Overview of logistics
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CHAPTER 2:
Logistics

Logistics of business is big and important
The logistical value proposition
The work of logistics
Logistical operations
Logistics integration objectives
Logistical operating arrangements
Flexible structure
Supply chain synchronization

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

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Logistics has risen to a key position in the global economy

What is logistics?
• Logistics is the design and administration of systems to control movement and geographical positioning of raw materials, work-in-process, and finished inventories at the lowest total cost.

• Postwar U.S. (1945-1995)
– Global leader in distribution and logistics, as a direct result of
World War II

• Rise of EEC and Asia (1980-2000)
– Both regions became major exporters and distributors

• e-Commerce (1998-Present)
– Global logistics capability almost everywhere

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Table 2.1- U.S. logistics cost,
1980-2010 in five year intervals ($B)
Year

Nominal Inventory Transportation
GDP ($T)
Cost
Cost

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The cost of logistics

Administrative
Cost

Total
Logistics
Cost

Logistics
% of GDP

1980

2.80

220

214

17

451

16.1

1985

4.22

227

274

20

521

12.3

1990

5.80

283

351

25

659

11.4

1995

7.40

302

441

30

773

10.4
10.3

2000

9.82

374

594

39

1007

2005

12.43

395

739

46

1180

9.5

2010

14.60

396

769

47

1212

8.3

Source: Adapted from Rosalyn Wilson, 22nd Annual “State of Logistics Report” Council of
Supply Chain Management Professionals and Penske: Oak Brook, IL, 2011.
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Logistics will continue its renaissance in the future

Goal of logistics management
• To satisfy customer expectations for delivery of products (or services) while minimizing the total cost
• Managers must support the requirements for procurement, manufacturing and customer accommodation supply chain operations • Information technologies will automate many of the traditionally manual logistical functions:
– Automated port and rail operations
– RFID tagging of materials
– Advanced technologies for warehousing and inventory operations

• Removal of trade barriers will continue to expand global trade and logistics

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Logistics costs trends from Table 2.1

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Logistical value proposition

• Transportation Costs relative to the Total Cost of Logistics have gone up

• Logistical value proposition consists of a commitment to key customer expectations and requirements at a minimum cost
• The two elements of this value proposition are
Service and Cost Minimization

– Because of fuel prices and movement of manufacturing to Asia

• Inventory Costs relative to the Total Cost of Logistics have gone down
– Adoption of JIT and Lean practices have reduced these

– Firms must make appropriate tradeoffs between service and cost for each of their key customers

• Administrative Costs relative to the Total Cost of Logistics have stayed the same

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Service benefits are created by logistical performance in 3 areas

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Basic logistical service may not fit all customers • Availability involves having inventory to consistently meet customer material or product requirements
• Operational performance deals with the time required to deliver a customer’s order

• Basic logistics service describes the level of service a firm provides all established customers
– However, some customers require unique or special value-added services • Managers must realize that customers are different and that services provided must be matched to accommodate unique requirements and purchase potential

– Key metrics for this area involve delivery speed and consistency

• Service reliability involves the quality attributes of logistics
–