LOGISTICS IN SUPPLY CHAIN

THE AMERICAN ACADEMY OF PROJECT MANAGEMENT

CHAPTER- INDONESIA
AMERICAN ACADEMY OF SUPPLY CHAIN MANAGEMENT
Arva Blg 5th Floor, Jl. Cikini Raya No.60 Jakarta Pusat Phone; (021) 31924002 1
Head Office: Suite 293, 1670-F East Cheyene Mountain Blvd, Colorado Springs, Colorado-USA Phone: 877-588-2698
CONTENT
• Introduction
• Transportation
• Incoterm
• Distribution Channel Systems and
Network Design Network planning

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 1. INTRODUCTION LOGISTICS MANAGEMENT
• Logistics involves more than physical distribution. In the
science of logistics, the flow of materials is efficiently
managed inbound-through and outbound of an
organization.

• Two primary product flows:

• Physical supply (materials management): Flows that provide raw
materials, components, and supplies to the production process.
• Physical distribution management: Flows that deliver the completed
product to customers and channel intermediaries.

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 Logistics Management

Materials Management Distribution Management

Logistics Management
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 Physical Distribution
• Physical distribution:
– The process of planning, implementing, and controlling efficient,
effective flow and storage of goods, services, and related information
from point of origin to point of consumption for the purpose of
conforming to customer‘s requirements.

• Physical distribution cost can represent 20% or more of the selling price
of a product.

• It is an integrated part of the entire company system—problems in other

areas impact distribution and vice versa.

• From customer’s perspective, supplier’s physical distribution function

gets the right products to them, at the right place, at the right time. These
are basic customer rights (along with right price and right condition).

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 Study Area Map

Supply Chain Management

(a series of connected logistics flows)

Logistics Management

Materials Management Physical Distribution

Incoming transportation Traffic management
Receiving Shipping
Purchasing Customer service
Incoming warehousing Finished goods
Inventory control

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AMERICAN ACADEMY OF SUPPLY CHAIN
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CONTROLLABLE ELEMENTS IN A LOGISTICS SYSTEM
• Customer service
• Logistics communications
• Warehousing
• Packaging
• Production planning
• Order processing
• Transportation
• Inventory control
• Materials Handling
• Plant and warehouse location

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MAJOR CATEGORIES OF SERVICE COMPLAINTS
• Traffic and transportation
• Damaged merchandise
• Carrier did not meet
standard transit time
• Merchandise delivered
prior to date promised
• Carrier failed to follow customer
routing
• Carrier did not comply
with specific instructions
• Errors present on bill of lading
• Condition or type of transport
equipment not satisfactory
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• Warehousing and packaging
– Merchandise delivered late
– Problem with containers in
packaging plants
– Special promotion merchandise
not specified in delivery
– Errors in warehouse release forms
– Incorrect types and quantities of
merchandise shipped
– Papers not mailed promptly to
headquarters
– Field warehouse delivered
damaged merchandise
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(continued)
 MAJOR CATEGORIES OF SERVICE COMPLAINTS
• Inventory control • Sales order service
– Delayed shipments
– Stockouts
– Invoice, sales
– Contaminated coding, or brokerage
products received errors
– Product – Special instructions
identification errors ignored
– No notification of
– Poor merchandise
late shipments
shipped

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 2. TRANSPORTATION

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TRANSPORTATION AS A LOGISTICS FUNCTION

• Provides time and place utilities by moving goods and materials from
origin to destination (when and where needed)
• Permits a transportation vehicle to serve as temporary storage (when
permanent storage facilities are unavailable or impractical)
• Functions of Traffic Management: Mode and carrier selection
,Routing, Claims processing

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BASIC TERMINOLOGY: PARTIES

1. Transportation service provider ( “shipping company”)

2. Customer (purchaser) of transportation. Includes the sender of
goods and the receiver of goods
3. Intermediary that represents either shipper or carrier in
transactions
4. Third-party logistics service provider
• owns facilities and/or vehicles
• does not own facilities/vehicles

