Logistics Management (Perego) by Cremaschi

LOGISTICS MANAGEMENT

Sommario

1.0 Introduction to logistics ............................................................................................................................... 3

1.1 Definition of logistics and evolution .................................................................................................. 4

1.2 The supply chain ...................................................................................................................................... 6

1.3 Stacks of logistics management............................................................................................................... 7

1.4 Importance of logistics ............................................................................................................................ 9

2.0 Logistics Management and Strategy ......................................................................................................... 10

2.1 Logistics and the marketing mix ............................................................................................................ 10

2.2 The impact on ROA ................................................................................................................................ 10

2.3 The main logistics strategies............................................................................................................ 13

3.0 Warehouses ............................................................................................................................................... 16

3.1 Types of warehouses ............................................................................................................................. 17

3.2 Warehouse operations .......................................................................................................................... 18

3.3 Storage systems and parameters .......................................................................................................... 20

3.4 Management policies ............................................................................................................................ 23

3.5 Design Principles .................................................................................................................................... 25

3.5 Storage design method.......................................................................................................................... 26

3.5.1 Identification of design parameters ............................................................................................... 27

3.5.2 Layout design .................................................................................................................................. 28

3.5.3 Throughput capacity assessment ................................................................................................... 32

4.0 Automated warehouses ............................................................................................................................ 32

4.1 Technical features ................................................................................................................................. 32

4.2 Management policies ............................................................................................................................ 34

4.3 Application fields ................................................................................................................................... 37

4.4 Design methodologies ........................................................................................................................... 37

5.0 Order picking and Assembly ...................................................................................................................... 41

5.1 Picking process ...................................................................................................................................... 41

5.2 Picking systems ...................................................................................................................................... 43

5.3 Principles of picking system design ....................................................................................................... 46

5.4 Forward reserve problem ...................................................................................................................... 48

5.5 Management policies ............................................................................................................................ 50

6.0 Transportation ........................................................................................................................................... 60

6.1 Road Transportation .............................................................................................................................. 62

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6.2 Rail Transportation ................................................................................................................................ 65

6.3 Water Transportation ............................................................................................................................ 66

6.5 Air Transportation ................................................................................................................................. 67

6.6 Intermodal Transportation .................................................................................................................... 69

7.0 Logistics and B2c E-commerce ................................................................................................................... 71

8.0 Distribution network design ....................................................................................................................... 73

8.1 Distribution system................................................................................................................................ 73

8.2 One-echelon distribution networks ....................................................................................................... 75

8.3 Two-echelon distribution networks ....................................................................................................... 76

8.4 Mixed distribution networks .................................................................................................................. 77

8.5 Optimization function and decision variables ........................................................................................ 78

8.6 Recap ..................................................................................................................................................... 79

8.7 Design methodology .............................................................................................................................. 79

8.8 Network selection matrixes ................................................................................................................... 80

8.9 Cost models ........................................................................................................................................... 83

8.10 Location and allocation problems ........................................................................................................ 87

8.11 Single warehouse location – Centre of gravity ..................................................................................... 88

8.12 Allocation – Linear programming ......................................................................................................... 89

8.13 Multi warehouse location .................................................................................................................... 90

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1.0 Introduction to logistics

Logistics is formed by 3 layers; we will start from the bottom one and make our way to the top.

We will also analyse Logistics costs and customer service using some performance measures.

Finally, we will give an overview on Supply Chain Collaboration.

EXECUTION:

• The Warehousing (storage and handling) Systems

• Automated warehouses: the typologies and the main design and management criteria

• Picking: the system typologies and the main design and management criteria

• The main transportation modes

• The functional and technical features of the packaging

PLANNING:

• Demand forecasting

• the demand forecasting process

• the basic forecasting techniques

• the accuracy metrics

• Inventory management

• the types of inventory

• the main inventory management techniques

• the safety stock formula

• multi-item Inventory management

• multi-warehouse Inventory allocation

• Production planning

• the models for the aggregate production planning

• Replenishment planning

• the MRP techniques

PERFORMANCE MEASURES:

• Customer service

• the main customer service factors

• the main customer service metrics

• Logistics costs

• transportation costs 3

• handling costs

• inventory costs

• stock out costs

LOGISTICS SYSTEM DESIGN AND STRATEGY:

• Logistics management as a competitive advantage

• How companies create value through logistics

• Types of logistic/distribution networks

• Methodologies for logistic/distribution network design

• Models of cost analysis

• Optimization models for distribution network design (centre of gravity, linear

programming, …)

• Optimization models for network management (stock allocation, local distribution, …)

SUPPLY CHAIN COLLABORATION

• Models/processes of collaborative planning

o Vendor Managed Inventory

o Collaborative Planning Forecasting e Replenishment

• eCommerce

1.1 Definition of logistics and evolution

CSCMP was originally founded as the National Council of Physical Distribution Management in January

1963, it is the preeminent association for individuals involved in supply chain management. NCPDM was

formed by a visionary group of educators, consultants, and managers who envisioned the integration of

transportation, warehousing, and inventory as the future of the discipline. At that time, physical

distribution was just beginning to edge its way into the corporate lexicon and make its considerable

presence felt in the business community.

In 1985, recognizing the growing field of logistics, the association's focus broadened as it changed its name

to the Council of Logistics Management (CLM). It stayed that way until 2004 when CLM's Executive

Committee voted to become CSCMP, the Council of Supply Chain Management Professionals.

