Logistics

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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