Logistics 1

1
Logistics

• The basics
• transportation
• modes
• mixed mode and containers
• A step up
• materials handling and warehousing
• True SCM

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

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 SKUs
• Present system 16 regional DCs
• Quick / expensive
• Suggestion from consultant 4 or 5 larger DCs
• Slow / cheap
• Marketing suggestion 24 full range DCs
• Fast / very expensive

4
Answer the following

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

5
What to do
6
More importantly the case highlights
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?

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

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

10
Physical functions of logistics

• All of the following are done to provide time and
  place 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
Production process
Sorting process
12
Accumulating
Supplier
Volume Shipment
Supplier
Warehouse
Plant
Supplier
Supplier
13
Allocating (breaking bulk)
Retailers
Plant
Retailers
Warehouse
Retailers
Plant
Warehouse
Retailers
Retailers
Plant
Retailers
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Assorting
Plant 1 Products AB
Customer X
A B C
Plant 2 Products BC
B C F G
Warehouse
Customer Y
Plant 3 Products DE
A G
Customer Z
Plant 4 Products FG
A B C D E
Customer R
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

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

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

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

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

20
Pipelines

• Often overlooked, but if you are moving a liquid
  or gas product (or slurry) a pipeline is
• Movement of Wine at Kings Estate
• fast and reliable
• inexpensive
• automated
• Downsides are limited but
• must be in the proper form
• access is limited

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 ?

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

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?

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.

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 DCs are warehouses but not all warehouses
  are DCs

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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

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?

28
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

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
• Steelcases 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 ?

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

31
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
• Hondas web site collects info on colors, models,
  options and the like
• Other stuff

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)

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

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
• Boyds 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.

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.)