Why do you think so many firms are concerned about logistics issues when they move into new markets such as China and Russia? (150

Why do you think so many firms are concerned about logistics issues when they move into new markets such as China and Russia? (150 – 200 words)

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DUE: WEDNESDAY, OCTOBER 23

Swink_MOAS_4e_Ch11_PPT.pdf

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Chapter 11

Logistics Management

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Learning Objectives

11-1 Describe logistics and the six major activities of integrated logistics management.

11-2 Estimate cost savings from transportation consolidation.

11-3 Assess and select transportation modes.

11-4 Explain the primary functions of distribution and fulfillment centers.

11-5 Explain the importance of packaging and materials handling.

11-6 Discuss the logistics network design process and apply the center-of-gravity method.

11-7 Describe the benefits of third-party logistics service providers (3PLs).

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Learning Objective 11-1

Amazon Delivers Innovation

• Vast logistics network

• Micrologistics

• Delivering packages as quickly as possible

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Learning Objective 11-1

Logistics Management Definition

Logistics management: management of the movement and storage of materials to meet customer needs and organizational objectives

• Includes forward and reverse flow

• Includes flow of materials and information

• Load, offload, move, sort, and select material

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Learning Objective 11-1

The “Perfect Order”

1. Have the right products available at the right time

2. Be processed correctly and be a complete, undamaged shipment

3. Be shipped using the method the customer wants

4. Provide an advanced shipping notification stating when the delivery will arrive

5. Have a way for customers to track the order during shipment

6. Be delivered on time and undamaged

7. Have the correct billing for services provided

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Learning Objective 11-1

Logistics Management

• Inbound flows: logistics managers work with supply managers to ensure flows of materials meet firm’s operational requirements

• Internal flows: logistics managers and other functions within the firm work to ensure timely and correct flows of information, products, and materials internally, within and across the firm’s facilities

• Outbound flows: logistics managers work with marketing and sales managers to ensure customer requirements are satisfied

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Activities of Integrated Logistics Management

Figure 11-1 The Activities of Integrated Logistics Management

Learning Objective 11-1

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Order Processing

A successful order process system ensures:

– Accuracy

– Efficiency

– Speed

Amazon’s Alexa enables electronic voice ordering.

Learning Objective 11-1

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Inventory Management

Inventory management is linked to all logistics management decisions including:

– How much inventory of each item to hold

– In what form to hold each item (raw material, work in process, finished good)

– How often to replenish each item

– Where in the supply chain to hold each item

Learning Objective 11-1

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Learning Objective 11-1

Transportation Management (1 of 3)

Government’s role:

• Economic regulation: entry of new carriers, rates, and services provided

• Safety regulation: safe for carriers and public, including increased emphasis on security from terrorist activity

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Learning Objective 11-2

Transportation Management (2 of 3)

Transportation economics:

• Economy of scale: cost per unit of weight decreases as shipment size increases

• Economy of distance: cost per unit traveled decreases as distance moved increases

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Transportation Management (3 of 3)

Figure 11-2 Economies of Scale and Distance

Learning Objective 11-2

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Consolidation

Consolidation: one large shipment made of many smaller shipments

• By market area: combine small shipments from one shipper going to the same area

• Pooled delivery: combine small shipments from different shippers going to the same area

• Scheduled delivery: delivery at specific times

Learning Objective 11-2

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Consolidation or Not—Example (1 of 2)

Example 11-1

A firm has orders of 12,000 lbs each of goods for three customers. It is $15.75 per hundredweight (cwt) to ship direct, or $10.50 per cwt for shipments of greater than 30,000 lbs with a $300 fee for each stop.

Should the firm consolidate the orders into one shipment?

