Logistics Mgmt

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Module 08LOGISTICS MANAGEMENT


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The Increased Importance of Logistics

A Reduction in Economic Regulation Recognition by Prominent Non-Logisticians

Technological Advances

The Growing Power of Retailers

Globalization of Trade

Three objectives of logistics strategy:

Cost reduction (variable costs)

Capital reduction (investment, fixed costs)

Service Improvement (may be at odds withthe above two objectives).


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Marketing

orientation

(competitive

advantage)

Time and

place utility

Efficient

movement to

customer

Proprietaryasset

Natural resources

(land, facilities,

and equipments)

Human resources

Financial resources

Information

resources

Management actions

Planning Implementation Control

Logistics Activities

Customer Service

Demand forecasting

Distribution

communications

Inventory control

Material handling

Order Processing

Parts and service

support

Plant and warehouse

site selection

Procurement

Packaging

Return goods handling

Salvage and scrap

disposal

Traffic and

transportation

Warehousing and

storage

Raw

materials

In-process

inventory

Finished

goods

Inputs into logistics

Suppliers

Logistics management

Customers

Outputs of

logistics

Components of

logistics management :


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To gain a better grasp of the fundamentaltrade-offs in logistics, logistics activitiesmay be divided into three categories:

ProductionStorageTransportation

The term Resource applies to all of the

factors of production, including

materials (e.g., Iron, fabric, parts),equipment (e.g., machines or vehicles),energy (e.g., oil, coal, electricity) andlabor.


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PRODUCTION: Fundamental logistics questions are: (1) when should aresource be produced; and (2) where should a resource beproduced.

The when question includes the topics ofaggregate resourceplanning, and production scheduling.

The where question includes the topics offacility location andproduction allocation.

Some of the important production questions are:

(a) What outside source should be used to supply a part?

(b) Where should a new facility be built?

(c) When should a facility produce different items, taking into account:

Seasonal demand patterns?

Demand uncertainty?

Cost of operating single, double, triple shifts?

Labor costs?

(d) When should a firm use two or more sources for a part?


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INVENTORY: Fundamental logistics questions are (1) when should a

resource (material, machine or labor) be put in inventory and takenout of inventory; and (2) where should a resource be stored.

The when question includes the general topics ofeconomic-order-quantity models, safety stock models and seasonal models, andspecialized topics of fleet management, and personnel planning.

The where questions includes the topic ofinventory echelons.

Some of the important inventory questions are:

(a) How much does it cost to store resources in inventory?

(b) How much safety stock should be carried in inventory to prevent

against running out of a resource?

(c) How much inventory should be carried in order to smooth outseasonal variations in demand?

(d) Where should replacement parts be stored in multi-echeloninventory system?


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TRANSPORTATION: Fundamental logistics are: (1) where shouldresources be moved to, and by what mode and route; (2) whenshould resources be moved.

The where question includes the topics ofterminal location,vehicle routing, and shortest path methods and network flowallocation.

The when question includes the topic ofdistribution rules.

Some of the important questions are:

(a) When should shipment be sent through terminals, and whenshould shipment be sent direct?

(b) Which, and how many, terminals should shipments be sentthrough?

(c) What are the best vehicle routes?

(d) When should a vehicle be dispatched over a route?


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Logistics - Science of managing (controlling) the movement and

storage of goods (or people) from acquisition to consumption.

Goods: Raw Materials Final products, and everything in between.Logistics for services & people similar to goods logistics.

Ex. Police, fire, ambulance, passenger airlines, taxi cabs, etc.

Movement = Transportation (between locations).

Storage = Inventory, Warehousing (at locations).

Difference between acquisition and consumption is a matter of spaceand time.

NOTE: Logistics does not dealwith Technology of Production, suchas the design of machines and vehicles and the design of finishedproducts.

Focus: Best way to overcome space and time that separates acquisitionand consumption.


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1998 CLM DEFINITION OF LOGISTICS

.is that part of the supply chain process that

plans, implements, and controls the efficient,

effective flow and storage of goods, services,

and related information from the point-of-

origin to the point-of-consumption in order to

meet customers' requirements.

