Chapter 2
ROLE OF
LOGISTICS
IN SUPPLY
CHAINS ©2013 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
After reading this chapter, you should be able to do the
following:
Learning
Objectives
● Understand the role and
importance of
logistics in private and public
organizations.
● Discuss the impact of
logistics on the
economy and how effective
logistics
management contributes to
the vitality of
the economy.
● Understand the value-
added roles of
logistics on both a macro
and micro level.
2©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part.
● Explain the relationships
between logistics
and other functional areas
such as
manufacturing, marketing,
and finance.
● Discuss the importance of
management
activities in the logistics
function.
● Analyze logistics systems
from several
different perspectives to
meet different
objectives.
● Determine the total costs
and understand
the cost tradeoffs in a
logistics system.
3
Learning Objectives, continued©2013 Cengage Learning. All Rights
Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
Figure 2.1
Contemporary
Supply Chain
Profile
4
Source: Center for Supply Chain Research, Penn State
What is
University.
Logistics
● Business logistics:
• That part of the supply chain process
that plans,
implements, and controls the efficient,
effective flow
and storage of goods, service, and
related information
from point of use or consumption in
order to meet
customer requirements.
● Military logistics:
• The design and integration of all
aspects of support
for the operational capability of the
military forces
(deployed or in garrison) and their
equipment to
ensure readiness, reliability, and
efficiency.
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part.©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in
part.
6
What is Logistics, continued
● Event logistics:
• The network of activities, facilities,
and personnel
required to organize, schedule, and
deploy the
resources for an event to take place
and to efficiently
withdraw after the event.
● Service logistics:
• The acquisition, scheduling, and
management of the
facilities/assets, personnel, and
materials to support
and sustain a service operation or
business. Table 2.1
Logistics
Definitions
Perspective Definition
Source: Adapted from Stephen H. Russell, “A General Theory of Logistics
Practices”,
Air Force Journal of Logistics 24, no 4 (2000): 15
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
Value-Added
part.
Roles of Logistics
● Form Utility
● Time Utility
● Place Utility
● Quantity Utility
● Possession Utility
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part. Figure 2.2
Utility Creation in
the Economy
Source: Center for Supply Chain Research, Penn State University
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
Logistics
part.
Activities
● Transportation
● Warehousing and storage
● Industrial packaging
● Materials handling
● Inventory control
● Order fulfillment
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part.©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in
part.
11
Logistics Activities, continued
● Demand forecasting
● Production
planning/scheduling
● Procurement
● Customer service
● Facility locationFigure
2.3
Logistics Cost as a
Percentage of
GDP
Source: Council of Supply Chain Management Professionals
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part. Figure 2.5
Macro Inventory
as a Percentage
of GDP
Source: Council of Supply Chain Management Professionals
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part.©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in
part.
Figure 2.4
Total Logistics
Costs – 2011
Source: 22nd Annual State of Logistics Report,
[Link] (2011) reproduced with permission
from Council of Supply Chain Management Professionals
4
280
112
336
403
189
592
60
33
10
33
32
168
9
47
1211
Forwarders
Subtotal
Shipper–related costs
Logistics administration
Total logistics cost
Other Carriers
Railroads
Water (international 32, domestic 8)
Oil pipelines
Air (international 15, domestic 23)
Transportation Costs
Motor Carriers
Truck—Intercity
Truck—Local
Subtotal
Interest
Taxes, obsolescence, depreciation,
insurance Warehousing
Logistics in the
Subtotal
Firm: The Micro
Dimension
● Logistics interfaces with
manufacturing or
operations
● Logistics Interfaces with
marketing
• Price
• Product
• Promotion
• Place
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
Logistics in the
part.
