Logistics  

System

Dr.  Ahmad  Rusdiansyah

Dr.  Niniet  I.  Arvitrida
arvietrida@gmail.com /  niniet@ie.its.ac.id
Institut  Teknologi  Sepuluh  Nopember

Course  Description
Logistics  Systems  is  a  mandatory  course  discussing  logistics  
functions  for  individual  companies  or  supply  chains.  The  
purpose  of  this  course  is  to  give  knowledge  and  skills  for  
students  to  understand  the  concepts  and  models  in  logistics  
functions,  including distribution network,  transportation
and warehousing,  and contemporary logistics issues.  
Students  should  also  be  able  to  use  related  logistics  
application  software  and  their  application  in  real  cases.  
Combining  the  ability  to  understand  cases  of  logistics  system
and translate  the cases into  models.  Then,  the students are  
required to select  and  determine  the  solution  methods.  The  
students  are  expected  to  have  comprehensive  knowledge  and
basic design skills on  logistics  system.

1
Intended  Learning  Outcomes
Students  are  able  to:
n explain  the  role  and  scope  of  logistics management/system in  
industry.  
n understand  and  apply  the  measurement  of  logistics  customer  
service.
n implement  several  analytical  tools  to  design  a  logistics  network.
n understand the  role  of  warehouse  in  logistics,  evaluate  different  
warehouse  policies,  and  design  the  layout  and  operations  required.
n understand the  role  of  transportation  in  logistics,  evaluate  
different  transportation  policies,  and  manage  the  transortation  
activities  (scheduling,  routing,  etc).
n understand  the  significance  of  logistics  management  towards  
nation  and  global  economy.

References

Ballou,  R.  H.  (2004).  

Business  Logistics:  
Supply  Chain  
Management ,  Prentice  
Hall.

Chopra,  Sunil  (2012).  

Supply  chain  
Management:  Strategy,  
Planning,  and  Operation.  
Prentice  Hall  
International,  Inc.,  New  
Jersey

2
 Week Topic
1 Introduction  :Definition  and  scope  of  logistics  management  
2 Logistics  strategy (Ballou  Chapter  2  and  Chopra)
3 Product  characteristics  (Ballou  Chapter  3)
Logistics/Supply  chain  customer  service  and  IT  (Ballou  
4
Chapter  4  and  5)
th
5 National  holiday  (7 Mar)
6 Transport  fundamentals:  An  overview  (Ballou,  Chapter  6)
7 Distribution  network:  An  overview
8 Mid-­term  examination

Week Topic
9 Study  trip  (studi ekskursi)  1-­7  April  2019
10 Warehousing and  Handling  System
11 Distribution  Network:  Decision  Models  
12 Transportation  System:  Decision  Models  
Outsourcing  Logistics  Services  and  Global  Logistics  and  Incoterms
13
14 Contemporary  Topics:  
National  Logistics  System  (Sistem Logistik Nasional)
Logistics  for  E-­commerce  
Humanitarian  Logistics
Data  Analytics  for  Logistics  
or  company  visit  or  guest lecturing
15 CLTD  certification-­like  Examination
16 Final  Examination

3
Some  Rules
n Switch  off  mobile  phones  while  in  the  class
n Be  prepared
n Be  active,  positive  discussions  are  
encouraged!

Evaluations
NIA  50%,  AR  50%

Mid term  examination (NIA) 30%

Assignments (NIA) 20%

Class  Coordinator
….  (phone  no.  …)

4
 Introduction  to  
Logistics  System

Dr.  Niniet  I.  Arvitrida

Sepuluh  Nopember  Institute  of  Technology

5
Learning  objective
n To  provide  overview  of  the  scope  of  
logistics  system.

Evolution  
Then Now
n Production for local n Production for global  
demand demand
n Limited  product   n Product movement and
movements among   storage become as  
locations  or  regions critical as  production
n No  particular  “product   n Each region  or  country  
specialization”  in  each   has  a  particular
region  or  country specialization in  
n People prefer to stay near production
to  the  source  of   n Human  habitation  is  more  
production spread  out

6
Ilustration
n Country A  produces n Country B  produces
product P  at  a  cost  of 200   product P  at  a  cost  of 300  
and product Q  at  a  cost  of and product Q  at  a  cost  of
500. 400.
n Total  production  cost   n Total  production  cost  
(self-­production) is  700. (self-­production)  is  700.

If  these  countries  self-­manufacture  both  product  P  and  Q,  the  total  cost  will  be  
1400.

If  import  cost  for  each  product  is  20,  so  how  much  are  the  cost  savings  for  
each  country?

