MANAGEMENT SCIENCE DEPARTMENT

MANAGEMENT SCIENCE MANAGEMENT SCIENCE DEPARTMENTDEPARTMENT

DPS 306DPS 306

Logistics and Logistics and Transportation Transportation ManagementManagement

April 25, 2023 1

RealReal

You get into your supermarket of choice You get into your supermarket of choice to pick a certain item. "It's out of to pick a certain item. "It's out of stock," a supermarket employee tells stock," a supermarket employee tells you. Actually, several people have you. Actually, several people have been looking for it... must be a popular been looking for it... must be a popular item," s/he adds. item," s/he adds.

Why was this product out-of-stock?Why was this product out-of-stock?So, if that item So, if that item hadhad been in the “supaa”, been in the “supaa”,

how would it have gotten there?how would it have gotten there?

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IntroductionIntroduction

In today's highly In today's highly competitive global competitive global marketplace, the pressure on marketplace, the pressure on organizations to find new ways to organizations to find new ways to create value and deliver it to their create value and deliver it to their customers customers grows ever stronger. grows ever stronger. Consequently, many organizations Consequently, many organizations in the last two decades, have in the last two decades, have moved the logistics function to the moved the logistics function to the center stage. center stage.

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Introduction – Cont ...Introduction – Cont ...

There has been a growing recognition that There has been a growing recognition that effective Logistics Management (LM) effective Logistics Management (LM) throughout the firm and Supply Chain throughout the firm and Supply Chain (SC) can greatly assist in the goal of (SC) can greatly assist in the goal of cost cost reduction and service enhancementreduction and service enhancement. The . The keys to success in LM require heavy keys to success in LM require heavy emphasis on integration of activities, emphasis on integration of activities, cooperation, coordination and cooperation, coordination and information sharing throughout the firm information sharing throughout the firm and the entire supply chain, from and the entire supply chain, from suppliers to customers. suppliers to customers.

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Logistics DefinedLogistics Defined

Traces its origin to:Traces its origin to:Greek word Greek word logistikoslogistikosLatin word Latin word logisticuslogisticusMeaning the science of computing and Meaning the science of computing and

calculating.calculating.In ancient times, the term was frequently In ancient times, the term was frequently

used in connection with moving armies used in connection with moving armies and supplies of food and armaments to and supplies of food and armaments to the war front. Its use can be traced the war front. Its use can be traced back to 17back to 17thth Century in French army. Century in French army.

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Logistics Defined – Cont ...Logistics Defined – Cont ...

It gained importance in army operations It gained importance in army operations during WWII as it was used in reference during WWII as it was used in reference to movement of supplies, men, and to movement of supplies, men, and equipment across the border. The US equipment across the border. The US army officially used the word after army officially used the word after WWII. Today logistics has acquired a WWII. Today logistics has acquired a wider meaning and is used in business wider meaning and is used in business to refer to movement of raw materials to refer to movement of raw materials from suppliers to the manufacturer and from suppliers to the manufacturer and finished goods to the consumers.finished goods to the consumers.

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Just a thought!!!!Just a thought!!!!

What is Logistics = What is Logistics = LogiLogical cal thinking + Statithinking + Statisticsstics

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Definitions – Cont…Definitions – Cont…

Logistics refers to the movement of Logistics refers to the movement of materials materials within within a production a production facility and to facility and to incoming incoming (inbound/upstream) (inbound/upstream) and and outgoingoutgoing (outbound/downstream)(outbound/downstream) shipments shipments of goods and materials.of goods and materials.

(William J. Stevenson)(William J. Stevenson)

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Definitions – Cont...Definitions – Cont...

““Logistics is that part of SCM that plans, Logistics is that part of SCM that plans, implements, and controls the efficient, implements, and controls the efficient, effective forward and reverse flow and effective forward and reverse flow and storage of goods, services, and related storage of goods, services, and related information between the point of origin information between the point of origin and point of consumption in order to and point of consumption in order to meet customers’ requirements.”meet customers’ requirements.”

(Council of Supply Chain Management (Council of Supply Chain Management Professionals)Professionals)

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Logistics vs TransportationLogistics vs Transportation

Clearly there is an explicit difference Clearly there is an explicit difference between logistics and transportation. between logistics and transportation.

The term logistics is often The term logistics is often misinterpreted to mean transportation. misinterpreted to mean transportation. In fact, the scope of logistics goes well In fact, the scope of logistics goes well beyond transportation. Logistics forms beyond transportation. Logistics forms the system that ensures the delivery of the system that ensures the delivery of the product in the entire SC. This the product in the entire SC. This includes transportation, packaging, includes transportation, packaging, storage and handling methods, and storage and handling methods, and information flow. information flow. April 25, 2023 10

Logistics vs Transportation – Logistics vs Transportation – Cont..Cont..

Transportation refers to the means of Transportation refers to the means of distributing goods, supplies, resources, distributing goods, supplies, resources, info, people, and energy from the original info, people, and energy from the original point to the destination point using a point to the destination point using a mode of transport. Since transportation is mode of transport. Since transportation is concerned only with concerned only with movingmoving the supplies, the supplies, someone has to take care of handling, someone has to take care of handling, packaging, managing the time the goods packaging, managing the time the goods are fetched and delivered, and maintaining are fetched and delivered, and maintaining coordination, especially incases where coordination, especially incases where inter-modal transport is used. That's when inter-modal transport is used. That's when logistics comes in.logistics comes in.April 25, 2023 11

Logistics vs SCMLogistics vs SCM

Some authors regard SCM and Logistics as Some authors regard SCM and Logistics as synonymous. synonymous.

Cooper (1997) regards Logistics as Cooper (1997) regards Logistics as concerned with material and material concerned with material and material flows and SCM as the flows and SCM as the integration of all integration of all business processes across the supply business processes across the supply chain.chain.

According to the UK Institute of Logistics According to the UK Institute of Logistics and Transport: and Transport:

LM makes possible the optimized flow and LM makes possible the optimized flow and positioning of goods, materials,positioning of goods, materials,

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Logistics vs SCM – Cont...Logistics vs SCM – Cont...

information and all resources of an information and all resources of an enterprise.enterprise.

SC is the flow of materials through SC is the flow of materials through procurement, manufacture, procurement, manufacture, distribution, sales and disposal, distribution, sales and disposal, together with the associated together with the associated transport and storage.transport and storage.

SCM views the SC as a SCM views the SC as a singlesingle entity and entity and thus demands system integration.thus demands system integration.

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Activities of LogisticsActivities of Logistics

As materials move through an organization, the As materials move through an organization, the following activities are normally included in following activities are normally included in Logistics:Logistics:Procurement or purchasingProcurement or purchasing – material flow through – material flow through an organization is initiated when procurement an organization is initiated when procurement sends a purchase order to a supplier.sends a purchase order to a supplier.Inward transport or trafficInward transport or traffic – moves materials from – moves materials from suppliers to the firm’s receiving area.suppliers to the firm’s receiving area.ReceivingReceiving – ensures materials delivered – ensures materials delivered correspond to the order, acknowledges receipt, correspond to the order, acknowledges receipt, unloads delivery vehicles, inspects materials for unloads delivery vehicles, inspects materials for damage and sorts them.damage and sorts them.

Activities of Logistics – Cont...Activities of Logistics – Cont...

Warehousing or stores Warehousing or stores – moves materials into – moves materials into storage, and takes care of them until they are storage, and takes care of them until they are needed.needed.Stock control Stock control – sets inventory policies. – sets inventory policies. Considers the materials to store, overall Considers the materials to store, overall investment, customer service, stock levels, investment, customer service, stock levels, order sizes, and timing.order sizes, and timing.Order picking Order picking – finds and removes materials – finds and removes materials from stores to the departure area.from stores to the departure area.Materials handling Materials handling – moves materials, within – moves materials, within short journeys, through the operations within short journeys, through the operations within an organization.an organization.

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Activities of Logistics – Cont...Activities of Logistics – Cont...

Outward transport Outward transport – takes materials from the – takes materials from the departure area and delivers them to customers.departure area and delivers them to customers.Physical distribution management Physical distribution management – delivers FGs – delivers FGs to customers, including outward transport. Is to customers, including outward transport. Is aligned to marketing and forms an important link aligned to marketing and forms an important link with downstream activities.with downstream activities.Recycling, returns and waste disposal Recycling, returns and waste disposal – reverse – reverse logistics or reverse distribution.logistics or reverse distribution.LocationLocation – moving materials nearer to place of – moving materials nearer to place of need.need.CommunicationCommunication – alongside flow of materials, – alongside flow of materials, logistics facilitates flow of info.logistics facilitates flow of info.

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Aims of LogisticsAims of Logistics

Logistics managers have two main aims:Logistics managers have two main aims:i.i. Customer responsiveness - success of an Customer responsiveness - success of an

organization depends on its ability to organization depends on its ability to satisfy customers.satisfy customers.

ii.ii.Move materials into, through, and out of Move materials into, through, and out of their own organization as efficiently as their own organization as efficiently as possible i.e focus on minimizing costs.possible i.e focus on minimizing costs.

The challenge however is that outstanding The challenge however is that outstanding customer service requires more customer service requires more resources which come with higher costs.resources which come with higher costs.

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Aims of Logistics – Cont...Aims of Logistics – Cont...

Thus a realistic aim for Logistics is to Thus a realistic aim for Logistics is to balance the achievement of customer balance the achievement of customer satisfaction with the cost of achieving satisfaction with the cost of achieving it.it.

This balance can be phrased in terms of This balance can be phrased in terms of perceived customer value. Logistics perceived customer value. Logistics adds value by making products adds value by making products available in the right place and at the available in the right place and at the right time. If a product is available at right time. If a product is available at the place needed,the place needed,

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Aims of Logistics – Cont...Aims of Logistics – Cont...

Logistics is said to have added Logistics is said to have added place place utility; utility; if it is delivered at the right if it is delivered at the right time, Logistics has added time, Logistics has added time time utility.utility.

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Importance of LogisticsImportance of Logistics

Helps move a country's Helps move a country's economy i.e economy i.e it is it is an an essential feature essential feature of all economic of all economic activity.activity.Provides the Provides the wheelswheels that help bring in that help bring in and distribute goods and materials within and distribute goods and materials within an an economy.economy.

There are few aspects of human activity There are few aspects of human activity that do not ultimately depend on the flow that do not ultimately depend on the flow of goods. Without Logistics, no materials of goods. Without Logistics, no materials move, no operations can be done, no move, no operations can be done, no products are delivered, no customers products are delivered, no customers served, and hence no served, and hence no economyeconomy..

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Importance of Logistics – Cont...Importance of Logistics – Cont...

Logistics is not only essential, but it is Logistics is not only essential, but it is also also expensiveexpensive. Organizations are . Organizations are known to reduce their overheads known to reduce their overheads significantly, but they are left with significantly, but they are left with surprisingly high Logistics costs.surprisingly high Logistics costs.

Being expensive, Logistics has impact Being expensive, Logistics has impact on overall financial performance.on overall financial performance.

Logistics affects customer satisfaction, Logistics affects customer satisfaction, operating costs, profit etcoperating costs, profit etc

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Importance of Logistics – Importance of Logistics – Cont...Cont...

Poor Logistics are the cause of Poor Logistics are the cause of roughly 50% of all customer roughly 50% of all customer complaints. No organization can complaints. No organization can expect to prosper if it ignores expect to prosper if it ignores Logistics and organizing Logistics Logistics and organizing Logistics can give huge competitive can give huge competitive advantage. We can, then, summarize advantage. We can, then, summarize the importance of Logistics by the importance of Logistics by saying that it:saying that it:

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is essential, as all organizations, even those is essential, as all organizations, even those offering intangible services, rely on offering intangible services, rely on movement of materials.movement of materials.

is expensive, with costs often forming a is expensive, with costs often forming a surprisingly high portion of turnover.surprisingly high portion of turnover.

directly affects profits and other measures directly affects profits and other measures of organizational performance.of organizational performance.

has strategic importance with decisions has strategic importance with decisions affecting performance over the long term.affecting performance over the long term.

forms links with suppliers, developing forms links with suppliers, developing mutually beneficial, long-term trading mutually beneficial, long-term trading relationships.relationships.

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forms links with customers, contributing to forms links with customers, contributing to customer satisfaction and added valuecustomer satisfaction and added value

has a major effect on lead time, reliability has a major effect on lead time, reliability and other measures of customer serviceand other measures of customer service

determines the best size and location of determines the best size and location of facilitiesfacilities

can be risky, because of safety, health and can be risky, because of safety, health and environmental concernsenvironmental concerns

can encourage growth of other can encourage growth of other organizations – such as suppliers and organizations – such as suppliers and intermediaries offering specialized servicesintermediaries offering specialized services

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Integrating LogisticsIntegrating LogisticsProgress in LogisticsProgress in Logistics

-Historically, firms put all their effort into -Historically, firms put all their effort into making of productsmaking of products & put little thought to & put little thought to the associated movement of materials.the associated movement of materials.

-Transport & storage were seen as -Transport & storage were seen as unavoidable costs of doing business not unavoidable costs of doing business not worth much attention.worth much attention.

-The main reason for change was the -The main reason for change was the recognition that Logistics was expensive recognition that Logistics was expensive (1970s & 80s surveys were showing that it (1970s & 80s surveys were showing that it accounted for 15-20% of revenue).accounted for 15-20% of revenue).

