Chapter 9 LOGISTICS MANAGEMENT Supply Chain Management Prepared

Chapter 9 LOGISTICS MANAGEMENT Supply Chain Management: Prepared by Mark A. Jacobs, Ph. D © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

LEARNING OBJECTIVES You should be able to: § § § Understand the strategic importance of logistics Identify the various modes of transportation Understand how regulation has impacted logistics Discuss the global aspects of logistics Describe how logistics impacts supply chain management § Examine the interrelatedness of transportation, warehousing, & material handling © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2

LEARNING OBJECTIVES (Continued) § Identify a number of third-party logistics service providers § Summarize the important aspects of transportation regulation and deregulation § Describe the various reverse logistics activities § Discuss some of the e-commerce issues in logistics management © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3

CHAPTER OUTLINE • • Introduction The Fundamentals of Transportation Warehousing and Distribution The Impacts of Logistics on Supply Chain Management Environmental Sustainability in Logistics Management Software Applications Global Logistics Reverse Logistics © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4

Introduction Logistics is necessary to: § Move goods from suppliers to buyers § Move finished goods to the customer Products have little value to the customer until they are moved to the customer’s point of consumption § Time utility- products are delivered at the right time. § Place utility- products are delivered to the desired location. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5

Introduction (Continued) Logistics is: “…that part of supply chain management that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption in order to meet customer requirements. ” Council of Supply Chain Management Professionals © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6

The Fundamentals of Transportation The Objective of Transportation § Maximize value to firm through negotiation to provide profit contribution § Make sure service is provided effectively § Satisfy customer needs © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7

The Fundamentals of Transportation (Continued) Legal Forms of Transportation service companies are classified legally as either common, contract, exempt, or private carriers. § Common carriers- offer transportation services to all shippers at published rates between designated locations without discrimination. § Contract carriers- not bound to serve the general public. Contract carriers serve specific customers under contractual agreements. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8

The Fundamentals of Transportation (Continued) Legal Forms of Transportation § Exempt carriers - exempt from regulation of services & rates & if they transport certain exempt products like produce, livestock, coal, or newspapers. § Private carrier - not subject to economic regulation & typically transports goods for the company owning the carrier. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9

The Fundamentals of Transportation (Continued) Modes of Transportation Motor Carriers (trucks)- most flexible mode of transportation & carries > 80% of U. S. freight. Competes w/rail & air for short-to-medium hauls. § Less-than-truckload (LTL) & truck-load (TL) carriers move small shipments & fees are higher § General freight carriers carry the majority of goods shipped & include common carriers. § Specialized carriers transport liquid petroleum, household goods, building materials, & other specialized items. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10

The Fundamentals of Transportation (Continued) Modes of Transportation Rail Carriers- compete when the distance is long & the shipments are heavy or bulky. § Rail slow & inflexible, but have begun purchasing motor carriers & can thus offer point-to-point pickup & delivery service known as trailer-on-flatcar (TOFC) service. § Rail companies use each other’s rail cars. Keeping track of rail cars & getting them where needed can be problematic. § Railroad infrastructure & aging equipment are also problems for the railroads. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11

The Fundamentals of Transportation (Continued) Modes of Transportation Air Carriers - Expensive relative to other modes but fast. Air carriers transport about 5 % of U. S. freight. § Airlines cannot carry extremely heavy or bulky cargo. § For light, high value goods over long distances quickly. Most small cities & towns do not have airports. § Half of the goods transported by air are carried by freight–only airlines, Fed. Ex. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12

The Fundamentals of Transportation (Continued) Modes of Transportation Water Carriers- Inexpensive, slow & inflexible. Includes inland waterway, coastal & intercoastal, & deep-sea. § Inland waterway transportation is used for heavy, bulky, low-value materials (e. g. , coal, grain). § Competes w/rail & pipeline. § Water carriers are paired w/trucks for door-to-door delivery. § Supertankers are +1, 500 ft long & 200 ft wide. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13

The Fundamentals of Transportation (Continued) Modes of Transportation Pipeline Carriers - are limited in variety they can carry. § Little maintenance once pipeline is running. § Materials hauled in a liquid or gaseous state. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14