A  reliable  logistics  system/management  

will  enable:
n A  safe,  quick  (responsive),  and  efficient  product  
movement.  Hence,  the  distance  issue  between  point  of  
origin  and  point  of  consumption  will  be  no  longer  
applicable.
n This  is  possible  to  achieve  because  there  will  be  
sufficient:
¨ Transportation  tools.
¨ Infrastructure for  transportation.
¨ Infrastructure for  storage.
¨ Number  of  standardised containers,  which  are  efficient  for  
multimode  transportation.
¨ Tools for  material  handling.
¨ Tools  and  technology  to  manage  temperature  for  storage.
¨ Support  for  information  technology.

7
Ship  Cargo

8
 Why  is  logistics  important?
n logistics  costs  are  significant
¨ IMF:  logistics  expenditure  is  12%  of  GDP  worldwide
n supply  chains  are  lengthening
¨ globalization  of  companies  
¨ (Toyota:  35  plants  in  25  countries  outside  of  Japan)
n logistics  offer  a  strategic  competitive  advantage
¨ e.g.  Benetton,  Amazon  books

Logistics costs
(in  GDP  proportion)

Logistics  Cost in  several countries (as  a percentage of GDP):

n UK          7%
n Singapore          9%
n USA            9.5%
n Japan          11%
n Thailand          16% Indonesia  ?    >  20%  ?
n China            18%
n Mexico        20%
n Brazil        26%

Indonesian  GDP  2011  =  707  billion US$

If  the proportion of logistics cost is about 20%  to GDP,  the value will be
around 141  billion US$  =  1273  trillion IDR.  
This number is larger than Indonesian  national budget (APBN)  2011.

9
 Transportation
Manufacturer Storage
Storage

Retailer
Collector

SPEED
EFFICIENCY
SAFETY
QUALITY
Farmer Consumption
Fishermen

10
 Business  Logistics  Definition
n Logistics  Systemis that  part  of  the  supply  
chain  process  that  plans,  implements,  and  
controls  the  efficient,  effective  flow  and  storage  
of  goods,  services,  and  related  information  from  
the  point-­of-­origin  to  the  point-­of-­consumption  in  
order  to  meet  customer’s  requirements

Keywords
n Source  of  supply  to  point  of  consumption
n Raw  materials,  in-­process  inventory,  
finished  goods,  services
n FLOW=MOVEMENT AND  STORAGE
n SYSTEMS /  INTEGRATED APPROACH  

11
The  purpose  of  logistics
n GET  THE  RIGHT PRODUCT  IN  THE  
RIGHT QUANTITY  TO  THE  RIGHT
PLACE  FOR  THE  RIGHT CUSTOMER  AT  
THE  RIGHT TIME  IN  THE  RIGHT
CONDITION  AT  THE  RIGHT COST

Main  issue  of  logistics

n Logistics  is  about  creating  value  à for  
customers,  and  suppliers  of  the  firm  and  
value  for  the  firm’s  stakeholders
n Value  à expressed  in  terms  of  time  and  
place
n Each  activity  in  the  supply  chain  
contributes  to  the  process  of  adding  value

RI1507  -­ Manajemen  Logistik   24

12
Evolution  of  logistics
n FOCUS  ON  THE  PHYSICAL  
DISTRIBUTION  (1960-­1970)
n Integrating  Logistics  Management (1970-­
1980)
n SUPPLY  CHAIN  MANAGEMENT (1980-­
PRESENT)

Logistics  Management  Framework

Planning  à Implementation  à Control  

Customer  service
Demand  forecasting
Inventory  management Competitive  advantage
Materials  handling
Order  processing
Time  and  place  utility
Procurement Proprietary  asset
Traffic  and  transportation
Reverse  logistics
Warehousing  and  storage

13
 The  Planning Triangle (Ballou,  2003)

Inventory  Strategy
• Forecasting Transport  Strategy
• Inventory  decisions • Transport  fundamentals

CONTROLLING
ORGANIZING
• Purchasing  and  supply   • Transport  decisions
Customer  

PLANNING
scheduling  decisions
• Storage  fundamentals service  goals
• Storage  decisions • The  product
• Logistics  service
• Ord.  proc.  &  info.  sys.

