SCM Chapter 9: Logistics: Warehousing, Transportation, and Reverse Logistics
5 Modes of Transportation
*"Mode"* refers to the *way* in which goods are transported *Carrier* refers to the *company* that transports the goods 1. Truck 2. Rail 3. Pipeline 4. Air 5. Water
Multiple Warehouses (Decentralized Network): +/-
*+:* - (Potentially) Faster Delivery, assuming adequate inventory in each warehouse *-:* - More Complicated - Operating costs and inventory will be higher as each warehouse costs money to staff and operate. Duplication of equipment, warehouse staff, and managers. - Network will be decentralized and the company will have to spread its best people, equipment and inventory systems across a larger network.
Single Warehouse (Centralized Network): +/-
*+:* - Less Complicated - Operating costs and inventory will be lower - No duplication of equipment, warehouse staff, and managers - Network will be centralized and the company will have its best people, equipment and inventory systems concentrated in one place - Warehouse can more actively focus on the needs of its customers *-:* - May take longer to deliver product to some customers who are remote from the central location
Warehouse:
*A facility used to store* purchases, work-in-process (WIP), and finished goods inventory.
Third Party Logistics: Advantages and Disadvantages
*Advantages:* - Cost: Eliminates the need for a company to invest in warehouse space, technology, and staff to execute the logistics process. - Logistics Expertise: Knowledgeable of industry best practices and the latest developments in technology. - Efficiency: 3PL's can leverage relationships and volume discounts, which result in lower overhead and the fastest possible service. *Disadvantages:* - Control: A company will not have direct control over the logistics operations - Dependency: Outsourcing logistics creates a dependency on the 3PL - Pricing: The company is locked into the pricing model specified in the contract
Advantages and Disadvantages of Public Warehouses
*Advantages:* - No capital investment or property taxes - Flexibility: a. Can be short or long term contract b. For seasonal products c. Add storage capacity even on short notice - Lower costs and reduced risk - Access to special features and services a. Temperature controlled storage b. Customer Service, Inventory Ordering, etc. Office Space for customer's sales, accounting, etc. *Disadvantages:* - Potential for incompatible computer systems - Specialized services may not be what is required/needed - Space may not be available when/where needed
Advantages and Disadvantages of Contract Warehouses
*Advantages:* - Services: Client can obtain specialized services tailor-made to suit their needs - Cost: Can be bundled in the contract and negotiated at a lower cost - Control: contract warehousing offers a degree of control at a reasonable price *Disadvantages:* - Duration: The client company is expected to enter into a contract for a specific period of time; Generally around 3 years
Advantages and Disadvantages of Private Warehouses
*Advantages:* - Visibility: Inventory, material flow, handling, supervision, and associated costs - Control: Offers greater flexibility in designing the warehouse and gives users significant control over operations - Costs: Operating costs can be 15%-25% lower if the company achieves at least 75% utilization *Disadvantages:* - High Start-Up Cost: Capital to build or buy a warehouse. Long, risky investment. Cost of hiring and training employees. Purchase of material handling equipment. - Fixed Location: Not easy to move to another location if the market changes - Fixed Size and Costs: When is low, the company still assumes the fixed costs.
