
deep-sea.
• Inland waterway transportation is used for heavy,
bulky, low-value materials (e.g., coal, grain)
• Development in deep-sea transportation and use of
supertankers & containerships have made water
transportation cheaper and more desirable
• Competes w/rail & pipeline
• Water carriers paired w/trucks for door-to-door delivery
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 9
Modes of Transportation
Pipeline Carriers - limited in variety they can carry
• Little maintenance once pipeline is running
• Materials hauled in a liquid or gaseous state
• Transported items include water, oil, gasoline, natural
gas & coal slurry (pulverize coal suspended in water)
• Latest controversial pipeline is the proposed
Keystone XL pipeline
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otherwise on a password-protected website or school-approved learning management system for classroom use.
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 10
Modes of Transportation
Intermodal – the use of multiple modes of transportation
• Most common trailer-on-flatcar (TOFC) service, containeron-flatcar (COFC), or piggy-back service
 same containers can be placed on board
containerships and freight airliners
• Water & motor offer point to point service for overseas
manufacturers
 RO-ROs or roll-on-roll-off containerships truck trailers
& containers directly driven on & off the ship, without
the use of cranes
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 11
Transportation Pricing
• Cost-of-service pricing - prices based on fixed & variable
costs of transportation
• Value-of-service Pricing - services priced at market bearing
competitive levels
• Negotiated pricing - prices fall somewhere between above two
levels
• Terms of Sale - includes transportation
• FOB (free on board) destination - supplier is legal owner of the
product until it safely reaches its destination.
• FOB origin pricing - goods are legal responsibility of buyer at
supplier’s finished goods pickup location
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otherwise on a password-protected website or school-approved learning management system for classroom use.
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 12
Transportation Pricing
Rate Categories –
• Line haul rates – charges for moving goods to nonlocal
destination
• Class rates - published annually by National Motor Freight
Traffic Association
• Exception rates - rates are lower than NMFC class rates &
generally are established on an account-by-account basis.
• Commodity rates - apply to minimum quantities of products
shipped between two specified locations
• Miscellaneous rates - contract rates negotiated between two
parties and shipments containing a variety of products
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 13
Transportation Security
• Aviation & Transportation Security Act (2001) created Transportation
Security Administration (TSA) to oversee transportation security which
oversees 430 US airports.
• Department of Homeland Security (DHS) (2002) created to coordinate
and unify national homeland security efforts.
• 100 % of air cargo prescreened, as mandated by the Improving
America’s Security Act of 2007.
• Transportation Worker Identification Credential (TWIC) became
mandatory for all port workers in 2009.
• PrePass - prequalified U.S. motor carriers bypass state inspection &
weigh stations at highway speeds, using automated vehicle
identification technology.
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 14
Transportation Regulation & Deregulation
• Pro- Regulation assures adequate
transportation service throughout the country protects consumers from monopoly pricing,
safety, & liability
• Con- Deregulation encourages competition allows prices to adjust as supply, demand &
negotiations dictate
• Today, U.S. transportation industry remains
essentially deregulated
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otherwise on a password-protected website or school-approved learning management system for classroom use.
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 15
Table 9.2 - U.S. Transportation Regulation Part 1
Date
Regulation
Summary
1870
Granger Laws
Regulate the railroads
1887
Interstate Commerce Act
Created the Interstate Commerce
Commission (ICC)
1920
Transportation Act
Changes to ICC
1935
Motor Carrier Act
Brought motor carriers under ICC
control
1938
Civil Aeronautics Act
Established board to regulate air
carriers
1940
Transportation Act
Established ICC control over domestic
water transportation
1942
Freight Forwarders Act
ICC controlled entry, rates, and
services
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otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 16
Table 9.2 - U.S. Transportation Regulation Part 2
Date
Regulation
Summary
1948
Reed-Bulwinkle Act
Amendment to the ICA legalizing rate
bureaus or conferences
1958
Transportation Act
Amended rule so rates couldn’t be held up
to protect the traffic of any other mode
1958
Federal Aviation Act
Created air traffic & safety regulations &
national airport system
1966
Dept. of Transportation Act
Established the National Transportation
Safety Board.
1970
Railway Passenger Service Act
Resulted in the creation of Amtrak.
1975
Hazardous Materials
Transportation Act
Strengthened laws to fight illegal dumping
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 17
Table 9.3 - Transportation Deregulation Part 1
Date
Regulation
Summary
1976
Railroad Revitalization &
Regulatory Reform Act
Railroads could change rates w/o ICC
approval
1977
Air Cargo Deregulation Act
Air freight deregulated
1978
Air Passenger Deregulation Act
Airlines freed to expand routes,
change fares within limits; small
community routes were subsidized
1980
Motor Carrier Act
Fewer restrictions on entry, routes,
rates, and private carriers
1980
Staggers Rail Act
Freed railroads to establish rates
within limits; legalized contract rates;
shortened ICC procedure turnaround
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Principles of Supply Chain Management (5e)
Transportation Fundamentals, Part 18
Table 9.3 - Transportation Deregulation Part 2
Date
Regulation
Summary
1984
Shipping Act
Allowed ocean carriers to pool shipments,
assign ports, publish rates, & enter into
contracts with shippers
1994
Trucking Industry Regulatory
Reform Act
Motor carriers freed from filing rates with
the ICC
1994
FAA Authorization Act
Freed intermodal air carriers from
economic regulation by the
1995
ICC Termination Act
Eliminated the ICC moved regulatory
duties to Dept. of Transportation.