Location  Strategy
• Location  decisions
• The  network  planning  process

Business  Logistics

Physical  supply Physical  distribution

Sources  of   Plant  /   Customers

Supply Operations

Inventory   Transportation Order   Customer  

Management processing service

Purchasing Wahehousing Material   Packaging Information  

handling Management

14
 Production  – Logistics  -­ Marketing

Production Logistics Marketing

• Production   • Plant   • Transport • Customer   • Promotion

planning location service  
• Inventory • Market  
standard
• Quality  control • Purchasing research
• Order  
• Pricing
• Capacity   • Product   processing • Product  mix
planning scheduling • Packaging
• Material   • Sales  force  
• Facility   handling • Retail   management
maintenance location

Inbound  Logistics

n Developing  supplier  /  vendor  catalogue

n Item  classification
n Supplier  categorisation
n Procurement  management
n Supplier  performance  measurement
n Information  visibility  from  upstream  or  supply  
side.

15
Inventory  management  for  logistics

n Classifying  the  items  (ABC;;  Fast  Vs  slow  

moving;;  risk  and  criticality  based  classification)
n Determining  the  inventory  parameters:  reorder  
point,  safety  stock,  order  quantity,  etc.
n Managing  the  record  of  transactions  that  affect  
inventory  level.
n Maintaining  high  accuracy  level  of  inventory.
n Developing  a  performance  report  of  inventory.
n Making  the  inventory  record  visible  to  support  
internal  operations.
n Coordinating  the  planning  process  for  inventory.

Warehousing  activities
Receiving,  
Put-­away

Breakbulk Storage,  
consolidatio inventory  
n tracking

Packaging,   Picking,  
labeling loading

Return   Cross-­
processing docking

16
 Warehousing  activities

Broken
Case
Pallet Storage & Case
Picking
Retrieval Systems Picking
Systems
Systems

Material Sortation &

Putaway
Handling Accumulation

Unitizing &
Receiving Cross-Docking
Shipping

FedEx’s  Woodbridge  hub

17
Cooperative  Food  Distribution  hub  in  South  
Normanton,  UK  -­ 900000  sq  ft,  will  operate  in  2013    

Distribution  and  transportation

Determining the :
n Strategy of distribution
¨ Direct shipment
¨ Conventional warehouse
¨ Cross docking
n Transportation mode
n Shipping schedule
n Delivery route
n Location of distribution centre
n Service  level  for each distribution channel

18
 Zara  delivers twice  a  
week to  all  stores...  
Can  you  think  how  
important  
transportation  is  to  this  
company?

Temperature  Controlled   Reefer

truck

Temperature  Controlled  
Warehousing

19
Where  a  Logistics  Manager  may  work?
n Manufacturing  company
n 3PL  (3rd  party  logistics)  /  LSP  (logistics  
service  provider)
n Retailers  /  Wholesalers
n Distribution  centers
n Oil  and  gas  companies
n Service  companies  

Trend:  Outsourcing  Logistics  Activities

n More  and  more  companies  are  engaged  in  

logistics  outsourcing
¨ 3PL  companies  grow  rapidly  as  there  is  a  
quick  increase  in  demand
¨ Hong  Kong  has  over  12000  transport  and  
logistics  companies
¨ China  has  over  20000  logistics  companies
¨ We  have  many  in  Indonesia

20
Logistics  &  Distribution  Manager
n Logistics  and  distribution  managers  organise  the  storage  and  
distribution  of  goods,  which  often  involves  using  complex  IT  and  
telecommunications  systems.  They  plan  and  manage  the  movement  
of  goods  in  a  supply  chain,  liaising  with  many  parties  including  
suppliers  of  raw  materials,  manufacturers,  retailers  and  consumers.
n Logistics  and  distribution  managers  need  an  awareness  of  and  
strategic  response  to  external  influences,  such  as  legislation,  fuel  
costs  and  environmental  pressures.
n The  role  of  distribution  manager  within  logistics  may  involve  
transportation,  stock  control,  warehousing  and  ensuring  structures  
are  in  place  to  monitor  the  flow  of  goods  and  materials.  IT  plays  a  
key  part  within  the  logistics  field  in  forecasting  increasingly  complex  
systems  of  stock  levels,  delivery  times,  transport  costs  and  
performance  evaluation.

Logistics  &  Distribution  Manager

n monitoring  the  quality,  quantity,  cost  and  efficiency  of  the  
movement  and  storage  of  goods;;
n coordinating  and  controlling  the  order  cycle  and  
associated  information  systems;;
n analysing  data  to  monitor  performance  and  plan  
improvements  and  demand;;
n allocating  and  managing  staff  resources  according  to  
changing  needs;;
n liaising  and  negotiating  with  customers  and  suppliers;;
n developing  business  by  gaining  new  contracts,  analysing  
logistical  problems  and  producing  new  solutions.

