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Logistics: Positioning Goods in the Supply Chain


Chapter 12 Logistics: Positioning Goods in the Supply Chain Logistics Purchased goods must be transported from the point where they originate to the place needed ... – PowerPoint PPT presentation

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Title: Logistics: Positioning Goods in the Supply Chain

Chapter 12
  • LogisticsPositioning Goods in the Supply Chain

Introduction to Logistics
  • the process of planning, implementing, and
    controlling the efficient, effective flow and
    storage of goods, services, and related
    information from point of origin to point of
    consumption for the purpose of conforming to
    customer requirements.

  • Purchased goods must be transported from the
    point where they originate to the place needed,
    with inventories held at a minimum amount, to
    ensure production and customer service.
  • The management of inventory in motion and storage
    is called logistics.

Council of Logistics Management
  • Part of the supply chain 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 the customers

  • Logistics - (business definition) Logistics is
    defined as a business planning framework for the
    management of material, service, information and
    capital flows. It includes the increasingly
    complex information, communication and control
    systems required in today's business environment.
    -- (Logistix Partners Oy, Helsinki, FI, 1996)

Logistics Costs
  • Logistics costs can be divided into
  • - Inventory carrying cost
  • - Administrative cost
  • - Transportation cost (major portion of the
    total cost)

Logistics Network Configuration
  • Costs are incurred and time is required to move
    goods from raw materials to consumers.
  • An important task for supply chain management is
    to determine distances and how travel will take

Supply Chain and Logistics
  • Supply chain should be emphasizing reducing costs
    and cycle time and cycle time.
  • It requires efficient transportation and other
    logistics services.
  • Information flow is a critical first step

Logistics Requirements
  • Logistics requires skill and knowledge in the
  • Knowledge of the rules and regulations

Logistic Activities
  • Transportation
  • Warehousing
  • Material Handling
  • Packaging
  • Inventory Management
  • Logistics Information Systems

Effects of Logistics
  • Logistics Accounts for 5 to 35 percent of total
    sales costs
  • In North America the logistics is 10.7 per cent
    of GDP
  • Logistics affects delivery, lead time, and
    location of an item

Outsourcing Logistics Services
  • Third party providers are known as 3PLs
  • 3PLs can be narrow in focus or quite broad

Logistic Strategy
  • To ensure that the logistics choices are
    consistent with its overall business strategy and
    supports the performance dimension that targets
    customers value.
  • Performance Dimensions
  • - Quality
  • - Time
  • - Flexibility
  • - Cost

Logistics Network Configuration
  • Costs are incurred and time is required to move
    goods from raw materials to consumers.
  • An important task for supply chain management is
    to determine distances and how travel will take

3PL Selection
  • Steps to selecting a 3PL

Owning vs. Outsourcing
  • Do you have enough volume to justify a private
    logistics system?
  • Would owning private logistics system limit the
    firms ability to respond to change?
  • Is logistics a core competency of the firm?

Reverse Logistics
  • The flow of goods back to their producer
  • Increasing in importance
  • Often outsourced
  • May function as asset recovery
  • (products to be resold)

  • Transportation is an important supply chain
    driver because products are rarely produced and
    consumed in the same location.
  • Transportation is a significant component of the
    costs incurred by most supply chain.
  • Transportation represents 10 percent of the
    GDP and employs more than 20 million people,
    accounts for 16 percent of the US employment.

  • Any supply chains success is closely linked to
    the appropriate use of transportation.
  • Shipper is the party that requires the movement
    of the product between two points in the supply
  • Carries is the party that moves or transports the

  • Owner or operators of the transportation
  • Agencies that set transportation policies
  • Transportation network as a collection of nodes
    and links.

  • The effectiveness of any mode of transport is
    affected by equipment investments and operating
    decision by the carrier as well as the available
    infrastructure and transportation policies.

  • Longer supply chain creates complex
    transportation system
  • Long distances creates complex transportation
  • Many modes of transportation choices add
  • Modes are road, rail, air, ships, pipeline, and
  • new

Carrier Objectives
  • Objective is to ensure good utilization of its
    assets while providing customer with an
    acceptable level of service.
  • The decision is affected equipment cost, fixed
    operating cost, variable operating cost, and
    price it can charge.