-As a high cost function, managers believed -As a high cost function, managers believed significant savings could be made.significant savings could be made.

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Pressures to improve LogisticsPressures to improve Logistics

As well as potential savings, many other factors put As well as potential savings, many other factors put pressure to organizations to improve their pressure to organizations to improve their Logistics:Logistics:

-More knowledgeable customers, demand higher -More knowledgeable customers, demand higher quality, lower costs and better service.quality, lower costs and better service.

-Fiercer competition & thus organizations must look -Fiercer competition & thus organizations must look at every opportunity to remain competitive.at every opportunity to remain competitive.

-Changes in retail markets e.g growth of 24-hour -Changes in retail markets e.g growth of 24-hour opening, home deliveries, telephone & online opening, home deliveries, telephone & online shoppingshopping

-International trade continues to grow (EU, EAC, -International trade continues to grow (EU, EAC, NAFTA)NAFTA)

-Recognition of the strategic importance of Logistics.-Recognition of the strategic importance of Logistics.

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Pressures - Cont...Pressures - Cont...

-New operations e.g JIT, lean operations, time -New operations e.g JIT, lean operations, time compression, flexible manufacturing, mass compression, flexible manufacturing, mass customization, virtual operations & so on.customization, virtual operations & so on.

-Turn from a product focus to a process focus. This -Turn from a product focus to a process focus. This needs improvement in operations, including needs improvement in operations, including Logistics.Logistics.

-Considerable improvement in communication e.g -Considerable improvement in communication e.g EDI, EFT(M-pesa?), e-commerce etcEDI, EFT(M-pesa?), e-commerce etc

-Outsourcing of peripheral activities (Logistics) and -Outsourcing of peripheral activities (Logistics) and concentrating on core operations.concentrating on core operations.

-Increased co-operation through alliances and -Increased co-operation through alliances and partnerships. This is important for Logistics, which partnerships. This is important for Logistics, which is usually the main link between organizations in a is usually the main link between organizations in a SC. SC. April 25, 2023 27

Pressures – Cont...Pressures – Cont...

-Attitudes towards transport are changing, -Attitudes towards transport are changing, because of increased congestion on roads, because of increased congestion on roads, concerns about air quality and pollution, concerns about air quality and pollution, broader environmental issues, privatization broader environmental issues, privatization of rail services, deregulation of transport, of rail services, deregulation of transport, and a host of other changes.and a host of other changes.

N/B: There are many other pressures including N/B: There are many other pressures including uncertain market conditions, political uncertain market conditions, political change, shortage of skilled staff, fluctuating change, shortage of skilled staff, fluctuating exchange rates, and so on.exchange rates, and so on.

How will(has) Logistics respond(ed) to these How will(has) Logistics respond(ed) to these pressures?pressures?April 25, 2023 28

Integrating Logistics within an Integrating Logistics within an organizationorganization

The figure summarizes the view of logistics within an The figure summarizes the view of logistics within an organization, where a series of related activities add value to the organization, where a series of related activities add value to the final product. final product.

Procurement Physical DistributionInward transport Outward TransportWarehousing ReturnsReceiving Stock Control Picking Materials Handling

Consolidating

CommunicationsLocation

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SuppliersSuppliers OperationsOperations CustomersCustomers

Integrating Logistics – Cont...Integrating Logistics – Cont...

These activities have traditionally been These activities have traditionally been managed separately, so that an organization managed separately, so that an organization might have a distinct purchasing might have a distinct purchasing department, transport department, department, transport department, warehouse, distribution fleet, and so on.warehouse, distribution fleet, and so on.Unfortunately, dividing up logistics in this Unfortunately, dividing up logistics in this way creates a number of problems.way creates a number of problems.-Purchasing – look for most reliable suppliers-Purchasing – look for most reliable suppliers-Warehousing – fast stock turnover-Warehousing – fast stock turnover-Inventory control – low unit costs-Inventory control – low unit costs-Transport – full vehicle loads-Transport – full vehicle loads

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Though worthy, these aims will soon come into Though worthy, these aims will soon come into conflict. In reality, these activities are closely conflict. In reality, these activities are closely related, and policies in one part inevitably affect related, and policies in one part inevitably affect operations in another. operations in another. Example – RP Turner Corp.Example – RP Turner Corp.In summary, fragmented Logistics has the In summary, fragmented Logistics has the disadvantages of:disadvantages of:-giving different, often conflicting, objectives within -giving different, often conflicting, objectives within an organization.an organization.-duplicating effort and reducing productivity.-duplicating effort and reducing productivity.-giving worse communications & information flows -giving worse communications & information flows between the parts.between the parts.

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-reducing co-ordination between the parts – -reducing co-ordination between the parts – leading to lower efficiency, higher costs & leading to lower efficiency, higher costs & worse customer service.worse customer service.-increasing uncertainty & delays along the SC.-increasing uncertainty & delays along the SC.-making planning more difficult.-making planning more difficult.-introducing unnecessary buffers between the -introducing unnecessary buffers between the parts, such as stocks of WIP, additional parts, such as stocks of WIP, additional transport & administrative procedures.transport & administrative procedures.-obscuring important information, such as the -obscuring important information, such as the total cost of Logistics.total cost of Logistics.-giving Logistics a low status within the -giving Logistics a low status within the organization.organization.

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To avoid these problems, logistics should:To avoid these problems, logistics should:be considered not as a series of distinct be considered not as a series of distinct activities, but as a single integrated function.activities, but as a single integrated function.be responsible for all storage and movement of be responsible for all storage and movement of materials throughout the organization.materials throughout the organization.tackle problems from the viewpoint of the whole tackle problems from the viewpoint of the whole firm, and looks for the greatest overall benefit.firm, and looks for the greatest overall benefit.In practice, it is difficult to integrate all logistics In practice, it is difficult to integrate all logistics within a firm. Perhaps the major cause is the within a firm. Perhaps the major cause is the difficulty in finding someone with the knowledge, difficulty in finding someone with the knowledge, enthusiasm, ability & authority to carry through enthusiasm, ability & authority to carry through necessary changes.necessary changes.

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Hence to succeed;Hence to succeed;A senior manager who has the necessary A senior manager who has the necessary power should start the changespower should start the changesIndividuals working together & coming up with Individuals working together & coming up with new practices and relationships, developing a new practices and relationships, developing a culture that is based on teamwork and co-culture that is based on teamwork and co-operation rather than self-interest & conflict.operation rather than self-interest & conflict.Analyze the Analyze the total logistics cost (TLC).total logistics cost (TLC).

TLC = transport cost + warehouse cost + TLC = transport cost + warehouse cost + holding cost + packaging cost + information holding cost + packaging cost + information processing cost + other logistics overheads.processing cost + other logistics overheads.

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N/BN/B: Some of these costs are inversely related e.g : Some of these costs are inversely related e.g Lewis et al (1956) found out that airfreight is much Lewis et al (1956) found out that airfreight is much more expensive than alternative road transport, more expensive than alternative road transport, but faster delivery eliminated the need for local but faster delivery eliminated the need for local stocks & warehouses, and gave considerable stocks & warehouses, and gave considerable overall savings.overall savings.

Make available integrated information & control Make available integrated information & control systems. An information system might show that systems. An information system might show that stocks are running low, & a control system uses stocks are running low, & a control system uses this information to place an order with suppliers. this information to place an order with suppliers. To enhance this, there should be a shift from LANs To enhance this, there should be a shift from LANs & intranets to internet which is more efficient & intranets to internet which is more efficient route for logistics information.route for logistics information.

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Stages in integrationStages in integration

The movement of logistics from;The movement of logistics from;low priority, fragmented functionlow priority, fragmented function strategic, strategic, integrated function,integrated function,is a major change, which goes through the is a major change, which goes through the following stages:following stages:1.1.Separate logistics activities that are not given Separate logistics activities that are not given much attention or considered important.much attention or considered important.2.2.Recognizing that the separate activities of Recognizing that the separate activities of logistics are important for the success of the logistics are important for the success of the organization.organization.3.3.Making improvements in the separate functions, Making improvements in the separate functions, making sure that each is as efficient as possible.making sure that each is as efficient as possible.

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Stages in integration – Cont...Stages in integration – Cont...

4.Internal integration – recognizing the benefits 4.Internal integration – recognizing the benefits of internal co-operation and combining the of internal co-operation and combining the separate functions into one.separate functions into one.5.Developing a logistics strategy, to set the long-5.Developing a logistics strategy, to set the long-term direction of logistics.term direction of logistics.6.Benchmarking – comparing logistics’ 6.Benchmarking – comparing logistics’ performance with other organizations, learning performance with other organizations, learning from their experiences, identifying areas that from their experiences, identifying areas that need improvement & finding ways of achieving it.need improvement & finding ways of achieving it.7.Continuous improvement – accepting that 7.Continuous improvement – accepting that further changes are inevitable and always further changes are inevitable and always searching for better ways of organizing logistics.searching for better ways of organizing logistics.

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Integrating along the SCIntegrating along the SC

If each organization only looks at its own If each organization only looks at its own operations, there are unnecessary boundaries operations, there are unnecessary boundaries between them, disrupting the flow of materials & between them, disrupting the flow of materials & increasing costs.increasing costs.External integration External integration removes these boundaries removes these boundaries to improve the whole chain.to improve the whole chain.Christopher (1999) supports this move, saying Christopher (1999) supports this move, saying ““most opportunities for cost reduction and/or most opportunities for cost reduction and/or value enhancement lie at the interface between value enhancement lie at the interface between supply chain partnerssupply chain partners”.”.Hence there are 3 levels of integration: separate Hence there are 3 levels of integration: separate activities within a firm; internal integration into activities within a firm; internal integration into a single function, and external integrationa single function, and external integration

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Three levels of Logistics Three levels of Logistics integrationintegration

The figure below shows the three levels of integration:The figure below shows the three levels of integration:

Logistics activitiesLogistics activities

Logistics with internal integrationLogistics with internal integration

Logistics with external integrationLogistics with external integration

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SuppliersSuppliers

SuppliersSuppliers

SuppliersSuppliers

OperationsOperations CustomersCustomers

CustomersCustomers

CustomersCustomers

OperationsOperations

OperationsOperations

N/B:N/B:

Organizations within the same supply chain Organizations within the same supply chain should CO-OPERATE to get final customer should CO-OPERATE to get final customer satisfaction.satisfaction.

They should not compete with each other, but They should not compete with each other, but with firms in other supply chains.with firms in other supply chains.Forrester (1961) described on interesting effect of Forrester (1961) described on interesting effect of fragmented SC. Imagine a retailer who notices that fragmented SC. Imagine a retailer who notices that demand for a product rises by 5 units in a week. demand for a product rises by 5 units in a week. When it is time to place the next order, the retailer When it is time to place the next order, the retailer assumes demand is rising, and orders 10 extra assumes demand is rising, and orders 10 extra units to make sure its enough. The wholesaler sees units to make sure its enough. The wholesaler sees demand rise by 15 units, so it orders another 20 demand rise by 15 units, so it orders another 20 units. As this travels through the SC, a small units. As this travels through the SC, a small change in final demand is amplified into major change in final demand is amplified into major variation for early suppliers.variation for early suppliers.April 25, 2023 40

Benefits of integrationBenefits of integration

i.i.Genuine co-operation between all parts of the Genuine co-operation between all parts of the SC, with shared information & resourcesSC, with shared information & resourcesii.ii.Lower costs – due to balanced operations, Lower costs – due to balanced operations, lower stocks, less expediting, EoS, elimination of lower stocks, less expediting, EoS, elimination of time wasting or non value adding activities, & so time wasting or non value adding activities, & so on.on.iii.iii.Improved performance – due to more accurate Improved performance – due to more accurate forecasts, better planning, higher productivity of forecasts, better planning, higher productivity of resources, rational priorities, & so on.resources, rational priorities, & so on.iv.iv.Improved material flow, with co-ordination Improved material flow, with co-ordination giving faster & more reliable movementsgiving faster & more reliable movementsv.v.Better customer service, with shorter lead Better customer service, with shorter lead times,& faster deliveries.times,& faster deliveries.

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Benefits – Cont ...Benefits – Cont ...

vi. More flexibility – faster reaction to changesvi. More flexibility – faster reaction to changesvii. Standardized procedures, becoming vii. Standardized procedures, becoming routine & well practiced with less duplication routine & well practiced with less duplication of effort, information, planning & so on.of effort, information, planning & so on.viii. Reliable quality & fewer inspection, with viii. Reliable quality & fewer inspection, with integrated quality management programmes.integrated quality management programmes.N/B: N/B: Although the benefits of integration are Although the benefits of integration are clear, there are many practical difficulties in clear, there are many practical difficulties in achieving them. Many organizations simply do achieving them. Many organizations simply do not trust other members of the SC, & they are not trust other members of the SC, & they are reluctant to share information. reluctant to share information.

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- Cont...- Cont...

Even with sufficient trust, there can be Even with sufficient trust, there can be problems with different priorities, problems with different priorities, competition, data exchange, appropriate competition, data exchange, appropriate systems, skills, security, & so on. systems, skills, security, & so on.

How then do we achieve How then do we achieve integration?integration?

