Logistics Management

Chapter 11

Logistics Management

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Copyright © 2017 McGraw-Hill Education. All Rights Reserved.

Learning Objectives

11–2

LO11-1 Explain logistics and the major decisions made by logistics managers.

LO11-2 Estimate cost savings from consolidation.

LO11-3 Choose efficient transportation modes and carriers.

LO11-4 Make decisions regarding warehouses, distribution centers, and facility networks.

LO11-5 Explain the importance of packaging and materials handling.

LO11-6 Locate facilities using the center-of-gravity model.

LO11-7 Describe the benefits of integrated service providers.

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Starbucks Global Logistics: From the World to your Cup

LO11-1

11–3

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Harvest/Ocean Transport

Surface Shipping/Storage

Roasting/Packaging

Distribution/Sale

Logistics Management

Logistics Management: 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

11–4

LO11-1

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4

Activities of Integrated Logistics Management

11–5

LO11-1

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5

Logistics Cost Minimization & Trade-offs

Cost-to-Service: service levels = costs

Cost-to-Cost: cost of one activity, of 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

11–6

LO11-1

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6

Transportation Management

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

11–7

LO11-1

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7

Transportation Management

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

11–8

LO11-2

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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

11–9

LO11-2

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9

Consolidation or Not – Example

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 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?

11–10

LO11-2

Cost of individual shipments:

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

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

Consolidated shipments:

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

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

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

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10

Transportation Mode Selection

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

LO11-3

11–11

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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

Frequency

the ability to handle any type of product and/or size of load.

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

Transportation Mode Selection: Characteristics

LO11-3

11–12

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Trucking Industry: 3 Segments

LO11-3

11–13

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Truckload (TL)

carriers generally carry only full trailers of freight.

trucks can be routed directly from the shipper to the consignee.

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.

Specialty Carriers

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

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

dominated by a few large carriers.

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

11–14

LO11-3

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Transportation Service Selection

Total cost = In-transit holding cost + Freight cost

Example 11-2

11–15

LO11-3

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% of product value.

How should the firm ship their product?

In-transit holding = days in transit/365 x value x holding cost

Ground:

= [(8days/365) x $15,000 x 20%] + $50 = $115.75

Air:

= [(2days/365) x $15,000 x 20%] + $90 = $106.44

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Student Activity

11–16

LO11-3

Rework the transportation cost analysis in Example 11-2 given all the same parameters, except that the 30 items are now valued at only $50 each.

Why is ground service now the best choice?

Ground:

= [(8days/365) x $1,500 x 20%] + $50 = $56.58

Air:

= [(2days/365) x $1,500 x 20%] + $90 = $91.64

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16

Freight Transportation Mode Greenhouse Emissions

11–17

LO11-3

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17

Warehouse Management – Primary Functions of Warehousing

11–18

LO11-4

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18

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.

Warehouse Management – Break-Bulk, Warehouse Consolidation, and Cross-DockingI

Break-Bulk

Consolidation

Cross-Docking

11–19

LO11-4

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19

Warehouse Management – Part II

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)

11–20

LO11-4

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20

Student Activity

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

11–21

LO11-5

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21

Warehouse Management – Primary Process Activities

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

Receiving and unloading

In-storage handling

Storage

Order picking

Staging

Shipping

11–22

LO11-4

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22

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

RIFD: electronic tracking of material

11–23

LO11-5

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23

Network Design – Part I

Most impact on supply chain operations

Multiple factors to consider

Labor (availability and cost)

Proximity to suppliers and customers

Cost of land and construction

Taxes, incentives, and regulations

Transportation Infrastructure

Quality of life for employees

Supply chain risk

11–24

LO11-6

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24

Network Design – Facility Location

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

Di = Demand at location i

Xi = X coordinate at location i

Yi = Y coordinate at location i

11–25

LO11-6

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25

Network Design – Facility Location: Steps Using the Center-of-Gravity Method

Example 11-3

11–26

LO11-6

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

2. Determine the amount of demand at each location.

Di = Demand at location i

Xi = X coordinate at location i

Yi = Y coordinate at location i

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

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Network Design – Facility Location: Steps Using the Center-of-Gravity Method – Example

Example 11-3

11–27

LO11-6

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27

Network Design – Facility Location: Steps Using the Center-of-Gravity Method

Example 11-3

11–28

LO11-6

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28

Network Design – Transportation Cost

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

Figure 11-5

11–29

LO11-6

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29

Network Design – Total Network Cost

11–30

LO11-6

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30

Integrated Service Providers

11–31

Integrated service providers (ISPs): Companies that provide a range of logistics services.

Third-party logistics service providers (3PLs): A common term used in the industry to describe ISPs.

LO11-7

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Logistics Management Summary

Flow of material and information between suppliers, producers and customers

Meet customer needs at lowest landed cost

Includes multiple decision areas

Economies of scale and distance impact costs

Multiple warehouse type to facilitate material storage and flow

Network design and facility location impact costs and customer service

11–32

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