Chapter 3

Question 1

Why is an efficient and effective logistics system important for companies?

Answer 1

The speed of ordering via the Internet and other technologies exacerbates the need for an efficient and effective logistics system that can deploy appropriate levels of inventory, expedite completed orders to customers, and manage any returns.

Question 2

How does logistics help to build customer loyalty?

Answer 2

Logistics helps to build customer loyalty by ensuring that order fulfillment meets and perhaps exceeds customer expectations.

Question 3

What challenge do companies face when managing their logistics system?

Answer 3

The challenge is to manage the entire logistics system in such a way that order fulfillment meets and perhaps exceeds customer expectations while controlling transportation, inventory, and other logistics-related costs.

Question 4

What is the importance of efficiency in the competitive marketplace?

Answer 4

The competitive marketplace demands efficiency in controlling transportation, inventory, and other logistics-related costs.

Question 5

Has the term logistics become more widely recognized by the general public?

Answer 5

Yes, the term logistics has become much more widely recognized by the general public in the last 20 years.

Question 6

Does logistics management only encompass logistics systems in the private business sector?

Answer 6

No, logistics management encompasses logistics systems not only in the private business sector but also in the public/government and non-profit sectors.

Question 7

Do service organizations face logistics challenges and issues?

Answer 7

Yes, service organizations such as banks, hospitals, restaurants, and hotels have logistics challenges and issues.

Question 8

What is the most appropriate definition of logistics for this text?

Answer 8

For the purposes of this text, the definition offered by the Council of Supply Chain Management Professionals (formerly the Council of Logistics Management) is the most appropriate.

Question 9

What is the origin of logistics?

Answer 9

Logistics owes its origins to the military, which has long recognized the importance of logistics activities for national defense. The logistics officer was responsible for encamping and quartering the troops as well as for stocking supply depots.

Question 10

What is the definition of inventory in logistics

Answer 10

Inventory is the management of materials in motion and at rest.

Question 11

What is the “seven Rs of logistics” related to customer in logistics?

Answer 11

The “seven Rs of logistics” related to customer in logistics is getting the right product, to the right customer, in the right quantity, in the right condition, at the right place, at the right time, and at the right cost.

Question 12

What is the definition of logistics in the dictionary?

Answer 12

In the dictionary, logistics is defined as the branch of military science having to do with procuring, maintaining, and transporting material, personnel, and facilities.

Question 13

What is the definition of logistics by the International Society of Logistics?

Answer 13

The International Society of Logistics defines logistics as the art and science of management, engineering, and technical activities concerned with requirements, design, and supplying and maintaining resources to support objectives, plans, and operations.

Question 14

What is the utility/value provided by logistics in support of organization objectives?

Answer 14

The utility/value provided by logistics is providing time and place utility/value of materials and products in support of organization objectives.

Question 15

What is the definition of logistics by the Council of Supply Chain Management Professionals?

Answer 15

The Council of Supply Chain Management Professionals defines logistics as that part of the supply chain process 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.

Question 16

What is component support in logistics?

Answer 16

Component support in logistics refers to supply management for the plant (inbound logistics) and distribution management for the firm’s customers (outbound logistics).

Question 17

When did the logistics concept start appearing in business-related literature?

Answer 17

The logistics concept began to appear in the business-related literature in the 1960s under the label of physical distribution.

Question 18

What was the focus of physical distribution in logistics during the 1960s?

Answer 18

The focus of physical distribution in logistics during the 1960s was on the outbound side of the logistics system, which was from plant to market.

Question 19

What did military logistics focus on during the 1960s?

Answer 19

During the 1960s, military logistics began to focus on engineering dimensions of logistics, such as reliability, maintainability, configuration, management, life cycle management, and quantitative analysis modeling.

Question 20

What was the focus of business or commercial applications in logistics during the 1960s?

Answer 20

Business or commercial applications were usually more focused on consumer nondurable goods related to the marketing and physical distribution of finished products.

Question 21

What attracted attention among businesses that produced industrial products regarding logistics?

Answer 21

The engineering-related logistics, as practiced by the military, attracted attention among businesses that produced industrial products that had to be maintained with repair parts over the life cycle of the product.

Question 22

What did inbound and outbound logistics develop into during the 1970s and 1980s?

