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Business Logistics Management 5th Edition, Oxford University Press

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 5TH EDITION

Business Logistics
MANAGEMENT

Pienaar
Vogt

OXFORD
UNIVERSITY PRESS
-----------------------------
SOUTH AFRICA
 OXFORD
University Press

Oxford University Press is a department of the University of Oxford.

It furthers the University’s objective of excellence in research, scholarship,
and education by publishing worldwide. Oxford is a registered trade mark of
Oxford University Press in the UK and in certain other countries.
Published in South Africa by
Oxford University Press Southern Africa (Pty) Limited
Vasco Boulevard, Goodwood, N1 City, Cape Town, South Africa, 7460
P O Box 12119, N1 City, Cape Town, South Africa, 7463
© Oxford University Press Southern Africa (Pty) Ltd 2016
The moral rights of the author have been asserted.
Fifth edition published in 2016
All rights reserved. No part of this publication may be reproduced, stored in
a retrieval system, or transmitted, in any form or by any means, without the
prior permission in writing of Oxford University Press Southern Africa (Pty) Ltd,
or as expressly permitted by law, by licence, or under terms agreed with the appropriate reprographic rights
organisation, DALRO, The Dramatic, Artistic and Literary Rights Organisation at dalro@dalro.co.za. Enquiries
concerning reproduction outside the scope of the above should be sent to the Rights Department,Oxford University
Press Southern Africa (Pty) Ltd, at the above address.
You must not circulate this work in any other formand you must impose this same condition on any acquirer.
Business Logistics ManagementFifth Edition
ISBN 978 0 1 904 1566 2
Typeset in Electra LT Std 9 pt on 12 pt
Acknowledgements
Publishing manager: Alida Terblanche
Publisher: Janine Loedolff
Editor: Wendy Priilaid
Proofreader: Jennifer de Wet
Designer: Cindy Armstrong
Indexer: Jennifer de Wet
Illustrators: Richard Commin and Craig Farham
Typesetter: Barbara Hirsch
Cover image: Shutterstock
Printed and bound by: Tandym Print
The authors and publisher gratefully acknowledge permission to reproduce copyright material in this book. Every
effort has been made to trace copyright holders, but if any copyright infringements have been made, the publisher
would be grateful for information that would enable any omissions or errors to be corrected in subsequent
impressions.
Links to third party websites are provided by Oxford in good faith and for information only. Oxford disclaims any
responsibility for the materials contained in any third party website referenced in this work.
Contents
Contributors ix
Preface xi
1 Introduction to business logistics W.J.
Pienaar and J.H. Havenga 1
Introduction 1
Business logistics in the South African
macro-economy 2
Evolution of the concept of logistics 7
Logistics analysis and operations
research 8
The concepts of logistics and supply
chain management 9
Business logistics activities 13
Conclusion 17
2 Value created by business logistics W.J.
Pienaar and J.H. Havenga 21
Introduction 21
Logistics linkages with the value chain
21
The value-added role of logistics 27
Measuring and selling the value of
logistics 30
Aspects of competitive advantage 33
Wealth creation through logistics 34
Conclusion 35
3 Strategic logistics management J.H.
Havenga and A. de Bod 39
Introduction 39
Corporate power shifts 39
Evolution from logistics to value
networks 41
Organisational strategy 43
Supply chain strategy 45
Finding the applicable supply chain
strategy 50
Dynamically aligned organisations 51
Implementation 54
Barriers to the development and
implementation of supply chain
management strategy 56
Conclusion 57
4 Tactical logistics management and
supply chain integration W.J. Pienaar 63
Introduction 63
Tactical logistics activities 63
Managing the goods flow 64
Product supply chain processes 66
Time management in supply chains 73
Conclusion 80
5 Financial aspects of logistics and supply
chain management W.J. Pienaar 83
Introduction 83
Shareholder value 83
Cost of equity 84
Free cash flow 85
Economic value added 85
Value drivers 86
Return on investment 89
Logistics costing and activity-based
costing 91
Marginal costing 93
Cost-volume-profit analysis 97
Worked examples 101
6 Forecasting supply chain requirements
W.J. Pienaar 111
Introduction 111
Features of forecasting 112
Types of forecasting 113
Long-term and short-term forecasting
114
The forecasting process 114
Selecting appropriate forecasting
techniques 115
Validating forecasting models 118
Techniques for stationary time series
data 119
Techniques for forecasting time series
data with a trend 127
Forecasting seasonality 132
Example of the forecasting process
135
Conclusion 141
Appendix 6.1 Holt-Winter’s seasonality
models 145

