Chapter 09 Supply Chain Management

8/18/2019 Chapter 09 Supply Chain Management

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DOMESTIC U.S.& GLOBALLOGISTICS

Chapter 9

Prepared by Cynthia Wisner, MBA

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LEARNING OBJECTIVES

You should be able to: Understand the strategic importance of logistic

elements and describe how they affect supply

chain Compare and contrast the various modes of

transportation and their impacts on costs

Understand how U.S. regulation and

deregulation have impacted transportation

Discuss the global aspects of logistics

Describe how logistics affects supply chain

management


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You should be able to: Examine and understand the interrelatedness of

transportation warehousing and material handling

!dentify a number of third"party logistics serviceproviders

Describe the various reverse logistics activities.

Discuss some of the e"commerce issues in logistics

management Explain how the various logistics software applications

assist the firm in its supply chain management efforts

LEARNING OBJECTIVES(Continued )


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CHAPTER OUTLINE

• !ntroduction• $ransportation %undamentals• &arehousing and Distribution• $he !mpacts of 'ogistics on Supply Chain

(anagement• Environmental Sustainability in 'ogistics• 'ogistics (anagement Software )pplications• *lobal 'ogistics•

+everse 'ogistics


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Introducton

'ogistics is necessary to, (ove goods from suppliers to buyers

(ove finished goods to the customer

(ove wor-"in"process materials within a firm

+eturn or recycle goods

Store these items along the way in supply

chains.

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Introducton (Continued )

'ogistics is,

“ $he process of planning implementing andcontrolling procedures for the efficient and

effective transportation and storage of goodsincluding services and related informationfrom the point of origin to the point ofconsumption for the purpose of conforming

to customer reuirements.”

Council of Supply Chain (anagement/rofessionals

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Legal Forms of Transportation $ransportation service companies are classifiedlegally as either common contract exempt or

private carriers. Common carriers" offer transportation

services to all shippers at published ratesbetween designated locations without

discrimination. Contract carriers" not bound to serve the

general public. Contract carriers servespecific customers under contractual

agreements.

Tr!n"#ort!ton$und!%nt!'" (Continued )



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Legal Forms of Transportation Exempt carriers " exempt from regulation of

services 7 rates 7 if they transport certain

exempt products li-e produce livestoc-coal or newspapers.

/rivate carrier " not sub8ect to economic

regulation 7 typically transports goods forthe company owning the carrier.

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Modes of Transportation

(otor Carriers ;truc-s< " most flexible mode of

transportation 7 carries = 25> of U.S. for"hire

transportation expenditures. Competes w?rail 7 airfor short"to"medium hauls.

'ess"than"truc-load ;'$'< 7 truc-"load ;$'


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+ail Carriers " compete when the distance is long

7 the shipments are heavy or bul-y. +ail slow 7 inflexible but have begun purchasing

motor carriers 7 can offer point"to"point pic-up 7

delivery service -nown as trailer"on"flatcar ;$@%C<

service.

@ne of the trends in rail transportation is the use ofhigh-speed trains which range in the U.S. from 5 to

92: miles per hour.




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+ail Carriers" +ail companies use each other0s rail cars. Aeeping

trac- of rail cars 7 getting them where needed can beproblematic.

Real-time location systems ;+$'Ss< on rail cars

have helped the problem for rail carriers. !t uses

active &i"%i"enabled radio freuency identification;+%!D< tags to allow trac-ing of rail cars ;and their

assets< in real time.




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)ir Carriers " Expensive relative to other modes

but fast. )ir carriers transport about 9 > of U.S.

for"hire transportation expenditures. )irlinescannot carry extremely heavy or bul-y cargo.

%or light high value goods over long distances

uic-ly.

Balf of the goods transported by air are carried by

freightonly airlines li-e %edEx.

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&ater Carriers" !nexpensive slow 7 inflexible.

!ncludes inland waterway coastal 7 intercoastal 7

deep"sea. !nland waterway transportation is used for heavy

bul-y low"value materials ;e.g. coal grain


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/ipeline Carriers " are limited in variety they can

carry. 'ittle maintenance once pipeline is running.

(aterials hauled in a liuid or gaseous state.