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Achieving integrationAchieving integration

Co-operation & ConflictCo-operation & ConflictWhy should distinct firms each working for their Why should distinct firms each working for their own benefit co-operate? Why benefit another own benefit co-operate? Why benefit another firm? – external integration brings benefits that firm? – external integration brings benefits that can be shared among all members of the SC.can be shared among all members of the SC.Example – Perman FrExample – Perman FrėėrereThere is need to overcome the traditional view There is need to overcome the traditional view of firms as adversaries. This will be achieved by of firms as adversaries. This will be achieved by recognizing that for long-term interests conflict recognizing that for long-term interests conflict should be replaced by agreement. This calls for should be replaced by agreement. This calls for a major culture change.a major culture change.

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Achieving integration – Cont ...Achieving integration – Cont ...

FactorFactor Conflict viewConflict view Co-operation viewCo-operation viewProfitProfit One firm One firm ΠΠs at thes at the Both shareBoth share Π Πss

expense of the otherexpense of the otherR/shipR/shipOne is dominantOne is dominant Equal partnersEqual partnersTrustTrust LittleLittle ConsiderableConsiderableCommunicationCommunication Ltd & formalLtd & formal Widespread & openWidespread & openInformationInformation SecretiveSecretive Open & sharedOpen & sharedControlControl Intensive policingIntensive policing Delegation & Delegation & empowermentempowermentQualityQuality Blame for faultsBlame for faults Solving shared Solving shared problemsproblemsContractContract RigidRigid FlexibleFlexibleFocus onFocus on Own operationsOwn operations CustomersCustomers

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Co-operation can either be:Co-operation can either be:InformalInformal – no commitment, flexible & non- – no commitment, flexible & non-binding but either party can end it without binding but either party can end it without warning. (Japanese use the concept, warning. (Japanese use the concept, keiretsukeiretsu, to bring together groups of firms , to bring together groups of firms that work together without forming that work together without forming partnerships), orpartnerships), orFormalFormal – has a written contract setting out – has a written contract setting out the obligations of each party.the obligations of each party.

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Strategic alliance or partneringStrategic alliance or partneringIs ‘an ongoing relationship between firms, which Is ‘an ongoing relationship between firms, which involves a commitment involves a commitment over an extended time over an extended time periodperiod, and a mutual sharing of information and , and a mutual sharing of information and the risks and rewards of the relationship.’the risks and rewards of the relationship.’Partnerships can lead to changes in operations.Partnerships can lead to changes in operations.Example – Petro-CanadaExample – Petro-Canada

Vertical integrationVertical integrationDescribes the amount of a SC that is owned by one Describes the amount of a SC that is owned by one organization.organization.To go beyond partnerships, a firm has to own more To go beyond partnerships, a firm has to own more of the SC eg take minority shareholding in a of the SC eg take minority shareholding in a supplier.supplier.

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If the firm owns a lot of the supply side it has If the firm owns a lot of the supply side it has backwardbackward or or upstream integrationupstream integration; if it owns ; if it owns a lot of the distribution network it has a lot of the distribution network it has downstreamdownstream or or forward integrationforward integration..Alternatively, two firms can start a Alternatively, two firms can start a joint joint venture venture where they both put up funds to where they both put up funds to start a third company with shared ownership.start a third company with shared ownership.N/B:N/B: In some circumstances vertical In some circumstances vertical integration is the best way of getting integration is the best way of getting different parts of the SC work together.different parts of the SC work together.Example – GZ RexamExample – GZ Rexam

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Logistics StrategyLogistics StrategyStrategic DecisionsStrategic Decisions

Some decisions are very important to a firm, with Some decisions are very important to a firm, with consequences felt over many years. Other decisions consequences felt over many years. Other decisions are less important, with consequences felt over days are less important, with consequences felt over days or even hours. Hence the classification:or even hours. Hence the classification:Strategic decisions Strategic decisions – most important & set the overall – most important & set the overall direction of the whole organization; have effects over direction of the whole organization; have effects over long term, involve many resources; most risky.long term, involve many resources; most risky.Tactical decisions Tactical decisions – concerned with implementing the – concerned with implementing the strategies over the medium term; look at more detail, strategies over the medium term; look at more detail, involve fewer resources & some risk.involve fewer resources & some risk.Operational decisions Operational decisions – most detailed & concern short – most detailed & concern short term activities; involve fewer resources & little risk.term activities; involve fewer resources & little risk.

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Strategic Decisions – Cont...Strategic Decisions – Cont...

Traditional viewTraditional view: senior managers make strategic : senior managers make strategic decisions that set the organization on its course; decisions that set the organization on its course; it is still a popular approach.it is still a popular approach.New styles of mgt New styles of mgt & improved technology & improved technology encourage changes; decisions are discussed, encourage changes; decisions are discussed, negotiated & agreed rather than simply passed negotiated & agreed rather than simply passed down; recognition that the best person to make a down; recognition that the best person to make a decision is the person most closely involved i.e decision is the person most closely involved i.e junior manager on the spot rather than remote junior manager on the spot rather than remote senior manager.senior manager.There are several types of strategic decision There are several types of strategic decision which are known by different names, but the which are known by different names, but the most common are:most common are:

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missionmission – a statement to give the overall aims of – a statement to give the overall aims of the organization;the organization;

corporate strategy corporate strategy – which shows how a – which shows how a diversified corporation will achieve its mission;diversified corporation will achieve its mission;

business strategy business strategy – shows how each business – shows how each business within a diversified corporation contribute to the within a diversified corporation contribute to the corporate strategy;corporate strategy;

functional strategies functional strategies – which describe the – which describe the strategic direction of each function, including strategic direction of each function, including logistics.logistics.Higher strategies set goals & general direction of Higher strategies set goals & general direction of the firm, & the functional strategies show how to the firm, & the functional strategies show how to achieve this.achieve this.

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e.g for a business strategy of being the lowest e.g for a business strategy of being the lowest cost provider, logistics strategy shows how it cost provider, logistics strategy shows how it will reduce logistics costs to a minimum; if the will reduce logistics costs to a minimum; if the organization is working to get fast deliveries organization is working to get fast deliveries to customers, the logistics strategy defines to customers, the logistics strategy defines policies for achieving this.policies for achieving this.

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Logistics StrategyLogistics Strategy

(i)(i) Consists of all the strategic decisions, Consists of all the strategic decisions, policies, plans, and policies, plans, and cultureculture relating to the relating to the management of supply chains.management of supply chains.

(ii)(ii) Is the set of guiding principles, driving Is the set of guiding principles, driving forces & ingrained attitudes that help to forces & ingrained attitudes that help to coordinate goals, plans & policies, & which coordinate goals, plans & policies, & which are reinforced through are reinforced through conscious and conscious and subconscious behaviour subconscious behaviour within and within and between partners across a network.between partners across a network.

Whittington (2000) proposes four approaches Whittington (2000) proposes four approaches to setting strategy. He starts by suggesting to setting strategy. He starts by suggesting different motivations for setting strategy:different motivations for setting strategy:

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Logistics Strategy – Cont...Logistics Strategy – Cont...

How deliberate are the How deliberate are the processes of strategy processes of strategy setting? setting? These can range from carefully planned to a These can range from carefully planned to a series of ad hoc decisions taken on a day-to-day series of ad hoc decisions taken on a day-to-day basis.basis.

What are the What are the goals of strategy goals of strategy setting? setting? These can range from a focus in maximizing These can range from a focus in maximizing ΠΠ to allowing other business priorities such as to allowing other business priorities such as sales growth to be includedsales growth to be includedWith these two considerations, the four options With these two considerations, the four options for crafting a strategy are developed as follows:for crafting a strategy are developed as follows:

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AccommodateAccommodate SystemicSystemic

EvolveEvolve ClassicalClassical

Day-to-dayDay-to-day PlannedPlanned

Strategy processStrategy process


(i)(i) EvolveEvolve – strategy is not formally undertaken at – strategy is not formally undertaken at all. ‘our strategy is not to have a strategy’ is a all. ‘our strategy is not to have a strategy’ is a typical view point. Operating decisions are taken typical view point. Operating decisions are taken in relation to the needs of the moment, with in relation to the needs of the moment, with financial goals as the main guiding principle.financial goals as the main guiding principle.(ii)(ii) ClassicalClassical – financial goals are the main guiding – financial goals are the main guiding principle, this is achieved through a formal principle, this is achieved through a formal planning process. ‘Classical’ because it is the planning process. ‘Classical’ because it is the oldest & most influential option.oldest & most influential option.(iii)(iii) AccommodateAccommodate –decisions are taken day to day, –decisions are taken day to day, but financial objectives are not the only concerns. but financial objectives are not the only concerns. Strategy is accommodated instead to the realitiesStrategy is accommodated instead to the realities

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of the focal firm and the markets in which it of the focal firm and the markets in which it operates.operates.(iv) (iv) SystemicSystemic – this option sees no conflict between – this option sees no conflict between the ends and means of realizing business goals. the ends and means of realizing business goals. Goal setting takes place across all major aspects of Goal setting takes place across all major aspects of the business (HR, marketing & operations), these the business (HR, marketing & operations), these are linked to the means by which they will be are linked to the means by which they will be achieved in practice.achieved in practice.Logistics strategy usually demands systemic Logistics strategy usually demands systemic strategy setting between network partners, who strategy setting between network partners, who may have to coordinate order winners & qualifiers may have to coordinate order winners & qualifiers across different market segments.across different market segments.

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Logistics strategy forms a link between the Logistics strategy forms a link between the higher strategies & the detailed operations higher strategies & the detailed operations of the SC. While corporate & business of the SC. While corporate & business strategies give general aims, logistics strategies give general aims, logistics strategy concerns actual movement of strategy concerns actual movement of materials needed to support these aims.materials needed to support these aims.

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discussiondiscussion& agreement& agreement

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Logistics Logistics managersmanagers

Other senior Other senior managersmanagers

Business Business strategystrategy

Lower logistics Lower logistics decisionsdecisions

Logistics Logistics strategystrategy


The higher strategies set the context for the The higher strategies set the context for the logistics strategy. Logistics managers should logistics strategy. Logistics managers should actively contribute to the formulation of actively contribute to the formulation of higher level strategies. Their views on what higher level strategies. Their views on what level of performance are actually achievable level of performance are actually achievable by logistics form one of the inputs for the by logistics form one of the inputs for the design of higher strategies.design of higher strategies.The recognition, for instance, that a firm can The recognition, for instance, that a firm can achieve efficient logistics allows it to have a achieve efficient logistics allows it to have a business strategy of aiming at outstanding business strategy of aiming at outstanding service.service.

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Focus of the Logistics Focus of the Logistics StrategyStrategyFactors leading to organization being superior to Factors leading to organization being superior to competitors?competitors?Marketers 4 p’s Marketers 4 p’s – product, price, place, promotion– product, price, place, promotionOperations management competitive dimensions Operations management competitive dimensions – cost, quality, delivery reliability, delivery speed, – cost, quality, delivery reliability, delivery speed, coping with changes in demand, flexibility and coping with changes in demand, flexibility and new product introduction speed, and other new product introduction speed, and other product-specific criteriaproduct-specific criteriaPorter generic strategies Porter generic strategies – cost leadership, – cost leadership, product differentiation. product differentiation. Can a logistics strategy enhance success of these Can a logistics strategy enhance success of these factors?factors?

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Strategy OptionsStrategy Options

Michael Porter’s two basic strategies:Michael Porter’s two basic strategies:Cost leadershipCost leadership, makes the same, or , makes the same, or comparable, products more cheaply; ????comparable, products more cheaply; ????Product differentiationProduct differentiation, makes products that , makes products that customers cannot get from other suppliers.????customers cannot get from other suppliers.????In logistics, these two approaches are usually In logistics, these two approaches are usually phrased in terms of phrased in terms of leanlean & & agileagile strategies i.e strategies i.eLean logistics – aiming at low costsLean logistics – aiming at low costsAgile logistics – aiming at higher customer Agile logistics – aiming at higher customer satisfaction.satisfaction.

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Lean StrategiesLean Strategies

Since the cost of logistics is high and unavoidable, Since the cost of logistics is high and unavoidable, the best option is to make it as cheap (by the best option is to make it as cheap (by eliminating waste) as possible. Hence, a eliminating waste) as possible. Hence, a reasonable objective is to min. TLC while ensuring reasonable objective is to min. TLC while ensuring acceptable levels of customer service. This acceptable levels of customer service. This approach is generalized as lean logistics.approach is generalized as lean logistics.Robert Townsend says that, ‘All organizations are Robert Townsend says that, ‘All organizations are at least 50% waste – waste people, waste effort, at least 50% waste – waste people, waste effort, waste space and waste time’.waste space and waste time’.A lean strategy looks for ways of eliminating this A lean strategy looks for ways of eliminating this waste. The typical approach does a detailed waste. The typical approach does a detailed analysis of current operations, and then removes analysis of current operations, and then removes operationsoperations

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Lean Strategies – Cont ...Lean Strategies – Cont ...

that add no value, eliminates delay, simplifies that add no value, eliminates delay, simplifies movements, reduces complexity, uses higher movements, reduces complexity, uses higher technology to increase efficiency, looks for EoS, technology to increase efficiency, looks for EoS, locates near customers to save travel, and locates near customers to save travel, and removes unnecessary links from the supply chain.removes unnecessary links from the supply chain. N/B: N/B: (i) Low costs do not automatically mean lean (i) Low costs do not automatically mean lean operations. Lean operations maintain customer operations. Lean operations maintain customer service while using fewer resources – they do not service while using fewer resources – they do not just minimize costs. (ii) Lean operations might just minimize costs. (ii) Lean operations might not work when there are variable and uncertain not work when there are variable and uncertain conditions. Hence, the more flexible alternative conditions. Hence, the more flexible alternative strategy of strategy of agility.agility.

