Logistics

Management
Logistics Management
• “Logistics is the process of planning, implementing and
controlling the efficient, cost-effective flow and storage of raw
materials, in-process inventory, finished goods and related
information from the point of origin to point of consumption
for the purpose of conforming to customer requirements.”
• Council of Logistics Management
The Logistics Mission
• Getting the right goods or services to the right place, at the
right time, and in the desired condition at the lowest cost and
highest return on investment.
• Logistics help in creating time and place utility:
• Place Utility - available where they are needed by customers
• Time Utility - available when they are needed by customers
Logistics Strategy and Planning
• The objectives of logistics strategy
• Minimize cost
• Minimize investment
• Maximize customer service
• Levels of logistical planning
• Strategic
• Tactical
• Operational
 The Logistics Strategy Triangle
(4 Problem Areas)
Inventory Strategy
 Forecasting
 Storage fundamentals Transport Strategy
 Inventory decisions  Transport fundamentals
 Purchasing and supply  Transport decisions
scheduling decisions
Customer
 Storage decisions
service goals
 The product
 Logistics service
 Information sys.

Location Strategy
 Location decisions
 The network planning process
Management Areas
• Transportation
• Warehousing (and more generally,
location)
• Material handling
• Packaging
• Inventory management
• Logistics information systems
 Strategic, Tactical, and Operational Decision Making
Decision area Strategic Tactical Operational

Transportation Mode selection Seasonal equip- Dispatching

ment leasing

Inventories Location, Control policies Safety stock levels Order filling

Order Order entry, transmittal, Processing

processing and processing system orders, Filling
design back orders

Purchasing Development of supplier- Contracting, Expediting

buyer relations Forward buying

Warehousing Handling equipment Space utilization Order picking

selection, Layout design and restocking

Facility Number, size, and

location location of warehouses
Major Transportation Modes
• Highway (truck)

• Water

• Rail

• Air

• Pipeline
Highway Mode
Strengths Weaknesses
• Flexibility to pick up and • Not the fastest
deliver where and when • Not the cheapest
needed
• Often the best balance
between cost/flexibility
and delivery
reliability/speed
• Can deliver straight to
the customer
(increasing)
• Can be available 24/7
Water Mode
Strengths Weaknesses
• Highly cost effective • Limited locations
for bulky items • Relatively poor
• Works best for high delivery
weight-to-value reliability/speed
items • Often limited
• Most effective when operating hours at
linked into docks
multimodal system
Air Mode
Strengths Weaknesses
• Quickest delivery • Often the most
over longer distances expensive,
• Can be very flexible particularly on a per
when linked to pound basis
highway mode
• Works best for low
weight-to-value
items
Rail Mode
Strengths Weaknesses
• Highly cost effective • Limited locations, but
for bulky items better than for water.
• Can be most effective • Better delivery
when linked into reliability/speed than
multimodal system water
Technological Breakthroughs
• Standardized containers for ease of transfer
• “Roadrailers,” etc.
• Multimodal solutions
• Ship  Truck  Train  Truck  ?
Justification for Multi-Modal
Solutions
 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
• 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 Warehousing
Small shipments in ...

Warehouse

Large economical shipments out ...

Cross-Docking
Large economical shipments in ...

Warehouse

Small shipments out ...

Break-Bulk
• Like cross-docking, but usually refers to a single source

Plant A

Warehouse

Customer Delivery
Hub-and-Spoke Systems
The spoke-hub distribution paradigm (or model or
network) is a system of connections arranged like a wire
wheel, in which all traffic moves along spokes connected to
the hub at the center.
A

To Los Angeles
A C

Syracuse
A B

B
Phoenix

B
To El Paso
Postponement

Coca Cola syrup Customer A

Bulk food products, Postponement
paints, etc.
Assembly, Customer B
Packaging,
 high volumes Labeling, etc.
 containers Customer C
Warehousing Service Benefits
• Spot stock
• Assortment
Spot Stock

Region
1

Region
Manufacturer Warehouse 2
or Centralized
Source
Region
Time sensitive, seasonal items 3
Often temporary, public storage
Assortment
• Broad product line and good inventory control key to
success

Supplier E Customer A

Assortment
Warehouse
Supplier F Customer B
Supplier G
Customer C
Supplier H
Customer D
Material Handling and Packaging
• 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
 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, Consolidation, Cross-
Highway Docking, Hub-and-Spoke
Who “Owns” Logistics?
Organization
Strategy

Marketing Logistics Operations Financial

Strategy Strategy Strategy Strategy

Executive-level of representation
Difficult goal of functional integration
Organizational question: Who really ‘owns’ logistics?
Transportation?
Marketing?
Operations?
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?
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
Relationship of Logistics to
Marketing and Production

LOGISTICS
Sample
activities: MARKETING
PRODUCTION/ Transport Interface Sample
OPERATIONS  Inventory
Interface activities: activities:
Sample activities:  Order  Customer
 Quality control activities:  Promotion
 Product processing service  Market
 Detailed production
scheduling
scheduling  Materials standards research
 Plant  Pricing  Product
 Equipment maint. handling
location  Packaging
 Capacity planning mix
 Purchasing  Retail  Sales force
 Work measurement
location management
& standards

Production-
logistics Marketing-
interface logistics
interface

Internal Supply Chain