Warehousing
*Function* that allows a company to receive, store, breakdown, repackage, and distribute items to a manufacturing location, or finished products to a customer
Regulation: Pros and Cons
*Regulation Pros:* - Tends to assure adequate transportation service throughout the country - Protects consumers from monopoly pricing, safety, and liability. *Regulation Cons:* - Discourages competition - Does not allow prices to adjust based on demand or by negotiation *US Transportation Industry remains mostly deregulated*
1. Truck
*Trucking is the most flexible mode of transportation* - Carries >80% of U.S. Freight b/c of interaction with other transportation modes to and from ports and warehouses. - Carries nearly anything from packaged household goods, to building materials, to liquid petroleum, etc. - Competes with Rail and Air for short-to-medium hauls - *Short Haul* = 0-200 miles from the driver's home terminal - *Long Haul* = Over 200 miles from the driver's home terminal - Impacted by the truck driver shortage and Hour-of-Service Rules
Warehouse Network
*the number of*, and the *relationship* between, the warehouses that a company has in their organizational structure. - The fundamental questions to be answered in establishing a warehouse network are: a. How many warehouses are needed? b. Where should they be located? - Trade-offs that will determine *how many* warehouses the company needs and *where* they should be located are: a. The *Level of Customer Service* the company wants to provide *The greater the desired customer service level - the more warehouses the company may need to geographically disperse inventory b. The *amount of inventory* the company is willing to invest in *The more warehouses the company needs - the greater amount of inventory the company will need to invest
Reverse Logistics is Often viewed as:
- An *"Unwanted"* supply chain activity. Many companies outsource this activity to a 3PL - A cost of doing business - A quality or regulatory compliance issue
4 Transportation Pricings
- Cost of Service Pricing - Value of Service Pricing - Combination Pricing - Net-Rate Pricing
Technology and Trends in Transporation
- Driver Monitoring - Traffic Coordination - Safety Technology - Platooning - New Concept Trucking - Vertically Folding Shipping Containers - Driverless Trucks - Drone Delivery
Other Transportation Intermediaries
- Freight Forwarder - Load/Transportation Broker - Shipper's Association - Intermodal Marketing Company
4 Transportation Company Classifications
-Contract Carriers -Private Carriers -Common Carriers -Exempt Carriers
Logistics is necessary to
-Move goods and materials from suppliers to buyers *inbound logistics* -Move goods and materials between sites (internal and external) *material handling* -Move finished goods to the customer *outbound logistics*
Decisions driving warehouse management include:
-Site selection -Number of warehouse facilities in the network -Layout of the warehouse(s) -Methods of receiving, storing, retrieving, and distributing products and materials. (Ex. Manual, semi-automated, fully automated)
3 Secondary Functions of a Warehouse
1. *Quality Inspections* - incoming and outgoing 2. *Repackaging* - for specific customer orders 3. *Assembly Operation* - Operations putting products together with other items/components before shipping to a final customer Ex. Literature, Spare Parts, Advertising materials
Advantages to Cross-Docking
1. *Transportation Costs Savings:* 8 FTL Shipments are less expensive than 16 LTL Shipments 2. *Operational Efficiency:* Warehouse Operations are more efficient as the material does not have to be stored at the warehouse, moving directly from receiving to shipping. 3. *Inventory Efficiency:* As there is no storage at the warehouses, total inventory in the supply chain can be reduced.
3 Types of Warehouses
1. Consolidation 2. Break-Bulk 3. Cross-Docking
3 Warehouse Network Strategies
1. Market Positioned Strategy 2. Product Positioned Strategy 3. Intermediately Positioned Strategy
Main Reasons to Implement Cross-Docking
1. Provide a *central site* for products to be sorted and combined for delivery to multiple destinations in the most productive and fastest method possible. 2. *Consolidate:* Combine smaller product loads into one method of transport to save on transportation costs. 3. *Break-Bulk:* Break down large product loads into smaller loads for transportation for an easier delivery process to the customer.
3 Warehouse Ownership Types
1. Public Warehouses 2. Contract Warehouses 3. Private Warehouses
5 Primary Functions of a Warehouse
1. Receiving 2. Storage 3. Picking 4. Packing 5. Shipping S2+ P2 + R
5 R's of Reverse Logistics
1. Returns 2. Recalls 3. Repairs 4. Repackaging 5. Recycling
3 Objectives of Transportation
1. To maximize the value to the company through price negotiations 2. To make sure service is provided effectively 3. To satisfy customers' needs
Interstate Commerce Act
1887 - Established the ICC (Interstate Commerce Commission) - monitors the business operation of carriers transporting goods and people between states
Repackaging
95% of returned products are because customers are dissatisfied with them not because there are defective. These products are typically repackaged and returned to inventory for restock or resale in secondary channels.
