Logistics and

distribution
Nguyễn Thị Bích Trâm, PhD
Tram.ntb@ou.edu.vn
 Logistics management

Main contents
Plant and warehouse location
methods
 5.1 Logistics
management
Logistics

Logistics involves “managing the flow of

items, information, cash and ideas
through the coordination of supply chain
processes and through the strategic
addition of place, period and pattern
values.” (MIT Center for Transportation &
Logistics)
Logistics: The art and science of obtaining,
producing, and distributing material and
product in the proper place and in the
proper quantities.
Performance impact

The need of
balancing total
logistics cost
factors against
customer
service factors
Major Transportation Modes
• Highway (truck)

• Water Questions
• What are major weaknesses and
• Rail strengths for each transportation
mode?
• How can businesses design solutions
• Air that exploit the strengths of each
mode?

• Pipeline
Logistics-system design matrix: framework
describing logistics processes
 Highway Mode

Strengths Weaknesses
• Flexibility to pick up and deliver • Not the fastest
where and when needed • Not the cheapest
• Often the best balance between
cost/flexibility and delivery
reliability/speed
• Can deliver straight to the customer
(increasing)
• Can be available 24/7
Water Mode

Strengths Weaknesses
• Highly cost effective for bulky items • Limited locations
• Works best for high weight-to-value • Relatively poor delivery
items reliability/speed
• Most effective when linked into • Often limited operating hours at docks
multimodal system
Air Mode

Strengths Weaknesses
• Quickest delivery over longer • Often the most expensive,
distances particularly on a per pound basis
• Can be very flexible when linked
to highway mode
• Works best for low weight-to-
value items

Grew 90.5% in value of goods shipped from 1993 to 2002

Rail Mode

Strengths Weaknesses
• Highly cost effective for bulky items • Limited locations, but better than for
• Can be most effective when linked water.
into multimodal system • Better delivery reliability/speed than
water

Increasing part of multimodal solutions, dual tracks on major routes

Multimodal solutions
• Standardized containers for ease of transfer
• “Roadrailers,” etc.
• Multimodal solutions
• Ship ð Truck ð Train ð Truck ð ?
Justification for transportation
• Shift from domestic to global economies
• Emergence of just-in-time, flexible and agile
manufacturing practices requiring sophisticated logistics
solutions
• The rapid growth of distribution via air freighters
(roughly four times the growth rate of passenger service
by the airlines)
• The need to use air cargo, shipment by sea, and delivery
by trucks and trains in an overall distribution system
 Any operation that

Warehousing
stores, repackages,
stages, sorts, or
centralizes goods or
materials
Warehouse
design
CONSOLIDATION
Consolidation warehouses are used when shipments from various sources
are pulled together and combined into larger shipments with a common
destination. This improves the efficiency of the entire system

Small shipments in ...

Warehouse

Large economical shipments out ...

Cross-Docking
Large economical shipments in ...

Warehouse

Small shipments out ...

Cross docking is a logistics procedure where products from a supplier or manufacturing plant are
distributed directly to a customer or retail chain with marginal to no handling or storage time. Large
shipments are broken down into small shipments for local delivery in an area.
Break-Bulk
Like cross-docking, but usually refers to a single source

Plant A

Warehouse

Customer Delivery
 Hub-and-spoke systems

Hub-and-Spoke Systems combine the idea of

consolidation and that of
cross-docking
Postponement
Customer A
Coca Cola syrup
Bulk food products, Postponement
paints, etc. Customer B
Assembly,
ð high volumes Packaging,
ð containers Labeling, etc.
Customer C

Minimizes risk
Minimizes inventory (how?)
Locating logistics facilities

• Proximity to Customers • Free Trade Zones

• Business climate • Political risk
• Total Costs • Government barriers
• Infrastructure • Trading blocs
• Quality of labor • Environmental regulation
• Supplier • Host community
• Other facilities • Competitive advantage
 Common (public) carriers
• Published rates and schedules
• “Nondiscriminatory” pricing
• Increased flexibility to partner

Transportation Contract carriers

outsourcing • Service for select customers
• Unlimited number of customers

Third-Party Logistics Providers (3PLs)

• Service firms specializing in logistics for other
companies
 5.2 Plant and
warehouse location
methods
Popular location methods