Answer 22

Inbound and outbound logistics developed into materials management to support manufacturing and plant distribution to support marketing during the 1970s and 1980s.

Question 23

What did the business sector begin to view logistics in the context of during the 1990s?

Answer 23

In the 1990s, the business sector began to view logistics in the context of a supply or demand chain that linked all of the organizations from the supplier’s supplier to the customer’s customer.

Question 24

What are the four major subdivisions of logistics as part of organizational management?

Answer 24

The four major subdivisions of logistics as part of organizational management are business logistics, military logistics, event logistics, and service logistics.

Question 25

What is the definition of business logistics?

Answer 25

Business logistics is that part of the supply chain 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.

Question 26

What is the definition of military logistics?

Answer 26

Military logistics is 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.

Question 27

What is the definition of event logistics?

Answer 27

Event logistics is 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.

Question 28

What is the definition of service logistics?

Answer 28

Service logistics is the acquisition, scheduling, and management of facilities, assets, personnel, and materials to support and sustain a service operation or business.

Question 29

What do all four subdivisions of logistics have in common?

Answer 29

All four subdivisions of logistics have some common characteristics and requirements such as forecasting, scheduling, and transportation.

Question 30

Can all four subdivisions of logistics be viewed in a supply chain context?

Answer 30

Yes, all four subdivisions of logistics can be viewed in a supply chain context; that is, upstream and downstream other organizations play a role in their overall success and long-run viability.

Question 31

How does logistics add value to an organization’s products?

Answer 31

The discussion of how logistics adds value to an organization’s products is not mentioned in the provided text.

Question 32

What are the five principal types of economic utility that add value to a product or service?

Answer 32

The five principal types of economic utility that add value to a product or service are form (transformation), time, place, quantity, and possession.

Question 33

What is form utility?

Answer 33

Form or Transformation Utility refers to the value added to the goods through a manufacturing or assembly process.

Question 34

How does logistics provide place utility?

Answer 34

Logistics provides place utility by moving goods from production points to markets where demand exists.

Question 35

What is time utility?

Answer 35

Time utility is the economic value added to a good or service by having it at a demand point at a specific time when it is needed.

Question 36

What is quantity utility?

Answer 36

Quantity utility is the economic value added by delivering the proper quantities of an item to where it is demanded.

Question 37

What is possession utility?

Answer 37

Possession utility is primarily created through the basic marketing activities related to the promotion and sales of products and services.

Question 38

What is transportation in logistics and why is it important?

Answer 38

Transportation is the physical movement or flow of goods in the logistics system and is often the largest variable logistics cost. It is a critical component of the supply chain because it provides the physical link among the various organizations.

Question 39

What is storage in logistics and how is it related to transportation?

Answer 39

Storage in logistics involves inventory management and warehousing. There is a direct relationship between transportation and the level of inventory and number of warehouses required. If organizations use a relatively slow mode of transportation, they usually have to hold higher inventory levels and thus have more warehousing space for inventory.

Question 40

What is industrial packaging in logistics and how is it related to transportation?

Answer 40

Industrial packaging is the exterior packaging that protects the product during movement and storage. Rail or ocean transportation typically requires additional packaging expenditures because of the greater risk of damage in transit. Logistics managers usually examine how changes in transportation modes will influence packaging costs.

Question 41

What is materials handling in logistics and why is it important to consider?

Answer 41

Materials handling is concerned with the mechanical equipment used for short-distance movement of goods in a warehouse. Logistics managers are concerned with the movement of goods from transportation vehicles to the warehouse, the placement of goods in a warehouse, the movement of goods from storage to order-picking areas, and eventually to dock areas for transportation out of the warehouse. Materials handling designs should be coordinated to ensure congruity between the types of equipment used and the storage devices they are moving.

Question 42

What is inventory control in logistics and why is it important?

Answer 42

Inventory control has two dimensions: assuring adequate inventory levels and certifying inventory accuracy. Assuring adequate inventory levels requires monitoring current inventory levels and placing appropriate replenishment orders from manufacturing or vendors to prevent stockouts. Certifying inventory accuracy is also important to track the status of current inventory levels.

Question 43

What is order fulfillment and why is it important in logistics?

