CHAPTER 9 DOMESTIC U.S. & INTERNATIONAL LOGISTICS Principles of Supply Chain Management: A Balanced...
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Transcript of CHAPTER 9 DOMESTIC U.S. & INTERNATIONAL LOGISTICS Principles of Supply Chain Management: A Balanced...
CHAPTER 9DOMESTIC U.S. & INTERNATIONAL LOGISTICS
Principles of Supply Chain Management:
A Balanced Approach
Prepared by Daniel A. Glaser-Segura, PhD
© 2009 South-Western, a division of Cengage Learning 2
Learning Objectives
You should be able to:• Understand the strategic importance of
logistics• Identify the various modes of transportation• Discuss the international aspects of logistics• Describe how logistics impacts supply chain
management• Examine the interrelatedness of
transportation, warehousing, & material handling
© 2009 South-Western, a division of Cengage Learning 3
Learning Objectives (Cont.)
• 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
© 2009 South-Western, a division of Cengage Learning 4
Chapter Nine Outline
• Introduction• The Fundamentals of Transportation• Warehousing and Distribution• The Impacts of Logistics on Supply Chain
Management • Logistics Management Issues• International Logistics• Reverse Logistics
© 2009 South-Western, a division of Cengage Learning 5
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.
© 2009 South-Western, a division of Cengage Learning 6
Introduction (Cont.)
Logistics is:
“…the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.“
Council of Supply Chain Management Professionals
© 2009 South-Western, a division of Cengage Learning 7
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
© 2009 South-Western, a division of Cengage Learning 8
The Fundamentals of Transportation (Cont.)
Legal Forms of Transportation 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.
© 2009 South-Western, a division of Cengage Learning 9
The Fundamentals of Transportation (Cont.)
Legal Forms of Transportation (Cont.)-
– 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.
© 2009 South-Western, a division of Cengage Learning 10
The Fundamentals of Transportation (Cont.)
The 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. LTL 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.
© 2009 South-Western, a division of Cengage Learning 11
The Fundamentals of Transportation (Cont.)
The Modes of Transportation (Cont.)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.
© 2009 South-Western, a division of Cengage Learning 12
The Fundamentals of Transportation (Cont.)
The Modes of Transportation (Cont.)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, FedEx.
© 2009 South-Western, a division of Cengage Learning 13
The Fundamentals of Transportation (Cont.)
The Modes of Transportation (Cont.)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.
© 2009 South-Western, a division of Cengage Learning 14
The Fundamentals of Transportation (Cont.)
The Modes of Transportation (Cont.)Pipeline Carriers- Limited in variety they can carry.
– Little maintenance once pipeline is running. – Materials hauled in a liquid or gaseous state.
© 2009 South-Western, a division of Cengage Learning 15
The Fundamentals of Transportation (Cont.)
Intermodal TransportationCombinations of the various transportation modes, is becoming a popular method.
– Trailer-on-flatcar (TOFC), container-on-flatcar (COFC), piggy-back service. The same containers can be placed on board containerships & airliners.
– RO-ROs or roll-on-roll-off containerships truck trailers & containers to be directly driven on & off the ship, without the use of cranes.
© 2009 South-Western, a division of Cengage Learning 16
The Fundamentals of Transportation (Cont.)
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.– 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.
© 2009 South-Western, a division of Cengage Learning 17
The Fundamentals of Transportation (Cont.)Transportation Security
– Particularly important regarding airline security since Sept. 11 2001
– Aviation & Transportation Security Act (2001)- 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
© 2009 South-Western, a division of Cengage Learning 18
The Fundamentals of Transportation (Cont.)
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
© 2009 South-Western, a division of Cengage Learning 19
The Fundamentals of Transportation (Cont.)
Transportation Regulation – Granger laws (1870s)- 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.
© 2009 South-Western, a division of Cengage Learning 20
The Fundamentals of Transportation (Cont.)
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.
© 2009 South-Western, a division of Cengage Learning 21
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
© 2009 South-Western, a division of Cengage Learning 22
Warehousing & Distribution (Cont.)
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.
© 2009 South-Western, a division of Cengage Learning 23
Warehousing & Distribution (Cont.)
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.
© 2009 South-Western, a division of Cengage Learning 24
Warehousing & Distribution (Cont.)
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
© 2009 South-Western, a division of Cengage Learning 25
Risk Pooling & Warehouse Location (Cont.)
– square-root rule
Where:
S1 = Total system stock for the N1 warehouses
S2 = Total system stock for the N2 warehouses
N1 = # of warehouses in the existing system, &
N2 = # of warehouses in the proposed system
Warehousing & Distribution (Cont.)
1
2
N
NS2 = (S1)
© 2009 South-Western, a division of Cengage Learning 26
Warehousing & Distribution (Cont.)
Warehouse Location
Edgar Hoover– 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.
© 2009 South-Western, a division of Cengage Learning 27
Warehousing & Distribution (Cont.)
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.
© 2009 South-Western, a division of Cengage Learning 28
Warehousing & Distribution (Cont.)
Just-in-Time WarehousingEmphasis on warehousing to support JIT operations:
– Commitment to customers & service quality– Reduced lot sizes & shipping quantities– Emphasis on cross docking– Increased automation– Increased assembly operations
© 2009 South-Western, a division of Cengage Learning 29
Impacts of Logistics on Supply Chain Management
Third Party Logistics (3PL) – 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 (4PL)
© 2009 South-Western, a division of Cengage Learning 30
Logistics Management Issues
Environmental Sustainability in Logistics– Green logistics is a response to the need
for reducing carbon emissions and by doing so can also save money for the firm
3PL Supply Base Reduction – by reducing the 3PL supply base a firm
can achieve lower prices and better service as it becomes a larger customer
© 2009 South-Western, a division of Cengage Learning 31
Logistics Management Issues (Cont.)
Mode & 3PL Selection– firms identify the optimum transportation
services to minimize costs & improve customer service
Firms often use weighted factor analysis & transportation intermediaries, such as:– Freight forwarders– Transportation brokers – Shipper Associations– Intermodal marketing companies (IMCs)
© 2009 South-Western, a division of Cengage Learning 32
Logistics Management Issues (Cont.)
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.
Returns management systems (RMS) provide global visibility, standardization, & documentation of product returns, while minimizing reverse logistics costs.
© 2009 South-Western, a division of Cengage Learning 33
Logistics Management Issues (Cont.)
Measuring Logistics Performance– Allows the firm to identify problems & make
improvements– Measures- derived from benchmarks or previous
performance & are similar to those used to select 3PLs.
Creating Strategic 3PL Alliances – Effective SC networks often include strategic
alliances with providers of logistics services
Performing Logistics Audits– To monitor change firms often conduct an audit
by a multifunctional team
© 2009 South-Western, a division of Cengage Learning 34
Logistics Management Issues (Cont.)
Use of e-Commerce Technologies in Logistics
• Electronic Invoice Presentment & Payment (EIPP)- sending & receiving invoices online.
• Supply Chain Visibility- time-related benefits that lead to SC success. Visibility allows better communication across org boundaries
• Third Party Electronic Transaction Platforms- Internet based transaction systems providing freight-matching services, auctions, & on-line marketplaces
© 2009 South-Western, a division of Cengage Learning 35
International 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.
© 2009 South-Western, a division of Cengage Learning 36
International Logistics (Cont.)
International 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 Carriers- operate like freight forwarders but use scheduled ocean liners.
© 2009 South-Western, a division of Cengage Learning 37
International Logistics (Cont.)
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.
© 2009 South-Western, a division of Cengage Learning 38
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.