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Business Logistics

Chapter 2 Dimensions of Logistics Adam Conrad

Learning Objectives

Understand the role and importance of logistics in private and public organizations Appreciate the impact of logistics on the economy and how effective logistics management contributes to the economy Understand the value-added roles of logistics Define logistics systems from several perspectives

Learning Objectives

Understand the relationship between logistics and other important functional areas of a company, including manufacturing, marketing, and finance Discuss the important management activities in the logistics function Analyze logistics systems from several different perspectives to meet different objectives Determine the total costs and understand the cost tradeoffs in a logistics system from a static and dynamic perspective

EMC Case Study

Class Discussion

Dimensions of Logistics

Drucker 1962 The Economys Dark Continent

Distribution is one of the most sadly neglected but most promising areas of American business

15-25% of the cost of manufactured components goes to cover expenses before it hits the assembly line Origins date back to the military around WWII Gulf War regarded as a logistics war;

Definition of Logistics
That part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services and related information from the point of order to the point of consumption in order to meet customers requirements

Seven Rs

Ensuring the availability of the

Right product Right quantity Right condition Right Place Right time Right customer Right cost

Change in Logistics
Emphasis on Quality and meeting customer requirements Change influence of large buyers such as Wal-Mart Increasing sophistication of all buyer types industrial and consumer

Macro Perspective
Logistics impacts and has relationship with economy Cost of business logistics increasing Percentage of GDP decreasing Transportation largest percentage of logistics costs (rising due to inventory management practices)

Macro Perspective

Logistics adds value to a product Place utility - moving goods to points where demand exists Time utility - moving goods to points at a specific time Allows for economic development and specialization Affects land values due to increased accessibility

Micro Perspective

Interfaces with production in determining the length of the production run Interfaces with marketing in selling the product
price - size, quantity product - dimensions, packaging promotion - inventory, channels customer service

Relationship with all areas of a company

Logistics Activities
Transportation - physical movement or flow of goods Storage - inventory management and warehousing Packaging - affected by product and transportation Materials handling - movement in, from, and within a warehouse

Logistics Activities
Order fulfillment - completing customer orders, affects lead time Forecasting - predicting inventory necessary to fulfill customer demand Production planning - product necessary to cover market Purchasing - procurement of supplies, affects transportation

Approaches to Analyzing Logistics Systems

Materials Management versus Physical Distribution

Balanced System Heavy Inbound Heavy Outbound Reverse Systems

Cost centers
Trade offs

Approaches to Analyzing Logistics Systems

Nodes versus links nodes - points where goods stop for processing links - transportation connecting nodes Logistics Channels - network of intermediaries that contribute to efficient flow of goods

Logistics and Systems Analysis

System - is a set of interacting elements, variables, parts or objects that are functionally related to one another and that form a coherent group. Optimization always the best alternative (water transportation example)

Logistics and Systems Analysis

Levels of optimality
Delivery timeframes

Functional relationships
Interdepartmental cooperation


Logistics System Analysis

Short-Run/Static Analysis
Look at short run situation and select the system with the lowest overall cost.

Long-Run/Dynamic Analysis
Mathematically calculate the point of equality between the two systems

Examples p.55/56

Factors Affecting the Cost and Importance of Logistics

Competition via customer service

Order Cycle
shorter order cycle, less inventory required

more substitutable product, higher customer service level required

Inventory Effect
increase inventory, reduce cost of lost sales

Transportation Effect
increase transportation costs, reduce cost of lost sales

Factors Affecting the Cost and Importance of Logistics

Product factors Dollar Value - product value increases, cost of warehousing, transportation and inventory increases Density- higher the density, more efficient use of warehouse and transportation space Damage -greater the risk of damage, higher the transportation and warehousing cost Special Handling Requirments

Factors Affecting the Cost and Importance of Logistics

Spatial Relationships Distance Factor