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Chapter 9

DOMESTIC U.S. &


GLOBAL
LOGISTICS

Prepared by Mark A. Jacobs, PhD


2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole or in part.

LEARNING OBJECTIVES
You should be able to:
Understand the strategic importance of logistics
Identify the various modes of transportation
Understand how regulation has impacted logistics
Discuss the global aspects of logistics
Describe how logistics impacts supply chain
management
Examine the interrelatedness of transportation,
warehousing, & material handling

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

LEARNING OBJECTIVES
(Continued)

Identify a number of third-party logistics service providers


Summarize the important aspects of transportation
regulation and deregulation
Describe the various reverse logistics activities
Discuss some of the e-commerce issues in logistics
management

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER OUTLINE

Introduction
The Fundamentals of Transportation
Warehousing and Distribution
The Impacts of Logistics on Supply Chain
Management
Environmental Sustainability in Logistics
Logistics Management Software Applications
Global Logistics
Reverse Logistics

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Introduction
Logistics is necessary to:
Move goods from suppliers to buyers
Move finished goods to the customer
Products have little value to the customer until they
are moved to the customers point of consumption
Time utility- products are delivered at the right
time.
Place utility- products are delivered to the
desired location.

Introduction

(Continued)

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.
Council of Supply Chain Management
Professionals

The Fundamentals of
Transportation
The Objective of Transportation
Maximize value to firm through negotiation to
provide profit contribution
Make sure service is provided effectively
Satisfy customer needs

The Fundamentals of
Transportation
(Continued)

Legal Forms of Transportation Transportation


service companies are classified legally as either
common, contract, exempt, or private carriers.

Common carriers- offer transportation services


to all shippers at published rates between
designated locations without discrimination.
Contract carriers- not bound to serve the general
public. Contract carriers serve specific
customers under contractual agreements.

The Fundamentals of
Transportation
(Continued)

Legal Forms of Transportation


Exempt carriers - exempt from regulation of
services & rates & if they transport certain
exempt products like produce, livestock,
coal, or newspapers.
Private carrier - not subject to economic
regulation & typically transports goods for
the company owning the carrier.

The Fundamentals of
Transportation
(Continued)

Modes of Transportation
Motor Carriers (trucks)- most flexible mode of
transportation & carries > 80% of U.S. freight.
Competes w/rail & air for short-to-medium hauls.
Less-than-truckload (LTL) & truck-load (TL) carriers
move small shipments & fees are higher
General freight carriers carry the majority of goods
shipped & include common carriers.
Specialized carriers transport liquid petroleum,
household goods, building materials, & other
specialized items.

The Fundamentals of
Transportation
(Continued)

Modes of Transportation
Rail Carriers- compete when the distance is long & the
shipments are heavy or bulky.
Rail slow & inflexible, but have begun purchasing motor
carriers & can thus offer point-to-point pickup & delivery
service known as trailer-on-flatcar (TOFC) service.
Rail companies use each others rail cars. Keeping track
of rail cars & getting them where needed can be
problematic.
Railroad infrastructure & aging equipment are also
problems for the railroads.

The Fundamentals of
Transportation
(Continued)

Modes of Transportation
Air Carriers - Expensive relative to other modes but
fast. Air carriers transport about 5 % of U.S. freight.
Airlines cannot carry extremely heavy or bulky cargo.
For light, high value goods over long distances quickly.
Most small cities & towns do not have airports.
Half of the goods transported by air are carried by
freightonly airlines, FedEx.

The Fundamentals of
Transportation
(Continued)

Modes of Transportation
Water Carriers- Inexpensive, slow & inflexible.
Includes inland waterway, coastal & intercoastal, &
deep-sea.
Inland waterway transportation is used for heavy,
bulky, low-value materials (e.g., coal, grain).
Competes w/rail & pipeline.
Water carriers are paired w/trucks for door-to-door
delivery.
Supertankers are +1,500 ft long & 200 ft wide.