Transportation Modes
  • U.S. Commercial Freight Activity by
    Transportation Mode

Truck is the largest mode. Air is fastest growing
Road Transport
  • Trucking consist of two major segments
  • FTL (Full truckload) is the cheapest.
  • LTL (Less than truckload) costs more.
  • Truck is most commonly used cargo mode
  • Most goods transportation ends with a truck
  • Most flexible mode of transportation
  • 64 percent of U.S. commercial freight by value
    and 58 percent by weight is moved by truck.

Road Transportation
  • Trucking is most expensive than rail
  • Door-to-door shipment
  • Shorter delivery time
  • No transfer required between pickup and delivery

Full Truck Load (FTL)
  • Low Fixed cost
  • Fewer Trucks
  • Economies of Scale
  • Good for transportation between factories and
    warehouses (manufacturer and suppliers)

Less Than Truck Load (LTL)
  • Small load
  • Cheaper
  • Consolidate package

  • If speed is required, use air
  • Cost is very high and should be used in emergency
  • Long distance may require air transportation
  • Cost can be justified by reducing lead time,
    reliable delivery, and quick cash recovery (sell
    product quickly)
  • new

  • Carried 4 percent shipment b value, and 12
    percent by weight and more tan 25 percent of
    total ton-miles.
  • Higher fixed cost in cars and locomotives
  • Price is structured and heavy load make it
  • Ideal for very heavy, low-value shipments (coal).

Rail Transport
  • Less flexible than truck. But less costly over
    long distances.
  • Takes longer than truck
  • Trend is toward specialty wagons (railcar).
  • Can provide specialty wagon such as
  • - Hopper wagon for bulk powder products
  • - Flat wagon for steel and equipment
  • - tanker wagon for liquid
  • - car wagon for automobile
  • for different products. Road trailer can
    be easily changed to truck trailer.
  • Double stacking (containers are stacked on
    railcars) is becoming more common.

  • Limited to certain areas
  • Inland waterway (rivers)
  • Coastal water
  • Large load and low cost

Marine Transport
  • Breakbulk ships (goods packed in boxes, crates,
    or cartons) carry loose freight. This makes
    loading and unloading easy.
  • Containerships carry containers.
  • Faster loading and unloading
  • Easy transfer to rail or truck

  • Least flexible, only used for specialized product
    e.g. gas, water or oil.
  • Often used to transport between isolated areas
  • High initial investment, but low operating costs

Intermodal Transport
  • At least two different modes are used, e.g.
    Marine/rail, rail/road, marine/road,
    marine/rail/road, etc.
  • Integrated transport carriers use whatever is
  • Customer doesnt have to deal with modes and is
    given total cost up front
  • Utilizes containerized shipping.

Integrated Transportation
  • Integrate transportation decisions with inventory
    and warehousing, order management, forecasting,
    and production planning.
  • Combination of modes that best suite the product
    from origin to destination,
  • Only costs are negotiated and the choice of modes
    is made by providers.

Implications of Strategy
Transportation Warehousing Dimension
Mode System
Implications of Strategy
Transportation Warehousing Dimension
Mode System
Buyer/Seller Responsibility
  • Who pays for products transportation
  • Who bears the risk and when risk passes
  • In international transaction the transportation
    terms as well as the sale price are negotiated.
  • International Commercial terms (Incoterms)
    defined the terms for transportation.
  • - international carriage not paid by the
  • - international carriage paid by the seller
  • - arrival at stated destination

  • EXW Ex Works Means that the seller delivers
    when they place the goods at the disposal of the
    buyer at the sellers premises or some named
    place, not cleared for export and not loaded on a

Incoterms International Carriage Not Paid By the
  • FCA stands for Free Carrier. The seller delivers
    the goods, cleared for export, to the carrier the
    buyer specifies, at a named location, not loaded.
    The sellers responsibility is fulfilled when he
    delivers the goods to the carrier.
  • FAS means Free Alongside Ship. The seller
    delivers when the goods are placed alongside the
    vessel at the named port of shipment. This is
    specifically used for ocean shipments that arent
  • FOB stands for Free on Board. FOB means that the
    seller delivers when the goods pass the ships
    rail at the named port of shipment. The buyer is
    responsible for costs and risks as soon as the
    goods pass the ships rail.

