Chapter 2
Dimensions of Logistics
Introduction
• Modern logistics concepts has come a long way since
the 1960s.
• The big challenge is to manage the whole logistics
system in such a way that order fulfillment meets or
exceeds ___________________.
Activities in Logistics Management
Percentage of Respondents
Indicating Inclusion
of Each Activity
Activity
Transportation Management
Warehousing
Facility Location
Inventory Control
General Management
Global Logistics
Order Processing
Purchasing
Packaging
Order Entry
Sales Forecasting
Product Planning
84
76
76
68
53
45
41
40
28
25
Source: 1993 Ohio State University Career Patterns Study
Various Definitions of Logistics
© 2003, Coyle, Bardi, and Langley.
Again, we define Logistics as…
“ … that part of _____________________ that
plans, implements, and controls the efficient ____
and ______ of _____, _____, and _________ from
the point of _____ to the point of ______ in order to
meet ____________________.”
(Council of Logistics Management 2004)
Value-Added Role of Logistics in a Firm
• Economic utilities:
–
–
–
–
_____ utility (what)
_____ utility (where)
_____ utility (when)
___________ utility
(why)
© 2003, Coyle, Bardi, and Langley.
Value-Added Role of Logistics in a Firm
• Logistics Interfaces with
Operations/Manufacturing
– Why/How?
• Logistics Interfaces with
Marketing
– Why/How?
• Logistics Interfaces with
Other Areas
– Such as?
Logistics Interfaces with Operations &
Manufacturing
• _____________________
– Balance economies of long production runs against increased costs
of high inventories.
• _____________________
– Stocking adequate supplies to ensure uninterrupted production now
a logistics function.
• _____________________
– Efficient and effective flows of raw materials, services, and related
information
– Some logistics functions are being outsourced.
• ______________________
– Sales forecasting drives operations/manufacturing planning
– Acceptance of seasonal inventory to balance production lead times.
Logistics Interface with Marketing
Product
Price
Promotion
Marketing Offerings
-- E.g., A car purchase -• Need for
Transportation
• Automobile
• A/C, Radio
• Warranty, Service,
etc.
The Importance of Customer Service in Marketing
Mix
1988
1990
% Change
Product
33.3
32.7
-1.8
Price
29.9
28.8
-3.7
Customer service
22.4
24.9
Advertising, selling, promotion
14.4
13.6
Total
100.0
100.0
-5.5
Logistics Interface with Finance/Accounting
Savings Can MAGNIFY Corporate Profitability
-- e.g., Net Profit rate = 4% --
A Logistics Savings of:
$1
$2
$10
$100
$5000
$40,000
Equals a Product Sales
Increase of:
$25
$50
$2,500
$125,000
$1,000,000
Logistics Systems & Costs Analyses in the Firm
• Logistics cost trade-offs
• ____________________
– Nodes are ____________ (warehouses, plants,
etc.);
– Links are the _____________ (rail, motor, air,
pipe and water).
• Logistics channel
– The network of intermediaries involved in the
logistics system.
Total Logistics Costs in Different Modes of
Transport
Cost Centers
Transportation
Rail
Motor
$ 3.00
$ 4.20
Inventory
5.00
3.75
Packaging
4.50
3.20
Warehousing
1.50
.75
Cost of Lost Sales
2.00
1.00
Total Cost
$
© 2003, Coyle, Bardi, and Langley.
$
Total Logistics Cost with Different Numbers of
Warehouses
System 1
System 2
Three Warehouses
Five Warehouses
Cost Centers
Transportation
Inventory
$
850,000
$
500,000
1,500,000
2,000,000
Warehousing
600,000
1,000,000
Cost of Lost Sales
350,000
100,000
Total Cost
$ 3,300,000
© 2003, Coyle, Bardi, and Langley.
$
Total Logistics Cost Trade-Offs
Total Cost
Total Cost
Costs
Costs
Transportation
Costs
Cost of Lost Sales
Number of Warehouses
Nodes and Links in a Logistics System
A Multi-Echelon Logistics Channel
A Complex Logistics Channel
Materials Management v. Physical
Distribution in Logistics Channel
• Frequently the movement and storage of raw
materials is far different from the movement and
storage of finished goods.
• Four different classifications of logistics systems
–
–
–
–
Balanced system - e.g., ________________
Heavy inbound - e.g., _________________
Heavy outbound - e.g., ________________
Reverse systems - e.g., ________________
Wrapping up Logistics Systems & Cost Analyses
• Remember how complex logistics systems and
cost trade-offs are.
• Keep in mind that the most efficient systems are
not always comprised of each system component
operating at its lowest possible cost.
– The critical concern is to have the entire system
operating at its lowest total cost.
• Level of Optimality
– There are often constraints working which result in suboptimal outcomes.
– Additionally, logistics systems must work in harmony
with marketing, finance, production, etc.--- this may
also result in sub-optimal logistics performance.
Logistics in Macro Economy
• Logistics as an industry is a big business.
– Defense budget vs. Logistics budget ($ ______ vs. $ __________)
• More change in the process of logistics during the past ten
years than in all decades combined since the industrial
revolution.
• Toward strategic, integrated logistics management.
• ________________________ has become all that matters.
• Supply chain management in which logistics takes a vital
role is an essential strategic direction in corporate strategy.
• _______________ is the key in today’s competition.
Total Logistics Costs --- 1999
FYI… $ 910 billion (2002) – Source: Delaney and Wilson
Recreated by Coyle, Bardi, and Langley (2003).
Major Transportation Costs
GM
Ford
Chrysler
$
Source: Purchasing, Nov. 1994
B
Inventory Sales Ratio
Source: Federal Reserve, Recreated by Coyle, Bardi, and Langley (2003).
Logistics Costs as a Percentage of GDP
1999
9.9
1998
10.1
1996
10.3
1995
10.4
1990
11.4
1985
12.3
1980
15.7
0
5
10
© 2003, Coyle, Bardi, and Langley.
15
20
Factors for Maintaining Lower Logistics
Cost as % of GDP
• Improved Logistics Efficiencies
– ______________________________
• Deregulation of Transportation
– _______________________________
• Implementation of Information Technology
• “_________”
_________________
• Decline of Interest Rates
Chapter Summary
• So, what is logistics?
• Why is logistics so important in today’s
businesses?
• Logistics management toward competitive
advantage
Competitive
Advantage
Source: Michael E. Porter (1985)