1. Public Warehouses
A business that provides storage and related warehouse functions to companies on a short or long-term basis, generally on a month-to-month basis for a fee - Own their own *equipment* and hire their own *staff* to manage the facility - Fees are typically a combination of a *monthly storage fee* plus a *pallet in and a pallet out fee* - Fees will vary based on what is being stored and/or based on: a. Size and weight of the pallets b. If they can be stacked c. How fragile the product is d. Value of Goods (risk of theft) e. Hazards associated with the goods - They may also have some document fees and account management fees *Think of it as a Hotel for Inventory*
3. Private Warehouses
A storage facility that is owned by the *company that owns the goods* being stored in the facility. - Generally established by companies that have a *large volume or highly valuable goods,* or the need for some type of *specialized storage or handling* - can be operated as a separate division within a company - can be co-located on-site with manufacturing, or off-site *Think of it as buying a house for you to use for inventory*
2. Contract Warehouses
A variation of public warehousing that handles the shipping, receiving, and storage of goods on a *contract basis* for a fee. - The contract can be for an *entire*, or for a *defined portion* within a building - Usually requires a client to commit to services for a *particular period of time* - The fee structure may be fixed cost, cost-plus, or a combination of both. - The company providing the space handles the employees, equipment, and maintenance *Think of it as renting an apartment for inventory*
3. Pipeline
Accounts for 2% of total US freight spend - Most *reliable* form of transportation - Lowest *per unit cost* for transportation - Limited variety of commodities - Materials are transported in a *liquid or gaseous state:* Petroleum, natural gas, drinking water, gasoline - Little maintenance needed once the pipeline is running
4. Air
Accounts for approximately 5% of total US freight spend - Generally the *fastest* mode of transportation - Most *expensive* mode of transportation - *Cannot Carry* extremely heavy/bulky cargo. Ideally, items with a *high cost to weight ratio* - Shipments involve very light, high value goods that need to travel long distances quickly, including jewelry, fine wine, racehorses, pharmaceuticals, etc. - Half of the goods transported by air are carried by freight-only airlines, e.g., FedEx. Other half in passenger planes with luggage. - Paired with trucks for door-to-door delivery
5. Water
Accounts for approximately 5% of total US freight spend - Includes inland waterways, coastal, and intercoastal, and deep-sea cargo shipments. - *Inexpensive* - *Very slow and inflexible* - Primarily used for *heavy, bulky, or low value* materials like coal, grain, sand, and petroleum. - However, because transport by water is so cheap, almost any item may be shipped by water including: Automobiles, produce, containerized cargo, etc. - Competes with rail and pipeline for some cargo shipments - Paired with trucks for door-to-door delivery
2. Rail
Accounts for approximately 9% of total US freight spend. - Competes for transportation when *distance is long* and the shipments are *bulky/heavy* - Shipments involve building materials, construction equipment, coal, gravel, sand, lumber, etc. - Aging infrastructure and equipment are an issue - *Rail is slow and inflexible but has the most capacity* - Paired with trucks for door-to-door delivery - As a result, rail carriers have begun purchasing motor carriers and can now offer point-to-point pickup and delivery service
Fourth Party Logistics (4PL)
An *interface* between the client company and *multiple logistics service providers* - A company will select a *lead logistics partner (referred to as a 4PL)* that is then charged with managing the activities of all the other 3PL's being used by the company. - Ideally, all aspects of the client company's supply chain handled by 3PL's would be managed by the 4PL organization.
Third Party Logistics (3PL)
An *outsourced provider* that manages all, or a significant part, of an organization's *logistics requirements for a fee* - 3PL providers *charge a fee* for their services - They typically generate a *10 to 20% savings* in logistics costs Favored by *small businesses* - Used to a significant degree for *international logistics*
Green Reverse Logistics
Can have a *positive impact* on the environment through activities such as recycling, reusing materials and products, or refurbishing unused products. - These programs can reduce environmental impact on landfills and deal with dangerous contaminants. - Ex. Unused pharmaceutical product returned to the pharmacy rather than "flushing it down the toilet" which ultimately causes the drug to end up in the water supply
1. Market Positioned Strategy
Close to customers to maximize distribution services and improve delivery. - Few suppliers; many customers
2. Product Positioned Strategy
Close to supply source to collect goods and consolidate before shipping products out to customers. - Many suppliers; few customers
Freight Forwarder
Consolidates LTL shipments into FTL shipments - They take small shipments from multiple companies and consolidate them into larger shipments
Returns
Customers return products for a number of reasons. An item may be defective, damaged, seasonal, fail to meet expectations, or be excess inventory
Freight: Term of Sale
Delivery and payment terms agreed between buyer and seller
Deregulation
Encourages competition and allows prices to adjust as demand and negotiations dictate.