7 Customer service J.H. Havenga and A.
de Bod 151
Introduction 151
Customer service as an element of the
marketing mix 152
Customer service dimensions and
elements 154
Market strategy 155
The cost of customer service 155
Customer/product prioritisation matrix
156
Conducting a customer service audit
158
Customer value mapping 160
Employee and customer engagement
162
The employee engagement cycle 162
The customer engagement cycle 163
Customer service measurements 164
Conclusion 166
8 Production and operations management
J. van Eeden 171
Introduction 171
Strategic and planning concepts 174
Quality management 183
Inventory management 186
Operations management: current
approaches and philosophies 189
Operations management in the service
sector 193
Conclusion 194
9 Procurement management W.J. Pienaar
199
Introduction 199
The objectives of procurement
management 199
The strategic role of procurement
within a business 201
Tiers of procurement management
202
Need identification and specification
203
Selecting suppliers 209
Establishing and developing
relationships with suppliers, and
controlling their performance 213
Procurement-related activities that
enhance supply chain success 214
Procurement cost management 215
Electronic procurement 216
Conclusion 219
10 Inventory management J.N. Cronjé 224
Introduction 224
The purpose of inventory 225
Types of inventories 227
Important inventory concepts 229
Inventory costs 231
Inventory planning 234
Inventory control 251
Conclusion 255
11 The design of storage and handling
facilities J.J. Vogt 262
Introduction 262
Initial requirements 263
Sizing the warehouse 264
Operations and warehouse
management systems 265
The design process 265
Fire 275
Security 275
Lighting 276
Conclusion 277
12 Packaging – the supply chain enabler
Fredrik Nilsson 280
Introduction 280
The role and value of packaging 281
Packaging functions and impacts 282
Packaging system 286
Packaging design and innovation 288
Packaging costs 292
Models for evaluating packaging
logistics performance 294
Packaging materials 299
Packaging technologies and new
developments 300
Conclusion 302
13 Equipment used in facilities J.J. Vogt
and W.J. Pienaar 306
Introduction 306
Selection of equipment 306
Risks involved in purchasing
equipment 307
Storage methods for small items 307
Pallets and their storage 310
 Hanging rail systems 314
Moving loads 315
Moving and sorting 317
Containers 320
Conclusion 324
14 The operation of a warehouse J.J. Vogt
327
Introduction 327
Warehouse processes 327
Errors in operation 329
Stock management 329
Types of warehouses and facilities 330
Cross-dock operations 330
Efficiency in a warehouse 333
Processes and operations 334
Delivery-transport operations (D2) 342
Barcoding, scanning and RFID
technology 342
The challenge of managing continuous
change 344
Lean and Six Sigma operations 345
Safety 346
Operational discipline 346
Conclusion 346
15 The transport system W.J. Pienaar 349
Introduction 349
Operational characteristics of the
various modes of freight transport 350
Terminals 362
Goods carried in the transport system
364
Freight transport service providers 367
The freight transport user 369
Government as stakeholder in the
transport system 369
Conclusion 372
16 Transport modal cost structures,
competition and pricing principles W.J.
Pienaar 376
Introduction 376
Efficiency in transport 376
Transport modal cost structures,
efficiency and competition 381
Profit planning and control 401
Tariff quoting 402
Conclusion 404
17 Transport management W.J. Pienaar
408
Introduction 408
Strategic transport management 409
Tactical transport management 415
Principles of efficient operational
transport management 419
Conclusion 426
18 International transport W.J. Pienaar 430
Introduction 430
International air transport 430
International road transport 433
International rail transport 434
International pipeline transport 436
International sea transport 437
International commercial terms
(Incoterms) 444
Conclusion 455
Incoterms 2010: A visual guide 458
19 International logistics and trade J.J.
Vogt 462
Introduction 462
Distribution channels 463
International trade 465
Free-trade agreements and free-trade
zones 469
Routes for international trade
movement 470
International trade information
requirements 471
International trade documentation 473
Data to be submitted for international
movement 478
Legal contracts and issues in
international trade 481
Bribery and corruption 484
Timing, cost and risks for international
trade 485
Strategic planning for an international
network 487
Request for proposal (RFP) in
international logistics and trade 489
Total cost of ownership (TCO) 490
Conclusion 491
Appendix 19.1 Example of a
commercial invoice 495
Appendix 19.2 TCO Standard
Spreadsheet 496
20 Product returns and reverse logistics
management U.I. Kussing and W.J.
Pienaar 498
Introduction 498
The role of reverse logistics within the
product returns management process
498
Product returns management: scope
and activities 499
The impacts of reverse logistics 503
Product returns and reverse logistics
processes 505
Logistics and the environment 508
Closed-loop supply chains 510
Conclusion 511