$ransported items include water oil gasoline natural

gas 7 coal slurry. ;pulveri4e coal suspended in water<

'atest controversial pipeline is the proposed

Aeystone ' pipeline




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Modes of Transportation!ntermodal the use of multiple modes of

transportation

(ost common are trailer"on"flatcar ;$@%C


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Transportation ricing Cost of service pricing " varies based on fixed 7

variable costs

alue of Service /ricing " services priced at mar-etbearing competitive levels

$erms of Sale " includes transportation• %@F ;free on board< destination " supplier is legal owner of

the product until it safely reaches its destination.

• %@F origin pricing - goods are the legal responsibility of the

buyer at the supplier0s finished goods pic-up location




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Transportation ricing +ate Categories

• 'ine haul rates charges for moving goods to a nonlocal

destination

• Class rates " published annually by the Gational (otor%reight $raffic )ssociation

• Exception rates " rates are lower than the G(%C class rates

and generally are established on an account"by"account

basis.

• Commodity rates " apply to minimum uantities of products

that are shipped between two specified locations

• (iscellaneous rates " contract rates negotiated between two

parties and to shipments containing a variety of products




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Transportation !ecurity /articularly important regarding airline security since

Sept. 99 2::9.

)viation 7 $ransportation Security )ct ;2::9< created $ransportation Security )dministration ;$S)< to overseetransportation security which oversees #: US airports.

Department of Bomeland Security ;DBS< ;2::3


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Transportation Regulation " #eregulation

/ro" +egulation tends to assure adeuatetransportation service throughout the country

while protecting consumers from monopolypricing safety 7 liability.

Con" Deregulation encourages competition7 allows prices to ad8ust as supply demand

7 negotiations dictate. $oday U.S. transportation industry remains

essentially deregulated




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Table $%& - '%!% Transportation Regulation



#ate Regulation !ummary

95: *ranger 'aws +egulate the railroads

955 !nterstate Commerce )ct Created the !nterstate Commerce

Commission ;!CC<

962: $ransportation )ct Changes to !CC

963 (otor Carrier )ct Frought motor carriers under !CCcontrol

9635 Civil )eronautics )ct Established board to regulate aircarriers

96#: $ransportation )ct Established !CC control overdomestic water transportation

96#2 %reight %orwarders )ct !CC controlled entry rates andservices


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Table $%& - '%!% Transportation Regulation (Continued)




96#5 +eed"Fulwin-le )ct )mendment to the !C) legali4ing ratebureaus or conferences

965 $ransportation )ct )mended rule so rates couldn0t beheld up to protect the traffic of anyother mode

965 %ederal )viation )ct Created air traffic 7 safety regulations7 national airport system

9611 Dept. of $ransportation )ct Established the Gational$ransportation Safety Foard.

96: +ailway /assenger Service )ct

+esulted in the creation of )mtra-.

96 Ba4ardous (aterials$ransportation )ct

Strengthened laws to fight illegaldumping


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Table $%( - Transportation #eregulation




961 +ailroad +evitali4ation 7+egulatory +eform )ct

+ailroads could change rates w?o!CC approval

96 )ir Cargo Deregulation )ct )ir freight deregulated

965 )ir /assenger Deregulation )ct

)irlines freed to expand routeschange fares within limitsH smallcommunity routes were subsidi4ed

965: (otor Carrier )ct %ewer restrictions on entry routes

rates and private carriers

965: Staggers +ail )ct %reed railroads to establish rateswithin limitsH legali4ed contractratesH shortened !CC procedureturnaround


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965# Shipping )ct )llowed ocean carriers to poolshipments assign ports publish rates

7 enter into contracts with shippers

966# $ruc-ing !ndustry +egulatory+eform )ct

(otor carriers freed from filing rateswith the !CC

966# %)) )uthori4ation )ct %reed intermodal air carriers fromeconomic regulation by the

966 !CC $ermination )ct Eliminated the !CC moved regulatoryduties to Dept. of $ransportation.

