Principles of Supply Chain Management (5e)
Chapter 9
DOMESTIC U.S. & GLOBAL
LOGISTICS
Prepared by Cynthia Wisner, MBA
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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)
LEARNING OBJECTIVES, PART 2
You should be able to:
1. Describe legal forms of transport and
modes of transportation;
2. Explain the various transportation pricing
terminologies;
3. Describe the types of warehouses and
location considerations;
4. Describe the various transportation
intermediaries;
5. Describe the various Global Logistics
intermediaries;
6. Explain the concept of Reverse Logistics
and impact on Supply Chain;
© 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
• 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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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 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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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 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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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 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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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 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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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 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 (density, stowability, handling, liability)
• 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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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)
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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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)
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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otherwise on a password-protected website or school-approved learning management system for classroom use.
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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otherwise on a password-protected website or school-approved learning management system for classroom use.
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 (Fedex video)
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 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)
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
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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 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
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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 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.
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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)
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
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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)
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
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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)
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
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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)
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
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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)
Next week:
• Chapter 11: Locations
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otherwise on a password-protected website or school-approved learning management system for classroom use.
39
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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