Logistics

Chapter 8
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Chapter Objectives
Be able to:
Describe why logistics is important and discuss the major
decision areas that make up logistics.
List the strengths and weaknesses of the various modes
of transportation and discuss the role of multimodal
solutions.
Identify the major types of warehousing solutions and
their benefits.
Discuss the purpose of a logistics strategy and give
examples of how logistics can support the overall
business strategy.
Calculate the percentage of perfect orders.
Calculate landed costs.
Explain what reverse logistics systems are, and describe
some of the unique challenges they create for firms.
Use the weighted center of gravity method to identify a
potential location for a business.
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8
Logistics Management
Logistics management That
part of supply chain
management that plans,
implements, and controls the
efficient, effective forward and
reverse flow and storage of
goods, services, and related
information between the point of
CSCMP Council of Supply Chain Management Professionals

origin and the point of

consumption in order to meet8 - 3
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8
Logistics Management
Transportation
Warehousing
Material handling
Packaging
Inventory management
Logistics information systems

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8 Logistics Is Critical
Why
Impact on cost, flexibility, and
delivery performance
Advances in information systems
Globalization of markets
Push toward sustainability

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 8
Transportation
Highway
Water
Air
Rail
Pipeline

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Comparison of Modes
8
from 1997-2007

Table
8.1

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Highway
Dominates the logistics infrastructure due
to:
Geographic extension of supply chains
Greater emphasis on delivery speed and
flexibility
Has become more cost effective over time
due to:
Better scheduling and use of vehicle capacity
More efficient and reliable vehicles
Increased cost competition due to deregulation
Involves different types of shipments
Direct truck Shipment made with no stops
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Water
Ideal for materials with high
weight-to-value ratio, especially
if delivery speed is not critical.

Examples: farm produce, timber,

petroleum-based products.

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Air
Ideal for customers with a low
weight-to-value ratio, especially
if delivery speed or delivery
reliability is critical.

Higher shipping costs and

improvement in other modes
have reversed the rise in air
growth over the past decade.
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Rail
Characteristics similar to Water
but more flexible.

To accommodate growth, rail

carriers have doubled the
number of lines along busy
corridors, changed the physical
configuration of the trains, and
utilized multimodal solutions.
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Selecting a Transportation
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Mode

Table
8.2 Copyright 2013 Pearson Education, Inc. publishing as 8 - 12
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Multimodal Solutions
Multimodal solution A
transportation solution that
seeks to exploit the strengths of
multiple transportation modes
through physical, information,
and monetary flows that are as
seamless as possible
Roadrailer A specialized rail car the
size of a standard truck trailer that can
be quickly switched from rail to ground
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transportation
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Warehousing
Warehousing Any operations
that stores, repackages, stages,
sorts, or centralizes goods or
materials.
Warehousing can be used to:
Reduce transportation costs
Improve operational flexibility
Shorten customer lead times
Lower inventory-related costs.
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Consolidation
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Warehousing
Consolidation warehousing A
form of warehousing that pulls
together shipments from a
number of sources in the same
geographic area and combines
them into larger and more
economical loads
Cross-docking
Break-bulk
Hub-and-spoke system
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Consolidation
8
Warehousing

Figure
8.2

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Cross-Docking

Figure
8.3

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Hub-and-Spoke System

Figure
8.5

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Postponement
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Warehousing
Postponement warehousing A
form of warehousing that
combines classic warehouse
operations with light
manufacturing and packaging
duties to allow firms to put off
final assembly or packaging of
goods until the last possible
moment.
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Types of Warehouses
Assortment warehouses A form
of warehouses in which a wide
array of goods is held close to
the source of demand in order to
assure short customer lead
times.

Spot stock warehouses A form

of warehouses that attempts to
position
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goods
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Logistics Information
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Systems
Decision support tools
Real-time simulation and optimization
Cost estimations

Planning systems
Carrier selection
Scheduling deliveries

Execution systems
RFID

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Material Handling and
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Packaging
Material handling system A system
that includes the equipment and
procedures needed to move goods
within a facility, between a facility
and a transportation mode, and
between different transportation
modes.

Packaging The way goods and

materials are packed in order to
facilitate physical, informational, and
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Inventory Management
Implications for transportation:
Using slower and cheaper transportation
modes will cause inventory levels within
the supply chain to rise.
Using faster and more expensive
transportation modes will enable firms
to lower inventory levels.
Implication for warehousing:
Warehousing and inventory managers
must work closely to achieve the desired
business outcome.
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Logistics Strategy
Logistics strategy A functional
strategy which ensures that an
organizations logistics choices
are consistent with its overall
business strategy and support
the performance dimensions that
targeted customers most value.

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Owning vs. Outsourcing
Does the firm have the volume
needed to justify a private logistics
system?
Would owning a logistics system limit
the firms ability to respond to
changes in the marketplace or supply
chain?
Is logistics a core competency for the
firm?
Outsourcing options:
Common carriers
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Making Transportation/Warehousing
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Decisions Based on Order Winners

Table
8.3
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Measuring Logistics
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Performance
The perfect order
Delivered on time (according to buyers
delivery dates)
Shipped complete
Invoiced correctly
Undamaged in transit

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Perfect order Example
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8.4

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Landed Costs
Landed cost The cost of a
product plus all costs driven by
logistics activities, such as
transportation, warehousing,
handling, customs fees, etc.

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Reverse Logistics
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Systems
Reverse logistics system A
complete supply chain dedicated
to the reverse flow of products
and materials for the purpose of
returns, repair, remanufacture,
2010 APICS Dictionary

and/or recycling.

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Reverse Logistics
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Systems
Challenges:
Firms have less control over the timing,
transportation modes used, and packaging for
goods flowing back up the supply chain.
Goods can flow back up the supply chain for a
variety of reasons and a reverse logistics
system needs to be able to sort and handle
these different flows.
Forward logistics systems typically arent set
up to handle reverse logistics flows.

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Weighted Center
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of Gravity Method
Weighted center of gravity
method A logistics decision
modeling technique that
attempts to identify the best
location for a single warehouse,
store, or plant given multiple
demand points that differ in
location and importance.

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Weighted Center
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of Gravity Method

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Example 8.6 CupAMoes
Current location and population of the three towns
to be served by the warehouse

Figure
8.6

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Example 8.6 CupAMoes
Suggested location for the new warehouse

Figure 8.7

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Optimization
Optimization model A type of
mathematical model used when
the decision maker seeks to
optimize some objective function
subject to some constraints.
Objective function A quantitative
function that an optimization model
seeks to optimize (minimize or
maximize).
Constraint A quantifiable condition
that places limitations on the set
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Optimization
Business problems that can be
addressed through optimization
modeling:

Table
8.5

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8 Assignment Problem
The
The assignment problem A
specialized form of an
optimization model that
attempts to assign limited
capacity to various demand
points in a way that minimizes
costs.

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8 Assignment Problem
The
The generalized form of the assignment
problem

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Logistics
Case Study
Green Reverse Logistics
in the Electronics
Industry

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