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Bozarth ch12
Bozarth ch12
Chapter Objectives
Be able to:
Describe why logistics is important and discuss the major decision areas that
make up logistics.
List the strengths and weaknesses of the various modes of transportation and
discuss the role of multimodal solutions.
Identify the major types of warehousing solutions and their benefits.
Discuss the purpose of a logistics strategy and give examples of how logistics
can support the overall business strategy.
Calculate the percentage of perfect orders.
Calculate landed costs.
Explain what reverse logistics systems are, and some of the unique
challenges they create for firms.
Use the weighted center of gravity method to identify a potential location for a
business.
Develop and then solve, using Microsoft Excel’s Solver function, an
assignment problem.
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 2
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Logistics
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 4
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Deregulation
• Transportation providers
– Elimination of artificial barriers
– Unrestricted markets
– Multimodal solutions
– Price, schedule, and terms flexibility
BUT…
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 5
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Deregulation (continued)
… with greater freedom comes new
responsibilities
Key point
Logistics has evolved from being a
“tactical” area to a “strategic” one
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 6
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Globalization
(Worldwide Statistics)
Year Expenditures % GDP
Fuel efficiency
Pollution
Recovery, recycling, and reuse of packaging,
containers, and products
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 8
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Management Areas
Transportation
Warehousing (and more generally, location)
Material handling
Packaging
Inventory management
Logistics information systems
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 9
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Logistics Decision Areas
Transportation…
– Modes
– Formats
– Pricing
Warehousing
– Consolidation
– Cross-Docking and Break-Bulk
– Hub-and-Spoke
– Inventory
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 10
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Major Transportation Modes
• Highway (truck)
• Water
• Rail
• Air
• Pipeline
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 11
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Modal Shares of Shipments
(within US, 1999/2002)
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 12
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Highway Mode
Strengths Weaknesses
• Flexibility to pick up and • Not the fastest
deliver where and when • Not the cheapest
needed
• Often the best balance
between cost/flexibility and
delivery reliability/speed
• Can deliver straight to the
customer (increasing)
• Can be available 24/7
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 13
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Water Mode
Strengths Weaknesses
• Highly cost effective • Limited locations
for bulky items • Relatively poor
• Works best for high delivery
weight-to-value items reliability/speed
• Most effective when • Often limited
linked into multimodal operating hours at
system docks
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 14
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Air Mode
Strengths Weaknesses
• Quickest delivery over • Often the most
longer distances expensive,
• Can be very flexible particularly on a per
when linked to pound basis
highway mode
• Works best for low
weight-to-value items
Grew 90.5% in value of goods shipped from 1993 to 2002
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 15
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Rail Mode
Strengths Weaknesses
• Highly cost effective • Limited locations, but
for bulky items better than for water.
• Can be most effective • Better delivery
when linked into reliability/speed than
multimodal system water
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 16
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Question
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 18
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Multi-Modal Solutions
(An example)
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 20
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Justification for Such a Facility
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
The need for a commercial distribution hub in the Eastern United
States that can reach more than 60 percent of the nation’s
population overnight and also provide a gateway to global markets.
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 21
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Warehousing
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 23
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Warehousing Benefits
Economic benefits:
Accrue directly to company
Must consider total system costs
Service benefits:
Support customer service needs
May or may not reduce costs
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 24
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Consolidation
Warehouse
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 25
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Example 1
Customer Shipment Weight
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 26
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Cost Benefits of Consolidated
Warehousing
Warehousing costs 10,000 lbs × $9/100 lbs = $900
Cost of one truck to Atlanta $2,000
Delivery to final customer 3 customers × $200 = $600
Total: $3,500
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 27
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Cross-Docking
Large economical shipments in ...
Warehouse
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 28
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Break-Bulk
Like cross-docking, but usually refers to a single
source
Plant A
Warehouse
Customer Delivery
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 29
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Example 2
• Manufacturer Customers
• Direct shipments:
$7.28 per hundred-wt.
$7.28 × 5 = $36.40
Or
we should do it.
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 31
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Hub-and-Spoke Systems
A
To Los Angeles
A C
Syracuse
A B
B
Phoenix
B
To El Paso
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 32
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Postponement
Minimizes risk
Minimizes inventory (how?)