The Fundamentals of Transportation (Continued) Modes of Transportation Intermodal – the use of multiple modes of transportation § Rail & motor carriers can offer point-to-point pickup & delivery service known as trailer-on-flatcar (TOFC) service, container-on-flatcar (COFC), or piggy-back service § Water & motor can offer point to point service for overseas manufacturers § RO-ROs or roll-on-roll-off containerships truck trailers & containers to be directly driven on & off the ship, without the use of cranes © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15

The Fundamentals of Transportation (Continued) Transportation Pricing § Cost of service pricing - varies based on fixed & variable costs § Value of Service Pricing - services priced at market bearing competitive levels § Terms of Sale - includes transportation FOB (free on board) destination or dock § Pricing Negotiation - Since deregulation, negotiating prices has become more common § Rate Categories - Classified as line haul rates, class rates, exception rates, commodity rates, & miscellaneous rates © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16

The Fundamentals of Transportation (Continued) Transportation Security § Particularly important regarding airline security since Sept. 11 2001 § Aviation & Transportation Security Act (2001) created Transportation Security Administration (TSA) to oversee transportation security which oversees 429 US airports § Department of Homeland Security (DHS) (2003) created to provide overall U. S. security leadership. § Not all measures have improved security as envisioned © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17

The Fundamentals of Transportation (Continued) Transportation Regulation & Deregulation § Pro- Regulation tends to assure adequate transportation service throughout the country while protecting consumers from monopoly pricing, safety, & liability. § Con- Deregulation encourages competition & allows prices to adjust as demand & negotiations dictate. § Today, U. S. transportation industry remains essentially deregulated © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18

The Fundamentals of Transportation (Continued) Transportation Regulation § Granger laws (1870 s) - regulate the RRs. § Interstate Commerce Act of 1887 - created the Interstate Commerce Commission (ICC). § Transportation Act of 1920 - changes to IC Act. § Motor Carrier Act of 1935 - brought motor carriers under ICC control. § Transportation Act of 1940 - established ICC control over domestic water transportation. § Federal Aviation Act of 1958 - created air traffic & safety regulations & national airport system. § Department of Transportation Act 1966 - coordination of all transportation-related matters. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19

The Fundamentals of Transportation (Continued) Transportation Deregulation § Railroad Revitalization & Regulatory Reform Act (1976) - RRs could change rates w/o ICC approval § Air freight deregulated in 1977 § Motor carriers deregulated in 1980 to promote competitive, safe & efficient motor transportation § Shipping Act of 1984 - allowed ocean carriers to pool shipments, assign ports, publish rates, & enter into contracts with shippers § ICC Termination Act of 1995 & the Ocean Shipping Reform Act of 1998 - ICC was eliminated, requirement for ocean carriers to file rates also came to an end © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20

Warehousing & Distribution Warehousing § Allows firms to store purchases, WIP, & finished goods and perform break bulk and assessment services § Provides faster & more frequent deliveries & better customer service Crossdocking § To receive, breakdown, repackage, & distribute components to a manufacturing location or finished products to customers warehouse. This description more accurately refers to a distribution center © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21

Warehousing & Distribution (Continued) Importance & Types of Warehouses § Support purchasing, production, & distribution. § Consolidation warehouses collect LTL shipments for transport in TL or CL quantities. Private Warehouses § owned by the firm storing goods. § Pro- Reduces the cost, offers greater control, provides better workforce utilization, & can generate income & tax advantages through leasing of excess capacity &/or asset depreciation. § Con- Owning a private warehouse represents a financial risk & loss of flexibility. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22

Warehousing & Distribution (Continued) Public Warehouses § Owned by for profit orgs & contracted out § Breakbulk - shipments are broken down & items are combined into specific customer orders. § Repackaging § Assembly § Incoming & outgoing quality inspections. § Material handling, equipment maintenance, & documentation services § Storage § Pro- Provides flexibility & investment cost savings § Con- Lack of control. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23

