Logistics Flashcards
- What is logistics and how is it related to supply chains?
• What are the main tasks (activities) in logistics? How are these related to SCM?
• Does logistics provide value? What type of value does logistics provide? how can this be measured and what’s the central challenge for logistics strategy with relation to performance?
The logistics tasks and activities:
Logistic is a part of supply chain management and it is moving goods from A to B.
Transport, handling and warehousing (packing and storage of goods)
Consideration: costs, modes of transportation, machines, and inventory control.
Trade-off: cost and responsiveness
“Logistics management ….. 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 customer requirements.”
CLM definition of Logistics Management (2003) as quoted in Mentzer et al. (2004)
Mentzer et al. (2004): Logistics services: As a service offering, logistics is often characterized by intensive customer contact, extensive customization requirements, and a reliance on extrinsic cues for service performance. Because of these qualities, logistics services are also subject to cultural influences that exist in cross-border trade.
A logistics department tries to control the following functions:
• Outbound transportation
• Administration
• Intra-company transportation
• DC-management
• Logistics system planning
SCM goes beyond this perspective
• By crossing organizational boundaries,
• By organizing supply-chain- wide information and process flows
If it did not provide any value at all, why should we then accept the costs?
Logistics is not simply transportation it there is also warehousing, handling etc.
→ Logistics provide time and “space value” different from production that provide “use-value”
Logistics objectives:
• Input i.e. logistics costs: labour, machines, material, energy, information
• Transformation: order processing, packing, inventory carrying
• Output i.e. logistics service/benefits: The right product, at the right place, at the right time
The measure of logistics value
Output of a logistics system = service
1. Cycle time = time span between the order setting and the order receiving
2. Flexibility = ability of a vendor to fulfil customer requirements
3. Constancy (reliability) = the likelihood of meeting the delivery time requirements
4. Quality = the difference between the order and the received products
5. Ability = is the vendor able to deliver?
The central challenge for Logistics strategy
• Logistics has strategic importance!
• Logistics can aid in competitive advantages
Structural changes in Supply Chains
Changes in production method JIT and flexible production
- Need for flexible, fast and individually tailored transportation systems, mostly centralized
- Reduced shipment sizes
- Increased shipment frequency
- Shift from local/regional sourcing to global sourcing
- Shift from mass to small scale production = favors road and air over rail and sea transport
- One European Market: 1. Deregulation of transport, 2. Removal of customs clearance, 3. Abolishing technical barriers
- What is the globalisation-logistics nexus (relationship)?
• - Why do transportation and logistics exist, and what is their role in global supply chains?
Due to the concept of space and time!
Connect A and B and coordinate the flows of products and information between A and B. There is distance/space: logistics is a space converting function, as customers are fare away from suppliers. Difference in quantity as well: break the bulk idea, consolidating etc. There is also the quality question: disintegrating and integration of the goods, which is the warehousing function. Thus, the time dimension, as supply and demand happens at different point in time.
Because of distance……
Logistics exists because of distance
Generally it is not directly from A to B (not an airporat at the manufacture or the customer), so there is e.g. transhipment.
Uneven space: unevenness is caused by many things: physical like mountains or bad infrastructure, and this affects time, quality (damaged during transportation), cultural space, which affects the information flow, documentation and technology, which also makes the distance more uneven etc.
→ Put Ghemawat on top of this (cultural aspect)
Space and time convergence: delta in travel time from A to B/delta in time from year X to year Y:
Space-time convergence=(∆Travel time)/(∆ Time)
Value of time should be coming from the demand side: alignment of decreasing time → where is the value adding activities happening in the world and why?
Hesse and Rodrigue
Core Geographical dimension of logistic
The conventional expansion of a distribution system (Fig. 4) involves a trade-off between marginal improvements of spatial coverage (DS) and the associated marginal time change (DT). In addition of being a factor of distance/friction/impedance, time is a component of flows, nodes and the expression of a network structure.
→ Supply chain management enables a more efficient space/time convergence, as the marginal difference is larger for space than for time!!!!