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Agile StrategyAgile Strategy

Supporters of this strategy say that lean Supporters of this strategy say that lean operations put too much emphasis on costs, and operations put too much emphasis on costs, and cannot deal with changing conditions (demand), cannot deal with changing conditions (demand), increasing competition, or more sophisticated and increasing competition, or more sophisticated and demanding customers. As markets are demanding demanding customers. As markets are demanding more variety and customization, logistics should more variety and customization, logistics should be more be more flexibleflexible..There are two aspects of agility.There are two aspects of agility.(i)(i)Speed of reaction – keep a close check on Speed of reaction – keep a close check on customer demands and react quickly to changes.customer demands and react quickly to changes.(ii)(ii)Ability to tailor logistics to demands from Ability to tailor logistics to demands from individual customers.individual customers.Thus, end customer satisfaction is a prime concern Thus, end customer satisfaction is a prime concern even if this comes at somewhat higher price.even if this comes at somewhat higher price.

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Agile Strategy – Cont...Agile Strategy – Cont...

This is strategy is said to be This is strategy is said to be customer customer focusfocused. Without customers an organization ed. Without customers an organization has no sales, no income, no profit, no business has no sales, no income, no profit, no business - & soon no organization.- & soon no organization.Satisfied customers » repeat business, it costs Satisfied customers » repeat business, it costs 5x to attract a new customer as it does to 5x to attract a new customer as it does to retain an existing one, recommend a good retain an existing one, recommend a good service to 4 or 5 other people (compared with service to 4 or 5 other people (compared with dissatisfied customers who warn a dozen dissatisfied customers who warn a dozen potential customers about a bad experience).potential customers about a bad experience).N/B:N/B: Lean & Agile are not mutually exclusive, Lean & Agile are not mutually exclusive, they both have merits as well as limitations.they both have merits as well as limitations.

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Lean versus agileLean versus agile

FactorFactor Lean logisticsLean logistics Agile logisticsAgile logisticsObjectiveObjective Efficient operationsEfficient operations Flexibility to meetFlexibility to meetdemanddemandMethodMethod Remove all wasteRemove all waste Customer satisfactionCustomer satisfactionConstraintConstraint Customer serviceCustomer service CostCostRate of changeRate of change Long-term stabilityLong-term stability Fast Fast reaction to cha-reaction to changing circumstancesnging circumstancesMeasures ofMeasures of Productivity,Productivity, Lead time, Lead time, performanceperformanceutilizationutilization service levelservice levelWorkWork Uniform, Uniform, Variable, more Variable, more standardizedstandardizedlocal controllocal controlControlControl Formal planningFormal planning Less structured byLess structured by cyclescyclesempowered staffempowered staff

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Strategic AlliancesStrategic Alliances

A third strategy develops the ideas of integration. A third strategy develops the ideas of integration. An organization can put so much emphasis on close An organization can put so much emphasis on close co-operation with other parts of the SC that it has a co-operation with other parts of the SC that it has a strategy of forming alliances with suppliers and strategy of forming alliances with suppliers and customers.customers.The purpose of this strategy is to get efficient The purpose of this strategy is to get efficient supply chains, with all members working together supply chains, with all members working together and sharing the benefits (better customer service, and sharing the benefits (better customer service, increased flexibility, reduced costs, avoidance of increased flexibility, reduced costs, avoidance of investment in facilities, and lack of expertise within investment in facilities, and lack of expertise within the organization) of long-term co-operation. the organization) of long-term co-operation. Common areas are transport, warehousing, Common areas are transport, warehousing, import/export services, materials storage & import/export services, materials storage & information processing.information processing.

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Designing a Logistics StrategyDesigning a Logistics Strategy

The starting point is to examine the higher The starting point is to examine the higher strategies and see how logistics can contribute. strategies and see how logistics can contribute. Then the results are summarized in a Then the results are summarized in a logistics logistics missionmission. This gives a simple statement of the aims . This gives a simple statement of the aims for SCM, sets the scene & shows the overall for SCM, sets the scene & shows the overall direction & priorities.direction & priorities.After the logistics mission, the next steps are less After the logistics mission, the next steps are less clear. Gooderham says:clear. Gooderham says:No one ‘right’ way to develop & implement strategy No one ‘right’ way to develop & implement strategy exists. The key to successful planning is to get the exists. The key to successful planning is to get the best fit between the chosen tools & techniques, the best fit between the chosen tools & techniques, the organization’s current culture capabilities & organization’s current culture capabilities & business environment & the desired outcome.business environment & the desired outcome.

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Designing – Cont...Designing – Cont...

This leads to the need for finding the best This leads to the need for finding the best balance between the organization’s internal balance between the organization’s internal strengths and the external constraints – strengths and the external constraints – matching what the organization is good at & matching what the organization is good at & what customers want.what customers want.Hence, there are three factors to be Hence, there are three factors to be considered when designing a logistics considered when designing a logistics strategy:strategy: – – the the higher strategies,higher strategies, - the - the business environment, business environment, andand - the - the organization’s distinctive competenceorganization’s distinctive competence..

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LogisticsLogisticsStrategyStrategy

HigherHigherStrategiesStrategies

Other internalOther internalStrengthsStrengths

FacilitiesFacilities

ResourcesResources

EmployeesEmployees

ProductsProducts

Other externalOther externalStrengthsStrengths

CustomersCustomers

MarketMarketconditionsconditions

TechnologyTechnology

EconomicEconomicclimateclimate


Higher strategies Higher strategies set the organization’s goals & set the organization’s goals & the context for all logistics decisions. The the context for all logistics decisions. The logistics strategy must support these higher logistics strategy must support these higher strategies.strategies.The business environment The business environment consists of the factors consists of the factors that affect logistics, but over which it has no that affect logistics, but over which it has no control. These include:control. These include:Customers – their expectations, attitudes, Customers – their expectations, attitudes, demographicsdemographicsMarket conditions – size, location, stabilityMarket conditions – size, location, stabilityTechnology – current availability, likely Technology – current availability, likely developments, rate of innovationdevelopments, rate of innovationEconomic climate – GDP, rate of growth, inflationEconomic climate – GDP, rate of growth, inflation

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Legal restraints – trade restrictions, liability Legal restraints – trade restrictions, liability & employment laws& employment lawsCompetitors – numbers, ease of entry to the Competitors – numbers, ease of entry to the markets, strengthsmarkets, strengthsShareholders – target ROI, objectives, profit Shareholders – target ROI, objectives, profit neededneededSocial conditions – lifestyles, changing Social conditions – lifestyles, changing demands, significant trendsdemands, significant trendsPolitical conditions – stability, amount of Political conditions – stability, amount of government control, external relationsgovernment control, external relationsInterest groups – their objectives, strengths, Interest groups – their objectives, strengths, amount of supportamount of support

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Distinctive competence Distinctive competence – set the organization – set the organization apart from competitors since the business apart from competitors since the business environment is similar for all. These are factors environment is similar for all. These are factors under the organization’s control, and which it under the organization’s control, and which it uses to distinguish itself. They stem from the uses to distinguish itself. They stem from the firm’s assets, and include:firm’s assets, and include:Employees – skills, expertise, loyaltyEmployees – skills, expertise, loyaltyFinances – capital, debt, cashflowFinances – capital, debt, cashflowCustomers – loyalty, relationshipsCustomers – loyalty, relationshipsProducts – quality, reputation, innovationsProducts – quality, reputation, innovationsFacilities – capacity, age, reliabilityFacilities – capacity, age, reliabilityTechnology – currently used, plans, special typesTechnology – currently used, plans, special typesOrganization – structure, relationships, flexibilityOrganization – structure, relationships, flexibility

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Processes – structures, technology used, Processes – structures, technology used, flexibilityflexibilityMarketing – reputation, experienceMarketing – reputation, experienceSuppliers – service, flexibility, partnershipsSuppliers – service, flexibility, partnershipsOther assets – knowledge, innovation, Other assets – knowledge, innovation, patentspatentsIn essence, the business environment and In essence, the business environment and distinctive competence show where an distinctive competence show where an organization is now, and the higher strategies organization is now, and the higher strategies show where it wants to be in future. The show where it wants to be in future. The logistics strategy shows how to move from one logistics strategy shows how to move from one to the other.to the other.

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Logistics AuditLogistics Audit

The purpose of a logistics audit is to collect The purpose of a logistics audit is to collect relevant information about existing practices & relevant information about existing practices & performance of logistics. It gives a systematic performance of logistics. It gives a systematic review of current operations, describing the review of current operations, describing the procedures, costs, resources, utilization, procedures, costs, resources, utilization, performance, products, and all other relevant performance, products, and all other relevant details.details.It has two main parts:It has two main parts: external audit – looks at the environment in which external audit – looks at the environment in which logistics work.logistics work. internal audit – looks at the way things are done internal audit – looks at the way things are done within the organization & identifies areas of within the organization & identifies areas of improvementimprovement

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Logistics Audit – Cont ...Logistics Audit – Cont ...

This approach is similar to SWOT analysis.This approach is similar to SWOT analysis.By the end of the audit. The firm knows By the end of the audit. The firm knows where it wants to go, & where it is at the where it wants to go, & where it is at the moment. The next stage therefore is to moment. The next stage therefore is to identify the gaps between these two & show identify the gaps between these two & show how to bridge the gaps.how to bridge the gaps.

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Developing the StrategyDeveloping the Strategy

Novich (1990) recommends four steps for Novich (1990) recommends four steps for designing a strategy:designing a strategy:Understand & measure customer needsUnderstand & measure customer needsFind the weaknesses of the current logisticsFind the weaknesses of the current logisticsBenchmarkBenchmarkSimplify the whole logistics systemSimplify the whole logistics systemHowever, on the basis of the above (earlier) However, on the basis of the above (earlier) analysis, we can come up with an eight step analysis, we can come up with an eight step systematic approach:systematic approach:Do an external logistics auditDo an external logistics auditDo an internal logistics auditDo an internal logistics audit

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Developing the StrategyDeveloping the Strategy

Design the general features of SCs that can best Design the general features of SCs that can best deliver the desired services (network, capacity, deliver the desired services (network, capacity, location, technology & so on)location, technology & so on)Set specific goals to show what each logistics Set specific goals to show what each logistics activity must achieve – internal audit is a good activity must achieve – internal audit is a good starting pointstarting pointDesign the best organizational structure, controls Design the best organizational structure, controls & systems to support the logistics network& systems to support the logistics networkBenchmarkBenchmarkImplement the strategy, setting the conditions Implement the strategy, setting the conditions for lower levels of logistics decisionsfor lower levels of logistics decisionsMonitor actual performance, look for ways to CI, Monitor actual performance, look for ways to CI, update strategies & give feedbackupdate strategies & give feedback

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Implementing the StrategyImplementing the Strategy

It means translating the general or long-It means translating the general or long-term (strategic) aims of the strategy into term (strategic) aims of the strategy into lower decisions (tactical / operational).lower decisions (tactical / operational).It entails doing what is necessary to It entails doing what is necessary to achieve the aims of the strategy.achieve the aims of the strategy.So implementation shows the movement So implementation shows the movement from the fairly vague aspirations (‘the from the fairly vague aspirations (‘the best’, ‘world class’, ‘leaders’ etc) of the best’, ‘world class’, ‘leaders’ etc) of the strategy to the nuts-and-bolts of how to strategy to the nuts-and-bolts of how to move materials.move materials.

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Difficulties with Difficulties with ImplementationImplementationIt can be difficult to translate a poorly designed It can be difficult to translate a poorly designed strategy into lower decisions. Vague concepts strategy into lower decisions. Vague concepts like ‘global leader’ are difficult to operationalize.like ‘global leader’ are difficult to operationalize.It is also important to note that even properly It is also important to note that even properly designed strategies may be difficult to designed strategies may be difficult to implement. This may be due to high costs or implement. This may be due to high costs or strain it will cause to the SC.strain it will cause to the SC.Therefore, strategy Therefore, strategy designdesigners need to have a ers need to have a clear enough view of operations i.e. ensure that clear enough view of operations i.e. ensure that it can be implemented, & that long-term plans it can be implemented, & that long-term plans lead to realistic tactical & operational decisions.lead to realistic tactical & operational decisions.The following are some common problems with The following are some common problems with implementing logistics strategy:implementing logistics strategy:

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Difficulties – Cont...Difficulties – Cont...

People who design the strategies are not People who design the strategies are not responsible for their implementationresponsible for their implementation

Strategies are badly designed, perhaps with the Strategies are badly designed, perhaps with the wrong aims or focus.wrong aims or focus.

It is impossible, or very difficult, to implement It is impossible, or very difficult, to implement them properly.them properly.

They do not take enough account of actual They do not take enough account of actual operations, perhaps because there were not operations, perhaps because there were not broad enough discussionsbroad enough discussions

They are over-ambitious, or somehow not They are over-ambitious, or somehow not realistic.realistic.