The Fundamentals of
Transportation
(Continued)

Modes of Transportation
Pipeline Carriers - are limited in variety they can
carry.
Little maintenance once pipeline is running.
Materials hauled in a liquid or gaseous state.

The Fundamentals of
Transportation
(Continued)

Modes of Transportation
Intermodal the use of multiple modes of
transportation
Rail & motor carriers can offer point-to-point pickup &
delivery service known as trailer-on-flatcar (TOFC) service,
container-on-flatcar (COFC), or piggy-back service
Water & motor can offer point to point service for overseas
manufacturers
RO-ROs or roll-on-roll-off containerships truck trailers &
containers to be directly driven on & off the ship, without
the use of cranes

The Fundamentals of
Transportation
(Continued)

Transportation Pricing
Cost of service pricing - varies based on fixed & variable
costs
Value of Service Pricing - services priced at market
bearing competitive levels
Terms of Sale - includes transportation FOB (free on
board) destination or dock
Pricing Negotiation - Since deregulation, negotiating
prices has become more common
Rate Categories - Classified as line haul rates, class rates,
exception rates, commodity rates, & miscellaneous rates

The Fundamentals of
Transportation
(Continued)

Transportation Security
Particularly important regarding airline security since
Sept. 11 2001
Aviation & Transportation Security Act (2001) created
Transportation Security Administration (TSA) to
oversee transportation security which oversees 429
US airports
Department of Homeland Security (DHS) (2003)
created to provide overall U.S. security leadership.
Not all measures have improved security as
envisioned

The Fundamentals of
Transportation
(Continued)

Transportation Regulation & Deregulation


Pro- Regulation tends to assure adequate
transportation service throughout the country
while protecting consumers from monopoly
pricing, safety, & liability.
Con- Deregulation encourages competition
& allows prices to adjust as demand &
negotiations dictate.
Today, U.S. transportation industry remains
essentially deregulated

The Fundamentals of
Transportation
(Continued)

Transportation Regulation
Granger laws (1870s) - regulate the RRs.
Interstate Commerce Act of 1887 - created the Interstate
Commerce Commission (ICC).
Transportation Act of 1920 - changes to IC Act.
Motor Carrier Act of 1935 - brought motor carriers under ICC
control.
Transportation Act of 1940 - established ICC control over
domestic water transportation.
Federal Aviation Act of 1958 - created air traffic & safety
regulations & national airport system.
Department of Transportation Act 1966 - coordination of all
transportation-related matters.

The Fundamentals of
Transportation
(Continued)

Transportation Deregulation
Railroad Revitalization & Regulatory Reform Act
(1976) - RRs could change rates w/o ICC approval
Air freight deregulated in 1977
Motor carriers deregulated in 1980 to promote
competitive, safe & efficient motor transportation
Shipping Act of 1984 - allowed ocean carriers to pool
shipments, assign ports, publish rates, & enter into
contracts with shippers
ICC Termination Act of 1995 & the Ocean Shipping
Reform Act of 1998 - ICC was eliminated, requirement
for ocean carriers to file rates also came to an end

Warehousing &
Distribution
Warehousing
Allows firms to store purchases, WIP, & finished goods
and perform break bulk and assessment services
Provides faster & more frequent deliveries & better
customer service

Crossdocking
To receive, breakdown, repackage, & distribute
components to a manufacturing location or finished
products to customers warehouse. This description
more accurately refers to a distribution center

Warehousing &
Distribution

(Continued)

Importance & Types of Warehouses


Support purchasing, production, & distribution.
Consolidation warehouses collect LTL shipments for
transport in TL or CL quantities.

Private Warehouses
owned by the firm storing goods.
Pro- Reduces the cost, offers greater control, provides
better workforce utilization, & can generate income & tax
advantages through leasing of excess capacity &/or asset
depreciation.
Con- Owning a private warehouse represents a financial
risk & loss of flexibility.