Answer 43

Order fulfillment refers to the process of filling and shipping customer orders, and it is important in logistics because it directly affects the time it takes for a customer to receive their order. This is also known as order lead time. The four basic processes of order fulfillment are order transmittal, order processing, order preparation, and order delivery.

Question 44

What is forecasting and why is it important in logistics?

Answer 44

Forecasting is an important activity in logistics because it helps to meet inventory requirements for manufacturing efficiency and customer needs. Reliable forecasting is required to assure that proper inventory levels are maintained to meet customer requirements. Logistics and supply chain personnel should develop inventory forecasts in conjunction with manufacturing scheduling and marketing forecasts of demand.

Question 45

What is production planning and how does it relate to logistics?

Answer 45

Production planning is the process of scheduling production and calculating the number of units to manufacture to ensure adequate market coverage. This is important for effective inventory control. In organizations with multiple product lines that require manufacturing-process timing, production planning may require close coordination or actual control by logistics.

Question 46

How does procurement relate to logistics?

Answer 46

Procurement can be included in logistics because transportation and inventory costs are related to the geographic location of raw materials and other needed items to meet manufacturing needs. The quantities purchased also affect total logistics costs. Procurement decisions need to be made from a systems perspective.

Question 47

What are the two dimensions of customer service that are important to logistics?

Answer 47

The two dimensions of customer service that are important to logistics are the process of interacting directly with the customer to influence or take the order, and the levels of service an organization offers to its customers. Logistics plays an important role in ensuring that the customer gets the right product at the right time and the right quantity, which impacts product availability and lead time, both critical to customer service.

Question 48

Why is facility location important in logistics?

Answer 48

Plant and warehouse site location can alter time and place relationships between facilities and markets or between supply points and manufacturing facilities. Such changes will affect transportation costs and service, customer service, and inventory requirements. Therefore, the logistics manager is concerned and should provide input for facility location decisions.

Question 49

What are some other areas that can be considered a part of logistics?

Answer 49

Other areas that can be considered a part of logistics include parts and service support, return goods handling, and salvage and scrap disposal. Logistics managers can also provide valuable input for product design as well as to maintenance and supply services, since transportation and storage decisions impact these decisions. These areas may require the development of a reverse logistics system that will allow used, broken, or obsolete products to be returned to the supplier for disposition which is usually managed in the logistics area directly or through a third party logistics service provider.

Question 50

What is the impact of the reduction in logistics costs on organizations operating in the economy?

Answer 50

The reduction in logistics costs as a percent of GDP has resulted in a significant improvement in the overall logistics systems of organizations operating in the economy. This reduction in relative cost allows organizations to be more competitive as it directly impacts the cost of producing goods.

Question 51

How did the reduction in logistics costs contribute to the turnaround in the U.S. economy in the early 2000s?

Answer 51

A: It can be argued that the reduction in relative logistics costs was one of the factors that contributed to the turnaround in the U.S. economy in the early 2000s.

Question 52

What are the three major categories of logistics costs?

Answer 52

The three major categories of logistics costs are warehousing and inventory costs, transportation costs, and other logistical costs.

Question 53

What are warehousing costs?

Answer 53

Warehousing costs are those associated with the assets used to hold inventory.

Question 54

What are inventory costs?

Answer 54

Inventory costs are all the expenses associated with holding goods in storage, including carrying costs (interest expense or opportunity cost associated with investment in inventory, risk-related costs such as obsolescence and depreciation, and service-related costs such as insurance and taxes).

Question 55

What are transportation costs?

Answer 55

Transportation costs are the total national expenditures for the movement of freight in the United States.

Question 56

What is the third category of logistics costs?

Answer 56

The third category of logistics costs is the administrative and shipper-related costs associated with managing logistics activities and personnel.

Question 57

When did the declining trend for logistics costs relative to GDP start?

Answer 57

The declining trend for logistics costs relative to GDP started in the early 1980s.

Question 58

What factors contributed to the declining trend for logistics costs relative to GDP?

Answer 58

Two factors that contributed to the declining trend for logistics costs relative to GDP were the deregulation of transportation and the improved management of inventory levels. Another factor was the focus by many organizations on cash flow, which resulted in more emphasis on inventory turnover.