21 Controlling logistics performance U.I.

Kussing and W.J. Pienaar 515
Introduction 515
The process of control 516
The concept of quality 519
Performance measurement 521
Benchmarking 528
The SCOR® model 531
Business intelligence 534
Conclusion 535

Index 539
 ix
Contributors
Wessel Pienaar established the Department of
Logistics at Stellenbosch University. On 27
November 2015 the status of Emeritus Professor
was bestowed on him and at present he serves as
Research Fellow in the Department of Industrial
Engineering at Stellenbosch University. He has
obtained the following advanced qualifications:
MEcon in Transport Economics (Stellenbosch
University); MS in Civil Engineering at the
University of California, Berkeley; DCom in
Transport Economics at the University of South
Africa; and PhD(Eng) in Civil Engineering at
Stellenbosch University. He is a rated researcher at
the National Research Foundation. In 2000 and
2011 he received the Rector’s Award for Research
Excellence at Stellenbosch University. Wessel
publishes in Afrikaans and English. His work has
been translated and published in German, French
and Russian by international research institutions.
In 2015 he received the Chancellor’s Award for
Academic Excellence at Stellenbosch University.
John Vogt holds a PhD in Logistics (Stellenbosch
University), an MBL (Unisa) and a BSc(Eng)
(University of the Witwatersrand). He has a wide
range of international experience and industry
knowledge. He is currently the global logistics
director for an international oil and gas services
company. He has consulted in the supply chain
field with his own consulting company. Prior to
that, he was a senior executive for a major
forwarding company, leading its logistics
division and supplying third- and fourth-party
services to the paper, aluminium, automotive,
apparel and chemical industries. Professor Vogt
acts in a visiting capacity at the University of
Houston-Downtown.
Cobus Cronjé is Associate Professor in Transport
Economics and Logistics Management at the
North-West University. He has more than 25
years’ experience in curriculum development
and teaching both undergraduate and
postgraduate courses. He has developed practical
logistics courses for the industry nationally and
internationally, delivered a number of conference
papers and been involved in numerous transport
and logistics reports.
Anneke de Bod is a lecturer in Logistics at
Stellenbosch University and holds a BCom Hons
in Strategic Management (RAU) and an MCom
degree in Logistics Management (Stellenbosch
University). She is skilled and experienced in
market research, strategic change management,
scenario development, strategy formulation,
corporate marketing, logistics and supply chain
management.
Jan Havenga is Professor of Logistics at
Stellenbosch University. He holds an MBA from
the University of South Africa and a PhD in
Logistics Management from Stellenbosch
University. He is an experienced market
researcher, macro-logistics researcher and
consultant, strategic and change management
specialist, and corporate strategy and marketing
expert. He is a rated researcher at the National
Research Foundation.
Ulrike Kussing is a lecturer in the Department
of Logistics at Stellenbosch University, where
she teaches various undergraduate and
postgraduate modules. She is a certified SCOR®
practitioner with cross-industry experience
gained from working for nine years in a 3PL and
supply chain consulting environment, both
within South Africa and abroad.
Fredrik Nilsson is Professor of Logistics at Lund
University, Sweden and Extraordinary Professor
of Logistics at Stellenbosch University, South
Africa. His teaching and research areas are
packaging logistics and innovation engineering,
with emphasis on sustainable supply chains,
specifically new technologies targeting societal
challenges such as food waste. He has published
widely in internationally indexed scientific
journals in the areas of Operations & Production
Management and Supply Chain Management.
Joubert van Eeden holds BEng (Elec), MScEng
(Industrial) and MBA degrees from Stellenbosch
University, and teaches Supply Chain
Management in the Department of Industrial
Engineering at Stellenbosch University. He has
experience in both operations and supply chain
management, and is involved in research with
several large institutions in South Africa. His
research interests are transport demand
modelling, operations management, and supply
chain planning.
Preface