Council of Logistics Management, 1998;www.CLM1.org


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Five Business Systems - Tightly Interconnected

Within The Organization

MeasurementDecisions

Management

Systems

RewardDecisions

StrategicDecisions

TransportationDecisions

SourcingDecisions

InventoryDecisions

LogisticsSystems{

PriceDecisions

Promotion

Decisions

Marketing

Systems

ProductDecisions

Place (How,where, how

much) }ProductionSchedulingDecisions

ProductionCapacityDecisions

Shop FloorDecisions

ManufacturingSystems}

ProductDesignDecisions

ProcessDesignDecisions Engineering

Systems}


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LogisticsMission [A Bill of Rights]

Logistics embodies the effort to deliver:the right product

in the right quantity

in the right conditionto the right place

at the right time

for the right customerat the right cost


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Activities and Logistics Decisions

Transportation

rate and contract negotiationmode and service selectionrouting and scheduling

Inventoriesfinished goods policiessupply scheduling

short term forecastingWarehousing

private vs. publicspace determinationwarehouse configurationStock layout and dock designstock placementCross-docking

Facility Location

determining location, numberand size of facilities

allocating demand to facilities

Customer Service

determining customer wantsdetermining customer responseto service changes

Materials Handlingequipment selectionequipment replacement

order picking proceduresPackaging designOrder Processing

order procedure determinationProduction Scheduling

aggregate production quantities

sequencing and timing ofproduction runs


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Logistics Planning

Decide what, when, how in three levels:

Strategiclong range > 1 year

Tactical - < 1 year horizon

Operationalfrequently on hourly or daily basis

Examples of Decisions

Type Strategic Tactical Operational

Location

Transportation

Order Processing

(CS)

#Facilities, size,

location

Mode

Selecting order

entry system

Inventory

positioning

Seasonal Service

Mix

Priority rules for

customers

Routing

Replenishment Qty

and timing

Expediting orders


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The Logistics (Strategic) Planning Triangle

Which mode?

Which carrier?

Which route?

Shipment size andfrequency?

Where?, Howmany? What size?

Allocation?

Strategy/Controlsystem?

How much?

Where?


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Transport Fundamentals

Transport involves

equipment (trucks, planes, trains, boats, pipeline),

people (drivers, loaders & un-loaders), and

decisions (routing, timing, quantities, equipment size,

transport mode).When deciding the transport mode for a given productthere are several things to consider:

Mode price

Transit time and variability (reliability)

Potential for loss or damage.

NOTE: In developing countries we often find it necessary tolocate production close to both markets and resources,while in countries with developed distribution systems peoplecan live in places far from production and resources.

Most important component of logistics cost.Usually 1/3 - 2/3 of total cost.


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Routes of Goods

Goods atshippers

Freightforwarderwarehouse

Airterminal

planeair

Freight

forwarderwarehouse

Goods atconsignees

Containerterminal

vessel

sea

Maychangetranspor-

tationmodes

truck

landrailway

land barge

mid-streampier

bulk goodssea


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Air

Rapidly growing segment of transportation industry

Lightweight, small items [Products: Perishable and timesensitive goods: Flowers, produce, electronics, mail, emergencyshipments, documents, etc.]

Quick, reliable, expensive

Often combined with trucking operations

Rail

Low cost, high-volume [Products: Heavy industry, minerals,chemicals, agricultural products, autos, etc.]

Improving flexibility

intermodal serviceTruck

Most used modeFlexible, small loads [Products: Medium and lightmanufacturing, food, clothing, all retail goods]

Trucks can go door-to-door as opposed to planes and trains.

Single-mode Service Choices and Issues


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WaterOne of oldest means of transport

Low-cost, high-volume, slowBulky, heavy and/or large items (Products: Nonperishablebulk cargo - Liquids, minerals, grain, petroleum, lumber,etc )]

Standardized shipping containers improve serviceCombined with trucking & rail for complete systemsInternational trade

Pipeline

Primarily for oil & refined oil productsSlurry lines carry coal or kaolinHigh capital investment

Low operating costs

Can cross difficult terrain

Highly reliable; Low product losses

Single-mode Service Choices and Issues (Contd.)


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Transport Cost Characteristics

Fixed costs:

Terminal facilities Transport equipment

Carrier administration

Roadway acquisition and maintenance

[Infrastructure (road, rail, pipeline,navigation, etc.)]

Variable costs:

Fuel

Labor Equipment maintenance

Handling, pickup & delivery, taxes

NOTE: Cost structure varies by mode


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Transport Cost Characteristics

Rail

High fixed costs, low variable costs

High volumes result in lower per unit (variable) costs

Highway

Lower fixed costs (dont need to own or maintain roads)

Higher unit costs than rail due to lower capacity per truck

Terminal expenses and line-haul expenses

Water

High terminal (port) costs and high equipment costs (both fixed)

Very low unit costs

Air

Substantial fixed costs Variable costs depend highly on distance traveled

Pipeline

Highest proportion of fixed cost of any mode due to pipelineownership and maintenance and extremely low variable costs


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Vehicle Routing:

- Separate single origin and destination:

Once we have selected a transport mode and have

goods that need to go from point A to point B, we

must decidehow to route a vehicle (or vehicles)

from point A to point B.

