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Logistics
• The basics
– transportation
– modes
– mixed mode and containers
• A step up
– materials handling and warehousing
• True SCM
Logistics 1
Step back
• So far we have examined:
– trust
– what we do internally
– some of the processes related to managing our suppliers
of materials and information
• Logistics is then managing these flows of goods
and information. Not only the inbound side (from
our suppliers) but the outbound side (to our
customers)
– Note we have already covered information flows in
detail
Logistics 2
Case
• Key issues
– Strategy is based on time
– Assumes that manufacturing lead time is too long- hence need
finished goods inventory
– Demand at the SKU level is almost impossible to predict – and
they have 45 SKU’s
• Present system – 16 regional DC’s
– Quick / expensive
• Suggestion from consultant – 4 or 5 larger DC’s
– Slow / cheap
• Marketing suggestion – 24 full range DC’s
– Fast / very expensive
Logistics 3
Answer the following
• What would you do to reduce costs while
maintaining (and hopefully improving) service?
• What do you think they did?
Logistics 4
What to do
Logistics 5
More importantly the case highlights
Logistics 6
Logistics as a Source of competitive
advantage
• “Sharing the load”– 10 million plus employees
• “Logistics Wiz”
• “Delivering the goods”
– Globalization is not possible without changes in
logistics
– North American companies need to expand globally to
grow
• UPS, Fed-EX and Yellow are logistics providers- doing
this well is their competitive advantage
– So what are they doing?
Logistics 7
Some other key issues from articles
• US cost of logistics – 1998- 898 billion or 10.6%
of GDP / 2002 – 1,027 billion
• Mixed modes and containers change shipping
tremendously
• Move to 3rd parties
• Faster ships and cargo lifters - these are very
expensive bets with serious financing behind
them- why
Logistics 8
Stepping forward
• Some people look at inbound logistics separately
from outbound logistics.
– This often leads to treating purchasing as a cost center
– This assumes that managing the flows is significantly
different. What is contained in the flows may differ
greatly but the flows themselves are similar
• Transportation - usually defined as movement of
goods. Is a foundation of logistics so we will build
off of basic transportation
Logistics 9
Physical functions of logistics
• All of the following are done to provide time and place
utility.
• Sorting out: Physically separating a homogeneous
subgroup from a heterogeneous population of items
– ( e.g. grading, separating by sizes, or other physical characteristics)
• lumber / paper / beef
• Accumulating: Combining homogeneous stocks of
products or materials into larger quantities
• Allocating (breaking bulk): Dividing up stocks of
homogeneous items into smaller quantities
– break truckloads or carload shipments into smaller local shipments
• Assorting: Mixing heterogeneous items into assortments
needed by customers and end users
Logistics 10
Sorting
Grade
A
Grade
Production Sorting B
process process
Grade
C
Grade
D
Logistics 11
Accumulating
Supplier Volume
Shipment
Supplier
Warehouse Plant
Supplier
Supplier
Logistics 12
Allocating (breaking bulk)
Retailers
Plant
Warehouse Retailers
Volume Retailers
Plant Shipment
Warehouse Retailers
Retailers
Plant
Retailers
Logistics 13
Assorting
Plant 1 Customer X
Products A&B AB C
Plant 2
B C F G
Products B&C
Warehouse Customer Y
Plant 3
A G
Products D&E
Customer Z
Plant 4
Products F&G AB C D E
Customer R
Logistics 14
How goods actually move (modes)
• There are five basic modes of transportation
– Motor - basically trucks
– Air - planes
– Water - boats/ barges and the like
– Rail
– Pipeline
• Intermodal (mixed mode) transportation is a
major issue as well
Logistics 15
Motor carrier
• Trucks carry more freight than any other mode of transport
in the United States (by $ (Rail carries more tons))
– Trucks are very flexible
• can go almost anyplace in the country
– note quality of our road network – Economist article
• can easily be rerouted – new technology
• can carry a wide range of stuff
• are generally very reliable and fairly fast
• costs tend to be low
– Potential problems are limited
• can not move really big stuff
• gets expensive when moving large volumes of commodities
• need a road
• fuel cost fluctuations can cause serious problems – FedLogistics 16
Ex and
Brown get green
Rail
• Was near death 20 years • Has started to come back
ago – still cheaper than trucks for
– slow long hauls (usually over
– limited access 750 miles but getting loser
to 500)
– damage
– much cheaper to move very
– inflexible schedules large quantities of
– unwillingness to invest in commodities
rolling stock – has changed dramatically
• schedule and equipment
flexibility
– piggy back / mixed modes
Logistics 17
Air
• Fast, flexible, access to many places (can cross
water which is often a benefit)
• Expensive !
• So air is usually used for high value goods
– high dollar to weight ratio
– high cost for being late
– etc.
• Becoming more and more common as competition
drives prices down
• Post 9/11 there are some serious air cargo issues
Logistics 18
Water
• If a waterway goes where you need to go nothing
is cheaper
• Obviously access is a problem
• Speed is another problem
• So water is usually used for high volume / low
relative value items where time is not an issue
• However, ocean going transport has reduced
delivery time
• Recent issues – ports are jammed and security
Logistics 19
Pipelines
• Often overlooked, but if you are moving a liquid
or gas product (or slurry) a pipeline is:
– Movement of Wine at King’s Estate
– fast and reliable
– inexpensive
– automated
• Downsides are limited but:
– must be in the proper form
– access is limited
Logistics 20
Mixed mode
• The container has significantly changed
transportation
– containers are 8 foot high, 8 foot wide metal boxes than
range in length from 20 feet to 53 feet
– a good can be loaded into a container at a plant in
Corvallis, taken by truck to a rail terminal in Eugene,
placed on a train that goes to Los Angles, placed on a
boat to Japan, unloaded from the boat and placed on a
truck to be delivered to the customer.
