Transcript Logistics

Logistics
Chapter 8
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 some of the unique
challenges they create for firms.
 Use the weighted center of gravity method to identify a potential location for a
business.
 Develop and then solve, using Microsoft Excel’s Solver function, an
assignment problem.
Logistics
Planning, implementing, and controlling the
efficient, effective flow and storage of goods
and materials between the point of origin and
the point of consumption
Why the Increasing Interest?
• Deregulation
• Globalization
• Technological breakthroughs
• Environmental concerns
• Performance impact
Deregulation
• Transportation providers
–
–
–
–
Elimination of artificial barriers
Unrestricted markets
Multimodal solutions
Price, schedule, and terms flexibility
• Buyers have greater freedom
– Negotiate prices, terms, and conditions
– Ownership issues
BUT…
Deregulation (continued)
… with greater freedom comes new
responsibilities
Key point
Logistics has evolved from being a
“tactical” area to a “strategic” one
Globalization
(Worldwide Statistics)
Year
Expenditures
% GDP
1997
$5,095 Billion
13.4%
2002
$6,732 Billion
13.8%
Change
+32%
+3%
What is driving this activity?
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
Management Areas
 Transportation
 Warehousing (and more generally, location)
 Material handling
 Packaging
 Inventory management
 Logistics information systems
(And some would put logistics service providers
here as well!)
Logistics Decision Areas
Transportation…
– Modes
– Formats
– Pricing
Warehousing
– Consolidation
– Cross-Docking and Break-Bulk
– Hub-and-Spoke
– Inventory
Major Transportation Modes
• Highway (truck)
• Water
• Rail
• Air
• Pipeline
Modal Shares of Shipments
(within US, 1999/2002)
Mode
Highway (trucking,
parcel, postal, courier)
Value (%)
Tons (%)
Ton Miles (%)
80.3/86.0
58.5/67.4
28.4/28.7
Water
2.5/1.1
11.1/11.1
20.4/13.6
Rail
4.8/3.7
11.2/16.1
26.7/36.8
Air
2.7/3.2
0
0.2/0.4
Pipeline
4.2/1.8
13.7/5.9
17.6/20.5
Multimodal/Unknown
5.6/5.6
5.5/5.5
6.8/6.8
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 deliver straight to the
customer (increasing)
• Can be available 24/7
• Not the fastest
• Not the cheapest
Water Mode
Strengths
Weaknesses
• Highly cost effective
for bulky items
• Works best for high
weight-to-value items
• Most effective when
linked into multimodal
system
• Limited locations
• Relatively poor
delivery
reliability/speed
• Often limited
operating hours at
docks
Air Mode
Strengths
Weaknesses
• Quickest delivery over • Often the most
longer distances
expensive,
particularly on a per
• Can be very flexible
pound basis
when linked to
highway mode
• Works best for low
weight-to-value items
Grew 90.5% in value of goods shipped from 1993 to 2002
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
Increasing part of multimodal solutions, dual tracks on major routes
Question
How can businesses design
solutions that exploit the strengths
of each mode?
Technological
Breakthroughs
• Standardized containers for ease of transfer
• “Roadrailers,” etc.
• Multimodal solutions
– Ship  Truck  Train  Truck  ?
Multi-Modal Solutions
(An example)
North Carolina’s Global TransPark
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
Justification for Such a Facility
 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.
Warehousing
Any operation that stores,
repackages, stages, sorts, or
centralizes goods or materials
New View
Warehousing a key piece of logistics strategy
– J. B. Hunt
– Lowe’s
• More than just storage
– “Warehousing”  “Distribution Centers”
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
Consolidation
Small shipments in ...
Warehouse
Large economical shipments out ...
Example 1
Customer
Shipment
Weight
Venetian Artist
Supply
Kaniko
100 boxes, artist
supplies
100 PC printers
3,000 lbs.
Ardent Furniture
10 dining room sets
4,000 lbs.
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
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 =
Total:
$600
$3,500
How does this compare to the cost of separate
dedicated shipments?
What about truck utilization (assume 3 trucks
hold 60,000 lbs.)
Cross-Docking
Large economical shipments in ...
Warehouse
Small shipments out ...
What about supply / demand mismatches?
Break-Bulk
Like cross-docking, but usually refers to a single
source
Plant A
Warehouse
Customer Delivery
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.