They ignore key factors, or emphasize the They ignore key factors, or emphasize the wrong featureswrong features

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People only pay lip-service to supporting the People only pay lip-service to supporting the strategiesstrategies

Enthusiasm for the strategies declines over time.Enthusiasm for the strategies declines over time.One common mistake is to design a logistics One common mistake is to design a logistics strategy & then think about implementing it. To strategy & then think about implementing it. To avoid this, think about implementation all the way avoid this, think about implementation all the way through the design. This needs widespread through the design. This needs widespread participation in the design process, particularly participation in the design process, particularly from those most closely involved with from those most closely involved with implementation.implementation.To help devise a good strategy, the following are To help devise a good strategy, the following are some important factors that can be used:some important factors that can be used:

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An organizational structure that is flexible & An organizational structure that is flexible & allows innovationallows innovation

Formal procedures for translating the strategy Formal procedures for translating the strategy into reasonable decisions at lower levelsinto reasonable decisions at lower levels

Effective systems to distribute information & Effective systems to distribute information & support management decisionssupport management decisions

Open communications which encourage the Open communications which encourage the free exchange of ideasfree exchange of ideas

Acceptance that strategies are not fixed, but Acceptance that strategies are not fixed, but continue to evolve over timecontinue to evolve over time

Control systems to monitor progressControl systems to monitor progress

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Convincing everyone that the strategy is Convincing everyone that the strategy is beneficial, so that they conscientiously play beneficial, so that they conscientiously play their part in implementationtheir part in implementation

Developing an organizational culture that Developing an organizational culture that supports the strategysupports the strategy

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Areas of Decisions in Areas of Decisions in ImplementationImplementationTypes of decisionTypes of decisionThere are two types of strategic decisionsThere are two types of strategic decisions- Those that set out the principles to work with- Those that set out the principles to work with-Those that show how the organization will Those that show how the organization will achieve these principlesachieve these principlesE.g. If the principle is:E.g. If the principle is:‘‘rapid delivery of customer ordersrapid delivery of customer orders’, a ’, a practical way of achieving it would be practical way of achieving it would be ‘building ‘building warehouses close to customerswarehouses close to customers’’‘‘easy customer accesseasy customer access’, - ‘’, - ‘using websites to using websites to collect orderscollect orders’ would be a good means of doing ’ would be a good means of doing it.it.

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Areas of Decisions – Cont...Areas of Decisions – Cont...

2nd2nd

TierTier

SupplierSupplier

2nd 2nd

TierTier

3rd3rd

TierTier

FirstFirst

TierTier FIRMFIRM TierTier

FirstFirst

CustomerCustomer


Structure of the Supply ChainStructure of the Supply ChainSC for a product consists of tiers of suppliers & SC for a product consists of tiers of suppliers & customers. In practice, there are many variations customers. In practice, there are many variations on this basic model. E.g. few tiers to many tiers, on this basic model. E.g. few tiers to many tiers, simple flows to complex & convoluted networks.simple flows to complex & convoluted networks.Different strategies lead to different types of SC. Different strategies lead to different types of SC. Thus, organizations should design appropriate Thus, organizations should design appropriate structures for their SC i.e. decide the types of structures for their SC i.e. decide the types of intermediaries, warehousing arrangements, work intermediaries, warehousing arrangements, work done in logistics centres, modes of transport, done in logistics centres, modes of transport, delivery speed etcdelivery speed etc

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Location of facilitiesLocation of facilitiesThe structure of the SC sets the # of participants, The structure of the SC sets the # of participants,

including wholesalers, warehouses, logistics including wholesalers, warehouses, logistics centres, and so on. The next question concerns centres, and so on. The next question concerns the best location for each of these.the best location for each of these.

Questions of location should be tackled very Questions of location should be tackled very carefully as they have considerable impact over carefully as they have considerable impact over the long-term. the long-term.

Ownership & outsourcingOwnership & outsourcingWhen a company uses other companies to run its When a company uses other companies to run its

logistics (third party or contract logistics), its logistics (third party or contract logistics), its likely to reap enormous benefits.likely to reap enormous benefits.

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Enabling practicesEnabling practicesAre the activities associated with a SC that allow Are the activities associated with a SC that allow

it to work efficiently e.g. reliable information it to work efficiently e.g. reliable information processing, use of JIT to reduce stocks, EDI to processing, use of JIT to reduce stocks, EDI to link partners etc. Though not necessarily core link partners etc. Though not necessarily core SC activities, they do ensure a smooth flow of SC activities, they do ensure a smooth flow of materials to help the SC work as planned. materials to help the SC work as planned.

CapacityCapacityTo get a smooth flow of materials through the To get a smooth flow of materials through the

SC, each part should have an appropriate SC, each part should have an appropriate capacity. The overall capacity should match capacity. The overall capacity should match total demand, & the capacity of each part is total demand, & the capacity of each part is matched, to avoid restrictive matched, to avoid restrictive bottlenecks.bottlenecks.

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Managing ChangeManaging Change

As the strategy evolves, the operations of the As the strategy evolves, the operations of the whole logistics function must adjust & move whole logistics function must adjust & move forward. These new practices affect everyone. forward. These new practices affect everyone. Unfortunately, this presents a problem, as most of Unfortunately, this presents a problem, as most of us do not really like changes.us do not really like changes.This is because changes need a lot of effort, This is because changes need a lot of effort, forcing us to abandon old & familiar practices, forcing us to abandon old & familiar practices, learn new skills, new ways of doing things, & form learn new skills, new ways of doing things, & form new relationships. Change moves us from a new relationships. Change moves us from a reasonably predictable future to one with reasonably predictable future to one with uncertainty & risk.uncertainty & risk.Change is a normal part of business & failure to Change is a normal part of business & failure to respond leads to the more flexible competitors respond leads to the more flexible competitors gaining competitive advantage.gaining competitive advantage.April 25, 2023 91

Managing Change – Cont...Managing Change – Cont...

Change must be managed, things must be Change must be managed, things must be done differently & people must be convinced done differently & people must be convinced that changes are both essential & beneficial. that changes are both essential & beneficial. Getting this message across is the difficult Getting this message across is the difficult part of change management.part of change management.Organizations therefore need a Organizations therefore need a champion, or champion, or change managerchange manager who has a vision to see how who has a vision to see how an organization can improve, & the ability to an organization can improve, & the ability to move it in the right direction. move it in the right direction. Unfortunately, this can be a traumatic Unfortunately, this can be a traumatic journey, & organizations typically move journey, & organizations typically move through a series of stages:through a series of stages:

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Managing Change – Cont...Managing Change – Cont...

DenialDenial – employees deny that there is need – employees deny that there is need for changefor changeDefenceDefence – defending the current way of doing – defending the current way of doing things & criticizing new proposalsthings & criticizing new proposalsDiscardingDiscarding - beginning to move away from - beginning to move away from the old ways & towards the new onesthe old ways & towards the new onesAdoptionAdoption – using the new ways & accepting – using the new ways & accepting that they are beneficialthat they are beneficialIntegrationIntegration – assuming the new ways are – assuming the new ways are normal & using them naturallynormal & using them naturally

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Rate of ChangeRate of Change

Some organizations change very quickly Some organizations change very quickly (BPR), while others change slowly (CI / (BPR), while others change slowly (CI / Kaizen).Kaizen).

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Logistics PlanningLogistics Planning

The objectives are to see how:The objectives are to see how:Activities along the SC are planned – designing Activities along the SC are planned – designing

timetables to show when they will be done.timetables to show when they will be done.Resources are controlled.Resources are controlled.

Planning allows us face the future with some Planning allows us face the future with some confidence, rather than descending into chaos.confidence, rather than descending into chaos.Planning the SC starts with the logistics strategy, Planning the SC starts with the logistics strategy, which gives the overall aims. More details are which gives the overall aims. More details are added, and we get long-term plans which show added, and we get long-term plans which show how these aims will be achieved. These plans are, how these aims will be achieved. These plans are, in turn, expanded with more details added.in turn, expanded with more details added.The following is the approach to planning The following is the approach to planning logistics:logistics:

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Logistics Planning – Cont...Logistics Planning – Cont...

Higher strategic decisionsHigher strategic decisions Strategic decisions for logisticsStrategic decisions for logisticsTactical decisions for logisticsTactical decisions for logistics Operational decisions for logisticsOperational decisions for logistics

ii

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MissionMissionCorporate strategyCorporate strategyBusiness strategyBusiness strategy

Functional strategyFunctional strategyLogistics strategyLogistics strategy

Capacity plansCapacity plansAggregate plansAggregate plansMaster scheduleMaster schedule

Short-term Short-term schedulesschedules

Logistics Planning – Cont...Logistics Planning – Cont...

The major levels of planning therefore are:The major levels of planning therefore are:Capacity plansCapacity plans, which make sure there is , which make sure there is enough capacity to meet long-term demand.enough capacity to meet long-term demand.Aggregate plansAggregate plans, which give summaries of , which give summaries of the work done in related activities, typically the work done in related activities, typically by month at each location.by month at each location.Master schedulesMaster schedules, which show a detailed , which show a detailed timetable for all activities, typically by week.timetable for all activities, typically by week.Short-term schedulesShort-term schedules, which show detailed , which show detailed timetables for jobs and resources, typically timetables for jobs and resources, typically by day.by day.

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Capacity PlanningCapacity Planning

The capacity of an operation is its maximum The capacity of an operation is its maximum throughput in a specified time.throughput in a specified time.Capacity planning is the determination of which Capacity planning is the determination of which level of capacity to operate at to meet customer level of capacity to operate at to meet customer demand in a cost-efficient manner.demand in a cost-efficient manner.It is an important concept for logistics, as it sets It is an important concept for logistics, as it sets the maximum amount of product that can flow the maximum amount of product that can flow through a SC and thus be delivered to final through a SC and thus be delivered to final customers in a given time.customers in a given time.Most organizations do not like to work at full Most organizations do not like to work at full capacity, as this puts pressure on resources and capacity, as this puts pressure on resources and people. Instead they operate at a lower level people. Instead they operate at a lower level that they can sustain over time.that they can sustain over time.

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Capacity Planning – Cont...Capacity Planning – Cont...

Consequently, there are different kinds of capacity:Consequently, there are different kinds of capacity:a) Designed capacity a) Designed capacity – max throughput of a SC that – max throughput of a SC that is working in ideal conditions with no disruptions is working in ideal conditions with no disruptions or problems of any kind.or problems of any kind.In reality, you seldom find such ideal conditions, In reality, you seldom find such ideal conditions, and a more realistic measure is the;and a more realistic measure is the;b) Effective capacity b) Effective capacity – – this is max throughput that this is max throughput that can be sustained under normal conditions, and can be sustained under normal conditions, and allows for disruptions, variations in performance, allows for disruptions, variations in performance, breakdowns, maintenance periods, and so on.breakdowns, maintenance periods, and so on.c) Actual throughput c) Actual throughput – is normally lower than – is normally lower than effective capacity. effective capacity. N/B:N/B: c/a = C.U.R c/a = C.U.R

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vba b/c/

Bottlenecks Bottlenecks

Not all parts of the SC have the same capacity. Not all parts of the SC have the same capacity. There is a part that limits the overall throughput, There is a part that limits the overall throughput, and this forms a bottleneck. This part of the SC and this forms a bottleneck. This part of the SC works at full capacity, but other parts have spare works at full capacity, but other parts have spare capacity that is not used.capacity that is not used.ExampleExampleThe main bottling plant at Eldoret Soft drinks has The main bottling plant at Eldoret Soft drinks has a capacity of 80,000 litres per day, and works a a capacity of 80,000 litres per day, and works a seven-day week. It fills standard bottles of 750 ml, seven-day week. It fills standard bottles of 750 ml, and these are passed to a packing area which can and these are passed to a packing area which can form up to 20,000 cases a day with 12 bottles form up to 20,000 cases a day with 12 bottles each. The packing area works a five-day week. The each. The packing area works a five-day week. The cases arecases are

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Bottlenecks – Cont...Bottlenecks – Cont...

taken to warehouses by a transport company taken to warehouses by a transport company whose 8 lorries can each carry 300 cases, and whose 8 lorries can each carry 300 cases, and make up to 4 trips a day for 7 days a week. There make up to 4 trips a day for 7 days a week. There are two main warehouses, each of which can are two main warehouses, each of which can handle up to 30,000 cases a week. Local handle up to 30,000 cases a week. Local deliveries are made from the warehouses by a deliveries are made from the warehouses by a fleet of small vans that can handle everything fleet of small vans that can handle everything passed to them by the warehouse. passed to them by the warehouse. Required:Required:i.i.Find the capacity (bottles per week) of each of Find the capacity (bottles per week) of each of the five parts of the SC.the five parts of the SC.ii.ii.Determine the bottleneck and state how Eldoret Determine the bottleneck and state how Eldoret bottling can increase capacity.bottling can increase capacity.

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Bottlenecks – Cont...Bottlenecks – Cont...

Capacity of a SC can only be increased by Capacity of a SC can only be increased by adding more capacity at the bottleneck. adding more capacity at the bottleneck. Unfortunately, you often see cases where this Unfortunately, you often see cases where this is not done.is not done.

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Matching Capacity and Matching Capacity and DemandDemand

The aim of capacity planning is to match the The aim of capacity planning is to match the available capacity of facilities to the demand put available capacity of facilities to the demand put on them. Any mismatch can be expensive. on them. Any mismatch can be expensive. If capacity < demand, bottlenecks restrict the If capacity < demand, bottlenecks restrict the movement of materials, and customer service movement of materials, and customer service declines.declines.If capacity > demand, the organization can move If capacity > demand, the organization can move all its materials but it has spare capacity all its materials but it has spare capacity underused resources.underused resources.There is a standard approach to capacity There is a standard approach to capacity planning that can be illustrated in the following planning that can be illustrated in the following example:example:

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Matching – Cont...Matching – Cont...