9665 @cean Shipping +eform )ct Deregulated ocean liner shippingHallowed contract shippingH rate filing notreuired

Table $%( - Transportation #eregulation (Continued)


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!rou"n* &D"tr+uton

&arehousing )llows firms to store purchases &!/ 7 finished

goods and perform brea- bul- and assessment

services /rovides faster 7 more freuent deliveries 7 better

customer service

Crossdoc-ing $o receive brea-down repac-age 7 distribute

components to a manufacturing location or finished

products to customers warehouse. $his description

more accurately refers to a distribution center



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!rou"n* &D"tr+uton (Continued )

)mportance " Types of *arehouses Support purchasing production 7 distribution

Consolidation warehouses collect '$' shipments for

transport in $' or C' uantities /rivate &arehouses " @wned by the firm storing

goods

/ublic &arehouses " @wned by for profit orgs 7contracted out

Cold Chains " $emperature"controlled transportationtransfers and warehousing



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rivate *arehouses )dvantages

• +educes the purchasing and transportation cost

• @ffers greater control of service

• /rovides better wor-force utili4ation• $a-e advantage of cheaper sources of supply or labor

• Can generate income 7 tax advantages through leasing ofexcess capacity 7?or asset depreciation

Disadvantages• %inancial ris- 7 loss of flexibility

• Finds firms to locations that may not prove optimal

• !nsurance companies do not li-e insuring goods in privatewarehouses



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ublic *arehouses Frea-bul- " shipments are bro-en down 7 items are

combined into specific customer orders.

+epac-aging )ssembly

!ncoming 7 outgoing uality inspections.

(aterial handling euipment maintenance 7documentation services

Short and long"term storage

/ro" /rovides flexibility 7 investment cost savings

Con" 'ac- of control.




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Ris+ ooling " *arehouse Location )s I of warehouses increases system becomes

more decentrali4ed. +esponsiveness 7 delivery

service increase &arehousing operating 7 inventory costs also

increase. $rade"off between costs 7 customer

service must be considered

Ris+ ooling Describes the relationship between the I of

warehouses inventory 7 customer service

+is- pooling is estimated by suare"root rule


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Ris+ ooling " *arehouse Location suare"root rule

&here, S9 J $otal system stoc- for the G9 warehouses

S2 J $otal system stoc- for the G2 warehouses

N 1 J I of warehouses in the existing system 7

N 2 J I of warehouses in the proposed system

!&, .!

/0



1

2

N

N


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)s &arehouse Centrali4ation increase, Safety stoc-s and average inventory levels decrease.

Delivery lead times increase increasing the ris- oflate deliveries to customers.

Customer service levels provided by the warehouses0suppliers are li-ely to increase reducing theli-elihood of stoc-outs.

@utbound transportation costs increase as '$'

shipments must travel farther to reach customers.!nbound transportation costs decrease.

&arehouse capital and operating costs decrease.




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*arehouse Location

Edgar Boover recommended (ar-et"positioned strategy " warehouses close to

customers to maximi4e distribution services 7improve transp. economies of scale

/roduct positioned strategy " close to supply source

for firm to collect goods 7 consolidate

!ntermediately positioned strategy " midway betweensupply source 7 customers when distribution

reuirements are high 7 product comes from various

locations




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*arehouse Location on $hunen " transportation costs should be

minimi4ed when considering facility location.

(ar-et prices 7 production costs would beidentical regardless of warehouse location

*reenhut " based on profit instead of

transportation costs. $he optimum location is

one that maximi4es profits which may not be

min. cost location




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Lean *arehousing

Emphasis on warehousing to support responsive

operations,

Commitment to customers 7 service uality +educed lot si4es 7 shipping uantities

Emphasis on cross doc-ing

!ncreased automation

!ncreased assembly operations

$endency to be green




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I%#!ct" o, Lo*"tc" onSu##'- C!n

M!n!*%ntThird arty Logistics .(L0 /rovide reliable 7 timely delivery reuired by

SC(

Used to move items into foreign locationseffectively

%avored by small businesses

Some firms outsource all of their logisticsneeds to a lead logistics provider or fourth

party logistics provider ;#/'<


,


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Third arty Logistics .(L0 !ervices