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BASIC TERMINOLOGY

• Terms of Sale:
• Free on board (FOB) origin/destination
• CIF (Cost, Insurance, and Freight)

• Classes
• Parcels (small package shipments)
• LTL/LCL (Less-than-truckload/carload)
• TL/CL (Truckload/Carload) TL/CL
• Multiple vehicle loads

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TRANSPORTATION SERVICE ELEMENTS

• Transit time (dock door to dock door)

• Accessible to customers when they need it Certainty in
service quality and timing Ability to move a variety of goods
and materials (of varying size, weight and shape)
• Ability to reach customer locations wherever they may be

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CHANGING TRANSPORTATION ENVIRONMENT
• Expanding geographic coverage

• Time-based competition

• Social and environmental concerns

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FORMS OF REGULATION

• Economic Regulation
• Market Entry/Exit (operating authority)
• Services
• Safety and Social Regulation
• Weight/Size of shipments and vehicles
• Hours of service for vehicle operators
• Hazardous materials routing and handling
• Insurance requirements

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RESULTS OF THE CHANGING REGULATORY
ENVIRONMENT

• Escalating customer demands

• Movement to core carrier concept
Emergence of transportation as a “value-added” service --
competitive advantage
• More efficient carrier operations -- competitive pricing in
most modes

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MORE RESULTS OF THE CHANGING REGULATORY
ENVIRONMENT
• Consolidation in rail, air and LTL trucking
• Proliferation of TL carriers
• Air freight growing
• Intermodal growing: truck-rail, truck-rail-ship, truck-air
• Increasing competition in individual markets - both within modes
and between modes
• Growth of “one-stop shopping”

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 WHAT IF YOU NEED HELP ？

Freight forwarders
• (A freight forwarder, forwarder, or forwarding agentis a person or
company that organizes shipments for individuals or
corporations to get goods from the manufacturer or producer to
a market, customer or final point of distribution).

Shippers’ associations
• (A non–profit entity that represents the interests of a number of
shippers. The main focus of shippers associations is to pool the
cargo volumes of members to leverage the most favorable service
contract rate levels.)

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 Third-Party Logistics (3PL)

• 3PL : “Subcontracting specific logistics activities to a

third-party specialist service provider” This is hiring a
specialist to serve a specific function in the operation,
management or administration of logistics processes.
• Services Provided by 3PL Providers
 Information management
Human resources
Management
Administration

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 Fourth-Party Logistics (4PL)

•  4PL provider is an integrator that accumulates

resources, capabilities and technologies to run complete
supply chain solutions.

• Main Difference between 3PLs and 4PLs:

The 3PL targets a single function, whereas
the 4PL manages the entire process. A 4PL may
manage the 3PL.

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3PL VS 4PL

4PL: Arrangement in which a firm contracts out (outsources) its

logistical operations to two or more specialist firms (the third party
logistics) and hires another specialist firm (the fourth party) to
coordinate the activities of the third parties.

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 DRIVERS OF LOGISTICS OUTSOURCING

• Debt reduction
• Strategic focus of
• Financial resources Human resources
• Information technology
• Competition
• Faster
• Better
• Cheaper

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THE “MAKE” VS. “BUY” DECISION:
ADVANTAGES/DISADVANTAGES OF 3PLS
Advantages
• Less asset investment
Flexibility as environment changes
Potential for:
 Lower operating costs
 Higher service levels
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Disadvantages
• Loss of control
• Possibly higher operating costs
• Switching costs
• Interests may not be mutual
• May not provide complete
coverage of service and
geographic needs
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 Many of the imported goods you purchase were
shipped in 20-foot or 40-foot
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 Large cranes loaded the containers on a ship.

