Logistics 1

Logistics

• The basics– transportation

– modes

– mixed mode and containers

• A step up– materials handling and warehousing

• True SCM

Logistics 2

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 3

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 4

Answer the following

• What would you do to reduce costs while maintaining (and hopefully improving) service?

• What do you think they did?

Logistics 5

What to do

Logistics 6

More importantly the case highlights

Logistics 7

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 8

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 9

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 10

Physical functions of logistics

• All of the following are done to provide time and place All of the following are done to provide time and place utility.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

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Sorting

GradeA

GradeB

GradeC

GradeD

Production process

Sorting process

Logistics 12

Accumulating

Supplier

Supplier

Supplier

Supplier

Warehouse Plant

VolumeShipment

Logistics 13

Allocating (breaking bulk)

Plant

Plant

Plant

Warehouse

VolumeShipment

Warehouse

Retailers

Retailers

Retailers

Retailers

Retailers

Retailers

Logistics 14

Assorting

Plant 1Products A&B

Plant 2Products B&C

Plant 3Products D&E

Plant 4Products F&G

Warehouse

Customer XA B C

Customer YB C F G

A B C D E Customer R

Customer ZA G

Logistics 15

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 16

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 – Fed Ex and Brown

get green

Logistics 17

Rail• Was near death 20 years

ago– slow

– limited access

– damage

– inflexible schedules

– unwillingness to invest in rolling stock

• Has started to come back– still cheaper than trucks for

long hauls (usually over 750 miles but getting loser to 500)

– much cheaper to move very large quantities of commodities

– has changed dramatically• schedule and equipment

flexibility

– piggy back / mixed modes

Logistics 18

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 19

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 20

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 21

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 22

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 23

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 24

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 25

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

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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 27

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?

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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 29

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 30

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

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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 32

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 33

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 34

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 35

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.)