Learning Objective 11-2

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Consolidation or Not—Example (2 of 2)

Example 11-1

Cost of individual shipments:

$15.75 × (12,000/100) = $15.75 × 120 cwt = $1,890

total for all three shipments = 3 × $1,890 = $5,670

Consolidated shipments:

$10.50 × (36000/100) = $10.50 × 360 cwt = $3,780

including stop charge = 3 × $300 + $3780 = $4,680

Saving with consolidation = $5,670 − $4,680 = $990

Learning Objective 11-2

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Learning Objective 11-3

Transportation Mode Selection

In order to decide which mode of transportation to use to ship an order, consider:

• Speed

– the elapsed time required to move from the point of origin to destination

• Availability – the ability to service any possible location

• Dependability – the variance in the expected delivery times

• Capability – the ability to handle any type of product and/or size of load

• Frequency

– the number of scheduled movements that can be arranged by a shipper

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Learning Objective 11-3

Transportation Mode Selection: Greenhouse Gas Emissions

Table 11-1 Freight Transportation Mode Greenhouse Gas Emissions

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Learning Objective 11-3

Transportation Mode Selection: Characteristics

Table 11-2 Characteristics of Transportation Modes (1 = best, 5 = worst)

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Student Activity (1 of 4)

Search the Internet to find out which transport mode produces the least damage to products. Which one is the safest to operate? Which one consumes the least amount of energy? Which one is least subject to disruptions from events such as labor strikes or natural disasters?

Learning Objective 11-3

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Learning Objective 11-3

Trucking Industry: Three Segments

• Truckload (TL)

– carriers generally carry only full trailers of freight

– trucks can be routed directly from the shipper to the customer

• Less-than-truckload (LTL)

– carriers usually move loads of less than 15,000 pounds

– carriers experience relatively higher fixed costs because of the need to stop at a terminal for load consolidation

– typically pay higher marketing costs because they want to generate full loads

– dominated by a few large carriers

• Specialty carriers

– include package haulers such as FedEx and United Parcel Service (UPS)

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Carrier Types

Value Density: ratio of value to weight, often determines the type of carrier used

• Common: provide service to the public with published rates

• Contract: provide service only to select, contracted customers

• Private: firm owns its own equipment

Learning Objective 11-3

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Transportation Service Selection (1 of 3)

1. Cost related to the transportation itself

2. Cost of inventory while in transit

3. Service requirements related to speed, availability, and so on

Learning Objective 11-3

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Transportation Service Selection (2 of 3)

Example 11-2

A firm must ship a 10-lb parcel of 30 items valued at $500 each a distance of 1,000 miles. Transportation options are 8-day ground for $50 or 2-day air for $90. Holding cost is 20 percent of product value. How should the firm ship its product?

Learning Objective 11-3

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Transportation Service Selection (3 of 3)

Example 11-2

Total cost = In-transit holding cost + Freight cost

In-transit holding cost = days in transit/365 × Shipment

value × Annual inventory carrying cost percentage

Ground:

= [(8 days/365) × $15,000 × .2] + $50.00 = $115.74

Air:

= [(2 days/365) × $15,000 × .2] + $90 = $106.44 Learning Objective 11-3

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Learning Objective 11-3

Student Activity (2 of 4)

Rework the transportation cost analysis in Example 11-2 given all the same parameters, except that the 30 watches are now valued at only $50 each. Why is ground service now the best choice?

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Distribution/Fulfillment Management— Primary Functions of Distribution Centers

Stockpiling

• the storage of inventory in warehouses to protect against seasonality either in supply or demand

Production support

• dedicated to storing parts and components needed to support a plant’s operations

Break-bulk, warehouse consolidation, and cross- docking

• splitting the shipment into individual orders and arranging for local delivery to customers

Learning Objective 11-4

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Break-Bulk, Warehouse Consolidation, and Cross-Docking Operations

Figure 11-3 Break-Bulk, Consolidation, and Cross- Docking Operations

Learning Objective 11-4

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Distribution/Fulfillment Management—Break-Bulk, Warehouse Consolidation, and Cross-Docking

• Break-bulk: splitting the shipment into individual orders and arranging for local delivery to customers

• Consolidation: combining shipments from a number of sources into one larger shipment going to a single location

• Cross-docking: combines break-bulk and warehouse consolidation activities

Learning Objective 11-4

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Distribution/Fulfillment Management

• Reverse Logistics:

– Material moves upstream in the supply chain

– Especially important in online retail

• Value-Added Services: providing additional value to the customer, such as postponement (www.zappos.com)

Learning Objective 11-4

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Distribution/Fulfillment Management— Primary Process Activities

Warehouses must perform a variety of operations on a daily basis:

• Receiving and unloading

• In-storage handling

• Storage

• Order picking and packing

• Staging

• Shipping

Learning Objective 11-4

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Student Activity (3 of 4)

Contact a company that has a warehouse operation nearby (it may be that your college or university has a facility). Arrange for a tour of the warehouse. Ask the manager about the different functions the facility performs (consolidation, break-bulk, etc.) for the organization.