Hannah Samuel has a contract to deliver 100 Hannah Samuel has a contract to deliver 100 computer systems a week to schools in computer systems a week to schools in Nyaribari Masaba. The system has customized Nyaribari Masaba. The system has customized software installed, which takes an hour to test software installed, which takes an hour to test before delivery. The testing is done by trained before delivery. The testing is done by trained staff, who achieve an average efficiency of staff, who achieve an average efficiency of 75%. They work a single eight-hour shift five 75%. They work a single eight-hour shift five days a week, but could move to double shifts days a week, but could move to double shifts or have overtime at weekends.or have overtime at weekends.Required:Required:How many testers should Hannah employ?How many testers should Hannah employ?

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The main steps therefore in capacity planning find The main steps therefore in capacity planning find the resources needed, compare these with the the resources needed, compare these with the resources available, and then look at alternative resources available, and then look at alternative plans for overcoming any differences. More plans for overcoming any differences. More specifically:specifically:a)a)examine forecast demand and translate this into examine forecast demand and translate this into a capacity neededa capacity neededb)b)find the capacity available in present facilitiesfind the capacity available in present facilitiesc)c)identify mismatches between capacity needed identify mismatches between capacity needed and that availableand that availabled)d)suggest alternative plans for overcoming any suggest alternative plans for overcoming any mismatchmismatche)e)compare these plans and find the bestcompare these plans and find the bestf)f)implement the best and monitor performanceimplement the best and monitor performance

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Unfortunately, taking the steps in this Unfortunately, taking the steps in this straightforward sequence does not usually work. straightforward sequence does not usually work. Why?Why?there can be a huge number of potential plans to there can be a huge number of potential plans to consider, and its impossible to look at them all in consider, and its impossible to look at them all in detail,detail,difficult to compare the alternatives, as there may difficult to compare the alternatives, as there may be competing objectives and non-quantifiable factors.be competing objectives and non-quantifiable factors.A more realistic view replaces the single procedure A more realistic view replaces the single procedure with an iterative one i.e. design a plan & see how with an iterative one i.e. design a plan & see how close it gets to achieving its objectives; if it performs close it gets to achieving its objectives; if it performs badly, modify it to find improvements. In effect steps badly, modify it to find improvements. In effect steps 4 & 5 are repeated until they give a reasonable 4 & 5 are repeated until they give a reasonable solution.solution.

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Adjusting CapacityAdjusting Capacity

One of the practical problems with capacity One of the practical problems with capacity planning is how to match discrete capacity to planning is how to match discrete capacity to continuous demand.continuous demand.

demanddemand

CapacityCapacity

TimeTime

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Adjusting Capacity – Cont...Adjusting Capacity – Cont...

One of the three capacity strategies has to be used:One of the three capacity strategies has to be used:a)a)More or less match capacity to demand, so that there is More or less match capacity to demand, so that there is sometimes excess capacity and some times a shortage (Neutral sometimes excess capacity and some times a shortage (Neutral Strategy).Strategy).

demanddemand

CapacityCapacity

TimeTime

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b) Make capacity at least equal to demand by early expansion, b) Make capacity at least equal to demand by early expansion, which needs more investment in facilities and gives lower which needs more investment in facilities and gives lower utilization (Reactive Strategy).utilization (Reactive Strategy).

demanddemandCapacityCapacity

TimeTime

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c) Only add capacity when the additional facilities would be c) Only add capacity when the additional facilities would be fully used, which has lower investment and high utilization, but fully used, which has lower investment and high utilization, but restricts throughput (Reactive Strategy) .restricts throughput (Reactive Strategy) . demanddemandCapacityCapacity

TimeTime

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Each of these strategies is best in different Each of these strategies is best in different circumstances. Factors that encourage an circumstances. Factors that encourage an early increase in capacity include high cost of early increase in capacity include high cost of shortages, widely variable demand, varying shortages, widely variable demand, varying efficiency, and low cost of spare capacity.efficiency, and low cost of spare capacity.The main factor that encourages a delay The main factor that encourages a delay before increasing capacity is the capital cost.before increasing capacity is the capital cost.Another concern is the size of the changes; Another concern is the size of the changes; few large increases or many smaller increases? few large increases or many smaller increases? Any change in capacity is likely to cause some Any change in capacity is likely to cause some disruption, so it might be better to have a few disruption, so it might be better to have a few large increases rather than more smaller ones.large increases rather than more smaller ones.

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Short-term Adjustments to Short-term Adjustments to CapacityCapacity

There are two ways of making short-term There are two ways of making short-term adjustments to capacity:adjustments to capacity:capacity managementcapacity management – adjusting capacity to – adjusting capacity to match demand.match demand.This may be achieved through; changing the This may be achieved through; changing the work pattern to match demand, employing work pattern to match demand, employing part-time staff to cover peak demands, using part-time staff to cover peak demands, using outside contractors, renting or leasing extra outside contractors, renting or leasing extra facilities, adjusting the speed of working, facilities, adjusting the speed of working, rescheduling maintenance periods, making the rescheduling maintenance periods, making the customer do some work ( e.g. packing their customer do some work ( e.g. packing their own bags in supermarkets) e.t.cown bags in supermarkets) e.t.c

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Short-term Adjustments – Short-term Adjustments – Cont...Cont...

demand management demand management - adjusting demand to - adjusting demand to match available capacity.match available capacity.This may be achieved by; vary the price, change This may be achieved by; vary the price, change the marketing effort, limit the customers served the marketing effort, limit the customers served (demand specific ‘qualifications’), offer (demand specific ‘qualifications’), offer incentives to change demand patterns (e.g. off-incentives to change demand patterns (e.g. off-peak travel rates), vary the lead time, use a peak travel rates), vary the lead time, use a reservation or appointment system, use stocks reservation or appointment system, use stocks to cushion demand, change related products to to cushion demand, change related products to encourage substitution (e.g. holiday encourage substitution (e.g. holiday destinations) etc.destinations) etc.

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Changing capacity over timeChanging capacity over time

So far we have assumed capacity is constant over So far we have assumed capacity is constant over time. In reality, the effective capacity of a SC can time. In reality, the effective capacity of a SC can change quite markedly (could be due to short-term change quite markedly (could be due to short-term variations due to staff illness, interruptions, variations due to staff illness, interruptions, breakdowns, weather, enthusiasm of employees breakdowns, weather, enthusiasm of employees etc). There are, however, other more systematic etc). There are, however, other more systematic changes in capacity like the effect of a changes in capacity like the effect of a learning learning curvecurve..These systematic changes arise from: These systematic changes arise from: The more often something is repeated, the easier The more often something is repeated, the easier it becomes and the faster it is done.it becomes and the faster it is done.Aging equipments and facilities (can be slowed by Aging equipments and facilities (can be slowed by preventive maintenance & rational replacement preventive maintenance & rational replacement policies).policies).

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Example Example

Euanito has recorded the costs of an Euanito has recorded the costs of an automatic guided vehicle (AGV) that moves automatic guided vehicle (AGV) that moves materials around an assembly hall. The longer materials around an assembly hall. The longer the AGV works without maintenance, the the AGV works without maintenance, the higher are the expected failure costs (shown higher are the expected failure costs (shown below). The maintenance also affects the below). The maintenance also affects the resale value, giving a varying capital charge. resale value, giving a varying capital charge. Preventive maintenance can be done at a cost Preventive maintenance can be done at a cost of $1000 and this brings the AVG back to new of $1000 and this brings the AVG back to new condition. What is the best time between condition. What is the best time between maintenance periods?maintenance periods?

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Example – Cont... Example – Cont...

Months sinceMonths sincemaintenancemaintenance 00 11 22 33 4455Cost of breakdownCost of breakdownin monthin month 00 5050 150150 200200 16001600 30003000Capital chargeCapital charge 100100 200200 400400 500500 800 800 12001200

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Tactical PlanningTactical Planning

These plans bridge the gap between longer term These plans bridge the gap between longer term strategic plans and operational details. They show strategic plans and operational details. They show how the capacity will be used, and develop how the capacity will be used, and develop medium-term timetables for activities. Different medium-term timetables for activities. Different names are used for this level of planning, but the names are used for this level of planning, but the most common are most common are aggregate plans aggregate plans andand master master schedulesschedules..Aggregate planning takes the forecast demand Aggregate planning takes the forecast demand for logistics and uses this to design plans for each for logistics and uses this to design plans for each type of activity for, typically, each of the next few type of activity for, typically, each of the next few months. Aggregate plans only look at families of months. Aggregate plans only look at families of activities and are not concerned with details. activities and are not concerned with details.

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Tactical Planning – Cont...Tactical Planning – Cont...

They might show the # of cases moved through They might show the # of cases moved through a logistics centre, but do not break this down a logistics centre, but do not break this down into types of case or contents.into types of case or contents.Aggregate plans try to meet forecast demand, Aggregate plans try to meet forecast demand, while using capacity as efficiently as possible. while using capacity as efficiently as possible. They typically aim at low costs, high customer They typically aim at low costs, high customer service, stable throughput, full utilization of service, stable throughput, full utilization of resources and so on. To achieve this, they can resources and so on. To achieve this, they can adjust the values of several variables e.g. adjust the values of several variables e.g. change the # of employees, hours worked, change the # of employees, hours worked, amounts of stock, amount subcontracted, and so amounts of stock, amount subcontracted, and so on.on.

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The Master schedule adds details to aggregate The Master schedule adds details to aggregate plans by giving timetables for activities, typically plans by giving timetables for activities, typically for each week. Its aim is to achieve the activities for each week. Its aim is to achieve the activities described in aggregate plans as efficiently as described in aggregate plans as efficiently as possible.possible.The overall approach of tactical planning can follow The overall approach of tactical planning can follow the general capacity procedure discussed earlier:the general capacity procedure discussed earlier:More specifically:More specifically:a)a)translate forecasts and other information into a translate forecasts and other information into a demand for resourcesdemand for resourcesb)b)find the resources currently availablefind the resources currently availablec)c)identify mismatches between resources needed identify mismatches between resources needed and availableand available

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d) suggest alternative plans for overcoming any d) suggest alternative plans for overcoming any mismatchesmismatchese) compare these plans and find the beste) compare these plans and find the bestf) implement the best and monitor performancef) implement the best and monitor performanceRemember that steps d, e & f are usually Remember that steps d, e & f are usually repeated until a reasonable solution is found.repeated until a reasonable solution is found.Example: Example: HopHopi Coaches plan their capacity in terms of HopHopi Coaches plan their capacity in terms of ‘coach-days’. They classify their business as ‘coach-days’. They classify their business as either ‘full day’, which are long distance either ‘full day’, which are long distance journeys, or ‘half day’ which are shorter runs. journeys, or ‘half day’ which are shorter runs. Forecasts show expected annual demands for the Forecasts show expected annual demands for the next two yearsnext two years

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to average 400,000 full-day passengers and to average 400,000 full-day passengers and 750,000 half-day passengers. HopHopi have 61 750,000 half-day passengers. HopHopi have 61 coaches, each with an effective capacity of 40 coaches, each with an effective capacity of 40 passengers a day for 300 days a year. Breakdowns passengers a day for 300 days a year. Breakdowns and other unexpected problems reduce efficiency and other unexpected problems reduce efficiency to 90%. They employ 86 drivers who work an to 90%. They employ 86 drivers who work an average of 220 days a year, but illness and other average of 220 days a year, but illness and other absences reduce their efficiency to 85%. If there is absences reduce their efficiency to 85%. If there is a shortage of coaches the company can buy extra a shortage of coaches the company can buy extra ones for $ 110,000 or hire them for $ 100 a day. If ones for $ 110,000 or hire them for $ 100 a day. If there is a shortage of drivers they can recruit there is a shortage of drivers they can recruit extra ones at a cost of $20,000 a year, or hire extra ones at a cost of $20,000 a year, or hire them from an agency for $110 a day.them from an agency for $110 a day.

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Required:Required:How can the company approach its tactical How can the company approach its tactical planning? Approach the problem using the planning? Approach the problem using the first five steps of the six-step procedure first five steps of the six-step procedure outlined above.outlined above.

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Generating alternative plansGenerating alternative plans

There are many ways of generating alternative There are many ways of generating alternative plans, ranging from simple intuition through to plans, ranging from simple intuition through to sophisticated mathematical models. The most sophisticated mathematical models. The most appropriate depends on several factors, key being appropriate depends on several factors, key being the balance between the cost of planning and the the balance between the cost of planning and the expected benefits. The following are some of the expected benefits. The following are some of the most common methods for generating plans:most common methods for generating plans:1.1.Negotiations – get the support of all the people Negotiations – get the support of all the people most closely concerned.most closely concerned.2.2.Adjust previous plans – update them in light of Adjust previous plans – update them in light of current circumstances.current circumstances.3.3.Other intuitive methods – use skills, knowledge Other intuitive methods – use skills, knowledge and experience of the planners.and experience of the planners.

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Generating – Cont...Generating – Cont...