Firm: Factors
Affecting
the Cost and
Importance of
Logistics
● Competitive relationships
• Order cycle
• Sustainability
• Inventory effect
• Transportation effect
● Product relationships
• Dollar value
• Density
• Special handling & susceptibility to
damage
● Spatial relationships
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part. Figure 2.6
Required
Inventory and
Order Cycle
Source: Center for Supply Chain Research, Penn State University
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part. Figure 2.7
Lost Sales Cost to
Inventory Cost
Source: Center for Supply Chain Research, Penn State University
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part. Figure 2.8
Lost Sales Cost to
Transportation
Cost
Source: Center for Supply Chain Research, Penn State University
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part. Figure 2.9
Product Dollar
Value to Logistics
Costs
Source: Center for Supply Chain Research, Penn State University
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part. Figure 2.10
Product Weight
Density to Logistics
Costs
Source: Center for Supply Chain Research, Penn State University
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part. Figure 2.11
Susceptibility to
Loss & Damage to
Costs
Source: Center for Supply Chain Research, Penn State University
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part. Figure 2.12
Logistics and
Spatial Relations
Source: Center for Supply Chain Research, Penn State University
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part.©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in
part.
Table 2.3
Logistics Mode
Cost Comparison
Source: Center for Supply Chain Research, Penn State University
COST CENTER
RAIL MOTOR
Transportation
3
4.3
Inventory
5
3.75
Packaging
3.5
3.2
Warehousing
1.5
0.75
Cost of Lost Sales
2
1
Total Cost (per unit)
15
Approaches to
13
Analyzing
Logistics
Systems
● Materials management
versus physical
distribution
● Cost centers
● Nodes versus links
• Nodes are fixed spatial points where
goods stop for
storage or processing.
• Links represent the transportation
network and
connect the nodes in the logistics
system.
● Logistics Channels
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part. Figure 2.13
Dynamic Analysis
Source: Center for Supply Chain Research, Penn State University
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part. Figure 2.14
Nodes and Links
in a Logistics
System
Source: Center for Supply Chain Research, Penn State University
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part. Figure 2.15
Simple Logistics
Channel
Source: Center for Supply Chain Research, Penn State University
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part. Figure 2.16
Multi-Echelon
Logistics Channel
Source: Center for Supply Chain Research, Penn State University
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part. Figure 2.17
Complex Logistics
Channel
Source: Center for Supply Chain Research, Penn State University
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in
part.©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a
publicly accessible web
site, in whole or in
part.
Summary
● Logistics has developed as an
important area or function
of business since World War II. It has
gone through
several phases of development in
achieving its present
status.
● Logistics is a critical part of supply
chain management.
The coordination and, perhaps,
integration of the
logistics systems of all the
organizations in a supply
chain are necessary requirements for
successful
management of the supply chain.
● Logistics has a number of different
definitions because of
the broad-based interest in its activities
and the
recognition of its importance. The
definition developed
by the Council of Supply Chain
Management
Professionals is the primary definition
used in this text.
31©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in
part.
● Logistics is an area of management
that has four sub
disciplines: business, military, service,
and event.
● On a macro basis, logistics-related
costs have been
decreasing on a relative basis, which
has helped the
U.S. economy regain its competitive
position on a global
basis.
● Logistics adds place, time, and
quantity utilities to
products and enhances the form and
possession utilities
added by manufacturing and
marketing.
● Logistics has an important
relationship to manufacturing,
marketing, finance, and other areas of
the organization.
● Logistics managers are responsible
for a number of
important activities, including
transportation, inventory,
warehousing, materials handling,
industrial packaging,
customer service, forecasting, and
others.
32
Summary, continued©2013 Cengage Learning. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
● Logistics systems can be viewed or
approached in
several different ways for analysis
purposes, including
materials management versus physical
distribution, cost
centers, nodes versus links, and
channels. All four
approaches are viable for different
purposes.
● Logistics systems are frequently
analyzed from a
systems approach, which emphasizes
total cost and
tradeoffs when changes are proposed.
Either a short- or
a long run perspective can be used.
● The cost of logistics systems can be
affected by a
number of major factors, including
competition in the
market, the spatial relationship of
nodes, and product
characteristics.
33
Summary, continued