1 Introducing logistics - Wiley: · PDF file1 Introducing logistics ... R. Musmanno Introduction to Logistics System Management 'John Wiley ... presumably used in the logistics system

1 Introducing logistics

1.1 Definition of logistics1.2 Logistics systems1.3 Reverse logistics1.4 Integrated logistics1.5 Objectives of logistics1.6 Management of the logistics system1.7 Case study: The Pfizer logistics system1.8 Questions and problems

G. Ghiani, G. Laporte, R. Musmanno Introduction to Logistics System Management © John Wiley & Sons, Ltd 1 / 31

1 Introducing logistics Questions and problems

Problem 1.1

Adama is a French manufacturer of photovoltaic panels. Thecompany has a production plant in Rennes, which supplies fourwarehouses located in Angers, Bourges, Clermont-Ferrand andMontauban. The warehouses directly supply the installers,grouped, for this purpose, into 10 operative districts spreadacross the country. The installers belonging to the sameoperative district are served from a single warehouse. Eachinstaller returns defective photovoltaic panels to thecorresponding warehouse; these panels are then sent to arepairing centre located in Poitiers. Model the logistics system ofAdama through a directed graph and give a graphicalrepresentation of it (hint: the installers of the same operativedistrict are assumed to be concentrated in a unique point).



Problem 1.2

Explore the websites of companies producing beverages, andrepresent the logistics system of one of them.



Problem 1.3

Discuss the main differences in managing a logistics system ofa service company (in particular, a bank) and a productioncompany (in particular, a chemical industry).



Problem 1.4 (1/2)

What could represent a direct link between a CDC and theassembly plant of the logistics system depicted in Figure 1?



Problem 1.4 (2/2)

Customer

Customer

Customer

Customer

CDC

CDC

Assemblyplant

Productionplant

Supplier

Supplier

RDC

RDC

RDC

RDC

Productionplant

Figure 1: Example of a logistics system.



Problem 1.5 (1/2)

Florim is an Albanian company specialized in manufacturingceramic products. The company realizes its revenue by sellingsix products, as reported in Table 1.Let y = [(1+α1)x]/(α1+x) be the equation of the 80–20 curveC1 defined such that the first 21% of products sold correspondto 68% of the annual sales; similarly, let y = [(1+α2)x]/(α2+x)be the 80–20 curve C2, obtained by assuming that the first 21%of products correspond to 62% of the annual sales. Checkwhich of the curves C1 and C2 is a better approximation of theactual trend of the cumulative percentage of the annual saleswith respect to the cumulative percentage of the amounts sold.



Problem 1.5 (2/2)

Product Sales Quantity

1 350 000 27002 160 000 22003 920 000 25004 125 000 15005 360 000 42006 160 000 1900

Table 1: Annual revenue (in e) and amounts sold of the products ofFlorim.



Problem 1.6 (1/2)

Zuick is a German import-export company of householdappliances. The company, whose headquarters is located inHannover, distributes 15 products whose weekly amounts soldand corresponding sales are reported in Table 2.The company is investing additional financial resources in twoproducts, K-505 and K-506, for which the logistician proposesan intensive distribution strategy, involving more CDCs andincreasing the stocking levels. By using an ABC classification(20–30–50) of the products by the weekly amounts sold, verifywhether the distribution strategy proposed by the logistician iscorrect and, if not, modify it accordingly.



Problem 1.6 (2/2)Product Quantity Sales

K-501 155 119 806K-502 64 31 448K-503 70 25 607K-504 66 24 406K-505 61 15 196K-506 58 13 112K-507 60 10 106K-508 197 11 395K-509 154 9 489K-510 56 8 664K-511 74 13 955K-512 208 16 283K-513 164 14 085K-514 71 12 984K-515 163 123 935

Table 2: Weekly amounts sold and corresponding sales (in e) of theproducts of Zuick.



Problem 1.7 (1/2)

El.Ma is an American distributor of electrical equipment. Thewarehouse in Columbus, Ohio, has 18 products to store andsell. Monthly sales and average monthly stock values arereported in Table 3. Make an ABC classification (80–10–10) ofthe products by their monthly sales and by monthly averagestock values, respectively. Which inventory policy should El.Maadopt for the product named ‘locking release 24V’?