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 Larger container ships can hold
4,000 to 6,000 containers.
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(Image courtesy of Maersk Sealand)
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 After unloading from the ship, the containers can be
loaded onto a flatbed rail car for additional inter-
modal shipping.
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(Image courtesy of CSX Corp.) 29
 Intermodal container motor carrier

AMERICAN ACADEMY OF SUPPLY CHAIN (Image courtesy of Maersk Sealand) 30

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 Rail freight carrier Barge/river freight carrier

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(Image courtesy of CSX Corp.)
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 Air freight carrier Pipeline

Container stack train

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Jumbo jet air freight
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• Comparison of transportation mode

Mode Speed Depend- Frequency Availabil- Flexibility Cost

ability in of ity in in
Meeting Shipments Different Handling
Schedules Locations

Rail Average Average Low Low High Average

Water Very slow Average Very low Limited Very high Very low
Truck Fast High High Very Average High
extensive
Pipeline Slow High High Very Very low Low
limited
Air Very fast High Average Average Low Very
high

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 3. The International Commercial
Terms

A set of rules for the interpretation of trade terms,

in a contract of sale.

Published and regularly updated by the

International Chamber of Commerce to help
parties to avoid misunderstandings, with all the
waste of time and money that this entails.
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 Purpose of Incoterms

To determine the seller’s and buyer’s respective

obligations concerning responsibilities and
charges for the transportation of goods from
the seller’s premises to the buyer’s place.

To avoid any misunderstanding in the following

questions : “Who is responsible for what ? Who
is going to pay for what ?”

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 An Incoterm is a 3 Letter Word
Followed by a Name of Place...

Applying only to the contract of sale in some

very distinct respects.

Dealing with a number of identified

obligations imposed on the parties.

There are 13 Incoterms and each one fits a

specific situation and specific means of
transport.
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 The Structure of Incoterms

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 The Structure of Incoterms
4 groups of terms
– Group E departure
EXW Ex Works (… named place)
– Group F Main carriage unpaid
FCA Free Carrier (…named place)
FAS Free Alongside Ship (…named place)
FOB Free On Board (…named port of shipment)
– Group C Main Carriage Paid
CFR Cost and Freight (…named port of destination)
CIF Cost Insurance and Freight (…named port of destination)
CPT Carriage Paid To (…named place of destination)
CIP Carriage Insurance Paid To (…named place of
destination)
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 The Structure of Incoterms
– Group D Arrival
DAF Delivered at Frontier (…named place)
DES Delivered Ex Ship (…named port of
destination)
DEQ Delivered Ex Quay (…named port of
destination)
DDU Delivered Duty Unpaid (…named place of
destination)
DDP Delivered Duty Paid (…named place of
destination)
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AMERICAN ACADEMY OF SUPPLY CHAIN
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 Incoterms

DAF
DDP seller
Buyer
DDU
DEQ
DES Export
Import

CFR CIF
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FAS EXW
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CIP CPT FCA FOB
 4. DISTRIBUTION CHANNEL SYSTEMS AND
NETWORK DESIGN

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WHAT IS THE ROLE OF LOGISTICS IN
CORPORATE STRATEGY?
• To provide time (when) and place (where) utilities at a level
consistent with customer service and cost objectives
• Logistics also finds its way into:
• Supply chain strategy
• New product development
• New market entry
• Environmental strategy

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KEY STRATEGIC QUESTIONS

• What products/services will we offer?

• From whom do we acquire the materials and services we need to serve our customers?

• Who, where, and how many customers do we want to

serve?
• How do we best reach them?

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 DISTRIBUTION STRATEGIES
Outbound strategies:
• Direct shipment:  is a method of delivering goods from the supplier or the product owner to
the customer directly. In most cases, the customer orders the goods from the product
owner. This delivery scheme reduces transportation and storage costs, but requires
additional planning and administration
• Warehousing: is a commercial building for storage of goods. Warehouses are used by 
manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc
• Cross docking:  is a practice in logistics of unloading materials from an incoming semi-trailer
truck or railroad car and loading these materials directly into outbound trucks, trailers, or rail
cars, with little or no storage in between
• Transhipment is the shipment of goods or containers to an intermediate destination, then to
yet another destination.