1998
Ocean Shipping Reform Act
Deregulated ocean liner shipping; allowed
contract shipping; rate filing not required
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Principles of Supply Chain Management (5e)
Warehousing & Distribution, Part 1
Warehousing
• Allows firms to store purchases, WIP, & finished
goods and perform break bulk and assessment
services
• Provides faster & more frequent deliveries & better
customer service
Crossdocking
• To receive, breakdown, repackage, & distribute
components to a manufacturing location or finished
products to customers warehouse. This description
more accurately refers to a distribution center
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Principles of Supply Chain Management (5e)
Warehousing & Distribution, Part 2
Importance & Types of Warehouses
• Support purchasing, production, & distribution
• Consolidation warehouses collect LTL shipments for
transport in TL or CL quantities
• Private Warehouses - Owned by the firm storing
goods
• Public Warehouses - Owned by for profit orgs &
contracted out
• Cold Chains - Temperature-controlled transportation,
transfers, and warehousing
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Principles of Supply Chain Management (5e)
Warehousing & Distribution, Part 3
Private Warehouses
• Advantages
•
•
•
•
•
Reduces the purchasing and transportation cost
Offers greater control of service
Provides better workforce utilization
Take advantage of cheaper sources of supply or labor
Can generate income & tax advantages through leasing of
excess capacity &/or asset depreciation
• Disadvantages
• Financial risk & loss of flexibility
• Binds firms to locations that may not prove optimal
• Insurance companies do not like insuring goods in private
warehouses
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Principles of Supply Chain Management (5e)
Warehousing & Distribution, Part 4
Public Warehouses
• Breakbulk - shipments broken down & items combined
into specific customer orders
• Repackaging
• Assembly - create customized final products
• Incoming & outgoing quality inspections
• Material handling, equipment maintenance, &
documentation services
• Short and long-term storage
• Used in conjunction with cold chains - temperaturecontrolled transportation, transfers, and warehousing
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Principles of Supply Chain Management (5e)
Warehousing & Distribution, Part 5
Risk Pooling & Warehouse Location
• As # of warehouses increases, system becomes
more decentralized. Responsiveness & delivery
service increase
• Warehousing operating & inventory costs increase.
Trade-off between costs & customer service must be
considered
Risk Pooling
• Describes the relationship between the # of
warehouses, inventory, & customer service
• Risk pooling is estimated by square-root rule
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Principles of Supply Chain Management (5e)
Warehousing & Distribution, Part 6
Risk Pooling & Warehouse Location
Where:
S1 = Total system stock for the N1 warehouses
S2 = Total system stock for the N2 warehouses
N1 = # of warehouses in the existing system, &
N2 = # of warehouses in the proposed system
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Principles of Supply Chain Management (5e)
Warehousing & Distribution, Part 7
As Warehouse Centralization increase:
• Safety stocks and average inventory levels decrease
• Delivery lead times & late deliveries increase
• Customer service levels provided by the warehouses’
suppliers increase
• Stockouts decrease
• Outbound transportation costs increase
• Inbound transportation costs decrease
• Warehouse capital and operating costs decrease.
