Logistics
2-2
Overview of logistics
•
Logistics of business is big and important
•
The logistical value proposition
•
The work of logistics
•
Logistical operations
•
Logistics integration objectives
•
Logistical operating arrangements
•
Flexible structure
•
Supply chain synchronization
2-3
What is Logistics?
•
Logistics is the design and administration of systems to
control movement and geographical positioning of raw
materials, work-in-process, and finished inventories at the
lowest total cost.
2-4
Logistics has risen to a key position in the global
economy
•

To satisfy customer
expectations for delivery of
products (or services) while
minimizing the total cost
•
Managers must support the
requirements for procurement,
manufacturing and customer
accommodation supply chain
operations
2-7
1980 2007
$ Billion
1980
•
Logistics Cost of $451 billion is 16.1% of GDP
•
Transportation ($214B) is 47.5% of Logistics Cost
2007
•
Logistics Cost of $1398B is 10.1% of GDP
•
Transportation ($857B) is 61.3% of Logistics Cost
Source: “19
th”
Annual “State of Logistics Report” © Council of Supply Chain Management Professionals, 2008
Transportation has become the major
logistics cost component in the USA
2-8
Logistics costs trends from Table 2.1

customer material or product requirements
•
Operational performance deals with the time required to
deliver a customer’s order
–
Key metrics for this area involve delivery speed and consistency
•
Service reliability involves the quality attributes of logistics
–
Key to quality is accurate measurement of availability and
operational performance over time
2-11
Basic logistical service may not fit all customers
•
Basic logistics service describes the level of service a
firm provides all established customers
–
However, some customers require unique or special value-added
services
•
Managers must realize that customers are different and that
services provided must be matched to accommodate
unique requirements and purchase potential
2-12
Cost minimization using the total cost logistics
model
•
Focused on achieving the lowest
possible cost for each individual
function of logistics

+
Minimize inventory cost
+
Minimize transportation cost
+
Minimize warehousing, materials
handling and packaging cost
+
Minimize facility cost
__________________________
Lowest logistics cost
Minimize (order processing + inventory +
transportation + warehousing,
materials handling and packaging +
facility) cost
_________________________
Lowest total logistics cost
Traditional Cost Logistics Model Total Cost Logistics Model
2-14
Example of evaluating alternatives to find lowest
total cost
•
Compare two alternative shipping carriers to
move a shipment of electronic chips
–
Value of shipment = $25,000.00
–
Faster shipping is generally more expensive than
slower shipping
•

carrier at $250 + $27.40 = $277.40 vs. 2
nd
carrier at $270
•
Decision is to use 2
nd
Carrier since it is a lower total cost
Traditional Cost Method
Total Cost Method
Daily cost of holding product
Daily cost of holding product
=
=
x
x
/365
/365
Annual holding
Annual holding
cost
cost
Product value
Product value
= (.40 x $25,000)/ 365 = $27.40
= (.40 x $25,000)/ 365 = $27.40
2-16
Logistics includes these major functions of work
•
Order Processing
•

Order processing
•
Order processing is the transmission of customer
requirements to the supply chain
•
Accurate information is needed to achieve superior
logistical performance
•
Responsive supply chains require accurate and timely
information about customer purchase behavior
•
Fast information flow enables improved work balancing
2-20
Inventory
•
Inventory requirements of a firm are directly linked to the
facility network and the desired level of customer service
•
Inventory strategy seeks to achieve the desired customer
service with the minimum inventory commitment
•
Inventory strategy is based on a combination of
–
Core customer segmentation
–
Product profitability
–
Transportation integration
–
Time-based performance

together into shipping cartons
•
Effective integration of these functions facilitates the speed
and overall ease of product flow throughout the logistical
system
2-23
Facilities network
•
The number, size and
geographical relationship of
facilities used to perform
logistical operations directly
impacts customer service
capability and cost
•
Types of facilities in the
logistics network include
–
Manufacturing plants,
warehouses, cross-dock
operations and retail stores
2-24
The scope of integrated logistical operations
Figure 2.2 Logistical Integration
2-25
Inventory flow
•
Managers must be concerned
with the movement and storage
of inventory in 3 major forms