Net-Rate Pricing
Established discounts and accessorial charges are rolled into one all-inclusive price. Pricing is tailored to the individual customer's needs
_______________________ - A trucking company which handles a wide variety of commodities in standard trailers. Freight is generally palletized. - These can be LTL or FTL carriers. - They carry the majority of goods shipped - Does not require the use of specialized equipment
General Freight Carriers
ICC Termination Act of 1995
ICC was eliminated
Return of Unsold Goods
In some industries, goods are distributed to downstream members in the supply chain with the *understanding* that the goods may be returned for credit if they are not sold e.g., newspapers, magazines, even pharmaceuticals. - This act as an *incentive* for downstream members to carry more stock, because the risk of obsolescence is borne by the upstream supply chain partner. - The risk is that the downstream member in the supply chain might *exploit the situation* by ordering more stock than is required and returning large volumes
Third Party Logistics Services include:
Inbound Transportation Outbound Transportation Warehousing Pick and Pack Freight Forwarding Customs Brokerage Customs Clearance Order Taking Billing and Invoicing Inventory Auditing Freight Bill Auditing and Payment
3. Intermediately Positioned Strategy
Midway between supply source and customers, when distribution requirements are high and product comes from various locations - Relatively equal number of suppliers and customers
Products have little value to the customer until they are ___________________________.
Moved to customer's point of consumption. - Delivered at the right time. - Delivered to the desired location
Shippers' Association
Nonprofit cooperatives which arrange for members' shipping
Repairs
Not all products that are returned are disposed. Manufacturers may identify the failure and repair, refurbish or remanufacture the product to like-new condition and return it to stock, or harvest various components for re-use
Rail and Water Carriers
Offer point-to-point pickup and delivery service known as *Container-on-Flatcar (COFC)*
Rail and Motor Carriers (Trucks)
Offer point-to-point pickup and delivery service known as *Trailer-on-Flatcar (TOFC)*
Hybrid Warehouses
One hybrid network is a *"hub-and-spoke"* where there is a centralized warehouse (i.e., the "hub") which holds most of the inventory linked to a series of smaller geographically dispersed warehouses (i.e., the "spokes") which hold only a small amount of inventory to support their local area in the immediate time frame. - The *"Hub" feeds the "Spoke"* with inventory as necessary on a regular basis - *Operating costs are lower* b/c the spoke warehouses are smaller than in a purely decentralized warehouse - *Inventory is also lower* as all of the safety stock is held centrally, which generally means that less total safety stock is required because all of the risk and uncertainty is managed centrally - *Customer service is generally better* than in a purely centralized model since some of the inventory is maintained closer to the customer
5. Shipping
Outgoing shipment of parts, components, and products. Includes packaging, marking, weighing, and loading for shipment.
Exempt Carriers
Person or company specializing in services or transporting commodities exempt from regulation by the Interstate Commerce Act.
Private Carriers
Person or company that transports its own cargo as a part of a business that produces, uses, sells or buys the cargo that is being hauled.
Common Carriers
Person or company who transports freight for a fee that can be hired by anyone to transport goods.
Contract Carriers
Person or company who transports freight under contract to one or a limited number of shippers.
1. Receiving
Physical receipt of material, identification, inspection for conformance with the purchase order (quantity and damage), put-away, and preparation of receiving reports
4. Packing
Placing one or more items of an order into an appropriate container for safe shipping, mad marking and labeling the container with customer shipping destination data, and other information that may be required.
Poor Reverse Logistics Can Hurt A Company
Problems include: -Inability of *INFORMATION SYSTEMS* to handle returns. -Lack of *WORKER TRAINING* in reverse logistics procedures. -Little or no *IDENTIFICATION* on returned packages. -Need for adequate *INSPECTION and TESTING* of returns. -Danger of placing returned products *BACK INTO SALES* stocks. -Can affect the entire supply chain financially. -Can have a large impact on how a consumer views a product or brand, potentially impacting future sales. -Retail returns = 6% to 10% of sales.
Reverse Logistics
Process of moving a product from the point of consumer receipt back to the point of origin to recapture value or ensure proper disposal. - Backward flow of goods from customers in the supply chain - "Reverse Logistics is all about damage control and making the process as customer friendly as possible" - Reverse Logistics cost *4-5 times as much as forward logistics* and requires on average *12 times as many processing steps*
Global Trade Management System (GTM)
Provides global visibility, standardization, and documentation to comply with international trade regulations.