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.
Hub-and-Spoke Systems
A
To Los Angeles
A
C
Syracuse
A
B
B
Phoenix
B
To El Paso
Postponement
Coca Cola syrup
Bulk food products,
paints, etc.
 high volumes
 containers
Customer A
Postponement
Assembly,
Packaging,
Labeling, etc.
Minimizes risk
Minimizes inventory (how?)
Customer B
Customer C
Warehousing Service
Benefits:
Spot stock
Assortment
Spot Stock
Region
1
Manufacturer
or Centralized
Source
Region
2
Warehouse
Time sensitive, seasonal items
Often temporary, public storage
Region
3
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
Information Systems
• Decision support tools
– Real-time simulation and optimization
– Location selection
– Cost estimations
• Precise coordination of multimodal solutions
• Execution systems
– Global positioning systems
– Bar-coding applications
– RFID on the horizon as replacement (NYK Logistics)
Material Handling and
Packaging
What are the typical marketing
criteria?
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?
Packaging Implications
• Transportation
– Class segmentation
– Damage protection
• Material handling and warehousing
–
–
–
–
Storage requirements
Unitization
Container recycling
Ease of handling
Questions
What are the strengths and weaknesses of
each?
How does the choice of format tie into the
business strategy?
The Evolution of Logistics
Strategy
From functional silos to strategic
positioning
Logistics Strategy Choices
Performance Dimension
Transportation Mode
Warehousing System
Delivery Reliability
Highway, Air
Direct Ship, Assortment,
Spot Stock
Delivery Speed
Air, Highway
Direct Ship, Assortment,
Spot Stock
Mix Flexibility
Highway, Air, Rail
Assortment, Spot Stock
Design Flexibility
Highway, Air
Postponement
Volume Flexibility
Highway, Air
Direct Ship, Assortment,
Spot Stock
Cost
Rail, Water, Pipeline,
Highway
Consolidation, CrossDocking, Hub-and-Spoke
Who “Owns” Logistics?
Organization
Strategy
Marketing
Strategy
Logistics
Strategy
Operations
Strategy
Executive-level of representation
Difficult goal of functional integration
Organizational question: Who really ‘owns’ logistics?
Transportation?
Marketing?
Operations?
Financial
Strategy
Owning Versus Outsourcing
• Does the firm’s volume justify a private
system?
• Would ownership limit firm’s ability to
respond to marketplace changes?
• Is logistics a core competency?
• Are outsource capabilities are available?
Kellogg logistics strategy example in text
Transportation “Outsources”
• Common (public) carriers
– Published rates and schedules
– “Nondiscriminatory” pricing
– Increased flexibility to partner
• Contract carriers
– Service for select customers
– Unlimited number of customers
• Third-Party Logistics Providers (3PLs)
– Service firms specializing in logistics for other
companies
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
???
Question:
When would it make sense to
combine private and public
ownership?
Measuring Performance
• Perfect Order
–
–
–
–
Delivered on time
Shipped complete
Invoiced correctly
Undamaged in transit
• Landed Costs
–
–
–
–
–
–
Packing
Insurance
Customs, other fees
Warehousing
Transportation
Documentation
(Redwing Automotive Example)
Reverse Logistics Systems
• Customer returns
– Warranty failures
– Incorrect or damaged orders
• Repair and remanufacture process
support
• Recycling (increasing importance!)
Generally independent systems because of low volume
and mix complexity
Logistics Decision Models
• Weighted Center of Gravity Method
• Optimization
• Assignment Problem
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
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
X
4
5
6
Optimization
• Requires an objective function to be maximized or minimized.
• Decision variables — values to be manipulated to affect
outcome of objective function
• Constraints — limits set on range of decision variables to be
used or on other aspects of the solution possible
For Example:
Assignment Problem
• Specialized optimization model.
• Decision variables are the shipment quantities
• Known values are demand, capacity, and shipping cost
between warehouses
• Constraints:
– Sum of shipments from a warehouse cannot exceed its capacity
– Sum of shipments to meet demand must be greater than or equal to the
demand
– Sum of shipments from each warehouse must be greater than or equal to
zero
(Flynn Boot Company Excel example in text)
Case Study in Logistics
Just-In-Time Shipping