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Chapter 7
Logistics
Copyright 2011 John Wiley & Sons, Inc.
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Lecture Outline
• What is Logistics?
• Logistics Tasks
• Transportation
• Warehouse
• Third-Party Logistics (3PL) Providers
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What is Logistics?
Logistics is the business function responsible
for transporting and delivering products to the
right place at the right time throughout the
supply chain
– organize and manage distribution network
– requires access to information in real time
– requires large investments in infrastructure
– often outsourced
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Evolution of Logistics
Since the growth of SCM in the 1990s, logistics
has been extended to include the movement of
goods through the entire supply chain, both
upstream and downstream.
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Types of Logistics
Three types of Logistics:
• Business Logistics
– moving and storing goods throughout the
entire supply chain
• Military Logistics
– supporting military needs
• Event Logistics
– organizing and deploying resources in
preparation for an event
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Impact on the Organization
Look at the Impact on:
• Operations
• Marketing
• Packaging
• Finance
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Impact on Operations
Logistics plans the timing and quantity of
inventory receipts throughout the supply chain
• Historical Manufacturing
– long production runs
– economies of scale, stored excess inventory
– less frequent, large quantity inventory
deliveries
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Impact on Operations Continued
• Just-in-Time (JIT) Manufacturing
– shorter production runs
– more frequent, small quantity
inventory deliveries
– less safety stock
– precise timing is essential
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Impact on Marketing
Logistics works with marketing to
understand customer requirements,
as well as storage and delivery needs
– right timing of shipments
– right quantity of shipments
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Impact on Packaging
Logistics makes packaging decisions for
goods as they are being transported
– assure materials are protected from damage
– decisions impact the ability to handle the
materials
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Impact on Finance
Logistics is responsible for large capital
expenditures: transportation, warehousing,
and inventory
• Return on Assets (ROA) can be positively
affected by:
– reducing inventory
– reducing investments in transportation and
warehousing
– improving customer service with timely and
accurate deliveries of goods
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Impact on SCM
Logistics provides SCM with three utilities:
• Place
– ensures goods arrive at the right place
• Quantity
– ensures correct quantities are delivered
– tradeoff between too many goods and having
shortages
• Time
– ensures goods arrive at the right time
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Copyright 2011 John Wiley & Sons, Inc.
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Reverse Logistics
Reverse logistics is the process of moving
products upstream from the customer back
toward manufacturers and suppliers
– items customer did not want
– returns of damaged items
– overstock items
– recalled items
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Reverse Logistics Continued
Considerations:
– reverse flow does not directly add value
– ability to easily return goods is becoming an
“order qualifier”
– items returned for different reasons may
have different paths
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Reverse Logistics Continued
The logistics function must:
– handle cash flows
– arrange for warehousing, transport,
sorting, inspecting, and storage
– abide by “green” laws
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Logistics Tasks
• Transportation
• Storage
• Material Handling
• Packaging
• Inventory Control
• Order Fulfillment
• Facility Location
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Logistics Tasks
• Transportation
– moves products throughout the supply chain
– high cost
– must decide mode of transportation
• consider required speed, security, and product
characteristics/requirements
• Storage
– where goods will be stored
– # of warehouses and distribution centers
– amount of inventory to store at each center
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Logistics Tasks Continued
• Material Handling
– loading and unloading goods from vehicles
– placement and order picking
– moving goods throughout a facility
– decide degree of automation vs. manual labor
• automated storage and retrieval systems
(ASRS)
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Logistics Tasks Continued
• Packaging
– protect products during transport and storage
– compatible with material handling equipment
– compatible with mode of transportation
• Inventory Control
– manage quantities of inventory
– arrange for timely replenishments
– maintain accurate counts of inventory
– electronic tracking and “cycle counting”
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Logistics Tasks Continued
• Order Fulfillment
– pick and pack order
– arrange for transportation
– ship order
– assure lead time is not exceeded
• Facility Location
– determine best location of storage facilities
– consider relation to manufacturing facilities,
customers, and suppliers
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Transportation
• Transportation moves products and
arranges for optimal modes of transportation
• Need to balance economies of scale and
distance with customer service
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Transportation Continued
• Economies of Scale
– the larger the amount shipped at one time,
the lower the per unit cost
• avoid less-than-truck-load (LTL) shipments
• Economies of Distance
– the longer the distance moved at one time,
the lower the per unit cost