Intermodal Marketing Company
Purchase blocks of rail capacity and sell it to shippers
Recalls
Recalls are more complex than basic returns because they typically involve a product defect or potential hazard and may be subject to government regulations, liability concerns or reporting requirements
Free On Board (FOB) Destination
Seller Places goods Free On Board to the buyer's place of business, and the seller pays freight costs. - Ownership of the goods remains with the seller until the goods reach the buyer - Seller assumes the risk for in-transit loss or damage
Free On Board (FOB) Origin/Shipping Point
Seller places goods Free On Board with the carrier at the seller's location, and buyer pays freight costs - Ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller. - Buyer assumes the risk for in-transit loss or damage
3. Cross-Docking
The logistics practice of unloading materials from an incoming truck or rail car and loading these materials directly onto outbound trucks or railcars, with *little or no storage in between* to reduce inventory investment and storage space requirements
_________________________ - A trucking company which handles the movement of cargo that requires specialized equipment for transportation because of the shipment's size, weight and shape. - Transport commodities like liquids, petroleum, household goods, building materials, and other specialized items
Specialized Carriers
Roll on/roll off ships (RORO)
Specifically designed to allow trucks be driven directly on and off the ship without the use of cranes. - Provides flexibility and speed
Transportation
The function of planning, scheduling, and controlling activities related to mode, vendor, and movement of inventories into and out of an organization. - Get the right product, to the right place, at the right time by ensuring the product is moved as efficiently as possible from point-of-origin to point-of-destination.
2. Storage
The safe and secure retention of parts or products for future use or shipment.
Less-Than-Truckload (LTL)
The transportation of relatively small freight, i.e., the freight does not require the entire space of a truck. *Advantages:* Can be cost effective. There are more available carrier options. Ideal for small businesses. *Disadvantages:* Increased risk of theft/damage. Increased shipping times and delays
Intermodal transportation
The use of multiple modes of transportation to execute a single transport shipment - Intermodal is growing substantially because it is fairly cost-efficient and cost-effective - The most common forms of intermodal transportation involve: a. Rail and Motor Carriers (i.e., trucks) b. Rail and Water Carriers c. Roll-on/Roll-off Ships
Warehouse Management System (WMS)
Track and control the flow of goods from receiving dock to outbound shipment. New technologies, such as RFID tags, facilitate tracking.
Transportation Management System (TMS)
Used to select the best mix of transportation services and pricing
3 Logistics Management Software Applications
Warehouse Management System (WMS) Transportation Management System (TMS) Global Trade Management System (GTM)
LEAN Warehousing
Warehouse and distribution centers are continuing to develop their LEAN capabilities. *CROSS DOCKING* - A LEAN concept because it eliminates the need to store inventory, and reduces some transportation, which are both wastes. *REDUCED LOT SIZES and SHIPPING QUANTITIES* - By reducing lot sizes and shipping quantities, a company can increase velocity in the warehouse, and get shipments out faster. Faster throughput is a LEAN concept. *INCREASED AUTOMATION* - Companies are using automated systems like pick to light, voice picking, conveyor systems, automated guided vehicles (AGV's), and robotics to improve efficiency and throughput times in the warehouse. *GREEN WAREHOUSING* - One of the more sustainable goals for a green warehouse is to make it a net zero energy user.
2. Break-Bulk
Warehouse operation that *divides full truckloads* of items from a *single source* or manufacturer into smaller, more appropriate quantities for use or *further distribution*
1. Consolidation
Warehouse operation that receives products from *different plants or suppliers*, stores them, and then *combining them* with similar shipments from other plants or suppliers for *further distribution*
Recycling
When products reach the ends of their useful lives and must be scrapped, companies must find safe, cost-effective and environmentally friendly ways to dispose of them. Companies can reduce costs and minimize waste.
3. Picking
Withdrawing components from stock to make assemblies or finished goods, or to ship to a customer
Value of Service Pricing
a pricing strategy which sets prices based on the value perceived by the customer, i.e., "priced at what the market will bear".
Load/Transportation Broker
bring shippers and carriers together
Combination Pricing
price is set at a value between cost-of-service minimum and value-of-service maximum. Most carriers use some form of combination pricing. Common in highly volatile markets and changing competitive situations
Cost of Service Pricing
setting of a price for a service based on the costs incurred in providing it
Logistics is:
that part of supply chain management that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information, *from point of origin to point of consumption*, in order to meet customer requirements
Full-Truckload (FTL)
the transport of goods that fill up a full truck, or a partial load shipment occupying an entire truck. *Advantages:* Best way to transport large shipments. Ideal for high risk or delicate freight shipments. Considerably faster than LTL. *Disadvantages:* Costs more than LTL.