Learning Objective 11-4

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Materials Handling and Packaging

• Handling material increases costs and risk of damage

• Packaging can decrease handling costs and risk of damage

– Containerization or Unitization: filling or creating a larger container from smaller ones

– Automated Storage and Retrieval Systems: robots that get, move, and put away material

– RFID: electronic tracking of material

Learning Objective 11-5

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Logistics Network Design

• Logistics network design determines: – Number and location of operations facilities – How customers will be served – Where inventory will be held – Which transportation modes will be used

• Cost-to-service trade-off: as service levels increase, typically so do costs

• Cost-to-cost trade-off: increasing the cost of one logistics activity reduces the cost another

• Total landed cost: sum of all product- and logistics- related costs

– Country costs of manufacturing

– Cost in transit to country of sale

– Cost within country of sale

Learning Objective 11-6

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Network Design—Transportation Cost

Number of locations is determined by balancing inbound and outbound transportation costs

Figure 11-4 Transportation Cost Related to Number of Warehouse Locations

Learning Objective 11-6

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Network Design—Total Network Cost

Figure 11-5 Total Network Cost

Learning Objective 11-6

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Facility Location

• Most impact on supply chain operations

• Multiple factors to consider

– Labor

– Proximity to suppliers and customers

– Cost of land and construction

– Taxes, incentives, and regulations

– Transportation infrastructure

– Quality of life for employees

– Supply chain risk

Learning Objective 11-6

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Total Landed Cost

• Managers need to develop a location strategy that minimizes a product’s total landed cost

• Total landed cost: the sum of all product- and logistics-related costs

– Costs within each country of manufacture

– Costs in transit from country of manufacture to country of sale

– Costs within the country of sale

Learning Objective 11-6

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Network Design—Facility Location

Center-of-Gravity Method: finds the lowest-cost location based on demand and distance, using X and Y coordinates to define a geographic position

X =

D i X i

∑

D i

∑ Y =

D i Y i

∑

D i

∑

Di = Demand at location i

Xi = X coordinate at location i

Yi = Y coordinate at location i

Learning Objective 11-6

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Network Design—Facility Location: Steps Using the Center-of-Gravity Method (1 of 3)

Example 11-3

1. Position the demand locations on a map with X and Y coordinates.

2. Determine the amount of demand at each location.

3. Compute the weighted averages for X and Y coordinates using the formula below:

∑

X = ∑

∑

Y =

Learning Objective 11-6

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Network Design—Facility Location: Steps Using the Center-of-Gravity Method (2 of 3) Figure 11-6 Coordinate Locations of Markets and Their Center of Gravity

Di = Demand at location i

Xi = X coordinate at location i

Yi = Y coordinate at location i

Learning Objective 11-6

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Network Design—Facility Location: Steps Using the Center-of-Gravity Method (3 of 3)

Example 11-3

Figure 11-6 Coordinate Locations of Markets and Their Center of Gravity

Learning Objective 11-6

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Network Design—Facility Location: Steps Using the Center-of-Gravity Method—Example (1 of 2)

Example 11-3

Suppose, given the locations plotted in Figure 11-6, we determine the following information:

Learning Objective 11-6

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Network Design—Facility Location: Steps Using the Center-of-Gravity Method—Example (2 of 2)

Example 11-3

∑

X = ∑

∑

Y =

X* = 20 200,000( ) +95 100,000( ) +60 500,000( )

200,000+100,000+500,000 = 43,500,000

800,000 =54.5

Y* = 90 200,000( ) +75 100,000( ) +30 500,000( )

200,000+100,000+500,000 = 40,500,000

800,000 =50.6

Learning Objective 11-6

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Center-of-Gravity Method Assumptions

1. There are straight-line distances between all locations

2. The amount of demand is a good proxy measure of transportation cost, which is not always true

3. Qualitative factors such as supply

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