• never unloaded
• time to change modes of transport is minimal
– Why does this matter so much ?
Logistics 21
Mixed mode continued
• Containers, piggy back and other innovations have
enabled mixed mode transport which makes
transportation a more strategic function:
– can have the access of trucks and the cost of trains
– can reduce costs of long hauls
– if we use a single logistics provider can get from the
middle of Africa to the Middle of America using a
single relationship
• By improving time and place utility (usually at
lower costs) transport starts to become more than a
cost center
Logistics 22
Mixed modes have lead to the rise of 3PL
• As we move away from using Inventory logistics
must be much more precise
• Moving stuff = 10% of costs
• Transportation has traditionally been very
fragmented – but why should a company spend
lots of time coordinating various shippers when
they can outsource this?
– How many companies get their competitive advantage
from logistics?
– How many put their competitive advantage at risk if
logistics is not done well?
Logistics 23
Looking ahead
• Our discussion to this point is about
transportation. One of the key notions of logistics
is that it adds value. Containers and mixed mode
transport are part of moving toward a view of
logistics.
– note US bombers in Afghanistan taking off without
targets
• Reexamining how we store goods is the next step.
• Much like transportation , warehousing has
become much more sophisticated and is now seen
as part of the potential for logistics to add value.
Logistics 24
Warehouses
• Go back to our physical functions of logistics. In
general the processes of sorting, accumulating,
allocating and assorting occur in a warehouse.
• A warehouse is anyplace where goods are stored.
– Note that we can have virtual warehouses (data bases)
– Services tend to store all sorts of facilitating goods
• Distribution centers are generally warehouses
where stuff sits for very little time and other value
adding activities occur.
– All DC’s are warehouses but not all warehouses are
DC’s
Logistics 25
There are a wide range of warehousing issues
• First is where in the supply chain do we wish to
hold materials (or data).
– We do not want to duplicate these activities (in general)
• In addition, we need to consider the physical
location of the facility.
• There are also issue of size, ownership,
management and the like to consider.
• In fact this is a major issue for any supply chain
that needs to handle a flow of goods.
• However, our focus is at a more basic level
Logistics 26
Basic purposes of warehouses: storage
• This is the most traditional view of a warehouse -
a place to store stuff
– Temporary storage
• waiting for a full truckload (accumulating)
• waiting for other items in customer order (assorting)
– Semi-permanent storage
• buffers or safety stock
• just in case inventory
• often results from “achieving” economies of scale
• most supply chains try and limit this as much as possible
(preferable eliminate)
• Abbot Aluminum?
Logistics 27
Basic purposes of warehouses: movement
• Types of movement
– receiving of goods from other chain members
– transfer - moving goods through the warehouse to
storage or some value adding activity
– order picking - retrieving goods from the warehouse
– shipping
– cross docking
• discuss if needed
– movement has been the focus of many improvement
efforts - think of JIT and unnecessary movement or
storage
Logistics 28
Basic purposes of warehouses: information
transfer
• Warehouses tend to equal paper
• Paper tends to indicate what?
• The first use of information in warehousing was
automation
– AS/RS systems
• faster / cheaper (fewer people) / more accurate / better service
etc.
• But they are expensive
• There is also an old rule about automating a bad process
– Steelcase’s warehouses
– Bar coding and now Wal-Mart requires RFID
• if we can do it in the warehouse can we do it for the
entire supply chain ?
Logistics 29
Logistics = information
• When we look at our supply chain models there
are two sets of flows- the physical flows we have
mainly focused on and equally important
information flows.
– It is this second set of flows that separates the supply
chain managers from the rest of the pack
– The computer has made this much easier
• possible to eliminate paper
• eliminate transit time for paper
• eliminate redundant entry
• so we are faster and more accurate at a lower cost
Logistics 30
Types of info in a supply chain
• EDI for purchasing
• Truck information linkages
• Bar coding and scanning for tracking in
warehouses and production – next RFID
• CAD / CAM systems linking design and
production
• End customer information
– Honda’s web site collects info on colors, models,
options and the like
• Other stuff
Logistics 31
Key point on Information
• Entire supply chain needs to be working off the
same information
– Would bullwhips occur if third tier suppliers had end
customer forecasts ?
– If the company at the end of the chain is planning a
marketing promotion their suppliers will perform better
if given enough lead time
– If a supplier develops a new process that might be
useful to others there needs to be a way to share this
information
– If customers desires change the entire chain needs to
react (preferably be ahead of the change)
Logistics 32
More information
• There are many experts who can design an
information system for you (we even train them
here)
• But it is the managerial decisions that determine
how well the system will work
– What information do we include?
– What form is that information in?
– Who has access?
• Really it all comes down to the first thing we
talked about - trust and relationships
Logistics 33
Information sharing
• Every person who researches supply chain
management finds the following
– there are many tactical issue that effect success but it is
the relationships that make or break a chain
• this is mainly trust
• there are also personality issues here - some mangers have all
by themselves screwed up a supply chain
– Boyd’s boss
• With all of the information we have covered the
companies who excel are those that understand the
issues of trust and information sharing. Those who
play Win win are not really SC mangers.
Logistics 34
Logistics conclusions
• There are many physical elements to consider in the design
of a logistical system (flows through supply chain)
• It is the intangible flows of information that are the real
make or break issues.
– Do not ignore flows back from end customer
• Transportation become logistics when we start to include
information flows. Logistics becomes SCM when we
understand the need for these flows to be available to the
entire chain.
• For most supply chains this is all conjecture- they are still
getting internal chains sorted out.
– Recent HBR article notes that suppliers are often better partners
than members of your own organization - less fighting over
resources (trust / global view / etc.)
Logistics 35