Given a map of all of our route choices between A andB we can create a network representing these

choices The problem then reduces tothe problem of

finding the shortest path in the network from point

A to B.This is a well solved problem that can use Dijkstras

Algorithm for quick solution of small to medium

(several thousand nodes) sized problems.

V hi l R ti


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Suppose we havemultiple sources and multipledestinations, that each destination requires some integer

number of truckloads, and that none of the sources have

capacity restrictions [No Capacity Restriction].

In this case we can simply apply thetransportation method

of linear programming to determine the assignment of

sources to destinations.Sources Destinations

Vehicle Routing:

- Multiple Origin and Destination Points


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- Coincident Origin and Destination: The TSP

Ifa vehicle must deliver to more than two customers, wemust decide the order in which we will visit those customersso as to minimize the total cost of making the delivery.

We first suppose that any time that we make a delivery tocustomers we are able to make use of only a single vehicle,

i.e., that vehicle capacity of our only truck is never an issue. In this case, we need to dispatch a single vehicle from our

depot to n - 1 customers, with the vehicle returning to thedepot following its final delivery.

This is the well-known Traveling Salesman Problem (TSP).The TSP has been well studied and solved for probleminstances involving thousands of nodes. We can formulate theTSP as follows:

Vehicle Routing:


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TSP Formulation

Minimize

Subject to:

c xij ijj Ji I x i I

x j J

x U U N

x i I j J

ij

j J

ij

i I

ij

i j E U

ij

1

1

1

,

,

,

{0,1},

( , ) ( )

,

In the TSP formulation if we remove the third constraint set wehave the simple assignment problem, which can be easilysolved.The addition of the third constraint set, commonly called sub-tour elimination constraints, makes this a very difficult problem

to solve.


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Vehicle Routing: TSP, inventory routing, and vehicle routing

Traveling Salesman Problem (TSP): salesman visits n cities atminimum cost

vehicle routing problem (VRP): m vehicles with capacity todeliver to n customers who have volume requirement, timewindows, etc.

Inventory Routing: m vehicle to delivery to n customer withtime windows, vehicle and storage capacity constraints, and un-specificed amount to be delivered.

Heuristics

1. Load points closest together on the same truck

2. Build routes starting with points farther from depot first

3. Fill the largest vehicle to capacity first4. Routes should not cross

5. Form teardrop pattern routes.

6. Plan pickups during deliveries, not after all deliveries havebeen made.


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Illustration of VRP

(Outlier)

Depot

50

76

39

112

88

2912344

5890

77

89

57

115

124

59 176

65

98 125Truck Capacity = 250

What is the minimum # of trucks we would need? Maximum?


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Vehicle Routing

Find best vehicle route(s) to serve a set of ordersfrom customers.

Best route may be

minimum cost, minimum distance, or

minimum travel time.

Orders may be Delivery from depot to customer.

Pickup at customer and return to depot.

Pickup at one place and deliver to anotherplace.

Complications


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Complications

Multiple vehicle types.

Multiple vehicle capacities.

Weight, Cubic feet, Floor space, Value.

Many Costs: Fixed charge.

Variable costs per loaded mile & per empty mile.

Waiting time; Layover time.

Cost per stop (handling).

Loading and unloading cost.

Priorities for customers or orders.

Pure Pickup or Delivery Problems.

Mixed Pickups and Deliveries.

Pickup-Delivery Problems.

Backhauls


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More Complications

Time windows for pickup and delivery. Hard vs. soft

Compatibility

Vehicles and customers. Vehicles and orders.

Order types.

Drivers and vehicles.

Driver rules (DOT)

Max drive duration = 10 hrs. before 8 hr. break.

Max work duration = 15 hrs. before 8 hr break.

Max trip duration = 144 hrs.


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Simple Models

Homogeneous vehicles.

One capacity (weight or volume).

Minimize distance.

No time windows or one time window percustomer.

No compatibility constraints.

No DOT rules.


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VRP Solutions

Heuristics Construction: build a feasible route.

Improvement: improve a feasible route.

Not necessarily optimal, but fast.

Performance depends on problem.

Worst case performance may be very poor.

Exact algorithms

Integer programming.

Branch and bound.

Optimal, but usually slow and applicable for small sizeproblem

Difficult to include complications.

