Dimensions of Logistics

7/17/2019 Dimensions of Logistics

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Chapter 2 Management of Business Logistics, 7thEd.

2

Learning Objectives - After

reading this chapter, you should be able to

do the folloing:

!nderstand the role and importance oflogistics in private and public organi"ations#

Discuss the impact of logistics on theeconomy and ho e$ective logisticsmanagement contributes to the vitality ofthe economy#

!nderstand the value-added roles of

logistics on both the macro and micro level# %&plain logistics systems from severalperspectives#




3

Learning Objectives !nderstand the relationship beteen

logistics and the other important

functional areas in a company, includingmanufacturing, mar'eting, and (nance#

Discuss the important managementactivities in the logistics function#






5

Logistics )ro(le:

Jordano Foods *ordano +oods is a major vendor for A

Distribution, and must decide if it ants a

supply chain relationship ith A# *ordano.s C%O put together a study team

to evaluate the impact of adding alogistics systems approach#

As you read this chapter, loo' for ays for *ordano to improve its logistics processesand supply chain relationship ith A#




6

Dimensions of Logistics:

Introduction Logistics has come a long ay since the

/01s#

3he big challenge is to manage the holelogistics system in such a ay that orderful(llment meets or e&ceeds customere&pectations#

+ocus of this chapter is upon the individual(rm.s logistics system but also recogni"ingthat no logistics system operates in a vacuum#




7

+igure 2-/Contemporary Supply Chain

Pipeline




8

+igure 2-2: Logistics Costs as a

Percentage of GDP




Logistics in the %conomy:

A Macro Perspective As indicated in +igure 2-2, logistics costs

as a percentage of 4D) have declinedfrom /1 percent in /05, to under /percent in /000#

%arly to mid-/06s sa the (gure closerto 2 percent#

3his re7ects a serious improvement in thee8ciency of logistics systems# +igure 2-9 shos a further brea'don of

logistics costs for /000#




!"

+igure 2-9:

otal Logistics Costs !!! "###




!!

+igure 2-:

Inventory Sales $atio




!2


A Macro Perspective As indicated in +igure 2-, the +ederal

;eserve measure of inventory to sales

ratios from /00/ to /000 clearlyindicate that companies are gettingbetter at managing inventory#

Companies have been supporting larger

amounts of sales ith decreasingamounts of inventory#




!3


A Macro Perspective 3he to largest cost categories in logistics

systems are transportation and inventory#

<hile e ill loo' at this in Chapter 0,motor carriers. share of total freighte&penditures is => billion versus =00billion for all other carriers#

3he most fre?uent trade-o$ in logistics isbeteen transportation and inventorycost#




!4

#hat is Logistics$ @ncreased recognition through nes

media, corporate-oned trailer

promotions, and television @ncreased sensitivity to service ?uality

provided by logistics Logistics de(nitions provided in 3able 2-

/ on the folloing slide#




!5

3able 2-/:

Logistics De%nitions




!6

#hat is Logistics$ )opular logistics terms:

Logistics anagement

usiness Logistics anagement @ntegrated Logistics anagement aterials anagement )hysical Distribution anagement ar'eting Logistics @ndustrial Logistics Distribution




!7

#hat is Logistics$%

&"st Century 'ie( of Logistics

usiness Logistics B supply chain processthat plans, implements, and controls thee8cient, e$ective 7o of goods, services,and related information from the point oforigin to the point of use or consumption inorder to meet customer re?uirements#

ilitary Logistics B design and integration of

all aspects of support for the operationalcapacity of the military forces, and theire?uipment to ensure readiness, reliability,and e8ciency#




!8

#hat is Logistics$%

&"st Century 'ie( of Logistics

%vent Logistics B netor' of activities,facilities, and personnel re?uired toorgani"e, schedule, and deploy theresources for an event to ta'e place andto e8ciently ithdra after the event#

ervice Logistics B ac?uisition,scheduling, and management of thefacilitiesassets, personnel, and materialsto support and sustain a serviceoperation or business#




!

#hat is Logistics$%

'alue!Added $ole of Logistics ost commonly referred to in terms of

economic utilities: +orm utility hatE )lace utility hereE 3ime utility henE )ossession utility hyE

Also referred to as the seven ;s --- ;ightproduct, ;ight ?uantity, ;ight condition,;ight place, ;ight time, ;ight customer,and ;ight cost#




2"

+igure 2-> Fundamental)tility Creation in the

*conomy




2!

