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17/11/2017 09:10:18 AM

Logictics and Decisions related to Logistics

LOGISTICS

A major issue in designing a great supply chain for manufactured goods is determining the way those items are moved from the manufacturing plant to the customer. For consumer products this often involves moving product from the manufacturing plant to a warehouse and then to a retail store.

You probably do not think about this often, but consider all those items with “Made in China” on the label. That sweatshirt probably has made a trip longer than you may ever make. If you live in Chicago in the United States and the sweatshirt is made in the Fujian region of China, that sweatshirt traveled over 6,600 miles, or 10,600 kilometers, nearly halfway around the world, to get to the retail store where you bought it. To keep the price of the sweatshirt down, that trip must be made as efficiently as possible. There is no telling how that sweatshirt made the trip. It might have been flown in an airplane or might have traveled in a combination of vehicles, possibly going by truck art of the way and by boat or plane the rest. Logistics is about this movement of goods through the supply chain.

       The Association for Operations Management defines logistics as “the art and science of obtaining, producing, and distributing material and product in the proper place and in proper quantities.”

The term international logistics refers to managing  these  functions  when  the  movement  is  on  a  global  scale.  Clearly,  if  the  China made  sweatshirt  is  sold  in  the  United  States  or  Europe,  this  involves  international logistics.

There are companies that specialize in logistics, such as United Parcel Service (UPS), Federal Express (FedEx), and DHL. These global companies are in the business of moving everything from flowers to industrial equipment. Today a manufacturing company most often will contract with one of those companies to handle many of its logistics functions. In this case, those transportation companies often are called a third-party logistics company. The most basic function would be simply moving the goods from one place to another. The logistics company also may provide additional services such as warehouse management, inventory control, and other customer service functions.

Third-party logistics company (3PL)is a company that manages all of part of another company’s product delivery operations.

Logistics is big business, accounting for 8 to 9 percent of the U.S. gross domestic product, and growing. In Vietnam, logistics is an important component of the economy, contributing about 1/5 (20-25%) of GDP.

Today’s modern, efficient warehouse and distribution centers are the heart of logistics. These centers are carefully managed and efficiently operated to ensure the secure storage and quick flow of goods, services, and related information from the point of origin to the point of consumption.

DECISIONS RELATED TO LOGISTICS

The problem of deciding how best to transport goods from plants to customers is a complex one that affects the cost of a product. Major trade-offs related to the cost of transporting the product, speed of delivery, and flexibility to react to changes are involved. Information systems play a major role in coordinating activities and include activities such as allocating resources, managing inventory levels, scheduling, and order tracking.

Ø  Modes of transportation

A key decision area is deciding how material will be transported. The Logistics-System Design Matrix shown in Exhibit 7.1 depicts the basic alternatives. There are six widely recognized modes of transportation: highway, water, air, rail, pipeline and hand delivery.

(1)         Highway (truck).Actually, few products are moved without some highway transportation. The highway offers great flexibility for moving goods to virtually any location not separated by water. Size of the product, weight, and liquid or bulk can all be accommodated with this mode.

(2)         Water (ship).Very high capacity and very low cost, but transit times are slow, and large areas of the world are not directly accessible to water carriers. This mode is especially useful for bulk items such as oil, coal, and chemical products.

(3)         Air.Fast but expensive. Small, light, expensive items are most appropriate for this mode of transportation.

(4)         Rail (trains).This is a fairly low-cost alternative, but transit times can be long and may be subject to variability. The suitability of rail can vary depending on the rail infrastructure.

(5)         Pipelines.This is highly specialized and limited to liquids, gases, and solids in slurry forms. No packaging is needed and the costs per mile are low. The initial cost to build a pipeline is very high.

(6)         Hand delivery.This is the last step in many supply chains. Getting the product in the customer’s hand is a relatively slow and costly activity due to the high labor content.

Few companies use a single mode of transportation. Multimodal solutions are the norm, and finding the correct multimode strategies can be a significant problem. The problem of coordination and scheduling the carriers requires comprehensive information systems capable of tracking goods through the system. Standardized containers often are used so that a product can be transferred efficiently from a truck to an air plane or ship.

Ø  Cross-Docking

Special consolidation warehouses are used when shipments from various sources are pulled together and combined into larger shipments with a common destination. This improves the efficiency of the entire system.

·        Cross-docking is an approach used in consolidation warehouses, where rather than making larger shipments, large shipments are broken into small shipments for local delivery in an area. This often can be done in a coordinated manner so that the goods never are stored in inventory.

·        Retailers receive shipments from many suppliers in their regional warehouses and immediately sort those shipments for delivery to individual stores by using cross-docking systems coordinated by computerized control systems. This results in a minimal amount of inventory being carried in the warehouses.

Ø  Hub-and-spoke systems

·        Hub-and-spoke systems combine the idea of consolidation and that of cross-docking.

·        Here the warehouse is referred to as a “hub” and its sole purpose is sorting goods. Incoming goods are sorted immediately to consolidation areas, where each area is designated for shipment to a specific location. Hubs are located in strategic locations near the geographic center of the region they are to serve to minimize the distance a good must travel.

·        Designing a system is an interesting and complex task. The following section focuses on the plant and warehouse location problem as representative of the types of logistics decisions that need to be made. Logistics is a broad topic, and its elements evolve as the value added services provided by major logistics vendors expand. Having the proper network design is fundamental to efficiency in the industry.

 

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