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Chapter 2 Business log&Transportation flashcards |

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  • Logistics

    is the design and administration of systems to control movement and geographical positioning of raw materials, work-in-process, and finished inventories at the lowest total cost.

    Logistics includes the integration and management of the following activities:

    Order processing
    Inventory Management
    Warehousing/Materials Handling to support.... Procurement, Manufacturing, and Customer Accommodation

    Logistics is necessary to:

    Move goods and materials from suppliers to buyers
    Move goods and materials between sites (internal & external)
    Move finished goods to the customer

    Products have little value to the customer until they are

    -moved to the customer's point of consumption
    -Products are delivered at the right time.
    -Products are delivered to the desired location.

    Logistical value proposition

    consists of a commitment to key customer expectations and requirements at a minimum cost

    The two elements of this value proposition are

    Service and Cost Minimization

    -Firms must make appropriate tradeoffs between service and cost for each of their key customers
    -Why would the tradeoff potentially be different by customer?

    How does Logistics Create Service Benefits?

    -1.)Availability - having inventory to consistently meet customer material or product requirements

    -2.)Operational Performance - the time required to deliver a customer's order
    Key metrics for this area involve delivery speed and consistency
    Flexibility - to handle unexpected customer demand/requests
    Malfunction and recovery time - logistical failures and corrections

    -3.)Service Reliability - quality attributes of logistics
    Key to quality is accurate measurement of availability and operational performance over time

    Traditional Cost

    Focused on achieving the lowest possible cost for each individual function of logistics
    For example, transport the material the cheapest way possible
    Expected lowest cost based on decisions that were cheapest for individual functions
    Ignored the impact of cost decisions across logistics functions

    Total Cost

    Focused on achieving the lowest total cost across each function of logistics
    A cost decision in one function should consider impact to costs of all other logistics functions
    For example, transporting material the cheapest way is likely slower than other choices. This requires an increase in storage cost to hold the material longer
    Therefore, would it still be the lowest total cost to use the cheapest mode of transportation?

    Compare two alternative transportation carriers to move a shipment of electronic chips

    Value of the shipment = $25,000
    Faster shipping is generally more expensive than slower shipping
    Carrier 1 (slower/standard) costs $250 to make the shipment
    Carrier 2 (faster/expedited) costs $20 more but delivers 1 day faster
    Product in transit is a form of inventory
    Holding costs for a shipment is 40% of value per year
    No other cost differences across remaining logistics functions

    Traditional cost you would choose carrier 1 beacause that is the lowest INDIVIDUAL cost. However Total cost method will consider more than that.

    (Total cost method) Daily cost of holding product =

    (Annual holding cost X Product value) / 365

    Logistics Includes These Major Functions:

    -Order Processing
    -Materials Handling

    Integrated through a network of facilities
    e.g., warehouses & distribution centers

    The 5 Functions of Logistical Work are Interrelated

    1.)Facility network
    2.)Order Processing
    5.)Warehousing, Material handling and Packaging

    Customer Relationship Management is

    the movement of finished product to customers. The objective of logistics

    Manufacturing Production concentrates on

    managing work-in-process inventory as it flows between stages of manufacturing. Master Production Schedule (MPS)

    Procurement is concerned with

    purchasing and arranging inbound movement of materials, parts, and/or finished inventory from suppliers into manufacturing or assembly plants, warehouses or retail stores
    -Sourcing or Strategic Sourcing
    -Supply Management
    -Material Planning & Purchasing

    Logistical Integration - Achieving 6 Objectives Simultaneously

    1.)Responsiveness - Satisfy customer requirements in a timely manner.
    2.)Variance Reduction - The elimination of operations disruptions.
    3.)Inventory Reduction - Control asset commitment and turn velocity.
    4.)Shipment Consolidation - Reduce transportation costs through larger (and therefore fewer) shipments.
    5.)Quality - Continuous improvement towards zero defects.
    6.)Life Cycle Support - Cradle-to-cradle logistical support.

    Echelon Structured Logistics

    Supplier ->Industrial distribution/Consolidation warehouse ->Manufacturer->Wholesaler or distribution center ->Retailer -> Customer

    Direct delivery

    Manufacturer -> Customer

    Combined echelon and direct delivery

    Direct delivery is done through each stage of the ecelon process.

    Logistics Performance Cycle

    The performance cycle represents elements of work necessary to complete the logistics related to customer accommodation, manufacturing or procurement

    A performance cycle consists of the following elements

    -Nodes or "links" in the logistics supply chain
    Base stock (sometimes also referred to as cycle stock)
    Safety stock (possibly even strategic stock in addition to safety stock)
    -Input and Output Requirements
    Input = Demand (e.g., orders)
    Output = Level of performance


    May involve singe or multiple firms

    Facility network

    -Strategy & Design

    2.)Order Processing



    -Inventory Strategy
    -Customer Segmentation
    -Product Profitability
    -Transportation Integr.
    -Time-Based Perf.
    -Competitive Perf.


    -Cost -vs- Total Cost
    -Balance Speed & Cost
    -Service Quality

    5.)Warehousing, Material handling and Packaging

    -(Dependent on other Logistics Areas
    -Insourced -vs- Outsourced
    -Services Provided
    -Reverse Logistics

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