How does one ensure that the goods demanded by the client are at the designated place, at the desired time, in the required
condition and quantity, and at an acceptable price? Why has coordination of the supply chain become so crucial in logistics
management? How does consistent order fulfilment enable competitive advantage? How do recent advances in logistics
technology and the freer exchange of information impact on business? How do globalisation and trends in International trade
impact on logistics/supply chain practices. These are the tenets of this new edition of Business logistics management – a value
chain perspective.
In most countries, economic life from the late 1970s to the early 1990s was marked by rapid change. First, the economic
deregulation of freight transport and agricultural produce marketing, combined with the liberalisation of international trade
made transport decision making more market driven. Second, the development of effective information technology,
widespread electronic communications, the ability to perform comprehensive and complicated analyses through the use of
computer technology, and new holistic management approaches have made it possible to manage logistics channels and other
complicated processes in an integrated and coordinated fashion, almost in real time.
Increasing business competition and more sophisticated consumer service requirements led to the realisation that product
competitiveness would henceforth be determined more through logistically arranged product supply chains, rather than through
individual firms operating in isolation. Successful supply chain management requires that decisions reached on strategic,
tactical and operational levels must be founded quantitatively, mainly because of the various cost trade-offs and process
coordination involved in the logistics decision-making process.
The public sector and private business management alike are currently benefiting from developments in logistics. In
addition, modern computer systems make it possible for organisations to continuously improve all their logistics activities.
Organisations can now hold smaller inventories, and transport systems are effectively linked to their operations. Modern
computerised warehouses and handling equipment are increasingly used and improved procurement systems developed to
enhance the flow of materials from the raw-material stage through the logistics chain to the end-user. Advanced logistics
activities make it possible for organisations to manage their incoming and outgoing goods and service flows more efficiently.
This has a positive effect on customer service and ultimately on maximising revenue and wealth. The same contemporary
logistics principles apply equally to public and non-governmental organisations and private trading enterprises.
To some extent, logistics/supply chain management is still an emerging field of study – there are not many second-
generation logistics and supply chain managers in practice; the majority are of the first generation trained in the field, while
some have moved into this field from other functional areas, namely procurement and supply management, inventory and
warehouse management, production and operations management, transport and distribution management, and marketing
management.
 For this reason this book has been structured so that it can be used at universities, universities of technology, business
schools and vocational training providers in the tertiary sector. It is believed that the lecturer/instructor can select and combine
the assessment material in the instructor’s manual in such a way that the book will meet the teaching objectives and outcomes
at junior undergraduate, senior undergraduate and postgraduate levels. Ancillary material – including an instructor’s manual
containing a case study chapter and a brand-new set of PowerPoint slides – is available to lecturers prescribing the book (on
CD and the Oxford University Press website: http://www. oxford.co.za). To assist the instructor/lecturer, the target level of
tuition of each case study is indicated in the instructor’s manual.
Care has been taken to utilise as much of the contributing authors’ published research products, practical experience and
academic insight in the various chapters as was feasible. The contributors made extensive use of primary information sources,
and limited the use of secondary source material.
The following course outlines are suggested:
• Comprehensive year course in supply chain management: the whole book.
• Semester course in supply chain management: chapters 1; 2; 4; 9; 10; 12–17; and 19–21.
• Semester course in transport economics and operations: sections 1.1; 1.6; 2.2; 2.3; 7.2; 10.6; 11.5; 12.4; 12.6; and
13.7–13.9; and chapters 15–18.
• Junior undergraduate year course in logistics management: the whole book, excluding chapters 5; 6; and 8.
• Senior undergraduate and postgraduate year course in logistics management: the whole book, excluding Chapter 8.
• Procurement/materials management: chapters 1–10; 14; 17; and 21.
• Distribution management: chapters 1–7; 10; and 12–20.
• Operations and production management: chapters 1; 4; and 5–13.
• Storage and inventory management: chapters 1; 4; 6; and 10–14.
• Short course in procurement management: sections 1.1 and 1.6; chapters 4 and 8–10; and sections 17.2.2 and
17.4.3.
• Short course in transport economics and operations: chapters 15–18.
• Short course in international logistics/supply chain management: chapters 1; 13; 15; 18; and 19.

Wessel Pienaar
John Vogt

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