Logistics

Chapter 8
 Chapter Objectives
Be able to:
Describe why logistics is important and discuss the major decision areas that
make up logistics.
List the strengths and weaknesses of the various modes of transportation and
discuss the role of multimodal solutions.
Identify the major types of warehousing solutions and their benefits.
Discuss the purpose of a logistics strategy and give examples of how logistics
can support the overall business strategy.
Calculate the percentage of perfect orders.
Calculate landed costs.
Explain what reverse logistics systems are, and describe some of the unique
challenges they create for firms.
Use the weighted center of gravity method to identify a potential location for
a business.
Develop and then solve, using Microsoft Excel’s Solver function, an assignment
problem.
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 Logistics Management
 Logistics management – That part of supply
chain management that plans, implements,
and controls the efficient, effective forward
and reverse flow and storage of goods,
services, and related information between
the point of origin and the point of
consumption in order to meet customers’
requirements. © CSCMP – Council of Supply Chain Management Professionals

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 Logistics Management
 Transportation
 Warehousing
 Material handling
 Packaging
 Inventory management
 Logistics information systems

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 Why Logistics Is Critical
 Impact on cost, flexibility, and delivery
performance
 Advances in information systems
 Globalization of markets
 Push toward sustainability

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 Transportation
 Highway
 Water
 Air
 Rail
 Pipeline

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 Comparison of Modes
from 1997-2007

Table 8.1

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 Highway
 Dominates the logistics infrastructure due to:
 Geographic extension of supply chains
 Greater emphasis on delivery speed and flexibility
 Has become more cost effective over time due to:
 Better scheduling and use of vehicle capacity
 More efficient and reliable vehicles
 Increased cost competition due to deregulation
 Involves different types of shipments
 Direct truck – Shipment made with no stops
 Less than truckload (LTL) – Smaller shipment combined with
other loads
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 Water
 Ideal for materials with high weight-to-value
ratio, especially if delivery speed is not
critical.

 Examples: farm produce, timber, petroleum-

based products.

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 Air
 Ideal for customers with a low weight-to-
value ratio, especially if delivery speed or
delivery reliability is critical.

 Higher shipping costs and improvement in

other modes have reversed the rise in air
growth over the past decade.

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 Rail
 Characteristics similar to Water but more
flexible.

 To accommodate growth, rail carriers have

doubled the number of lines along busy
corridors, changed the physical configuration
of the trains, and utilized multimodal
solutions.

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 Selecting a Transportation Mode

Table 8.2
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 Multimodal Solutions
 Multimodal solution – A transportation
solution that seeks to exploit the strengths of
multiple transportation modes through
physical, information, and monetary flows
that are as seamless as possible
 Roadrailer – A specialized rail car the size of a
standard truck trailer that can be quickly switched
from rail to ground transportation without
changing the wheels.

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 Warehousing
 Warehousing – Any operations that stores,
repackages, stages, sorts, or centralizes goods
or materials.
 Warehousing can be used to:
 Reduce transportation costs
 Improve operational flexibility
 Shorten customer lead times
 Lower inventory-related costs.

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 Consolidation Warehousing
 Consolidation warehousing – A form of
warehousing that pulls together shipments
from a number of sources in the same
geographic area and combines them into
larger and more economical loads
 Cross-docking
 Break-bulk
 Hub-and-spoke system

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 Consolidation Warehousing

Figure 8.2

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 Cross-Docking

Figure 8.3

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 Hub-and-Spoke System

Figure 8.5

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 Postponement Warehousing
 Postponement warehousing – A form of
warehousing that combines classic
warehouse operations with light
manufacturing and packaging duties to allow
firms to put off final assembly or packaging
of goods until the last possible moment.

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 Types of Warehouses
 Assortment warehouses – A form of
warehouses in which a wide array of goods is
held close to the source of demand in order
to assure short customer lead times.

 Spot stock warehouses – A form of

warehouses that attempts to position
seasonal goods close to the marketplace.

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 Logistics Information Systems
 Decision support tools
 Real-time simulation and optimization
 Cost estimations

 Planning systems
 Carrier selection
 Scheduling deliveries

 Execution systems
 RFID

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 Material Handling and Packaging

 Material handling system – A system that includes

the equipment and procedures needed to move
goods within a facility, between a facility and a
transportation mode, and between different
transportation modes.

 Packaging – The way goods and materials are

packed in order to facilitate physical, informational,
and monetary flows through the supply chain.

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 Inventory Management
 Implications for transportation:
 Using slower and cheaper transportation modes
will cause inventory levels within the supply chain
to rise.
 Using faster and more expensive transportation
modes will enable firms to lower inventory levels.
 Implication for warehousing:
 Warehousing and inventory managers must work
closely to achieve the desired business outcome.
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 Logistics Strategy
 Logistics strategy – A functional strategy
which ensures that an organization’s logistics
choices are consistent with its overall
business strategy and support the
performance dimensions that targeted
customers most value.

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 Owning vs. Outsourcing
 Does the firm have the volume needed to justify a
private logistics system?
 Would owning a logistics system limit the firm’s
ability to respond to changes in the marketplace or
supply chain?
 Is logistics a core competency for the firm?
 Outsourcing options:
• Common carriers
• Contract carriers
• Third-party logistics providers (3PL)
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 Making Transportation/Warehousing
Decisions Based on Order Winners

Table 8.3

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 Measuring Logistics Performance

 The perfect order

 Delivered on time (according to buyer’s delivery
dates)
 Shipped complete
 Invoiced correctly
 Undamaged in transit

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Perfect order – Example 8.4

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 Landed Costs
 Landed cost – The cost of a product plus all
costs driven by logistics activities, such as
transportation, warehousing, handling,
customs fees, etc.

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 Reverse Logistics Systems
 Reverse logistics system – A complete supply
chain dedicated to the reverse flow of
products and materials for the purpose of
returns, repair, remanufacture, and/or
recycling. © 2010 APICS Dictionary

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 Reverse Logistics Systems
 Challenges:
 Firms have less control over the timing, transportation
modes used, and packaging for goods flowing back up the
supply chain.
 Goods can flow back up the supply chain for a variety of
reasons and a reverse logistics system needs to be able to
sort and handle these different flows.
 Forward logistics systems typically aren’t set up to handle
reverse logistics flows.

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 Weighted Center
of Gravity Method
 Weighted center of gravity method – A
logistics decision modeling technique that
attempts to identify the “best” location for a
single warehouse, store, or plant given
multiple demand points that differ in location
and importance.

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 Weighted Center
of Gravity Method

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Example 8.6 – CupAMoe’s
Current location and population of the three towns
to be served by the warehouse

Figure 8.6

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 Example 8.6 – CupAMoe’s
Suggested location for the new warehouse

Figure 8.7

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 Optimization
 Optimization model – A type of mathematical
model used when the decision maker seeks
to optimize some objective function subject
to some constraints.
 Objective function – A quantitative function that
an optimization model seeks to optimize
(minimize or maximize).
 Constraint – A quantifiable condition that places
limitations on the set of possible solutions.

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 Optimization
Business problems that can be addressed
through optimization modeling:

Table 8.5

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 The Assignment Problem
 The assignment problem – A specialized form
of an optimization model that attempts to
assign limited capacity to various demand
points in a way that minimizes costs.

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 The Assignment Problem
The generalized form of the assignment problem

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 Logistics
Case Study
Green Reverse Logistics in the
Electronics Industry

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