domestic u.s. & global logistics chapter 9 prepared by mark a. jacobs, phd ©2012 cengage...

DOMESTIC U.S. & DOMESTIC U.S. & GLOBAL GLOBAL LOGISTICSLOGISTICS

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

©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. 3

LEARNING OBJECTIVES LEARNING 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

©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. 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.

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

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

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)

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 Transportation (Continued)

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 Transportation (Continued)

Modes of TransportationRail 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 Transportation (Continued)

Modes of TransportationAir 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 Transportation (Continued)

Modes of TransportationWater 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 Transportation (Continued)

Modes of TransportationPipeline 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 Transportation (Continued)

Modes of TransportationIntermodal – 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 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

The Fundamentals of Transportation (Continued)

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 Transportation (Continued)

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 Transportation (Continued)

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 Transportation (Continued)

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 Transportation (Continued)

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

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. 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.

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.

Warehousing & Distribution (Continued)

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

Warehousing & Distribution (Continued)

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

Warehousing & Distribution (Continued)

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

Warehousing & Distribution (Continued)

Lean WarehousingEmphasis 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

Warehousing & Distribution (Continued)

Impacts of Logistics on Supply Chain ManagementThird 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)

Impacts of Logistics on Supply Chain Management (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

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

Impacts of Logistics on Supply Chain Management (Continued)

Logistics Management Software ApplicationsTransportation 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

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.

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.

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)

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.