Logistics in the +irm:he Micro Dimension

Logistics @nterfaces ithOperationsanufacturing

Logistics @nterfaces ith ar'eting Logistics @nterfaces ith Other Areas




22

Logistics in the +irm: LogisticsInterfaces (ith +perations

Manufacturing Length of production runs

alance economies of long production

runs against increased costs of highinventories#

easonal demand

Acceptance of seasonalinventory to balancelead production times#




23

Logistics in the +irm: LogisticsInterfaces (ith

+perations,Manufacturing upply-side interfaces

toc'ing ade?uate supplies to ensure

uninterrupted production no alogistics function# )rotective pac'aging

)rincipal purpose is to protect theproduct from damage#

+oreign F third party alternatives ome logistics functions are being

outsourced#




24

Logistics in the +irm:he Micro Dimension

Logistics @nterfaces ith ar'eting: 3he ar'eting i& B +our )s

)rice )roduct

)romotion

)lace




25

Logistics in the +irm:

Price

Carrier pricing

4enerally, since the larger the shipment, thecheaper the transportation rate, shipment si"es

should be tailored to the carrier.s vehiclecapacity here possible#

atching schedules

Guantity discounts should be tied to carrier

?uantity discounts# Holume relationships

Holumes sold ill a$ect inventory re?uirements#




26

Logistics in the +irm:Product

Consumer pac'aging 4enerally, since the si"e, shape, eight and

other physical characteristics of the product

impact on its storage, transportation andhandling, the logistics managers should beincluded in any decisions regarding theseproduct traits#

A minor correction in any of the above couldconceivably cost or saveE millions of dollarsin logistical costs#

Logistics costs are not necessarilyparamount, but they need to be considered inthe decision ma'ing process#




27

Logistics in the +irm:Promotion

)ush versus pull

3he most important factor is that the logisticsdivision is aare of any changes in demand

patterns so that it can plan for anyconse?uences#

)ull strategies tend to be more erratic#

)ush strategies tend to more predictable#

Channel competition 3he more popular a product, the easier it is to

persuade channel members to promote yourproduct#




28

Logistics in the +irm:Place

<holesalers 4enerally, since holesalers are combining

purchases for multiple retailers, the shipment

si"es tend to be larger and the number oftransactions that have to be processed arefeer, ith the result that logistics costs aresmaller#

;etailers <ith the e&ception of very large retailers ho

act more li'e holesalers, smaller sales arethe norm# 3hese generally cost more fortransportation and order processing#




2

Logistics @nterfaces ithOther Areas

anufacturing and mar'eting are probably theto most important internal, functionalinterfaces ith logistics#

Other important interfaces no include (nanceand accounting#

Logistics can have a major impact on returnon assets and return on investment#

Logistics costs reported by cost systemsmeasure supply chain trade-o$s andperformance#




3"

Logistics Activities

3ransportation

torage

)ac'aging aterials handling

Order ful(llment

+orecasting

)roductionplanning

)urchasing Customer service

ite location

Other activities




3!

On the Line:oyota Distri-ution

oves more than 5 million parts and accessoriesevery month#

Computer modeling re-designed the 9 year old

distribution netor'# oftare loo'ed (rst at Le&us Division and then

at the entire netor'# ;esulted in to DCs, one in California, another

in Ientuc'y, feeding nine smaller DCs locatedaround the country# 3he ne netor' both improved customer

service and loered costs#




32

Approaches to Analy"ing Logisticsystems: Materials Management v.

Physical Distri-ution +re?uently the movement and storage of ra

materials is far di$erent from the movement andstorage of (nished goods#

+our di$erent classi(cations of logistics systems

alanced system - e#g#, consumer products

Jeavy inbound - e#g#, aircraft, construction

Jeavy outbound - e#g#, chemicals

;everse systems - e#g#, returnable products




33

Approaches to Analy"ingLogistics ystems

Cost Centers 3reating logistics activities as cost centers

ma'es it easier to study cost trade-o$s

beteen the centers# see 3ables 2-2 and 2-9E Kodes versus Lin's

Kodes are spatial points arehouses, plants,etc#E

Lin's are the transportation netor' rail,

motor, air, pipe and aterE# see +igure 2-1E Logistics Channel

3he netor' of intermediaries involved in thelogistics system# see +igures 2-6, 2-5, and 2-0E




34

3able 2-2 Analysis of otal Logistics Cost(ith a Change to /igher Cost Mode ofransport