Question 59

What are the two largest cost categories in any organization’s logistics system?

Answer 59

The two largest cost categories in any organization’s logistics system are transportation and inventory costs.

Question 60

Which cost category is usually the single largest variable in an organization’s logistics system?

Answer 60

Transportation is usually the single largest variable cost category in an organization’s logistics system.

Question 61

What does the level of expenditure on transportation reflect?

Answer 61

The level of expenditure on transportation reflects not just the lowest transportation rates, but also the value to shippers of the service provided by motor carriers and importance of landed costs.

Question 62

What is the micro dimension of logistics?

Answer 62

he micro dimension of logistics examines the relationships between logistics and other functional areas in an organization, including marketing, manufacturing or operations, finance and accounting, and others.

Question 63

Why do logistics-related flows tend to be horizontal in an organization?

Answer 63

Logistics-related flows tend to be horizontal in an organization because they cut across traditional functional boundaries, particularly in today’s environment with emphasis on the supply chain.

Question 64

What is a classic interface between logistics and manufacturing?

Answer 64

A classic interface between logistics and manufacturing relates to the length of the production run.

Question 65

How can shorter production runs provide flexibility to meet short run changes in demand?

Answer 65

Shorter production runs with more efficient set-ups can provide flexibility to meet short run changes in demand.

Question 66

What is the current trend toward in manufacturing systems?

Answer 66

The current trend toward in manufacturing systems is “pull” systems where the product is “pulled” in response to demand as opposed to be “pushed” in advance of demand.

Question 67

Why do production managers usually produce in advance of holidays or events?

Answer 67

Production managers usually produce in advance of holidays or events to minimize manufacturing cost and potential stockouts.

Question 68

What is the responsibility of the logistics manager in ensuring adequate raw materials and components for production?

Answer 68

The logistics manager should ensure that available quantities of raw materials and components are adequate to meet production schedules yet are conservative in terms of inventory carrying costs.

Question 69

What is the relationship between logistics and industrial packaging?

Answer 69

Industrial packaging is often considered a logistics responsibility because its primary purpose is to protect products from damage during manufacturing or transportation. This is separate from the marketing or promotional value of consumer packaging.

Question 70

How does logistics interface with marketing?

Answer 70

Logistics plays an important role in the outbound side of an organization’s logistics system, which can impact the sale of a product. In some cases, order fulfillment can be the critical element in making a sale. Collaboration between logistics and marketing is necessary to ensure the right product is provided at the right time, place, quantity, and cost.

Question 71

What is the relationship between pricing and transportation costs?

Answer 71

Organizations often offer discount schedules for larger purchase quantities, and if such schedules relate to transportation rate discounts based on weight, both the shipper and customer can reduce total transportation costs. Under the Robinson-Patman Act and related legislation, transportation cost savings are a valid reason for offering a price discount.

Question 72

Why is the logistics manager interested in the volume requirements of the pricing schedule?

Answer 72

The volume requirements of the pricing schedule impact inventory requirements, replenishment times, and other aspects of customer service. An organization should consider its ability to provide sufficient volumes within an attractive price schedule. The logistics manager should be notified of pricing specials so that they can adjust inventory levels to meet projected demand.

Question 73

How does product design impact logistics and supply chain systems?

Answer 73

The size, shape, weight, packaging, and other physical dimensions of products impact the ability of logistics and supply chain systems to move and store the products. The logistics manager can offer input to minimize problems when marketing is deciding on the physical dimensions of new products. Changes to established products, such as new package designs or sizes, can also impact the utilization and costs of warehousing and transportation.

Question 74

How do the physical dimensions of products affect logistics and supply chain systems?

Answer 74

The size, shape, weight, packaging, and other physical dimensions of products impact the ability of logistics and supply chain systems to move and store the products.

Question 75

What role can the logistics manager play in minimizing problems related to product dimensions?

Answer 75

The logistics manager can offer input to minimize problems when marketing is deciding on the physical dimensions of new products.

Question 76

Can changes to established products impact warehousing and transportation costs?

Answer 76

Yes, changes to established products, such as new package designs or sizes, can impact the utilization and costs of warehousing and transportation.

Question 77

What are some important internal functional interfaces for logistics in a product-oriented organization?

