Chapter 1: Overvew of Logistics

steps of the sorting function

1. sorting out - heterogeneous supply of products into stocks that are homogeneous 2. allocating - breaking a homogeneous supply into smaller lots 3. accumulating - bringing together simular stocks from different sources 4. assorting - building up assortments of goods for resale, usually to retail consumers

mass logistics

a one-size-fits-all approach in which every customer gets the same type and levels of logistics service

form utility

a product in form that: can be used by the customer and is of value to the customer

total cost approach

all relevant activities in moving and storing products should be considered as a whole (ie their total cost), not individually

total cost approach keys

all relevant logistical cost items are considered simultaneously when making a decision

co-branding

alliance that allo;ws customers to purchase products from two or more name-brand retailers at one store location (ex- subways in walmarts)

finance staff responsibilities

allocating the firm's funds to projects desired by various operating departments, instrumental in approving capital budgeting decisions that affect logistics - acquisitions of materials handling equipment (forklifts) and packaging equipment (shrink-wrap machine)

marketing and logistics relationship

as demand realization and/or creation goes up - demand satisifaction goes down (and vis versa)

fright forwarder

assembles small shipments into larger shipments and then tender them in truck load or rail carload quantities to truck lines or to railroads

ownership channel intermediary

bank or finance company

financing channel intermediary

banks and finance companies, and sometimes insurance companies

stockouts

being out of an item at the same time there is a demand for it

sorting function

bridges the discrepancy between the assortment of goods and services generated by the producer and the assortment demanded by the consumer

negotiation channel

buy and sell, agreements are reached

inventory carrying costs

capitial / opportunity cost, inventory service cost, storage space cost, inventory risk cost

cost trade-offs

changes to one logistics activity cause some costs to increase and others to decrease

key of being a logistics manager

common sense

systems approach

company's objectives can be realized by recognizing the mutual interdependent of the major functional areas of the firm (marketing, production, finance, and logistics)

cost of service level

consumer service cost, cost of parts and service support, cost of returns handling

major logistics issues today

coping with environmental uncertainty, increasing focus on risk management, sustainability, increasing consolidation in the transportation and 3PL sectors, increasing number of user-friendly analytical tools, increasing use of multi-channel and cross-channel order fulfillment

warehousing costs

cost as a result of: the number, the location of the warehouse

ownership channel

covers movement of the title to the goods, and the goods themselves might not even be physically present or even exist

marketing and logistics interface activities

customer service, pricing, packaging, retail location

using faster modes of transportation

decrease the cost of lost sales (shorter lead time to customers), decrease customer's inventory carrying costs

investments in information technology

decrease the cost of lost sales, reduce the lead time of customers orders as well as the variability of lead time (but only if successfully implemented)

postponement concept

delay of value-added activities such as assembly, production, and packaging until the latest time possible

stock keeping unit (SKUs)

each separate type of item that is accounted for in an inventory - each different type or package size of a good is a different SKU

bait and switch tactics

enticing customers with promises of low-pricesd products, only to find that it's unavailable, but that a higher-priced substitute product is readily available

fianance vs logistics way of measuring inventory

finance - in terms of its cost or value in dollars, logistics - in terms of unit

promotion channel intermediary

firms that design, build, and transport product exhibits for display at trade shows; also advertising agencies

production / operations economic utility

form (what)

logistics channel intermediary

freight forwarder; cargo surveyors, hundreds more of different types

implications of the systems approach

goal and objectives of the major function areas should be compatible witht the company's goals and objectives - one logistics system does not fit all companies; decisions made by one area should consider the potential implications on the other areas

tailored logistics

groups of customers with similar logistical needs and wants are provided with logistics service appropriate to those needs and wants

financing channel

handles payments for goods and/or company's credit

time utility

having products available when they are needed by customers

place utility

having products where they are needed by customers

transportation costs

inbound and outbound transportation

increasing the number of warehouses

increase inventory costs (the benefits of "pooling" demand variability are lost), transportation costs decrease (closer to customers), cost of lost sales decreases (due to shorter lead time)

reasons logistics is receiving increased focus and interest

increasing competitive pressure, shift in channel power, globalization, increasing role of IT and information, increased product proliferation, increased number of delivery points

negotiation channel intermediary

independent contractors paid to arrange a particular transaction; broker used by either the buyer or seller - often used to arrange truck transportation for either the buyer (shipper / receiver) or the seller (trucker)

how are lot quantity costs and inventory carrying costs related?

inversely related - order / manufacturing in large quantities drives down per unit purchasing / manufacturing costs but increases inventory carrying cost

interface between production and logistics

length of time production run

how are promotion and logistics channels linked?

may be special advertising materials (coupon books, posters, displays) which must be distributed with the promotion products; some cartons / consumer packs may have special labeling, and their placement must coincide with other promotional efforts; logistics have instantaneous records of actual sales, which shows the initial success of the promotional efforts

goal of logistics management

minimize cost components while providing a specified level of customer service that meets the company's broader strategy objectives

materials management

movement and storage of materials into a firm

order processing and information costs

order processing cost, cost of logistics communication, information systems cost

logistics management

part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of consumption in order to meet customers' requirements

which service is the hardest component to replicate of the marketing mix components?

place / customer service

4 P's of Marketing

place, price, product, and promotion

finance economic utility

possession (the transaction)

types of economic utility

possession, place, form, and time utilities

landed costs

price of product at the source + transportation costs to its destination

production and logistics interface activities

product scheduling, plant location, purchasing

lot quantity costs

production set-up cost, cost of lost capacity, material handling, procurement cost

fair trade products

products that guarentee a better deal for producers in the developing world through fair and stable prices as well as teaching farming methods that are environmentally sustainabale

sustainable production

products that meet present needs without compromising the ability of future generations to meet their needs

promotion channel

promoting new or existing products, and can be related to the financing channel because monetary allowances are often a part of promotion

physical distribution

storage of finished product and movement to the customer

humanitarian logists

the process and systems involved in mobilizing people, resources, skills, and knowledge to help people who have been affected by either a natural or human made disaster

what are the primary places when logistics makes a contribution?

time (when) and place (where)

when do logistics managers use the total cost approach?

to coordinate materials management and physical distribution in a cost-efficient manner

marketing channels

traditional institutions in the marketing channel are the manufacturer, wholesaler, and retail

what was the biggest logistics cost category in 2014?

transportation

economic utility

value of usefulness of a product in fulfilling customers needs or wants

possession utility

value or usefullness that comes from a customer being able to take possession of a product