4. Graphical methods – try to match 4. Graphical methods – try to match cumulative demand to cumulative supplycumulative demand to cumulative supply

5. Spreadsheet calculations – enables ‘what-if’ 5. Spreadsheet calculations – enables ‘what-if’ analyses to be performed.analyses to be performed.

6. Simulation – imitate real operations over 6. Simulation – imitate real operations over some typical period.some typical period.

7. Expert systems – computers duplicate the 7. Expert systems – computers duplicate the methods of skilled planners.methods of skilled planners.

8. Mathematical models – for optimal 8. Mathematical models – for optimal solutions.solutions.

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Short-term SchedulesShort-term Schedules

They give detailed timetables for jobs, people, They give detailed timetables for jobs, people, materials, equipment and all other resources. materials, equipment and all other resources. They give the sequence of activities, and the They give the sequence of activities, and the times they should be done. !!!times they should be done. !!!The aim of these schedules is to organize the The aim of these schedules is to organize the resources needed for the master schedule, resources needed for the master schedule, giving low costs, high utilizations, or achieving giving low costs, high utilizations, or achieving some other measure of performance.some other measure of performance.

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Approach to SchedulingApproach to Scheduling

Consider a scheduling problem in terms of a set Consider a scheduling problem in terms of a set of jobs waiting to use equipment. The master of jobs waiting to use equipment. The master schedule shows when jobs have to be finished, schedule shows when jobs have to be finished, so the short-term schedules must take this dates so the short-term schedules must take this dates into account. There are two ways of doing this:into account. There are two ways of doing this:i)i) Backward schedulingBackward scheduling, where schedulers know , where schedulers know when a job has to be finished. They can work when a job has to be finished. They can work back through all the activities to find the date back through all the activities to find the date when the job must be started.when the job must be started.ii)ii) Forward schedulingForward scheduling, where schedulers know , where schedulers know when a job can start. They can work forward when a job can start. They can work forward through all activities to find the date when the through all activities to find the date when the job will be finished.job will be finished.

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Scheduling RulesScheduling Rules

a)a) First come, first servedFirst come, first served: most obvious : most obvious scheduling rule and simply takes jobs in the scheduling rule and simply takes jobs in the order they arrive. It assumes no priority, no order they arrive. It assumes no priority, no urgency, or any other measure of relative urgency, or any other measure of relative importance. Its drawback is that urgent jobs importance. Its drawback is that urgent jobs may be delayed while less urgent ones are may be delayed while less urgent ones are being processed.being processed.b)b) Most urgent job firstMost urgent job first: assigns an importance, : assigns an importance, or urgency, to each job and they are processed or urgency, to each job and they are processed in order of decreasing urgency e.g. hospitals. in order of decreasing urgency e.g. hospitals. More important jobs have higher priority but More important jobs have higher priority but low priority jobs wait for a longer time.low priority jobs wait for a longer time.

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Rules – Cont...Rules – Cont...

c) c) Shortest job firstShortest job first: a useful objective is to minimize : a useful objective is to minimize the average time spent in the system, wherethe average time spent in the system, where time in the system = processing time + waiting timetime in the system = processing time + waiting timeIt allows jobs that can be done quickly to move on It allows jobs that can be done quickly to move on through the system, while longer jobs are left until through the system, while longer jobs are left until later.later.d) d) Earliest due date firstEarliest due date first: this sorts jobs into order of : this sorts jobs into order of delivery date, and the ones that are due earliest are delivery date, and the ones that are due earliest are processed first. This has the benefit of minimizing processed first. This has the benefit of minimizing the maximum lateness of jobs, but again some jobs the maximum lateness of jobs, but again some jobs may wait a long time.may wait a long time.

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ExampleExample

ZYX Transport has to schedule the following ZYX Transport has to schedule the following six jobs for a heavy lift crane (n jobs on one six jobs for a heavy lift crane (n jobs on one machine). How can it design a reasonable machine). How can it design a reasonable schedule?schedule?

JobsJobs AA BB CC DD EE FFDuration (days)Duration (days) 1212 8 8 4 4 1616 22 1010Target completionTarget completion 1212 4040 4444 4848 44

2020

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Transportation ManagementTransportation Management

Transportation is an indicator which measures Transportation is an indicator which measures the economic, social and commercial progress the economic, social and commercial progress of a country. It has transformed the entire of a country. It has transformed the entire world into one organization and greatly world into one organization and greatly contributed to the evolution of civilization. It contributed to the evolution of civilization. It is the most visible element of logistics is the most visible element of logistics operation and thus takes a significant share in operation and thus takes a significant share in overall logistical cost of the firm and needs a overall logistical cost of the firm and needs a great deal of planning to control it.great deal of planning to control it.

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TM – Cont...TM – Cont...

TransportationTransportation is about the movement of is about the movement of products from where they are (origin) to products from where they are (origin) to where they need to be (destination). Those where they need to be (destination). Those that study transportation refer to this that study transportation refer to this movement as providing place and timemovement as providing place and time utility. That is, transportation adds value to utility. That is, transportation adds value to the customer. It is the addition of this value the customer. It is the addition of this value that represents the goals and objectives of that represents the goals and objectives of the customer.the customer.ManagementManagement is about the control of the is about the control of the resources used to provide transportation to resources used to provide transportation to achieve goals and objectives. achieve goals and objectives.

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TM – Cont...TM – Cont...

e-commerce has had a major effect on e-commerce has had a major effect on organizations’ logistics. Its used to give product organizations’ logistics. Its used to give product description (website), send orders, arrange description (website), send orders, arrange payments – but transport is still needed to deliver payments – but transport is still needed to deliver the product (tangibles). Intangibles such as the product (tangibles). Intangibles such as information, music, software e.t.c. can be information, music, software e.t.c. can be delivered by the website.delivered by the website.At the heart of logistics are transport vehicles At the heart of logistics are transport vehicles moving goods between suppliers and customers.moving goods between suppliers and customers.This topic focuses on the movement of product. This topic focuses on the movement of product. That is, we are discussing freight and not That is, we are discussing freight and not passenger transportation.passenger transportation.

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TM – Cont... TM – Cont...

Transportation derives from demand, it is Transportation derives from demand, it is tangible. One can touch the shipment, the tangible. One can touch the shipment, the container in which it may ride, the truck upon container in which it may ride, the truck upon which the container may be placed, the which the container may be placed, the roadway on which the truck rides. That is, roadway on which the truck rides. That is, transportation is provided through a transportation is provided through a combination of infrastructure (e.g., roadways, combination of infrastructure (e.g., roadways, rail tracks, ports and harbors) and equipment rail tracks, ports and harbors) and equipment (e.g., trucks and trailers, locomotives and (e.g., trucks and trailers, locomotives and railway cars, container-handling equipment). railway cars, container-handling equipment).

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Transport RateTransport Rate

Rate or tariff is the price of moving a unit of Rate or tariff is the price of moving a unit of material between locations in cases where material between locations in cases where organizations use third-party transport. It is organizations use third-party transport. It is set by the cost of the service provided, value set by the cost of the service provided, value to the customer, the distance moved, weight, to the customer, the distance moved, weight, size and value of goods, complexity of size and value of goods, complexity of journey, and so on.journey, and so on.Although important, service users have little Although important, service users have little influence in setting this rate. However, they influence in setting this rate. However, they can influence through choice of mode of can influence through choice of mode of transport to use.transport to use.

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Mode of TransportMode of Transport

Describes the type of transport used. There are Describes the type of transport used. There are basically five different options – rail, road, water, air basically five different options – rail, road, water, air and pipeline.and pipeline.Each mode has different xtics, and the best in any Each mode has different xtics, and the best in any particular circumstances depends on the type of particular circumstances depends on the type of goods to be moved, locations, distance, value and goods to be moved, locations, distance, value and so on.so on.RAILRAILMost commonly used for heavy and bulky loads over Most commonly used for heavy and bulky loads over long land journeys. Trains can maintain a long land journeys. Trains can maintain a consistent, reasonably high speed, and can link with consistent, reasonably high speed, and can link with other modes to carry containers and bulk freight. other modes to carry containers and bulk freight. Rail services are organized in different ways.Rail services are organized in different ways.

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Mode – Cont... Mode – Cont...

They are almost invariably public carriers (giving a They are almost invariably public carriers (giving a service to all other organizations) rather than service to all other organizations) rather than private carriers (carrying goods for one private carriers (carrying goods for one organization). This public service is often organization). This public service is often considered so important that it is run by the state. considered so important that it is run by the state. Even when the rail service is not nationalized, it is Even when the rail service is not nationalized, it is allowed a (near) monopoly.allowed a (near) monopoly.Advantages of railAdvantages of railVery high capacity and low unit costs, thus Very high capacity and low unit costs, thus discouraging competition.discouraging competition.Unit transport cost is low, so that it can be used to Unit transport cost is low, so that it can be used to move large volumes of relatively low-priced move large volumes of relatively low-priced materialsmaterials

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Disadvantages of railDisadvantages of rail

Inflexibility – all train services have to be Inflexibility – all train services have to be timetabled in advance, so that they can all fit timetabled in advance, so that they can all fit onto the same tracks. This leaves little flexibility onto the same tracks. This leaves little flexibility for last minute or emergency deliveries.for last minute or emergency deliveries.Trains can only travel along specified routes Trains can only travel along specified routes between fixed terminals, and cannot stop at between fixed terminals, and cannot stop at intermediary points.intermediary points.Limited access – it can be overcome by locating Limited access – it can be overcome by locating facilities near to rail terminals, build a special facilities near to rail terminals, build a special rail line to your facility, use intermodal rail line to your facility, use intermodal transport.transport.

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RoadRoad

Most widely used and is used – at least somewhere – Most widely used and is used – at least somewhere – in almost all supply chains.in almost all supply chains.Advantages of roadAdvantages of roadFlexibility – able to visit almost all locations.Flexibility – able to visit almost all locations.Despite limited maximum speed on roads, ability to Despite limited maximum speed on roads, ability to give door-to-door service avoids transfers to other give door-to-door service avoids transfers to other modes and gives a shorter overall journey time.modes and gives a shorter overall journey time.Vehicles can go on journeys at short notice and do Vehicles can go on journeys at short notice and do not have to keep rigid timetables.not have to keep rigid timetables.Road transport is characterized by a large # of Road transport is characterized by a large # of carriers working in the same areas. Thus, carriers working in the same areas. Thus, competition is likely to be more intense and pricing competition is likely to be more intense and pricing more flexible.more flexible.

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Disadvantages of roadDisadvantages of road

Weight and size limits – road transport is Weight and size limits – road transport is more likely to be used for delivering finished more likely to be used for delivering finished goods than bulky raw materialsgoods than bulky raw materialsLorries are particularly vulnerable to Lorries are particularly vulnerable to congestion and traffic delays. congestion and traffic delays. e.t.ce.t.c

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WaterWater

There are basically three types of water There are basically three types of water transport:transport:Rivers and canals - usually called inland Rivers and canals - usually called inland waterways and are associated with smaller waterways and are associated with smaller loads, perhaps narrow boats.loads, perhaps narrow boats.Coastal shipping – moving materials from one Coastal shipping – moving materials from one port to another along the coastport to another along the coastOcean transport – across the major seasOcean transport – across the major seasAdvantages of waterAdvantages of waterMost supply chains use shipping to cross the Most supply chains use shipping to cross the oceans at some point, and over 90% of world oceans at some point, and over 90% of world trade is moved by sea.trade is moved by sea.Ships get considerable economies of scale, and Ships get considerable economies of scale, and thus can move big loads at low unit costs.thus can move big loads at low unit costs.April 25, 2023 140

Disadvantages of waterDisadvantages of water

Inflexible – limited to appropriate portsInflexible – limited to appropriate portsRelatively slowRelatively slowNeeds time to consolidate loads and transfer Needs time to consolidate loads and transfer them at ports.them at ports.Conference services – all carriers in a given Conference services – all carriers in a given area agree to charge a common price and area agree to charge a common price and regulate the frequency of their service.regulate the frequency of their service.

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Air Air

Passengers account for most airline business. Passengers account for most airline business. Airlines also carry a significant amount of freight, Airlines also carry a significant amount of freight, for products where speed of delivery is more for products where speed of delivery is more important than cost. In practice, this limits important than cost. In practice, this limits airfreight to fairly small amounts of expensive airfreight to fairly small amounts of expensive materials. Perhaps the most common movements materials. Perhaps the most common movements are documents and parcel delivery.are documents and parcel delivery.There are three main types of operation:There are three main types of operation:Regular service – major airlines use the cargo Regular service – major airlines use the cargo space in passenger aircraft that is not needed for space in passenger aircraft that is not needed for baggage.baggage.Cargo service – operators run cargo planes on Cargo service – operators run cargo planes on regular schedules. These are public carriers, regular schedules. These are public carriers, moving goods for any customers.moving goods for any customers.April 25, 2023 142

Air – Cont...Air – Cont...