Answer 77

While manufacturing and marketing are probably the two most important internal functional interfaces for logistics in a product-oriented organization, there are other important interfaces such as finance and accounting.

Question 78

How can logistics positively impact return on assets (ROA)?

Answer 78

Logistics can positively impact ROA in several ways. First, reducing inventory levels reduces the asset base as well as the corresponding variable expenses, thus having a positive impact on ROA. Second, if an organization owns its warehouses and transportation fleet, they are fixed assets on the balance sheet. If these assets are reduced or eliminated, ROA should increase. Finally, the focus on customer service can increase revenue, and as long as the incremental increase in revenue is larger than the incremental increase in the cost of customer service, ROA will increase.

Question 79

Why are accounting systems critical for logistics?

Answer 79

Accounting systems are critical for providing appropriate cost information for analysis of alternative logistics options. The recent interest in customer profitability and the related cost accounting systems such as activity-based costing (ABC) has been beneficial to improving the quality of logistics data and analyses. Accounting systems are also critical for measuring supply chain tradeoffs and performance.

Question 80

How does order cycle length directly affect inventory levels?

Answer 80

Order cycle length directly affects inventory levels. Shorter order cycles reduce the inventory required by the customer. Longer order cycle times usually necessitate higher customer inventories. Therefore, reducing order cycle time could be as important as a price reduction.

Question 81

Why is customer service important in terms of substitutability?

Answer 81

Substitutability very often affects the importance of customer service. If a product is similar to other products, consumers may be willing to substitute a competitive product when a stockout occurs. Therefore, customer service is usually more important for highly substitutable products than for products that customers are willing to wait for or back-order. An organization wishing to reduce its lost sales cost, which is a measure of customer service and substitutability, can either spend more on inventory and/or spend more on transportation to reduce the order cycle.

Question 82

How does substitutability affect the importance of customer service?

Answer 82

Substitutability affects the importance of customer service as consumers may be willing to substitute a competitive product when a stockout occurs for products that are similar to other products. Therefore, customer service is usually more important for highly substitutable products than for products that customers are willing to wait for or back-order.

Question 83

What can an organization do to reduce its lost sales cost?

Answer 83

An organization can either spend more on inventory and/or spend more on transportation to reduce the order cycle. By increasing inventory costs or increasing the reorder point, organizations can usually reduce the cost of lost sales. Similarly, companies can trade off increased transportation costs against decreased lost sales costs by spending more on transportation service to improve customer service. However, most organizations willingly do this only up to the point where the marginal savings in lost sales cost equals the marginal increment associated with the increased transportation cost.

Question 84

How does the dollar value of a product affect logistics costs?

Answer 84

The dollar value of a product typically affects warehousing costs, inventory costs, transportation costs, packaging costs, and even materials-handling costs. As the product’s dollar value increases, the cost in each identified area also increases. Higher value products are often more susceptible to damage and loss and/or require more care in the movement, resulting in higher transportation prices. Warehousing and inventory costs also increase as the dollar value of the product increases, as more working capital is invested in inventory and the risk factor for storing higher-value products increases.

Question 85

What is product density and how does it affect logistics costs?

Answer 85

Product density refers to the weight/space ratio of the product. As the density of a product increases, its transportation and warehousing costs tend to decrease. Transportation providers consider how much weight they can fit into their vehicles and quote their prices in dollars and cents per hundred pounds, so they can charge a lower price per hundred pounds on high-density items since they can fit more weight into their vehicle.

Question 86

How does susceptibility to damage affect logistics costs?

Answer 86

The greater the risk of damage to a product, the higher the transportation and warehousing cost. Higher prices are charged by both transportation and warehousing providers for more fragile goods due to a higher degree of risk and liability associated with them, as well as measures that need to be taken to prevent product damage.

Question 87

What is the impact of special handling requirements on logistics costs?

Answer 87

Special handling requirements for products, such as refrigeration, heating, or strapping, can increase warehousing, transportation, and packaging costs.

Question 88

What are spatial relationships and why are they significant to logistics?

Answer 88

Spatial relationships refer to the location of fixed points in the logistics system with respect to demand and supply points. They are very important to transportation costs since these costs tend to increase with distance. The location of supply and demand points can impact logistics costs and strategies for moving goods efficiently.