21
 Logistics  Strategy

Class  Discussion
n Differentiate  Between  Cement  and  Mobile  
Phone  in  terms  of:
¨ Product  characteristics
¨ Demand  uncertainty
¨ Transportation  strategy
¨ Pricing  strategy
¨ Inventory  strategy

22
 What  is Strategy?
n Strategy à collective actions to achieve company’s strategic
objectives.
n Strategy  is  the  process  whereby  plans  are  formulated  for  
positioning  the  firm  in  the  market.
n Corporate  strategy  formulation  begins  with  defining  a  
corporate  strategy.  This  involves:
¨ Assessing  needs,  strength,  and  weakness  of  the  4  major  
components:
n Customers
n Suppliers
n Competitors
n The  company  itself
¨ “Visioning”  where  counterintuitive,  unheard  of,  and  unconventional  
strategies  are  considered.

What  is  Logistics  Strategy?

n Corporate  strategies  are  converted  to  more  

specific  strategies  for  the  various  functional  
areas  of  the  firm,  such  as  logistics.

n Logistics  strategy  is  related  to  the  way  logistics  

actions  and  decisions  are  directed  toward  
achievements  of  company’s  strategic  objectives  
(increased  value  and  customer  service).

23
What  are  typical  strategic  objectives  (related  
to  logistics)?

n Right time à goods arrive or available at the time they

are  needed
n Right price à goods are  priced competitively
n Right place à goods are  available at the place where
they are  needed

Many references interpret these objectives into:  minimise cost,  

minimise investment,  and maximise customer service.  However,  these
measures may not  be relevant to all corporate strategies.

Logistics Strategy

The  4  problem  areas  of  supply  chain  planning:

-­ Customer  service  levels Strategic)
Planning
-­ Facility  location
-­ Inventory  decisions Tactical)
-­ Transportation  decisions Planning

Operational
Control

When  to  plan?

-­ No  distribution  network  currently  exists
-­ There  has  been  no  evaluation  in  5  years
-­ When  cost  are  changing  rapidly,  especially  transport  and  inventory.
-­ When  markets  have  shifted.
-­ When  there  has  been  a  major  policy  shift  in  logistics  such  as  in  
price,  customer  service,  or  investment  level

24
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

Basic  Tradeoffs

n Speed  Vs  Cost  [higher  speed  results  in  

higher  cost]
n Flexibility  Vs  Cost  [higher  flexibility  results  
in  higher  cost]
n Variety  Vs  Speed  [more  product  variety  
results  in  lower  speed]
n Variety  Vs  Cost  [more  product  variety  
results  in  higher  cost]

25
 Speed  Vs  Cost

n If  you  want  your  products  to  reach  your  

customers  faster,  what  is  your  strategy  
and  why  this  strategy  will  imply  higher  
cost?
¨ How  would  you  deploy  your  strategy  into  
logistical  functional  strategy?  (Transportation,  
Inventory,  Warehousing,  Network?)

Speed  Vs  Cost

n Tradeoff  between  speed  and  cost  is  a  very  

basic  foundation  of  logistic  strategy.  
¨ Speed  (responsive  strategy)  à focus  on  
getting  product  faster  to  customers.  
¨ Cost  (efficient  strategy)  à focus  on  reducing  
product  price.  

26
 Implication  on  Network  Decision

n Efficient  strategy  à logistics  network  is  

more  lean  (lower  number  of  facilities  and  
more  centralised  storage)
n Responsive  strategy  à logistics  network  is  
more  widespread  (the  number  of  facility  is  
high,  and  product  is  closer  to  the  
customer)

Choosing  the  Right  Supply  Chain  Strategy

Functional   Innovative  
Products-­-­ Products-­-­
Predictable   Unpredictable  
Low  margin demand demand

Efficient  supply   Staple  food  

chain products

Responsive   Electronic  
supply  chain equipment

High  margin
54

27
 Actions  for  Misclassified  
Products

Product  Characteristic
Supply  Chain   Predictable/  Mature Unpredictable/  
Design  Type Introductory

Supply-­to-­Stock/ Tomato  Soup If  product  is  here

Efficient

Supply-­to-­Order/ If  product  is  here Personal  

Responsive Computer  Models

55

The  tendency  towards  internationalization

• Focused  market  Vs.  focused  factory

28
The  tendency  towards  internationalization

The  advantages  and  disadvantages  of  focused  factory

Cost Lead  time

Specialized  
Lower  production  
equipment  may  be  
Advantages costs  through   able  to  manufacture  
economies  of  scale
quicker
Longer  distance  
Higher  transport  
Disadvantages cost from  market  will  
increase  lead  time

The  tendency  towards  internationalization

Distribution  costs Inventory  costs

most  important most  important
Shorter   Lower    
delivery   demand  
time Local  inventories volatility