/rovide services including networ-

optimi4ation light manufacturing and other

value"added services (any firms outsource logistics needs to

allow more attention placed on core

competencies

Demand for 3/' services is growing rapidly



M!n!*%nt (Continued )


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M!n!*%nt (Continued )Other )ntermediaries %reight forwarder consolidate '$'

shipments into %$'

%reight transportation or logistic bro-ersbring shippers and carriers together

Shippers0 associations nonprofit

cooperatives which arrange for members0

shipping

!ntermodal mar-eting companies purchase

bloc-s of rail capacity and sell it to shippers


I%#!ct" o, Lo*"tc" on


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1nvironmental !ustainability in Logistics +eduction of empty miles to reduce carbon

emissions by ensuring truc-s move loaded

rather than empty Smart&ay certification program reduces

transportation emissions and improves supply

chain efficiency

$he Coalition for +esponsible $ransportation;C+$


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Logistics Management !oft2are 3pplications

$ransportation management systems " ;$(S<used to select the best mix of transportation

services 7 pricing. /rovides real"time location trac-ing

Uses technologies such as barcodescanners +%!D tags the !nternet and */S

devices

Lo*"tc" M!n!*%ntSo,t!r

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&arehouse management" ;&(S< trac- 7 controlthe flow of goods from receiving doc- to outbound

shipment.*oals of &(S include,

reducing distribution center labor costs

streamlining the flow of goods

managing distribution center capacity reducing paperwor-

managing the crossdoc-ing process


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*lobal trade management systems" ;*$(<provide global visibility standardi4ation 7

documentation of product returns whileminimi4ing reverse logistics costs.

*oals of &(S include, monitoring carrier and supplier performance

automating customs entry improving compliance with international trade

regulations



G' + ' L


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G'o+!' Lo*"tc"

4lobal Freight !ecurity $ransportation across national boundaries

introduces added complexity particularly

security Customs"$rade /artnership )gainst $errorism

program ;C"$/)$< and its security program

called the %ree and Secure $rade program.

;%)S$< " goal is to ensure the security of globalsupply chains in general and international

truc-ing


G' + ' L


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G'o+!' Lo*"tc" (Continued )

4lobal Logistics )ntermediaries Customs Fro-ers" move through customs 7 handle

documentation

!nternational %reight %orwarders" move goods toforeign destination. Some use right"shoring which

combines near"shore far"shore and domestic

opportunities into a single cost driven approach

$rading Companies" /ut buyers 7 sellers together 7

handle export?import arrangements

Gon"essel"@perating Common Carriers" operate

li-e freight forwarders but use scheduled ocean

liners

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G' + ' L t


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Foreign Trade 5ones .FT50 Secure sites in U.S. under supervision of U.S.

Customs.

%$Ks offer storage exporting manufacturingassembly repac-ing testing 7 repairing services.

6orth 3merican Free Trade 3greement

.63FT30 Created in 966# 7 removes most barriers to trade 7

investment among U.S. Canada 7 (exico.

G'o+!' Lo*"tc" (Continued )


R L t


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R/r" Lo*"tc"

Fac-wards flow of goods from customers in SC

when goods are returned by a customer in the

supply chain

+etail returns range 1> to 9:> of sales @nline returns range 2:> to 3:> of sales

+eturns are increasing because of the growth of online

shopping

+eturns can have a direct negative impact on theenvironment customer service the firm0s reputation and

profitability


R L t


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)mpact of Reverse Logistics on the !upply 7hain

/oor reverse logistics system can affect the entire

supply chain financially

Can have a large impact on how consumers viewa product brand

/roblems include,• inability of systems to handle returns

• lac- of wor-er training in reverse logistics procedures

• little or no identification on returned pac-ages

• inadeuate inspection and testing of returns

• placing of potentially damaged returned products into sales stoc-s


R/r" Lo*"tc" (Continued )

R L t


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Reverse Logistics and the 1nvironment

4reen reverse logistics programs - $hese

programs reduce environmental impact on

landfills 7 deal with dangerous contaminants. +everse logistics can have a positive impact on

the environment through activities such as

recycling reusing materials and products or

refurbishing used products.

R/r" Lo*"tc" (Continued )

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Chapter 09 Supply Chain Management

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