Problem 1.7 (2/2)ID product Description Sales Stock values

1 Digital starter 22 356 9802 Differential block 4P 147 800 36673 Land trolley 10 450 11744 HCS cable 65 980 20305 Engine control unit 380V CA 18 654 6526 Contacter 24–60V CC 27 580 17217 Control builder 19 768 5588 Universal dimmer 46 225 10159 BRI interface 8 766 775

10 Circuit breaker 10KA 80 350 315911 Motoadaptor 13 746 110012 OPC server 57 558 311113 Spring relay 7 852 73314 Electronic delayer 9 785 72415 Sectioner 32 400 89416 Locking release 24V 12 328 102017 TMA360 15 980 105818 Control unit for release 11 900 1062

Table 3: Monthly sales and average monthly stock values (in e) of theEl.Ma products.G. Ghiani, G. Laporte, R. Musmanno Introduction to Logistics System Management © John Wiley & Sons, Ltd 12 / 31


Problem 1.8

Barilla is an Italian multinational food company which ‘hassignificantly believed in B2B e-commerce and, in particular, inEDI (Electronic Data Interchange), especially in terms ofWeb-EDI, which supports the order-delivery-invoice cycle and,also, collaborative processes, such as CRP (ContinuousReplenishment Program) and CPFR (Collaborative Forecastingand Replenishment Program)’ (Mauro Viacava, CEO of Barilla).From the point of view of integrated logistics, examine themeaning of EDI, CRP and CPFR, and explain how these arepresumably used in the logistics system of Barilla.



Problem 1.9

Assume that, for a certain company, the estimated annual salesto service level curve r(l) has been determined by means of asimulation method. The resulting equation isr(l)= 950 000 l−328 000 l2, where l denotes the percentage ofcustomers served within 24 hours (e.g. if l = 0.7, 70% ofcustomers are served within 24 hours); r(l) is expressed in $.The annual logistics costs (in $) are estimated as 280 000,320 000, 380 000, 410 000, 460 000 and 510 000, with respect tothe following values of service level offered to customers: 50%,60%, 70%, 80%, 90% and 100%, respectively. Determine theservice level at which the maximum estimated annual profit isachieved.



Problem 1.10 (1/2)

There exist five design alternatives for a logistics system, whosecosts and service levels are plotted in Figure 2. Determinewhich alternatives should be taken into account as a possibledesign solution and which ones should be discarded.



Problem 1.10 (2/2)

2

5

3

1

4

Service level

Costs

Figure 2: Costs and service levels of five alternatives for the design ofthe logistics system of Problem 1.10.



Problem 1.11 (1/2)Electrolux is a Dutch company that has recently decided to startproduction and sale of a new energy-efficient light bulb. Duringthe phase of logistics system design, two alternatives are takeninto account:

- Use the foreign manufacturing plant located in Tartu(Estonia), where the unit production cost is e 0.97 (the costof raw materials purchase is included). The transport costto the CDC of Groningen is e 16 per box, where a boxcontains 100 units of the product. For simplicity, it isassumed that this cost includes also inventory costs at theCDC. The CDC of Groningen supplies two RDCs, situatedin Delft and Eindhoven; their annual demands are 28 000and 35 000 boxes, and the transport costs per box are e 9and e 10, respectively;



Problem 1.11 (2/2)

- use the national manufacturing plant of Dordrecht, wherethe unit production cost is e 1.38. This facility supplies theRDC of Delft and Eindhoven and the unit transport costsare, in this case, e 2.5 and e 3.0 per box, respectively.

Determine which alternative to prefer, considering theminimization of production and transport costs as the logisticsobjective to pursue.



Problem 1.12 (1/2)

Tranexpress is an international freight forwarder. Its service timeconsists of two components: the time required for preparingpaperwork for customs, coordinating customs inspections,warehousing and consolidation, container loading (time foradditional services) and transport time. The recorded datarelated to some past observations are reported in Table 4.Characterize the total service time from a statistical point ofview, by computing the sample mean and the standard deviationof the corresponding random variable. Compute a quantitativeindex for measuring service reliability.



Problem 1.12 (2/2)

Additional services Transport︷︸︸︷︷︸︸︷

Number of Time Number of Timerecorded data recorded data

1 21 20 1203 26 29 1324 33 56 1489 41 66 162

18 52 52 17835 60 26 19742 98 16 20922 10713 1142 1221 129

Table 4: Observed data related to additional services and transporttimes (in days) of Tranexpress.



Problem 1.13

Norsk is a Danish company that specializes in food product fordaily consumption. It has five associated subsidiaries in theEuropean Union and a network of distributors in North America.Recently, the company has decided to redesign its distributionnetwork in Scandinavia where 140 distribution centres havebeen transformed into simple stores without administrativefunctions. The administrative functions have been concentratedin 14 logistics centres with regional character, and forecastingactivities based on data analysis have been centralized in thecompany headquarters. List and classify the decisions taken atthe business management level during the reorganization phaseof the logistics system.