Incoterms International Carriage Paid By the
  • CFR designates Cost and Freight. The seller is
    responsible for the cost and fright required to
    bring the goods to the named destination, but the
    buyers is responsible for the risks when the
    goods pass the ships rail in the port of
  • CIF means Cost, Insurance, and Freight. This is
    the same a CFR, except that the seller is
    responsible for insurance against loss or damage.
  • CPT stands for Carriage Paid To. The seller is
    responsible for the cost of freight to the named
    destination. The risks associated with loss,
    damage, or cost increases becomes the buyers
    when the goods have been delivered to the custody
    of the first carrier.
  • CIP stands for Carriage and Insurance Paid To.
    This is the same as CPT, except the seller is
    responsible for transport insurance against loss
    or damage.

Incoterms Arrival at Stated Destination
  • DAF stands for Delivered at Frontier. DAF means
    that the sellers responsibility stops when the
    goods have arrived at the frontier, but before
    the customs border of the country specified in
    the contract.
  • DES stands for Delivered Ex Ship. DES means that
    the sellers responsibility ends upon placement
    of the goods at the disposal of the buyer on
    board the ship at the named port of destination.
  • DEQ stands for Delivered Ex Quay. DEQ means that
    the sellers obligation is fulfilled when the
    goods are made available on the quay (wharf) to
    the buyer at the named port of discharge.
  • DDU stands for Delivered Duty Unpaid. DDU means
    that the sellers responsibility goes up to the
    point when the goods have been made available to
    the buyer at the named place in the country of
    importation. The buyer has to pay all duties,
    taxes, and customs charges required for
  • DDP stands for Delivered Duty Paid. DDP is like
    DDU in that the sellers obligation ends when the
    goods have been made available to the buyer at
    the named place in the country of importation.
    However, the seller is responsible for all
    duties, taxes, and customs charges.

  • As product moves form supplier to customer, there
    may be a need for a storage.
  • Storage could be provided by supplier, retailer,
    or 3PL.
  • Warehouse may be used to reduce cost, reduce
    response time, increase variety of product, and
    handle emergency.

  • Distribution Strategies

Direct Shipment
  • Shipping directly from manufacturer to retailer
  • Eliminates warehouse costs
  • Probably wont take advantage of FTL
    transportation savings.
  • High inventory level needed

Consolidation Warehousing
  • Storage in warehouse, then shipped.
  • More likely to use FTLs
  • Risk pooling benefits of reduced inventory in
  • Used in combination with postponement (delays the
    commitment of products to final configuration.
    Packaged to meet needs of different customers.)

  • Continuous shipment from suppliers to warehouses
    where goods are redirected and delivered to
  • Most sophisticated system. Require close
    communication between supplier and retailer.
  • Require reliable forecast
  • High cost, but very efficient
  • Used by high-volume retailers like Wal-Mart and
    Dollar General
  • FTL bulk shipments to cross-dock center, then FTL
    mixed loads to retailers

Warehouse Location Decisions
  • Center-of-gravity method used for locating a
    distribution center among warehouses or retail
  • Finds the most central location for the DC by
    calculating the X and Y coordinates that minimize
    transportation costs.
  • Considers distance between the DC and warehouses
    or stores as well as the number of shipments
    necessary between them

Location Decision-Making TechniquesCenter-of-Grav
ity Method
where Cx X coordinate of the center of
gravity Cy Y coordinate of the center of
gravity dix X coordinate of the ith
location diy Y coordinate of the ith
location Vi Volume of goods moved to or from
the ith location
Information Technology
  • Radio Frequency Identification (RFID)
  • Each tag has a unique identifier that uses the
    electronic product code (EPC) format.

Exhibit 12.12 EPC Format
Information Technology
  • Radio Frequency Identification (RFID)
  • RFID tags emit a signal that can be read at a
  • The signal contains a unique identifier that can
    be read by a reader
  • Information about the item can be stored on a
    host computer
  • RFID can be used to aid in inventory counts,
    security, product tracking, etc.