Cost Centers ;ail otor

3ransportation = 9# = #2

@nventory ># 9#6>

)ac'aging #> 9#2

<arehousing /#> #6>

Cost of Lostales

2# /#

3otal Cost = /># = /9#




35

3able 2-9 Analysis of otal LogisticsCost (ith a Change to More

0arehouses

Cost Centers

ystem / ystem 2

3hree<arehouses

+ive<arehouses

3ransportation = 5>, = >,

@nventory /,>, 2,,

<arehousing 1, /,,

Cost of Lostales

9>, /,

3otal Cost = 9,9, = 9,1,




36

+igure 2-1 1odes and Lin2sin a Logistics System




37

+igure 2-6 A Simple Logistics Channel




38

+igure 2-5 A Multi!*chelon Logistics

Channel




3

+igure 2-0 A Comple3 Logistics Channel




4"

Logistics and ystemsAnalysis

Cost )erspective

Ieep in mind that the most e8cient

systems are not alays comprised ofeach system component operating atits loest possible cost#

3he critical concern is to have theentire system operating at its loesttotal cost#




4!

Logistics and ystemsAnalysis

Level of Optimality

3here are often constraints or'ing

hich result in sub-optimal outcomes# Additionally, logistics systems must

or' in harmony ith mar'eting,(nance, production, etc#--- this may

also result in sub-optimal logisticsperformance#

ee +igure 2-/ on ne&t slide#




42

+igure 2-/ Levels of+ptimality in *conomic

*nvironments




43

3echni?ues of Logistics ystemAnalysis: Short!$un,Static

Analysis

3his techni?ue is illustrated in 3able 2-# Comprised a matri&-li'e table hich

presents each of the logistics and otherrelevant costs for to or more alternativelogistics systems#

3he major donside to the model is that it

presents a solution hich is not necessarilythe correct one at all possible volume levels#

%&amine the data presented in 3able 2-#




44

3able 2- Static Analysis of C 4 5Chemical Company 6789888 pounds

of output:

h i f i i




45

3echni?ues of Logistics ystemAnalysis: Long!$un,Dynamic

Analysis 3his techni?ue is illustrated in +igure 2-//#

Comprised a graph of the (&ed and

variable costs of at least to alternativelogistics systems#

3he graph may have at least oneindi$erence point, but may have multiple

points of indi$erence# %&amine the data presented in +igure 2-

//#




46

+igure 2-//Dynamic Analysis




47

Dynamic Analysis

System 1 3otal Cost M +i&ed Costs N Hariable Costunit & numberof units

y M =2 N #9/>&System 2

3otal Cost M +i&ed Costs N Hariable Costunit & numberof units

y M =5 N #29&Trade-of Point ystem / 3otal Costs M ystem 2 3otal Costs =2 N #9/>& M =5 N #29&

#5>& M =1

x = 70,588 pounds

L i i i h +i F




48

Logistics in the +irm: Factors A;ecting the Cost and

Importance of Logistics Competitive ;elationships

@nventoryorder cycle length B see +igure 2-/2# @nventorylost sales e$ect B see +igure 2-/9# 3ransportationlost sales e$ect - see +igure 2-/#

)roduct ;elationships )roduct dollar valuelogistics costs B see +igure 2-/># <eight densitylogistics costs B see +igure 2-/1# usceptibility to loss F damagelogistics costs B see

+igure 2-/6# patial ;elationships

%&amine +igure 2-/5#

+i 2 /2




4

+igure 2-/2 he $elationship

-et(een $e<uired Inventory and

+rder Cycle Length from a CustomerPerspective

+i 2 /9 h l




5"

+igure 2-/9 he General

$elationship of the Cost of Lost Sales

to Inventory Cost

+i 2 /



Chapter 2 Management of Business Logistics, 7thEd. 5!

+igure 2-/he General $elationship of the Cost

of Lost Sales to ransportation Cost

+i 2 />



Chapter 2 Management of Business Logistics, 7thEd. 52

+igure 2-/>he General $elationship of Product

Dollar 'alue to 'arious LogisticsCosts

+i 2 /1 h G l





$elationship of Product 0eight

Density to Logistics Costs

+i 2 /6 h G l





$elationship of Product Suscepti-ility

to Loss and Damage to LogisticsCosts

+i 2 /5




+igure 2-/5Logistics and Spatial

$elations



Chapter 2: ummary and ;evie Guestions

tudents should revie their 'noledge of thechapter by chec'ing out the ummary and

tudy Guestions for Chapter 2#

3his is the last slide forChapter 2



%nd of Chapter 2 lides

Dimensions of Logistics

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Dimensions of Logistics