Chapter LOGISTICS MANAGEMENT LEARNING OBJECTIVES You should be able to:  Understand the impact of transportation on company and SCM  Identify the various modes of transportation  Understand the impact of warehousing on company and SCM  Understand the key issues of international transportation  Examine the interrelatedness of transportation, warehousing, & material handling MBA Nguyen Phi Hoang@2015_SCM LEARNING OBJECTIVES (Continued)  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 MBA Nguyen Phi Hoang@2015_SCM CHAPTER 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 MBA Nguyen Phi Hoang@2015_SCM 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 MBA Nguyen Phi Hoang@2015_SCM 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 MBA Nguyen Phi Hoang@2015_SCM Importance of transportation • Transportation cost account from 3% -6% of annual budget of FMCGs • Breakdown logistics cost: • • • • • Warehousing Transportation Inventory Ordering Administrative cost MBA Nguyen Phi Hoang@2015_SCM : 2,02% : 3,34% : 1,72% : 0,43% : 0,41% In Viet Nam  Logistics cost of VN : Est 20 - 25% GDP  Transportation cost of VN accounts from 4060% Logistics cost  Transportation cost accounts around 20-25% product cost which is produced in VN MBA Nguyen Phi Hoang@2015_SCM The Fundamentals of Transportation The Objective of Transportation  Minimize transportation cost to help reduce product/service cost for firm  Deliver goods/services to correct address, correct timing for clients  Satisfy customer needs MBA Nguyen Phi Hoang@2015_SCM The Fundamentals of Transportation (Continued) 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 MBA Nguyen Phi Hoang@2015_SCM 10 The Fundamentals of Transportation (Continued) Modes of Transportation Pipeline Carriers - are limited in variety they can carry  Little maintenance once pipeline is running  Materials hauled in a liquid or gaseous state MBA Nguyen Phi Hoang@2015_SCM 16 The Fundamentals of Transportation (Continued) Modes of Transportation 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 MBA Nguyen Phi Hoang@2015_SCM 17 The Fundamentals of Transportation (Continued) 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 MBA Nguyen Phi Hoang@2015_SCM 18 Warehousing & Distribution Warehousing  Allows firms to store purchases, WIP( Work in process) & 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 MBA Nguyen Phi Hoang@2015_SCM 19 Warehousing & Distribution (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  Advantages: • Reduces the cost, greater control, better workforce utilization, & can generate income & tax advantages through leasing of excess capacity &/or asset depreciation  Disadvantages: Owning a private warehouse represents a financial risk & loss of flexibility MBA Nguyen Phi Hoang@2015_SCM 20 Warehousing & Distribution (Continued) 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 • Advantages: Provides flexibility & investment cost savings • Disadvantages : Lack of control MBA Nguyen Phi Hoang@2015_SCM 21 Warehousing & Distribution (Continued) Warehouse Location  As the number of warehouses increases, the system becomes more decentralized Responsiveness & delivery service increase because goods can be delivered faster  However, warehousing operating & inventory costs also increase Trade-off between costs & customer service must be considered MBA Nguyen Phi Hoang@2015_SCM 22 Warehousing & Distribution (Continued) Warehouse Location Edgar Hoover recommended –  Market-positioned strategy - warehouses close to customers to maximize distribution services & improve transportation through 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 MBA Nguyen Phi Hoang@2015_SCM 23 Warehousing & Distribution (Continued) Warehouse Location  Von Thunen – Optimum location of warehouse is where the transportation cost is minimum So Von Thunen recommended that transportation costs should be minimized when considering facility location This idea is similar with Weber”s location theory  Greenhut”s theory - based on profit instead of transportation costs The optimum location is one that maximizes profits, which may not be cost location  Other location theory will be discussed more in Chapter 11 MBA Nguyen Phi Hoang@2015_SCM 24 Warehousing & Distribution (Continued) JIT warehousing (Lean Warehousing) Emphasis on warehousing to support responsive operations:      Emphasis on cross docking Reduced lot sizes & shipping quantities Commitment to customers & service quality Increased automation Increased assembly operations MBA Nguyen Phi Hoang@2015_SCM 25 Other issues in Transportation & Warehousing 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) MBA Nguyen Phi Hoang@2015_SCM 26 Other issues in Transportation & Warehousing Other Intermediaries Continued)  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 MBA Nguyen Phi Hoang@2015_SCM 27 International Transportation Issues 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 International transportation cost will be more costly and complexly MBA Nguyen Phi Hoang@2015_SCM 28 International Transportation GlobalIssues Logistics Intermediaries (Continued)  Customs Brokers- move int’ shipments through customs & handle documentation for firms  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 MBA Nguyen Phi Hoang@2015_SCM 29 Transpotation Management Transportation supply base reduction Mode and Carrier selection Contracting Transportation Service Outsourcing Transportation Service Measuring Transportation Performance Creating Strategic Carrier Alliances MBA Nguyen Phi Hoang@2015_SCM 30 ... Environmental Sustainability in Logistics Logistics Management Software Applications Global Logistics Reverse Logistics MBA Nguyen Phi Hoang@2015_SCM Introduction Logistics is necessary to:  Move... issues in logistics management MBA Nguyen Phi Hoang@2015_SCM CHAPTER OUTLINE • • • • • • • • Introduction The Fundamentals of Transportation Warehousing and Distribution The Impacts of Logistics. ..  Favored by small businesses  Some firms outsource all of their logistics needs to a lead logistics provider or fourth party logistics provider (4PL) MBA Nguyen Phi Hoang@2015_SCM 26 Other issues