Weighted- Factor Locational Break- Transportation Centroid Method

Rating Systems Even Analysis Matrix
 1. Identify the factors that are considered
important to the facility location decision.
2. Assign weights to each factor in terms of their
relative importance. Typically, the weights sum to
1.
Weighted- 3. Determine a relative performance score for
Factor Rating each factor considered. Typically, the score varies
from 1 to 100, although other scoring schemes
Systems can be used.
4. Multiply the factor score by the weight
associated with each factor and sum the weighted
scores across all factors.
5. The location with the highest total weighted
score is the recommended location. Since
Locational Break-Even Analysis

1. Identify the locations to be considered.

2. Determine the fixed cost for each facility. The components of fixed cost
are the costs of land, property taxes, insurance, equipment and buildings.
3. Determine the unit variable cost for each facility. The components of
variable cost are the costs of labor, materials, utilities and transportation.
4. Construct the total cost lines for each location on a graph.
5. Determine the break-even points on the graph. Alternatively, the break-
even points can be solved algebraically.
6. Identify the range over which each location has the lowest cost.
Example
 Transportation Matrix

1 2 3 4
Identify Allocate Find Repeat
• Identify the lowest cost cell • Allocate the highest possible • Find the lowest cost cell • Repeat steps 2 and 3 until all
capacity and balance among the remaining cells. yields are allocated.
between capacity and
demand; then cross a line
(column or row) to mark that
has been allocated enough.
Transportation Matrix
To (A) (B) (C) Factory
From Albuquerque Boston Cleveland supply
$5 $4 $3
(D) Des Moines 100 100

$8 $4 $3
(E) Evansville 300

$9 $7 $5
(F) Fort Lauderdale 300

Destination
requirement 300 200 200 700

First, $3 is the lowest cost cell, allocate 100 units from Des
Moines to Cleveland and cross it off. Des Moines is fully
allocated.
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Transportation Matrix
Đến (A) (B) (C) Factory
Từ Albuquerque Boston Cleveland supply
$5 $4 $3
(D) Des Moines 100 100

$8 $4 $3
(E) Evansville 100 300

$9 $7 $5
(F) Fort Lauderdale 300

Destination
requirement 300 200 200 700

Second, $3 is the lowest cost cell, allocate 100 units from

Evansville to Cleveland and cross it off. Cleveland is fully
allocated
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Transportation Matrix
Đến (A) (B) (C) Factory
Từ Albuquerque Boston Cleveland supply
$5 $4 $3
(D) Des Moines 100 100

$8 $4 $3
(E) Evansville 200 100 300

$9 $7 $5
(F) Fort Lauderdale 300

Destination
requirement 300 200 200 700

The next lowest cost cell is $4, allocate 200 units from Evansville
to Boston and cross column B and line E , both Evansville and
Boston are fully allocated.
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Transportation Matrix
Đến (A) (B) (C) Factory
Từ Albuquerque Boston Cleveland supply
$5 $4 $3
(D) Des Moines 100 100

$8 $4 $3
(E) Evansville 200 100 300

$9 $7 $5
(F) Fort Lauderdale 300 300

Destination
requirement 300 200 200 700

Finally, allocating 300 units from Albuquerque to Fort Lauderdale

which is the remaining cell

33
Transportation Matrix
Đến (A) (B) (C) Factory
Từ Albuquerque Boston Cleveland supply
$5 $4 $3
(D) Des Moines 100 100

$8 $4 $3
(E) Evansville 200 100 300

$9 $7 $5
(F) Fort Lauderdale 300 300

Destination
requirement 300 200 200 700

Total cost = $3(100) + $3(100) + $4(200) + $9(300)

= $4.100

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 Exercise
With the requirements in the following tables, make a distribution plan
using transportation matrix method and calculate the total
transportation cost
To Requirement
From Supply(tons) (tons) $/ton SM A SM B SM C
Supermarket A 200 Supplier 1 6 8 10
Supplier 1 150
Supermarket B 100 Supplier 2 7 11 11
Supplier 2 175
Supplier 3 275 Supermarket C 300 Supplier 3 4 5 12

Total 600 Total 600

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Centroid Method
• The centroid method is a
technique for locating single
facilities that considers the
existing facilities, the distances
between them, and the volumes
of goods to be shipped.
• The technique is often used to
locate intermediate or distribution
warehouses.
Centroid Method
Example
Solution
Exercise
• Cool Air, a manufacturer of automotive air
conditioners, currently produces its XB-300
line at three different locations: Plant A,
Plant B, and Plant C. Recently management
decided to build all compressors, a major
product component, in a separate
dedicated facility, Plant D.
• Using the centroid method and the
information displayed, determine the best
location for Plant D. Assume a linear
relationship between volumes shipped and
shipping costs (no premium charges)