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otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Warehousing & Distribution, Part 8
Warehouse Location
Edgar Hoover recommended –
• Market-positioned strategy - warehouses close to
customers maximizes distribution services & improve
transp. economies of scale
• Product positioned strategy - close to supply source
for firm to collect goods & consolidate
• Intermediately positioned strategy - midway between
supply source & customers when distribution
requirements are high & product comes from various
locations
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otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Warehousing & Distribution, Part 9
Warehouse Location
Von Thunen - transportation costs should be
minimized
• Market prices & production costs would be identical
regardless of warehouse location
Greenhut - based on profit instead of transportation
costs
• Optimum location is one that maximizes profits,
which may not be minimum cost location
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Principles of Supply Chain Management (5e)
Warehousing & Distribution, Part 10
Lean Warehousing
Emphasis on warehousing to support responsive
operations:
•
•
•
•
•
•
Emphasis on cross docking
Reduced lot sizes & shipping quantities
Commitment to customers & service quality
Increased automation
Increased assembly operations
Tendency to be green
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otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Impacts of Logistics on
Supply Chain Management,
Part 1
Third Party Logistics (3PL)
• Provide reliable & timely delivery
• Moves items into foreign locations effectively
• Favored by small businesses
• Some provide network optimization, light
manufacturing, and other services
• Allows firms to concentrate more on core
competencies
• Demand is growing rapidly
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otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Impacts of Logistics on
Supply Chain Management,
Part 2
3PL Supply Base Reduction
• Firms use only the best-performing 3PLs
• Give bigger share of the firm’s business
• Results in better levels of service and
potentially lower prices
• Larger share of business helps negotiate
prices, shipping schedules, and associated
services
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otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Impacts of Logistics on
Supply Chain Management,
Part 3
Mode and 3PL Selection
• Firms use a mix of quantitative and qualitative
factors to evaluate and select
• Most common technique - weighted factor
analysis
• With today’s competitive business climate,
partnering with a 3PL (Creating Strategic
Logistics Alliances) is very important
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otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Impacts of Logistics on
Supply Chain Management,
Part 4
Other Intermediaries
• Freight forwarder – consolidate LTL
shipments into FTL
• Freight, transportation, or logistic brokers
bring shippers and carriers together
• Shippers’ associations – nonprofit
cooperatives arrange for members’ shipping
• Intermodal marketing companies – purchase
blocks of rail capacity and sell it to shippers
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otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Impacts of Logistics on
Supply Chain Management,
Part 5
Environmental Sustainability in Logistics
• Reduction of empty miles reduce carbon emissions by
ensuring trucks move when full
• horizontal collaboration companies synchronize loads
and reduce empty miles
• SmartWay certification program reduces transportation
emissions
• Coalition for Responsible Transportation (CRT), work
with U.S. ports to implement clean truck programs
• Europe’s 3PLs and ports are leading the way by
introducing a number of green management initiatives
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otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Logistics Management Software, Part 1
Logistics Management Software Applications
Transportation management systems - (TMS)
used to select the best mix of transportation
services and pricing
• Provides real-time location tracking
• Uses technologies such as barcode scanners,
RFID tags, the Internet, and GPS devices
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otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Logistics Management Software, Part 2
Logistics Management Software Applications
Warehouse management- (WMS) track & control
flow of goods from receiving dock to outbound
shipment
Goals of WMS include:
•
•
•
•
•
reducing distribution center labor costs
streamlining the flow of goods
managing distribution center capacity
reducing paperwork
managing the crossdocking process
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Principles of Supply Chain Management (5e)
Logistics Management Software, Part 3
Logistics Management Software Applications
Global trade management systems- (GTM)
provide global visibility, standardization
• New opportunities to grow, expand and help
shippers manage regional and global trade
agreements
Goals of WMS include:
• automating customs entry
• improving compliance with international trade
regulations
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otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Global Logistics, Part 1
Global Freight Security
• Transportation across national boundaries
introduces added complexity, particularly security
• Customs-Trade Partnership Against Terrorism
program (C-TPAT) and its security program Free
and Secure Trade program (FAST)
• Goal – to ensure the security of global supply
chains in general and international trucking
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Global Logistics, Part 2
Global Logistics Intermediaries
• Customs Brokers - move through customs & handle
documentation
• International Freight Forwarders - move goods to and
from foreign destination
• Some use right-shoring which combines near-shore,
far-shore and domestic opportunities into a single cost
driven approach
• Trading Companies - put buyers & sellers together &
handle export/import arrangements
• Non-Vessel-Operating Common Carriers - operate like
freight forwarders but use scheduled ocean liners
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Global Logistics, Part 3
Foreign Trade Zones (FTZ)
• Secure sites in U.S. under supervision of U.S.
Customs
• Offer storage, exporting, manufacturing, assembly,
repacking, testing, & repairing services
North American Free Trade Agreement
(NAFTA)
• Created in 1994 & removes most barriers to trade &
investment among U.S., Canada & Mexico.
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Reverse Logistics, Part 1
Returns Management - backwards flow of goods from
customers when goods are returned by customers
• Returns increasing because of growth of online shopping,
direct-to-store shipments, and direct-to-home shipments
• Retail returns range 6% to 10% of sales
• Online returns range 20% to 30% of sales
• Returns can have direct negative impact on the
environment, customer service, firm’s reputation and
profitability
• 3PL companies can provide product lifecycle or reverse
logistics services
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Reverse Logistics, Part 2
Impact of Reverse Logistics on the Supply Chain
• Can impact how consumers view a brand
• Problems include:
•
•
•
•
•
•
Impact how consumers view a brand
Inability of system to handle returns
Lack of worker training in reverse logistics procedures
Little or no identification on returned packages
Inadequate inspection and testing of returns
Possible placement damaged returned products into
sales stocks
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Reverse Logistics, Part 3
Impact of Reverse Logistics on the Supply Chain
• Effective returns process can create goodwill and
enhance customers’ perceptions of product quality
• Returns information can be used to determine root
cause analyses and reduce future design errors
• Can still create value as original products,
refurbished products, or repair parts
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
Reverse Logistics, Part 4
Reverse Logistics and the Environment
• Green reverse logistics programs - reduce
environmental impact on landfills & deal with
dangerous contaminants
• Reverse logistics can have a positive impact on
the environment through:
•
•
•
•
recycling
reusing materials and products
refurbishing used products
making use of reusable totes and pallets
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
Principles of Supply Chain Management (5e)
End of Chapter 9
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
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