The definition of logistics has changed over time, depending on the focus of CSCMP. In 1967 the focus was

to be efficient by reducing costs and it would centre around the distribution system of the final product and

supply of raw materials (both handling and transportation). The Methodologies used were the systemic

approach, total cost analysis, trade-off analysis and operational research techniques (inventory

management models, demand forecasting algorithms, site location, etc.)

In 1976 the focus shifted, there was an emphasis on the value of global optimization (as opposed to

local optimization). CSCMP realized that logistics was a business management discipline. 4

In 1985 there was the first explicit recognition that Logistics is a process. They stated that logistics wasn’t

only about flows of goods but information too. Another important leap was recognizing the need to

conforming to customer requirements: it is the ultimate objective of logistics, not only efficiency and cost-

effectiveness.

In 1992 the council decided that logistics shouldn’t be cost-effective, but effective overall encompassing as

indicators not only costs. In this year there was the introduction of logistics management applied to

services. At this point the focus of logistics was SUPPLY+PRODUCTION+DISTRIBUTION and the reduction of

the overall logistics costs. The methodologies used were the systemic approach, total cost analysis,

integrated planning principles and competitive value of the customer service.

In 2009 CSCPM realized that logistics was only a part of a broader structure called supply chain. In this year

there was the introduction of reverse flow logistics.

Today this is the definition of Logistics Management: “Logistics Management is that 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 origin and the point of consumption

in order to meet customers' requirements.” CSCMP (Council of Supply Chain Management Professionals)

1 From independent functional activities to integrated logistics (system)

a) Transportation + Warehousing + Inventory management= Distribution

b) Manufacturing + Distribution = Outbound Logistics

c) Procurement + Manufacturing = Inbound Logistics

d) Inbound Logistics + Outbound Logistics = Internal Supply chain management (or integrated

logistics)

Independent function activities don't give us the whole picture. We need to calculate total

distribution costs or the integrated logistics system. Integration means total cost analysis or total

performance analysis. For example, if we want to know how to transport a good, by ship and by plane

the cost of the transport isn’t enough and we need the cost of storage too. These are two different

functions that we have to integrate.

2 From integrated logistics to supply chain management (system)

We realize that the final customer will be affected not only by my internal logistics, but by the whole

supply chain. This is why we try to integrate our logistics with both suppliers and distributors to

achieve the maximum value creation for our customers.

3 From logistics focused on execution to planning to strategic design (process)

We introduce the 3 layers of logistics which will be explained later in detail. 5

4 From cost reduction to customer service requirements to profit optimization (performance)

= + + _ +

= 5 − 15% in most cases. It depends on the industry and the role of the company in

the supply chain. If we look at the ratio from an extended supply chain perspective this value is 2-3x

higher!

We have to keep in mind that our logistics function is not only about costs but about performance

levels too! Customer service requirements is usually expressed in terms of service levels which are

affected by logistics. On shelf availability, time related service level factors order cycle time/speed or

punctuality, accuracy related… −

=

Profit Optimization: let's use . If some years ago the optimization was on the cost, now

+

the optimization is done on the ROA. This indicator is just a general example, we can use different

indicators that compare revenues to costs to assets utilizations.

5 From direct flow of products to the direct but also reverse flow of products, information, services

and money (product)

• Reverse logistics: End-of-life, packaging, after sales service/maintenance, unsold

products/returns. Reverse logistics is a convergent flow of goods. Divergent flows are cheaper

because the products are identified, and the protective packaging is done industrially.

• Logistics of services are extremely hard to manage (hospitals or health care sector). Another

example are after-sales services like logistics of spare parts which is also very hard. Once the

production is finished, we need to forecast the demand (how?) for future years and store

them all (where?).

• Money: we can find an example in the alimentary industry: the farmers have huge amounts of

WIP which require high amounts of immobilized cash, manufacturers will aid their partners to

avoid shortages and problems. For example, they could acquire the products in advance or

maybe they might act as intermediaries with banks to provide cheap capitals to the farmers.

1.2 The supply chain

It includes the different members, infrastructures and resources, processes and activities (and all the links

among them) that allow the replenishment of raw materials, their transformation in components and

products and the distribution of products to end customers.

“Supply chain management is an integrating function with primary responsibility for linking major business

functions and business processes within and across companies into a cohesive and high performing business

model. It includes all of the logistics management activities, as well as manufacturing operations, and it

drives coordination of processes and activities with and across marketing, sales, product design, finance,

and information technology” CSCPM (Council of Supply Chain Management Professionals) 6

Methodologies: analysis of supply chain performance, supply chain integration, collaborative planning

models (VMI, CPFR)

Strategic approach of supply chain competition:

• Competitiveness of the company is strongly impacted by the actions of the other supply chain

members

• Competitiveness is, first of all, between different supply chains (and not between companies of the

same supply chain)

Strategic implications of supply chain competition:

• Competitiveness of the company can be improved focusing on the interface processes with the

other supply chain members, through integration and collaboration

• In many cases the action on the interface processes is more effective (in terms of impact on KPIs)

than that on internal processes

Performances of supply chain competition:

• Inventories in the warehouses of manufacturers (40 days) and retailers (20 days for both

distribution centres and backrooms) on average

• On-shelf availability in retailers’ stores is 93% on average

• Saturation of transportation is 70% for single trips on average

1.3 Stacks of logistics management

1 Logistics execution: includes the design and management of the processes that support the flow of

materials (handling, storage, physical transformation and transport activities) and data/documents

along the supply chain 7

• It is the most traditional “scope” of Logistics (but it is only part of its most comp