APPLICATIONS OF VRP


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The VRP is applicable in many practical situations directly related to

the physical delivery of goods such as

distribution of petroleum products, distribution of industrial gases,

newspaper deliveries,

delivery of goods to retail store,

garbage collection and disposal,

package pick-up and delivery,

milk pick-up and delivery, etc.

the non-movement of goods such as

picking up of students by school buses, routing of salesmen,

reading of electric meters,

preventive maintenance inspection tours,

employee pick-up and drop-off , etc.

APPLICATIONS OF VRP


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Is it different from SCM?

Not really!

Supply Chain Management deals with the

management of materials, information, andfinancial flows in a network consisting ofsuppliers, manufacturers, distributors, andcustomers. (Stanford Supply Chain Forum)

So, Logistics and Supply Chain are equivalentterms.


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A List of Approaches in Log. Man.

Just in Time Inventory

Vendor Managed Inventory

Quick Response

Collaborative Planning,Forecasting, and Replenishment

Outsourcing / 3PLs

Cross-docking / Flow ThroughCenters

Build to Order

SC Visibility Software

Internet / EDI

Collaborative TransportationManagement

Auctions / Exchanges

Merge - In - Transit

Partnerships / Alliances


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Cross Docking

a logistics activity that attempts to reduce costsand total lead time.

breaks down received items on the loading dockand immediately matches them with outgoingshipment requirements, instead of stocking the

items in warehouse locations and returning to pickfor orders at a later time.


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Cross Docking

eliminates the need to place inventory in

storage.

This can mean moving pallets across the

docking areas (hence the name) for loading

onto delivery vehicles.


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Cross Docking

Crossdocking essentially eliminates the inventory-

holding function of a warehouse while still

allowing it to serve its consolidation and shippingfunctions.

The idea is to transfer incoming shipments directly

to outgoing trailers without storing them inbetween.


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Cross Docking

In a traditional warehouse, goods are received

from vendors and stored in devices like pallet

racks or shelving.

When a customer (e.g., the consumer or perhaps a

retail outlet) requests an item, workers pick it from

the shelves and send it to the destination.


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Cross Docking

In a crossdock, goods arriving from the vendoralready have a customer assigned, so workersneed only move the shipment from the inbound

trailer to an outbound trailer bound for theappropriate destination.

The already part should make you think of

information system requirements--a chief obstacleto implementing crossdocking successfully.


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Cross Docking(classification)

One way to classify crossdocking operations is accordingto when the customer is assigned to an individual pallet orproduct.

Inpre-distribution crossdocking, the customer is assignedbefore the shipment leaves the vendor, so it arrives to thecrossdock bagged and tagged for transfer.

Inpost-distribution crossdocking, the crossdock itselfallocates material to its stores.


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Cross Docking(classification)

Pre-distribution is definitely more difficult to implementbecause the vendors of the crossdock must know whichcustomers of the crossdock need what before they send the

shipment.

This involves quite a bit of information transfer, systemintegration, and coordination.

For a distributor with hundreds of vendors, the problem isbig, big, big!


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Logistics Experience will be

different from one sector to anotherTextiles

speed and variety due to seasonality concerns

Retailing (FMCG) prevents stores from having empty shelves or shelves with overstocks

Frozen storage and transportation

Health hygienic, have limited shelf life, require special storage conditions and

entertain high inventory risks

Automotive just in time (JIT), delivering parts from thousands of kilometers, special

packaging

Fuel and Petroleum Transportation very special tanker security systems


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What is Intermodal (Combined)

Transport?It is a transport method that more than onetransport mode is used for the same transportcontainer.

The process can also be defined as a transportationmethod where transport mode changes for thesame transport container or land vehicle, but the

goods themselves are not handled during thesechanges.


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What is Intermodal (Combined)

Transport?

In other words, it is a transport method that

integrates advantages of different transport modes.

In intermodal transport, the aim is to achieve an

effective combination of cost, delivery time and

service quality.


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What is Milk Run Distribution?

It is the combination of shipments from

multiple vendors in close geographic

proximity into one shipment received by thecustomer,

normally done for a defined route on a recurring basis.


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What is Milk Run Distribution?...


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What is a Freight Forwarder?

An independent business that handles export/importshipments for a fee.

A freight forwarder is among the best sources ofinformation and assistance on export regulations anddocumentation, shipping methods, and foreign importregulations.

Forwarder assembles, collects and consolidates less-than-truckload (LTL) freight .


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What is a Freight Forwarder?...

The freight forwarder does not actually carry the cargo orconduct business for the ship.

It is an intermediary between carrier and owner of goodsbeing transported.

The forwarding agent assists the exporter in finding themost economic and efficient methods of transporting andstoring cargo.


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Logistics Mgmt

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