Chapter 9 3rd_ed2

Supply Chain
Management:
LOGISTICSLOGISTICS
MANAGEMENTMANAGEMENT
Chapter 9Chapter 9
Prepared by Mark A. Jacobs, PhD
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole or in part.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2
LEARNING OBJECTIVESLEARNING OBJECTIVES
You should be able to:
 Understand the strategic importance of logistics
 Identify the various modes of transportation
 Understand how regulation has impacted logistics
 Discuss the global aspects of logistics
 Describe how logistics impacts supply chain
management
 Examine the interrelatedness of transportation,
warehousing, & material handling

3
LEARNING OBJECTIVESLEARNING OBJECTIVES
((ContinuedContinued))
 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

4
CHAPTER OUTLINECHAPTER OUTLINE
• Introduction
• The Fundamentals of Transportation
• Warehousing and Distribution
• The Impacts of Logistics on Supply Chain
Management
• Environmental Sustainability in Logistics
• Logistics Management Software Applications
• Global Logistics
• Reverse Logistics

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.
5

Introduction (Continued)
Logistics is:
“…that part of supply chain management
that plans, implements, and controls the
efficient, effective flow and storage of goods,
services, and related information from point
of origin to point of consumption in order to
meet customer requirements.”
Council of Supply Chain Management
Professionals
6

The Objective of Transportation
 Maximize value to firm through negotiation to
provide profit contribution
 Make sure service is provided effectively
 Satisfy customer needs
The Fundamentals of
Transportation
7

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.
The Fundamentals of
Transportation (Continued)
8

Legal Forms of Transportation
 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.
The Fundamentals of
9

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
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.
The Fundamentals of
10

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.
The Fundamentals of
11

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.
The Fundamentals of
12

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.
The Fundamentals of
13

Pipeline Carriers - are limited in variety they can
carry.
 Little maintenance once pipeline is running.
 Materials hauled in a liquid or gaseous state.
The Fundamentals of
14

Intermodal – the use of multiple modes of
transportation
 Rail & motor carriers can offer point-to-point pickup &
delivery service known as trailer-on-flatcar (TOFC)
service, container-on-flatcar (COFC), or piggy-back
service
 Water & motor can offer point to point service for
overseas manufacturers
 RO-ROs or roll-on-roll-off containerships truck
trailers & containers to be directly driven on & off
the ship, without the use of cranes
The Fundamentals of
15

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 or dock
 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
The Fundamentals of
16

Transportation Security
 Particularly important regarding airline security since
Sept. 11 2001
 Aviation & Transportation Security Act (2001) created
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
The Fundamentals of
17

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
The Fundamentals of
18

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.
The Fundamentals of
19

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
The Fundamentals of
20

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
21

(Continued)
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.
22

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.
(Continued)
23

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
(Continued)
24

Risk Pooling & Warehouse Location
 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
1
2
N
N
S2 = * (S1)
(Continued)
25

Warehouse Location
Edgar Hoover recommended –
 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
(Continued)
26

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
(Continued)
27

Lean Warehousing
Emphasis on warehousing to support responsive
operations:
 Commitment to customers & service quality
 Reduced lot sizes & shipping quantities
 Emphasis on cross docking
 Increased automation
 Increased assembly operations
(Continued)
28

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)
29

(Continued)
Other Intermediaries
 Freight forwarder – consolidate LTL
shipments into FTL
 Load or transportation brokers bring
shippers and carriers together
 Shippers’ associations – nonprofit
cooperatives which arrange for members’
shipping
 Intermodal marketing companies – purchase
blocks of rail capacity and sell it to shippers
30

Environmental Sustainability in Logistics
 Reverse logistics aka backhauling is a
response to the need for reducing carbon
emissions and by ensuring trucks move
loaded rather than empty
(Continued)
31

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.
Global trade management systems- (GTM)
provide global visibility, standardization, &
documentation of product returns, while
minimizing reverse logistics costs.
Logistics Management
Software
32

Global 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.
33

Global Logistics (Continued)
Global 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.©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
34

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.
Global Logistics (Continued)
35

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.
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