An important physical outcome of supply chain management is thus the concentration of storage or warehousing in one facility, instead of several.
Flows
The traditional arrangement of goods flow included the processing of raw materials to manufacturers, with a storage function usually acting as a buffer and a limited flow of information from the consumer to the supply chain.
Now instead, an outcome of supply chain management is the concentration of storage or warehousing in one facility, instead of several. This facility is increasingly being designed as a flow- and throughput-oriented distribution center (DC), instead of a warehouse holding cost intensive large inventories.
Nodes and Location
Today, particularly large-scale goods flows are directed through major gateways and hubs, mainly large ports and major airports, and at highway intersections with access to a market area.
Yet the strategy of concentrating freight at hub locations is increasingly becoming restricted, due to density, land constraints, and congested traffic arterials. As a consequence, so called ‘‘Inland Hubs’’ are becoming more and more important, where primarily road and airfreight is consolidated. (In Europe an example Netherland is chosen by many logistic companies)
Networks
Point-to-point distribution is common when specialized and specific one-time orders have to be satisfied, which often creates less-than-full-load as well as empty return problems.
Corridor structures of distribution often link high-density agglomerations with services such as the land bridge where container trains link seaboards. Traffic along the corridor can be loaded or unloaded at local/regional distribution centres.
Hub-and-spoke networks have mainly emerged with air freight distribution and with high throughput distribution centres favoured by parcel services
Routing networks tend to use circular configurations where freight can be transhipped form one route to the other at specific hubs.
- What is international logistics and what are the main challenges and solution (providers)?
• - What does International logistics management entail? What are the main logistics considerations, tasks, and actors (solution providers) in cross-border product movement?
From book chapter 9: Service mgtm. In SCs –Mikkola, Skjøtt-Larsen, Kinra and Kotzab.
Logistics as a service Mikkola, Skjøtt-Larsen, Kinra and Kotzab (2015)
The book have identified three waves of entrants into the third-party logistics market:
Asset-based logistics providers: TPL services as a natural extension of their core business
Network logistics providers: Started as couriers and express parcel companies built up to global transportation and communication networks, supplementary information services, proof-of-delivery and track-and-trace
Skill-based logistics providers: do not own physical logistics assets, provide consultancy and financial services, information technology and management skills, often subsidiaries or joint ventures, often merge with players from the previous waves to use them as subcontractors.
Third-party logistics
Since the early 1990s, there has been a pronounced change in shipper-logistics provider arrangements.
Initial driving force:
• Reduce costs - economies of scale and scope
• The conversion of fixed costs to variable costs
• Release capital for other purposes (don’t need to own warehouse, etc)
o Transfer financial risk to the third party
Strategic scope
• Increase market coverage and faster access
• Improve level of service
• Increase flexibility to meet changing customer requirements
Market transactions: no specific assets or integration, short term, often informal, no commitment, price competition, standard skills
Customized logistic solutions: transport and warehousing, asset specificity and integration are relatively low, shipper maintains management and control internally, broad range of standard services, only minor adjustments, typically limited to one year, price & cost savings
Joint logistics: operations of both parties are integrated, interfaces between information systems, inter-organizational teams, mutual trust, asset specificity is high, invest in facilities and personnel training, formalized agreements, tailored to the individual client
Lead logistics providers: highest degree of collaboration, traditional operational activities (warehousing, transportation, value adding services) and also management and optimizations of the client’s supply chain, IT competencies and global coverage, joint venture or long term contract, high system integration, interorganizational teams, exchange of personnel and specialized training, is the single interface “one stop solution” between the client and multiple logistic service providers
The term ‘lead logistics provider’ is used for a TPL provider, who has a single interface between the client and multiple logistics service providers. Lead
Obstacles in logistics outsourcing
• Loss of control over the flow of products and materials
• Risk can be reduced through linked information systems
• TPL going out of business, disruptive events
• Evaluate financial strength and stability beforehand
• Lack of hard cost data on existing logistics systems
• Conflicting objectives among different internal organizations
• Linking two organizations with differing goals / result may be service failure
• - What are the concepts of derived, induced and integrated demand? How are these related to the changing role of transportation and logistics in globalisation and the set up of cross-border supply chains?