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CROSSDOCKING

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WAREHOUSING OPERATION

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Types of A Channels of Distribution
• Consumer Goods

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 Types of channel distribution
Business Goods
Services

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ALTERNATIVE CHANNELS OF DISTRIBUTION

Direct channels:

Manufacturer Manufacturer Manufacturer

Mail-order/
Manufacturer-
Internet
owned store
operation

Consumer Consumer Consumer

(A manufacturer’s perspective)
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 THE BURDEN OF DIRECT CHANNELS

Mfrg. DC
Plant A WH

DC

Mfrg. DC
WH
Plant B

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MORE CHANNELS:
CALLING UPON OTHERS TO HELP YOU REACH CONSUMER

Indirect channels:

Manufacturer Manufacturer Manufacturer

Sales Agent or Broker

Wholesaler
Wholesaler
Retailer
Retailer Retailer

Consumer Consumer Consumer

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 THE “BIG PICTURE”

RL RL
Extraction RL
Point WH Mfrg. DC
WH WH DC
Plant A RL
RL
DC RL
WH
RL
Extraction WH DC RL
Point Mfrg. DC
WH Plant B WH RL
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RL 54
 Direct vs Indirect Channel

General Best
Smuckers Pet Foods
Foods Foods

Safeway Acme Giant Eagle Ralph’s

General Best
Smuckers Pet Foods
Foods Foods

WHOLESALER

Safeway Acme Giant Eagle 55 Ralph’s

• Factor in choosing Distribution channels
Short Channels Long Channels

Market Business users Consumers

factors
Geographically concentrated Geographically diverse

Extensive technical Little technical knowledge and

knowledge and regular regular servicing not required
servicing required
  Large orders Small orders
Product Perishable Durable
factors
Complex Standardized
Expensive Inexpensive

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 Characteristics of Short Characteristics of Long
Channels Channels
Producer Manufacturer has adequate Manufacturer lacks adequate
factors resources to perform resources to perform
channel functions channel functions

Competitive Manufacturing feels Manufacturer feels

factors satisfied with short dissatisfied with short
marketing intermediaries’ marketing intermediaries’
performance in promoting performance in promoting
products products

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MAJOR LOCATIONAL DETERMINANTS

Regional Determinants
• Proximity to markets/sources
• Transportation infrastructure &
access
• Labor climate (& rates)
• Taxes & industrial development
incentives
• Land costs and utilities
(The total cost of a
landed shipment including purchase price,
freight, insurance, and other costs up to the port
of destination )

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WHY MESS WITH CHANNEL INTERMEDIARIES?
• Intermediaries facilitate distribution to your targeted end users --
• They may or may not assume the risks of inventory ownership
• Merchants: those that assume the risks of ownership directly
(manufacturers, wholesalers, retailers)
• Brokers: those that perform services for a fee but do not
assume risks directly (sales agents, brokers, 3PLs,
transportation firms, public warehouses)
• Matching Heterogeneous Supplies to Heterogeneous
Demands

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HOW MANY INTERMEDIARIES DO YOU NEED?
• Widespread coverage
• You want your product on the shelves of every store
• Convenience is key
• A specific end-user target
• You want your product to be known and accessible to a specific
audience --
• Control is key; convenience is less important
• Somewhat intensive/exclusive
You want to maintain control yet seek wide coverage --
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Market Exposure: intensive vs exclusive

Intensive What Market

Exposure
Fits the
Marketing Selective
Objectives?

Exclusive = number of
outlets

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MANAGING CHANNEL RELATIONSHIPS
• Dependency and Power
• Risk
• Leadership
• Cooperation/Collaboration

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Questions?
Thank you.

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