Charter operations – a whole aircraft is hired Charter operations – a whole aircraft is hired for a particular delivery.for a particular delivery.Disadvantages of airDisadvantages of airTransfer of materials to and from facilities Transfer of materials to and from facilities located around major airlines take time and located around major airlines take time and can reduce the benefits of air travel.can reduce the benefits of air travel.Expensive Expensive

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Pipeline Pipeline

The main uses of pipelines are oil and gas together The main uses of pipelines are oil and gas together with utilities of water and sewage.with utilities of water and sewage.Advantages of pipelineAdvantages of pipelineMoves large quantities over long distances.Moves large quantities over long distances.Cheapest way of moving liquidsCheapest way of moving liquidsDisadvantages of pipelineDisadvantages of pipelineSlow - typically moving at less than 10km per Slow - typically moving at less than 10km per hourhourInflexible – only transporting between fixed pointsInflexible – only transporting between fixed pointsOnly carries large volumes of certain types of Only carries large volumes of certain types of fluidsfluidsHuge initial investment.Huge initial investment.

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Choice of modeChoice of mode

Depends on the following factors amongst others:Depends on the following factors amongst others:Nature of materials to move, the volume and Nature of materials to move, the volume and distance.distance.Value of materials, as expensive items raise Value of materials, as expensive items raise inventory costs and encourage faster modesinventory costs and encourage faster modesImportance, as even low-value items that would Importance, as even low-value items that would hold up operations need fast, reliable transporthold up operations need fast, reliable transportTransit times, as operations that have to Transit times, as operations that have to respond quickly to changes cannot wait for respond quickly to changes cannot wait for critical supplies using slow transportcritical supplies using slow transportReliability, with consistent delivery often being Reliability, with consistent delivery often being more important than transit timemore important than transit time

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Choice – Cont...Choice – Cont...

Cost and flexibility to negotiate ratesCost and flexibility to negotiate ratesReputation and stability of carrierReputation and stability of carrierSecurity, loss and damageSecurity, loss and damageSchedules and frequency of deliverySchedules and frequency of deliverySpecial facilities availableSpecial facilities available

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Intermodal transportIntermodal transport

Refers to journeys that involve two or more Refers to journeys that involve two or more different modes of transport.different modes of transport.The aim is to combine the benefits of several The aim is to combine the benefits of several separate modes, but avoid the disadvantages separate modes, but avoid the disadvantages of each. The main problem is that each of each. The main problem is that each transfer causes delays and adds costs for transfer causes delays and adds costs for extra handling. Intermodal transport only extra handling. Intermodal transport only works if this transfer can be done efficiently. works if this transfer can be done efficiently.

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Ownership of transportOwnership of transport

Is it better for an organization to run its own Is it better for an organization to run its own transport fleet, to use public transport, or a transport fleet, to use public transport, or a combination of the two? With transport the more combination of the two? With transport the more common terms are common terms are in-house in-house oror own account own account transport transport compared with compared with third-party transportthird-party transport..Own account transportOwn account transportThis has an organization using its own transport This has an organization using its own transport fleet to move its materials. This has the advantage fleet to move its materials. This has the advantage of flexibility, greater control, closer integration of of flexibility, greater control, closer integration of logistics and easier communications. Transport logistics and easier communications. Transport can be tailored to the organization’s needs, with can be tailored to the organization’s needs, with the best type of vehicles, fleet size, delivery the best type of vehicles, fleet size, delivery schedule, customer service and so on.schedule, customer service and so on.

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Ownership – Cont...Ownership – Cont...

-Own account transport can be expensive and an Own account transport can be expensive and an organization should only run its own fleet when its organization should only run its own fleet when its cheaper than using a specialist third-party carrier.cheaper than using a specialist third-party carrier.-There are, however, potential cost savings as there There are, however, potential cost savings as there is less pressure for transport to make a profit, is less pressure for transport to make a profit, possible tax advantages, and development grants.possible tax advantages, and development grants.-There are intangible benefits, such as the marketing There are intangible benefits, such as the marketing benefits of vehicles painted in identifiable livery and benefits of vehicles painted in identifiable livery and impression of reliability and long-term dependability.impression of reliability and long-term dependability.-Only large organizations can afford the huge capital Only large organizations can afford the huge capital investment and costs of running their own fleet.investment and costs of running their own fleet.

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Third-party carriersThird-party carriers

Offer a range of services to other organizations. Offer a range of services to other organizations. The advantage of this arrangement is that The advantage of this arrangement is that specialized companies run the transport, leaving specialized companies run the transport, leaving the organization to concentrate on its core the organization to concentrate on its core operations.operations.Benefits:Benefits:Better services – because of skills and Better services – because of skills and expertiseexpertiseCheaper than own account transport – Cheaper than own account transport – economies of scaleeconomies of scaleOperational benefits – plan for vehicles to be Operational benefits – plan for vehicles to be loaded as they make return journeysloaded as they make return journeys

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Choice of ownershipChoice of ownership

There are several factors to consider when There are several factors to consider when choosing the best type of ownership:choosing the best type of ownership:Operating cost – there should be significant other Operating cost – there should be significant other benefits before an organization moves away from benefits before an organization moves away from their cheaper option.their cheaper option.Capital costs – capital is always scarce, hence the Capital costs – capital is always scarce, hence the need to justify own account transportneed to justify own account transportCustomer service – must use transport that Customer service – must use transport that provides acceptable customer service in the best provides acceptable customer service in the best possible waypossible wayControlControlFlexibility – quick adjustments to allow changing Flexibility – quick adjustments to allow changing circumstancescircumstances

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Choice – Cont...Choice – Cont...

Management skills – are there specialized skills for Management skills – are there specialized skills for transport mgt?transport mgt?Recruitment and training – road transport is labour Recruitment and training – road transport is labour intensiveintensive

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Other servicesOther services

Other firms offer specialized services e.g.Other firms offer specialized services e.g.Common carriers – as we have seen, move Common carriers – as we have seen, move materials between two points for any customermaterials between two points for any customerContract carriers – offer transport services, but Contract carriers – offer transport services, but usually for a longer time. They set aside some usually for a longer time. They set aside some facilities and dedicate them to the organization for facilities and dedicate them to the organization for the period stipulated in the contract.the period stipulated in the contract.Intermodal carriers – they look after all aspects Intermodal carriers – they look after all aspects of a journey between two specified pointsof a journey between two specified pointsTerminal services – transfers from one mode to Terminal services – transfers from one mode to the other may be done at ports, airports, the other may be done at ports, airports, container bases, which are run by separate container bases, which are run by separate organizationsorganizations

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Other services – Cont...Other services – Cont...

Freight forwarders – collect relatively small Freight forwarders – collect relatively small loads, and consolidate them into bigger loads loads, and consolidate them into bigger loads travelling between the same pointstravelling between the same pointsBrokers – act as intermediaries between Brokers – act as intermediaries between customers and carriers. They find best routes, customers and carriers. They find best routes, negotiate conditions.negotiate conditions.Agents – local people giving a local presence Agents – local people giving a local presence to distant carriers and acting as to distant carriers and acting as intermediaries between them and local intermediaries between them and local customerscustomersParcel services – similar to post office, as Parcel services – similar to post office, as they deliver small packages to any location.they deliver small packages to any location.

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ROUTING VEHICLESROUTING VEHICLES

A basic routing problem looks for the best path for A basic routing problem looks for the best path for a delivery vehicle around a set of customers. a delivery vehicle around a set of customers. There are many variations on this problem, all of There are many variations on this problem, all of which are notoriously difficult to solve. This can be which are notoriously difficult to solve. This can be seen in the basic ‘travelling salesman problem’.seen in the basic ‘travelling salesman problem’.The following list suggests some specific methods The following list suggests some specific methods that have been proposed:that have been proposed:1.1.Negotiations – with people affected.Negotiations – with people affected.2.2.Adjust previous plansAdjust previous plans3.3.Other intuitive methods – use skills, knowledge Other intuitive methods – use skills, knowledge and experience of the routers, who typically use a and experience of the routers, who typically use a series of heuristic rules (e.g savings matrix series of heuristic rules (e.g savings matrix method, sweep method e.t.c) and have been method, sweep method e.t.c) and have been successful in the past.successful in the past.

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Routing - Cont...Routing - Cont...

4. Maps4. Maps5. Spreadsheet calculations5. Spreadsheet calculations6. Simulation6. Simulation7. Expert systems7. Expert systems8. Mathematical models8. Mathematical modelsThere is a lot of standard software for tackling There is a lot of standard software for tackling

routing problems, such as Paragon, CAST routing problems, such as Paragon, CAST and Optrack.and Optrack.

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Example: Savings Matrix Example: Savings Matrix MethodMethod

The farmer Association distributes fodder and The farmer Association distributes fodder and other supplies from a depot to six farms other supplies from a depot to six farms (customers). The customers’ demand varies (customers). The customers’ demand varies from day to day. Daily route planning from day to day. Daily route planning therefore has to be carried out in order to therefore has to be carried out in order to manage efficient distribution with a ltd # of manage efficient distribution with a ltd # of vehicles. A distribution vehicle can carry 12 vehicles. A distribution vehicle can carry 12 tons of fodder. For a specific day the tons of fodder. For a specific day the distribution vehicle shall deliver the following distribution vehicle shall deliver the following quantities to the six farms:quantities to the six farms:

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Example – Cont...Example – Cont...

FarmFarm Quantity (tons)Quantity (tons) 11 1.21.2 22 2.02.0 33 1.81.8 44 1.51.5 55 2.52.5 66 2.02.0

Distances in kilometres (km) between the Distances in kilometres (km) between the depot and farms are:depot and farms are:

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Example – Cont...Example – Cont...

Depot Farm Farm Farm Farm Farm FarmDepot Farm Farm Farm Farm Farm Farm 1 2 3 4 5 61 2 3 4 5 6

Depot -Depot -Farm 1 27 -Farm 1 27 -Farm 2 15 21 -Farm 2 15 21 -Farm 3 24 51 34 -Farm 3 24 51 34 -Farm 4 27 39 18 30 -Farm 4 27 39 18 30 -Farm 5 28 27 13 41 14 -Farm 5 28 27 13 41 14 -Farm 6 29 12 14 53 29 10Farm 6 29 12 14 53 29 10Required:Required:Using the savings matrix method, determine a Using the savings matrix method, determine a route schedule for Farmer Association.route schedule for Farmer Association.

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Step 3: Savings MatrixStep 3: Savings Matrix

Farm Farm Farm Farm Farm FarmFarm Farm Farm Farm Farm Farm 1 2 3 4 5 61 2 3 4 5 6

Farm 1 0Farm 1 0Farm 2 21 0Farm 2 21 0Farm 3 0 5 0Farm 3 0 5 0Farm 4 15 24 21 0Farm 4 15 24 21 0Farm 5 28 30 11 41 0Farm 5 28 30 11 41 0Farm 6 44 30 0 27 47 0Farm 6 44 30 0 27 47 0

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Assignment 1Assignment 1

Find a particular product whose supply chain is Find a particular product whose supply chain is easy to study, such as petrol, a telephone service, easy to study, such as petrol, a telephone service, cars, a restaurant chain, a computer game e.t.c. cars, a restaurant chain, a computer game e.t.c. Discuss the amount of integration in the supply Discuss the amount of integration in the supply chain. What alternatives are there for chain. What alternatives are there for integration? See if different organizations making integration? See if different organizations making similar products have the same approach, and similar products have the same approach, and explain any differences. Say why the existing explain any differences. Say why the existing patterns of logistics have developed, and discuss patterns of logistics have developed, and discuss the benefits of this level of integration.the benefits of this level of integration.

Due on 30Due on 30thth March 2010 March 2010Excuses will be disregardedExcuses will be disregarded

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Assignment 2Assignment 2

The following amount of goods is to be delivered from a The following amount of goods is to be delivered from a distribution centre to eight customers. The same type distribution centre to eight customers. The same type of good is delivered to all customers.of good is delivered to all customers. CustomerCustomer Quantity (tons) Quantity (tons)

11 3 322 2 233 1 144 6 655 2 266 151577 5 588 4 4

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Assignment 2 – Cont...Assignment 2 – Cont...

Deliveries are made by three vehicles with the following Deliveries are made by three vehicles with the following capacities:capacities:

VehicleVehicle Max load (tons) Max load (tons) Max Operating time Max Operating time (min/day)(min/day) AA 9 9 200200 BB 9 9 200200 CC 1212 200200

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Transport time (one way in minutes) between the Transport time (one way in minutes) between the distribution centre and customers are:distribution centre and customers are:

CustomerCustomer DC 1 2 3 4 5 6 7 8DC 1 2 3 4 5 6 7 8

DCDC 00Customer 1 20 0Customer 1 20 0Customer 2 28 48 0Customer 2 28 48 0Customer 3 30 23 31 0Customer 3 30 23 31 0Customer 4 32 33 60 56 0Customer 4 32 33 60 56 0Customer 5 40 60 32 63 51 0 Customer 5 40 60 32 63 51 0 Customer 6 45 65 17 48 74 41 0Customer 6 45 65 17 48 74 41 0Customer 7 47 27 75 50 50 86 85 0Customer 7 47 27 75 50 50 86 85 0Customer 8 53 73 34 65 75 26 23 99 0Customer 8 53 73 34 65 75 26 23 99 0

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Required:Required:Determine a route schedule using the savings Determine a route schedule using the savings matrix method, i.e. determine which vehicle matrix method, i.e. determine which vehicle shall visit what customers and in what shall visit what customers and in what sequence. Also specify how much the sequence. Also specify how much the respective vehicle is used (in minutes).respective vehicle is used (in minutes).

Due on 30Due on 30thth March 2010 March 2010Excuses will be disregardedExcuses will be disregarded

By Michael K. Chirchir & Salome Richu

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MANAGEMENT SCIENCE DEPARTMENT