Information Technology
  • Potential RFID Applications

Information Technology
  • Global Positioning systems
  • Determine precise locations using satellites.
  • Used to monitor vehicle locations
  • Estimate arrival times
  • Update customers on delays
  • Increase security

Logistics Costs
  • Landed Cost computations
  • Convert all logistics-related costs to a per unit
    basis for comparison

Supply Chain and Information Technology
  • Widespread implementation of enterprise resource
    planning (ERP) systems offers the promise of
    homogeneous, transactional databases that will
    facilitate integration of supply chain
  • Examples of ERP SAP, Oracle, and PeopleSoft.
  • To effectively apply IT, a company must use its
    transactional and analytical information.

Information Technology
  • Transactional Database keeping record of all
    business transactions
  • Analytical Process Ability to evaluate large
    numerical databases in helping manager identify
    optimal option. Analysis not only must evaluate
    each option but also compare multiple option to
    suggest a best option.

Transactional VS. Analytical IT
  • Transactional IT deals with acquiring, managing,
    and communicating raw data of the companys
    supply chain and compilation and dissemination of
    reports summarizing these data.
  • Analytical IT deals with evaluating supply chain
    options using descriptive and optimization
  • - Description models forecast and cost
  • - Optimization models Linear programming,
    decision models, project

Internet Enabled 4PL A Case Study
Padraic Allen
Two Trends Facing Supply Chain Managers Today
  • eCommerce the internet can offer true
    integration the Cornerstone of Supply Chain
  • Outsourcing organisations are outsourcing
    non-core competencies

The Supply Chain Challenge
eBusiness Supply Chain Management
One area where the payback from e-Business can be
substantial is in the integration of the supply
The B2B Frenzy is all about the Supply Chain
AMR Research
  • Listed by Harvard Business Review as one of the
    most important management concepts of the past 75
  • Means of increasing performance of non-core
    supply chain activities
  • Fourth Party Logistics is the evolution of supply
    chain outsourcing

The key benefit of 4PL is that of increasing
shareholder value
  • -Benefits of 4PL
  • 4PL provider maintains primary accountability
    and quality within the arrangement
  • 4PL has the overarching responsibility for
    supply chain performance
  • 4PL should be able to impact the entire supply
    chain increasing revenue, lowering costs,
    reducing working capital and fixed capital

4PL Operating Models
  • The 4PL environment has three primary operating
  • The Synergy Plus Model
  • The Solution Integrator Model
  • The Industry Integrator Model

Note 4PL is a trademark of Accenture
4PL Operating Models
  • The Synergy Plus Model - relies on a working
    relationship between the 4PL Organisation and a
    3PL Company. Both the 4PL and the 3PL partner to
    market supply chain solutions which capitalise on
    the capabilities and market reach of both. The
    4PL offers a broad range of services to the Third
    Party Logistics Provider including technology,
    supply chain strategy skills and program

4PL Operating Models
  • The Solution Integrator Model - focuses on the
    strength of the 4PL as an individual organisation
    which manages a comprehensive supply chain
    solution for a single client. This arrangement
    encompasses the resources of the 4PL with a
    selection of complementary service providers,
    chosen by the 4PL, to establish a best fit
    integrated solution for the client company.

4PL Operating Models
  • The Industry Innovator Model - is the most
    complex operating model within the 4PL
    environment but also the most rewarding. Within
    this model,a 4PL organisation develops and runs a
    supply chain solution for multiple industry
    players with a focus on synchronization and

What is the Industry Innovator Model?
  • The Industry Innovator is an integrated eCommerce
    based range of outsourced supply chain functions
    that act as a highly efficient path for enabling
    the transfer of product from suppliers to buyers.
  • An individual company in each industry will have
    slightly different supply chain needs, but there
    should be similarities within an individual
  • Although the model looks similar to a
    marketplace, it could in fact be a series of
    one-to-many relationships pushed through one
    Market site on the web.

Typical Supply Chains
Inefficient and Clogged with inventory!
Supply Chain Re-engineering for a Single Company
Supply Chain Re-engineering for an Entire
Internet Enabled 4PL A Case Study
  • iTooling.com was conceptualised as an Industry
    Innovator 4PL. It was developed for the
    industrial tooling sector with an initial focus
    on cutting tools.