Warehousing &
Distribution

(Continued)

Public Warehouses
Owned by for profit orgs & contracted out
Breakbulk - shipments are broken down & items are
combined into specific customer orders.
Repackaging
Assembly
Incoming & outgoing quality inspections.
Material handling, equipment maintenance, &
documentation services
Storage
Pro- Provides flexibility & investment cost savings
Con- Lack of control.

Warehousing &
Distribution

(Continued)

Risk Pooling & Warehouse Location


As the # of warehouses increases, the system
becomes more decentralized. Responsiveness &
delivery service increase
However, warehousing operating & inventory costs
also increase. Trade-off between costs & customer
service must be considered

Warehousing &
Distribution

(Continued)

Warehouse Location
Edgar Hoover recommended
Market-positioned strategy - warehouses close to
customers to maximize distribution svcs & improve
transp. economies of scale
Product positioned strategy - close to supply source
for firm to collect goods & consolidate
Intermediately positioned strategy - midway between
supply source & customers when distribution
requirements are high & product comes from various
locations

Warehousing &
Distribution

(Continued)

Warehouse Location
Von Thunen - transportation costs should be
minimized when considering facility location.
Market prices & production costs would be
identical regardless of warehouse location
Greenhut - based on profit instead of
transportation costs. The optimum location is
one that maximizes profits, which may not be
min. cost location

Warehousing &
Distribution

(Continued)

Lean Warehousing
Emphasis on warehousing to support responsive
operations:

Commitment to customers & service quality


Reduced lot sizes & shipping quantities
Emphasis on cross docking
Increased automation
Increased assembly operations

Impacts of Logistics on
Supply Chain
Third Party
Logistics (3PL)
Management
Provide reliable & timely delivery required by
SCM
Used to significant degree by international
logistics
Favored by small businesses
Some firms outsource all of their logistics
needs to a lead logistics provider or fourth
party logistics provider (4PL)

Impacts of Logistics on
Supply Chain
Other Intermediaries
Management
(Continued)

Freight forwarder consolidate LTL shipments


into FTL
Load or transportation brokers bring shippers
and carriers together
Shippers associations nonprofit cooperatives
which arrange for members shipping
Intermodal marketing companies purchase
blocks of rail capacity and sell it to shippers

Impacts of Logistics on
Supply Chain
Management
Environmental
Sustainability in Logistics
(Continued)

Reverse logistics aka backhauling is a


response to the need for reducing carbon
emissions and by ensuring trucks move
loaded rather than empty

Logistics Management
Software
Logistics Management Software Applications
Transportation management systems- used to select
the best mix of transportation services & pricing.
Warehouse management- track & control the flow of
goods from receiving dock to outbound shipment.
New technologies, such as RFID tags, facilitate
tracking.
Global trade management systems- (GTM) provide
global visibility, standardization, & documentation
of product returns, while minimizing reverse
logistics costs.

Global Logistics
International Freight Security
Transportation across national boundaries
introduces added complexity, particularly
security.
Since 9/11 there is more conflict between
U.S. govt. & industry toward more security &
restrictions for inbound shipments.

Global Logistics

(Continued)

Global Logistics Intermediaries


Customs Brokers- move through customs &
handle documentation.
International Freight Forwarders- move goods to
foreign destination
Trading Companies- Put buyers & sellers
together & handle export/import arrangements.
Non-Vessel-Operating Common Carriersoperate like freight forwarders but use
scheduled ocean liners.

Global Logistics

(Continued)

Foreign Trade Zones


Secure sites in U.S. under supervision of U.S.
Customs.
FTZs offer storage, exporting, manufacturing,
assembly, repacking, testing, & repairing services.

North American Free Trade Agreement


(NAFTA)
Created in 1994 & removes most barriers to trade &
investment among U.S., Canada & Mexico.

Reverse Logistics
Backwards flow of goods from customers in SC when
goods are returned by a customer in the supply chain
Retail returns range 6% to 40% of sales
Often is an unwanted SC activity
Poor reverse logistics can hurt firm
Green reverse logistics programs - designed to
return unneeded products for recycling. These
programs reduce environmental impact on landfills &
deal with dangerous contaminants.