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Modes of Transportation
Challenge is to select the right mode(s)
Common modes include:
• Truck
• Water
• Air
• Rail
• Pipeline
• Multimode
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Modes of Transportation Continued
• Truck
– most flexible mode
– government maintains infrastructure
– challenge to find qualified drivers
• Water
– ability to transport very large and heavy
shipments
– very affordable
– extremely slow
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Modes of Transportation Continued
• Air
– appropriate for lighter, smaller, and
higher priority items
– fastest mode
– most expensive mode
• Rail
– appropriate for moving heavy loads very
long distances
– long transit time
– low cost
– typically combined with another mode
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Modes of Transportation Continued
• Pipeline
– limited to liquids and gases
– very specific infrastructure
• Multimode
– several modes are often combined for
optimal cost and customer service
– coordination can be a challenge
– common for companies to use thirdparty-logistics (3PL) providers
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Warehouses in the Supply Chain
Warehouses provide a centralized location
that stores and organizes inventories before
distribution
– often called distribution centers
– JIT and lean manufacturing can locate
warehouses near the manufacturing
facility for frequent deliveries
– can be utilized to create product
assortments
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Nontraditional Warehouse Tasks
Increasingly warehouses are being used to
perform nontraditional tasks such as:
– repair items
– add labels and price tags
– sequence items in preparation for the
retail floor
– put garments on hangers
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Cross-Docking
Cross-docking is a popular form of warehouse
sorting that attempts to move products “cross the
dock” from inbound to outbound, without ever
being stored
– arriving larger shipments are broken into
smaller shipments for local delivery
– requires precise timing and coordination
– information technology tracks inventories
– especially used in retail industry
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Facility Location
Factors to consider when locating warehouses
and distribution centers:
– proximity to customers or manufacturing facilities
– availability of infrastructure and access to
transportation
– cost and availability of labor
– overall business climate including tax structure
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Factor Rating
• Factor Rating is a popular quantitative
technique to help determine warehouse
and distribution center location
• Evaluates multiple location alternatives
based on selected factors
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Factor Rating Steps
1. Identify key decision factors
2. Assign weights to each factor based on its
importance (sum=100)
3. Establish a scale to evaluate each location
relative to each factor
4. Evaluate each location based on factors
5. Multiply factor weight by score for that factor
and sum results for each location
6. Select location with highest score
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Factor Rating Example
Urban Apparel has identified six factors it
considers important in determining the location
of its distribution center. There are two potential
locations that have been evaluated for all six
factors on a five-point scale (1 = poor to 5 =
excellent). Factor weights have been assigned
to the six factors.
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Copyright 2011 John Wiley & Sons, Inc.
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Third-Party Logistics (3PL) Providers
3PLs are companies that provide logistics and
transportation services to other firms
• Common to outsource logistics
– many companies deem logistics activities as
noncore activities
– logistics activities require significant assets
– potential for large cost savings
• 3PLs play comprehensive strategic role in
customer’s supply chain activities
Copyright 2011 John Wiley & Sons, Inc.
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Review
1.
Logistics is the business function responsible for transporting
and delivering products to the right place throughout the supply
chain.
2.
There are three different types of logistics: business, which is
focused on the movement and storage of goods throughout the
entire supply chain; military logistics, which is focused on
supporting military needs, and event logistics, which involves
organizing and deploying resources in preparation for an event.
3.
Logistics impacts the organization on both the inbound and
outbound side. On the inbound side it ensures that materials
needed for operations are delivered when required. On the
outbound side it ensures delivery of products to various
customers when needed.
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Review Continued
4. Logistics is a function that supports supply
chain management by being responsible for
the flow of products. It provides SCM with
three utilities: place, quantity, and time.
5. Logistics tasks include: transportation,
storage, material handling, packaging,
inventory control, order fulfillment, and facility
layout.
6. Reverse logistics is the process of moving
products upstream from the customer back
toward manufacturers and suppliers.
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Review Continued
7. Transportation is the primary function of logistics
that enables logistics to provide place utility.
There are five primary modes of transportation:
truck, water, air, rail, and pipeline.
8. Cross-docking is a warehouse sorting approach
used to reconfigure bundles of product where
larger shipments are broken down into small
shipments for local delivery in an area.
9. Factor Rating is one tool that can be used to
make location decisions.
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Copyright 2011 John Wiley & Sons, Inc.
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