Warehousing & Distribution (Continued) Risk Pooling & Warehouse Location § As the # of warehouses increases, the system becomes more decentralized. Responsiveness & delivery service increase § However, warehousing operating & inventory costs also increase. Trade-off between costs & customer service must be considered Risk Pooling § Describes the relationship between the # of warehouses, inventory, & customer service. § Risk pooling is estimated by square-root rule © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24

Warehousing & Distribution (Continued) Risk Pooling & Warehouse Location § square-root rule S 2 = Where: * (S 1) S 1 = Total system stock for the N 1 warehouses S 2 = Total system stock for the N 2 warehouses N 1 = # of warehouses in the existing system, & N 2 = # of warehouses in the proposed system © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25

Warehousing & Distribution (Continued) Warehouse Location Edgar Hoover recommended – § Market-positioned strategy - warehouses close to customers to maximize distribution svcs & improve transp. economies of scale § Product positioned strategy - close to supply source for firm to collect goods & consolidate § Intermediately positioned strategy - midway between supply source & customers when distribution requirements are high & product comes from various locations © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26

Warehousing & Distribution (Continued) Warehouse Location § Von Thunen - transportation costs should be minimized when considering facility location. Market prices & production costs would be identical regardless of warehouse location § Greenhut - based on profit instead of transportation costs. The optimum location is one that maximizes profits, which may not be min. cost location © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27

Warehousing & Distribution (Continued) Lean Warehousing Emphasis on warehousing to support responsive operations: § § § Commitment to customers & service quality Reduced lot sizes & shipping quantities Emphasis on cross docking Increased automation Increased assembly operations © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28

Impacts of Logistics on Supply Chain Management Third Party Logistics (3 PL) § Provide reliable & timely delivery required by SCM § Used to significant degree by international logistics § Favored by small businesses § Some firms outsource all of their logistics needs to a lead logistics provider or fourth party logistics provider (4 PL) © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29

Impacts of Logistics on Supply Chain Management (Continued) Other Intermediaries § Freight forwarder – consolidate LTL shipments into FTL § Load or transportation brokers bring shippers and carriers together § Shippers’ associations – nonprofit cooperatives which arrange for members’ shipping § Intermodal marketing companies – purchase blocks of rail capacity and sell it to shippers © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 30

Impacts of Logistics on Supply Chain Management (Continued) Environmental Sustainability in Logistics § Reverse logistics aka backhauling is a response to the need for reducing carbon emissions and by ensuring trucks move loaded rather than empty © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 31

Logistics Management Software Applications Transportation management systems- used to select the best mix of transportation services & pricing. Warehouse management- track & control the flow of goods from receiving dock to outbound shipment. New technologies, such as RFID tags, facilitate tracking. Global trade management systems- (GTM) provide global visibility, standardization, & documentation of product returns, while minimizing reverse logistics costs. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 32

Global Logistics International Freight Security § Transportation across national boundaries introduces added complexity, particularly security. § Since 9/11 there is more conflict between U. S. govt. & industry toward more security & restrictions for inbound shipments. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 33

Global Logistics (Continued) Global Logistics Intermediaries § Customs Brokers- move through customs & handle documentation. § International Freight Forwarders- move goods to foreign destination § Trading Companies- Put buyers & sellers together & handle export/import arrangements. § Non-Vessel-Operating Common Carriersoperate like freight forwarders but use scheduled ocean liners. 34 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Global Logistics (Continued) Foreign Trade Zones § Secure sites in U. S. under supervision of U. S. Customs. § FTZs offer storage, exporting, manufacturing, assembly, repacking, testing, & repairing services. North American Free Trade Agreement (NAFTA) § Created in 1994 & removes most barriers to trade & investment among U. S. , Canada & Mexico. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 35

Reverse Logistics § Backwards flow of goods from customers in SC when goods are returned by a customer in the supply chain § Retail returns range 6% to 40% of sales § Often is an unwanted SC activity § Poor reverse logistics can hurt firm § Green reverse logistics programs - designed to return unneeded products for recycling. These programs reduce environmental impact on landfills & deal with dangerous contaminants. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 36