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 33
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Warehousing Service
Benefits:
Spot stock
Assortment
Spot Stock
Region
1
Region
Manufacturer Warehouse 2
or Centralized
Source
Region
Time sensitive, seasonal items 3
Often temporary, public storage
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 35
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Assortment
Broad product line and good inventory
control key to success
Supplier E Customer A
Assortment
Warehouse
Supplier F Customer B
Supplier G
Customer C
Supplier H
Customer D
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 36
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Information Systems
• Decision support tools
– Real-time simulation and optimization
– Location selection
– Cost estimations
• Precise coordination of multimodal solutions
• Execution systems
– Global positioning systems
– Bar-coding applications
– RFID on the horizon as replacement (NYK Logistics)
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 37
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Material Handling and
Packaging
• Non-rigid containers
– pallets and unit load platforms
– ropes, steel, shrink and stretch wrap
• Rigid containers
– Maximum protection (Viper windshield frame)
– Standard sizes?
– Recycling?
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 39
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Packaging Implications
• Transportation
– Class segmentation
– Damage protection
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 40
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Questions
Executive-level of representation
Difficult goal of functional integration
Organizational question: Who really ‘owns’ logistics?
Transportation?
Marketing?
Operations?
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 44
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Owning Versus Outsourcing
• Does the firm’s volume justify a private
system?
• Would ownership limit firm’s ability to
respond to marketplace changes?
• Is logistics a core competency?
• Are outsource capabilities are available?
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 45
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Transportation “Outsources”
• Common (public) carriers
– Published rates and schedules
– “Nondiscriminatory” pricing
– Increased flexibility to partner
• Contract carriers
– Service for select customers
– Unlimited number of customers
• Third-Party Logistics Providers (3PLs)
– Service firms specializing in logistics for other
companies
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 46
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Warehouse Ownership
Issues
Public Contract Private
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 47
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Question:
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 49
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Reverse Logistics Systems
• Customer returns
– Warranty failures
– Incorrect or damaged orders
• Repair and remanufacture process
support
• Recycling (increasing importance!)
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 50
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Logistics Decision Models
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 51
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Weighted Center of Gravity
A method to determine best location for central warehouse
from n demand points.
– Requires position of each demand point (Xi, Yi)
– Requires weight of each demand point (Wi), based on importance,
demand volume, market strategy, etc.
n
Wi X i
Weighted X coordinate X i 1n *
Wi
i 1
n
WiYi
Weighted Y coordinate Y i 1n *
Wi
i 1
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 52
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
CupAMoe’s Coffee
6
(1,5)
5
Capital City
4
(Pop. 400,000) CupAMoe’s
Springfield
(Pop. 200,000)
(2.57,3.6)
Y 3
(4.5,3)
2
Shelbyville
(Pop. 170,000)
1
(4,1)
0
0 1 2 3 4 5 6
X
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 53
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Optimization
• Requires an objective function to be maximized or minimized.
• Decision variables — values to be manipulated to affect
outcome of objective function
• Constraints — limits set on range of decision variables to be
used or on other aspects of the solution possible
For Example:
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 54
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Assignment Problem
• Specialized optimization model.
• Decision variables are the shipment quantities
• Known values are demand, capacity, and shipping cost
between warehouses
• Constraints:
– Sum of shipments from a warehouse cannot exceed its capacity
– Sum of shipments to meet demand must be greater than or equal to the
demand
– Sum of shipments from each warehouse must be greater than or equal to
zero
(Flynn Boot Company Excel example in text)
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 55
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Case Study in Logistics
Just-In-Time Shipping
Supplemental Slides on
Transportation Costs and Factors
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 58
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Economic Factors I
Price
Distance
Price/pound
Density
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 59
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Economic Factors II
Stowability, handling, and liability
versus
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 60
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Economic Factors III
Market factors
What might this include?
West East
Coast, Coast,
USA USA
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 61
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Ratings
• Goods classification
– Perishability, stowability, handling,
etc.
• Class index?
– From 35 - 400
– “average product” = 100
– Based on expected transportation
costs
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 63
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Determining Transportation
Rates
• Rate Determination
– By weight (Less-than-truckload shipment)
– By distance (truckload shipments)
Minimum charges and surcharges
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 64
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Example 1
Shipping 800 lbs of glass slides from Atlanta, GA
to Lansing, MI
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 65
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Specific Rates for Shipments
FROM Atlanta TO Lansing
Rates express $ charged per hundred-weight
Rates fall as rate class falls and volume increases
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 66
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Result
• $33.59 × 8 = $268.72 shipping cost
• Key points
– Classification tables standardized, BUT
– Rate tables vary by transportation provider
– Real-time updating of provider tables
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 67
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Example 2
• 3 Shipments of Class 100 to Lansing:
– 5,000 lbs., 10,000 lbs., 7,000 lbs.
• What to do?
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 68
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
What to Do?
Separate shipments at Consolidated shipments at
costs below: costs below:
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chapter 12, Slide 69
Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
Key Points
• Choosing a mode
– Five choices
– Speed? Cost? Flexibility?
• Choosing a format
– Flexibility versus control