Problem 1.14

Explain why stocks of products are usually increased in one ormore facilities in the absence of logistics coordination.



Problem 1.15 (1/4)

An ineffective management of a logistics system can produceinstability. One of the effects due to mismanagement is knownas the bullwhip effect : a small fluctuation in customer demandcan cause amplified fluctuations in material flows orders overtime via the upstream supply chain itself. This particularphenomenon was first recognized by the managers of Procter &Gamble who noticed significant variability of sellers’ ordersdespite the fact that consumer demand remained constant; thisis because the orders were issued on the basis of limitedinformation regarding the final demand of the product (in thiscase, Pampers disposal diapers).



Problem 1.15 (2/4)

In general, distorted information along the logistics system givesrise to a growing imbalance between demand and supply; adistorting effect creates the same problems throughout thesupply chain. For example, decisions about the management ofthe CDC in a company are, in general, based on the level ofstocks and on the orders issued in a logistics node immediatelydownstream of the CDC, such as an RDC, without knowing theend-user demand. The orders issued by the RDC are used toestimate the mean and standard deviation of demand. Theseestimates are the basis of decisions on reorganization issues.



Problem 1.15 (3/4)

For example, in the (s,S) method (see Section 5.3.2.2), anorder is issued whenever an inventory level falls below a givenreorder point s and the inventory level is then increased to anorder-up-to-level S. As the perceived demand varies, theparameters S and s are updated and order quantities are alsochanged. In light of this, show that a typical bullwhip effect in alogistics system, made up of a production plant, a CDC, a RDCand a retailer, is like the one reported in Figure 3 (where it isassumed that a sudden 10% increase in end-user demandoccurs). Can this effect be reduced through more and betterinformation sharing?



Problem 1.15 (4/4)

Customers

Customers demand

Retailer demand

RDC demand

CDC demand

Production plantoutput

Retailer

Time

Time

Time

Time

Time

+18%

+34%

+10%

+51%

+45%+12%

−3%

Productionplant CDC RDC

Figure 3: The bullwhip effect for the logistics system of Problem 1.15.



Problem 1.16

Define the functional organizational structure of a petrochemicalcompany showing the position of the logistics activities.Compare advantages and disadvantages when a divisionalorganization is adopted.



Problem 1.17 (1/4)

Ajt Solar is an Indian company of photovoltaic products. Tocontrol the logistics system, some critical logistics activities aremonthly monitored. Three families of KPI are considered: orderprocessing, inventory management and transport. The KPIs,their families and the computing method used for each of themare shown in Table 5.



Problem 1.17 (2/4)

Family KPI Computing method

Order Orders Number of orders in a month/processing number of weekdays in a month

Complaints Number of complaints a month

Inventory Stocks values Monthly inventory value

Transports Deliveries per journey Average number of customers monthlyserved with a journey

Planned journeys Monthly number of planned journeys/ monthly number of journeys carried out

Table 5: KPIs and computing method used of the Ajt Solar company.



Problem 1.17 (3/4)

The values of each computed KPI in the past 15 months arereported in Table 6. In the current month (with 23 working days),the company has recorded the following data: 3568 orders, 15complaints, $ 560 400 in stock value, 24.25 customers onaverage served on a journey, 4950 planned journeys and 4902journeys made. Build a control panel for monitoring the threeidentified KPI families, according to the methodology illustratedin Section 1.6.3. Show how the actions on the logistics systemcan change depending on the weights assigned to each KPIbelonging to the first and third families.



Problem 1.17 (4/4)Period Orders Complaints Stocks values Deliveries per Planned

($) journey journeys

1 154.26 21 470 800 15.48 1.072 151.04 12 500 800 36.76 0.973 161.23 16 533 000 18.94 1.134 145.33 24 565 900 33.07 1.145 158.66 14 567 700 31.15 1.136 171.25 16 471 900 40.37 1.107 98.66 31 522 200 23.35 0.838 102.45 8 531 000 14.33 1.009 134.74 12 509 800 39.80 0.93

10 147.24 16 579 700 18.37 1.2011 133.54 21 548 300 26.04 1.1512 154.81 18 458 700 30.10 1.0013 148.82 20 542 100 36.60 0.9514 124.31 13 524 500 26.52 1.1115 164.03 11 567 400 33.46 1.00

Table 6: KPI values for the last 15 months for the Ajt Solar problem.


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1 Introducing logistics - Wiley: · PDF file1 Introducing logistics ... R. Musmanno Introduction to Logistics System Management 'John Wiley ... presumably used in the logistics system