Longer   Greater    
Centralized  inventories
delivery   demand  
time volatility

29
The  tendency  towards  internationalization

Slowest-­‐moving  lines,  least  

predictable.   C Factory/Vendor
Inventory  level

Inventory  of  medium  

Lead  time

Regional  
velocity,  less  predictable   B distribution  
demand  line.
centers

Direct  shipment  of  fast-­‐ Local  trans-­‐

moving,  predictable  lines. A shipment  
point

A  Cost  Conflict  in  Logistics

Total  cost
Cost,  in  dollars

Cost  of
Inventory  cost transportation
(includes service
storage  and
intransit

Rail Truck Air

Transportation  service
(greater  speed  and  dependability)

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 Classification  of  Products
Predictable/Mature  Products Unpredictable/Introductory  
Products
•Jello
•Corn  Flakes •New  music  recordings
•Lawn  fertilizer •New  computer  games
•Ball  point  pens •Fashion  clothes
•Light  bulbs •Art  works
•Auto  replacement  tires •Movies
•Some  industrial  chemicals •Consulting  services
•Tomato  soup •New  product  offerings  of                    
existing  product  lines

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Choosing  the  Right  Supply  Chain  Strategy

Efficient  supply   o Economical  production  runs
chain o Finished  goods  inventories
o Economical  buy  quantities
o Large  shipment  sizes
Supply-­ o Batch  order  processing
to-­stock
Responsive   o Excess  capacity
supply  chain o Quick  changeovers
o Short  lead  times
o Flexible  processing
Supply-­ o Premium  transportation
to-­order o Single  order  processing

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Implication  on  Transportation  
Policy
Efficient Responsive
Mode  of  transportation Shipping  lines,  Train Airlines
Loading  policy TL LTL
Delivery  Frequency Less  frequent More  frequent
Delivery  policy Consolidation Direct  delivery

Logistics  Modes
• Road
• Sea
• Air
• Rail
• Pipeline
• Helicopter  /  Specialised  Modes

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 Case  study:  7-­eleven  Japan
n Established  1973  
(first  store  May  
1974)
n Now,  more  than  
30,000    stores
n Japan’s  largest  
retailer
n ROE  has  been  
well  over  20%

Transportation  Strategy
New
n Delivery  to  every  retail  store  
daily
n Shift  from  cost  based  to  
service  based
n Better  flexibility
Old
n Warehouse  replenishment,  
direct  store  delivery  of  select  
items
n Weekly  /  biweekly  delivery
n Minimize  total  cost  of  serving  
outlets

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Implications  on  Inventory  /  Service  
Level
Efficient: Responsive:
n Lower  inventory,   n Higher  inventory,  
turnover  rate  is  very   product  availability  is  
important  to  control critical
n Service  level  is   n Service  level  is  
normally  set  at  lower   normally  set  at  higher  
level level

Example  1  – The  importance  of  

agile?
The  following  draws  on  an  article  in  Harvard  Business  Review  (July  /  
August  2009).  Too  often  retailers  focus  only  on  obvious,  visible  costs.  

BY  SEA BY  AIR
Selling  price  per  unit   £9.50 £9.50
(fashion  item)
Asian  manufacturing   £3.00 £3.00
costs  (typical)
International  transport   £0.20 £1.00
costs  
Landside  shipping  and   £1.80 £1.60
storage
Gross  Margin £4.50 £3.90

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 However,  there  are  two  other  (indirect  or  invisible)  costs;;  the  costs  of  
over-­stocks  and  the  costs  of  stock-­outs.  With  an  agile  supply  chain  
these  costs  will  be  lower  because  the  supply  chain  will  be  better  able  
to  match  supply  with  actual  (rather  than  forecast)  demand.

BY  SEA BY  AIR
Selling  price  per  unit  (fashion   £9.50 £9.50
item)
Asian  manufacturing  costs   £3.00 £3.00
(typical)
International  transport  costs   £0.20 £1.00
Landside  shipping  and  storage £1.80 £1.60
Gross  Margin £4.50 £3.90
Costs  due  to  over-­stocks  and   £2.50 £1.50
stock-­outs  (average)
Actual  Profit £2.00 £2.40

Happier  customers  because  there  are  less  stock-­outs  and  happier  

accountants  because  the  actual  profits  are  bigger.

Example
n You  are  managing  distribution  of  a  
consumer-­ goods  product.    What  would  be  
the  implications  on  inventory  levels  if:
¨ You  have  5  RDCs  (located  as  indicated)
¨ You  have  2  RDCs  (located  as  indicated)
n How  if  service  level  target  is  increased  
from  95%  to  99%?

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