Brief Profile of the Industry
  • Customers Aerospace, Automotive, Job Shops,
  • 19Bn Worldwide Market (Roughly 1/3 in each
    region US, Europe Asia)
  • Small form factor
  • Relatively high value
  • Consumable Frequent repeat buying
  • Many suppliers Very fragmented

  • The industrial tools market is one of the most
    fragmented and agency locked markets in the world
  • The route from manufacturer to customer is
    characterised by the involvement of many
    intermediaries, several hand-offs and multiple
    inventory holding points.
  • The belief was that there is minimal value added
    by these intermediaries and the consequence of
    their involvement is additional touches,
    increased customer cost and an erosion of
    manufacturers margin.
  • It was felt that there was an outstanding
    opportunity to totally simplify the supply chain
    and in doing so reduce the cost and significantly
    improve the buying experience for the customer.

Supply Chain
Typical Supply Chain
Global Manufacturers
Regional Distributor
Country Wholesaler

Cost !
Touches !
Time !
Local Agent
Supply Chain Future
(No Transcript)
(No Transcript)
(No Transcript)
  • Partner with quality brand manufacturers of
    selected industrial tools.
  • Create a multi brand carrying internet site to
    allow customers a full catalog view of the
    selected products and pricing.
  • Manage the customer relationship and the
    fulfillment process and this would become a core
    competence of the company.
  • Partner with strategically positioned logistics
    providers capable of meeting or exceeding
    customers response expectations.

Strategy (Continued)
  • Hub inventory at the logistics sites calculated
    to achieve a defined customer fill rate
  • Take ownership of the product only when it is
    being picked for a customer order and
    aggressively manage the cash conversion cycle
  • Primarily trade on-line and actively encourage
    customers to do so but this will be supplemented
    by call center support
  • Work on an agreed service fee calculated to cover
    iTOOLING.coms costs and achieve target profit

Hubbing Animation
Benefits- Win, Win
  • Product Choice Comparison
  • Best Price Available
  • Improved Purchasing Experience
  • Simple / Transactional Cost Savings
  • Improved Customer Service
  • Technical Support available 24/7
  • One Stop Shop for Industry
  • Real Time Demand Information
  • Online without being in direct
  • competition with existing channels
  • Forecasting Data Available
  • Distribution Coverage
  • Product Feedback
  • Improved Manufacturers Margin

iTOOLING.com Profit
  • Industry was not ready for radical change
  • Manufacturers feared increased competition and
    even less opportunity for differentiation
  • Intermediaries proved to be more valuable than
    anticipated and in fact held a lot of power in
    the chain

These lessons were not unique to the Tooling
Where to next?
  • How Could We ?
  • Continue to engage the Intermediaries
  • Overcome the Manufacturers fears
  • And Still Achieve Supply Chain Efficiencies
  • Conclusion
  • By moving From Revolution to Evolution


Mfg A
Mfg B
Mfg B
Mfg C
Mfg D
Mfg E
A.S.P. Charge
Supply Inventory Management
On-line Web Presence
Order Fulfilment
Dist A Business as usual with reduced inventory
Invoicing Billing
Dist B On-line presence reduced inventory
Sell Direct
Dist C Added value sales agent. On line
presence, sources product provides technical
No Dist Manufacturer Website or Large Customer
Exchange, MRO or other marketplace (Covisint?)
Integrated M3 Cataloging Technology 4PL Mgmt.
The Information Conduit
iTooling.com Value Proposition
Software Partner Catalogs, ASP, Back Office,
eCommerce Platform
ASP Model
Fee Based
Channel Type A
Technical Business Implementation
Channel Type B
Partner Relationship Management
Communicate Consult
Channel Type C
Design Manage Processes
Channel Type D
Standard Software Interface to 3PL Partners
Variable Model
Cost Mgmt. Fee
3PL Partners Tracking, Delivery, Inbound
Manage Hubs, Reports,
  • The story continues
  • There are still tremendous efficiencies to be
    achieved in Supply Chains
  • Despite the bad press, eBusiness is happening now
    and is a major force in achieving these savings
  • The path will be more an evolution than a
    revolution as first expected
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