Induced (independent) demand: (push) demand for logistic is not derived from a product but still exist (used clothing when going back)
Derived demand: (pull) demand for logistics is derived from a product being shipped
Independent demand? → Integrated demand: demand for logistics is closely related to the production (Hesse and Rodrigue, 2004)
Hesse & Rodrigue, 2004
Aim of the paper
This paper provides an overview of the emerging transport geography of logistics and freight distribution. It challenges the traditional perspective where transportation is considered as a derived demand with the idea that logistical requirements underline transportation as a component of an integrated demand. The paper provides also an analysis of the evolution of logistics.
The main Subject
- Logistics consider the wide set of activities dedicated to the transformation and circulation of goods.
- These activities composing logistics are included into two major functions:
o Physical distribution (PD) is the collective term for the range of activities involved in the movement of goods from points of production to final points of sale and consumption
• (Transportation services, transhipment, warehousing services, wholesale, retail…)
• Conventionally, all these activities are assumed to be derived from materials management demands.
o Materials management (MM) considers all the activities related in the manufacturing of commodities in all their stages of production along a supply chain.
• (Production, marketing, demand forecasting, inventory management…)
• All these activities are assumed to be inducing physical distribution demands
→ However, the close integration of PD and MM through logistics is blurring the induced/derived demand distinction. This implies that distribution, as always, is derived from materials management activities (namely production), but also, that these activities are coordinated within distribution capabilities. Moreover, since customers tend to not place any difference between the product and the distribution system that supplies it, transportation functions are gaining importance and are now difficult to consider transportation solely as a derived demand.
This paper has argued that because of logistical integration, transport cannot be solely considered as a derived demand, but as an integrated demand where physical distribution and materials management are interdependent.
History of Logistic
Every ‘‘long wave’’ in the process of industrialization embodies distinct transportation orientations and appropriate infrastructures requirements.
In the 1960s, logistics was an activity divided around the supplying, warehousing, production and distribution functions, most of them being fairly independent from each other.
During the 1980s, the application of lean management permitted the reduction of inventories in time sensitive manufacturing activities from several days’ worth to several hours. Moreover, the firms started following a more integrated approach when dealing with the traditional logistics functions, aiming to respond to the upcoming demand for flexibility and low costs.
This effort towards a deeper integration between the logistics functions continued in the 1990s and was empowered by the improvements in the information and communication technologies. Next, step by step, the two ends of the assembly line became integrated into the logistics of the supply chain: the timely supply of raw materials and components from outside, and the effective organization of distribution and marketing.
While cycle time requirements substantially decreased from the 1960s to 1980s, this came at the expense of growing logistics costs, notably inventory. From that point on, the major achievements were related to productivity gains in distribution, reduction of cycle time requirements, and inventory costs.
Compared with the former, more traditional shape of the freight transport system, the evolution of supply chain management is mainly characterized by four features:
- Integrated supply chains with integrated freight transport demand.
- Whereas transport was traditionally regarded as a tool for overcoming space, now logistic is critical in term of time.
- While traditional delivery was managed by supply side, current supply chains are managed by the demand
- Logistics services are becoming complex and time sensitive, thus many firms are sub-contracting parts of their supply chain to 3PLs.
• - What are the main international logistics related challenges and how may these be addressed?
How to do the environmental analysis? E.g. make or buy decision
Logistics-related challenges and some strategies of LSPs (Mentzer et. al. 2004)
• The challenge for logistics service providers is to create a logistics services segmentation strategy that can cater to needs of global supply chains
• The world is in some areas of logistics services, semi-globalised & nationalised in others.
• Both organizational characteristics, and national & regional characteristics matter
• The global logistics market may be segmented as:
• – Horizontally (like a global or regional strategy) - according to homogeneous market segments that run across the world.
• – Vertically (like an international business strategy) - according to heterogeneous market segments that are characterized by country particularities.
Aim of the paper:
This article argues that logistics service quality (LSQ) components can be used to identify global, horizontal and vertical segments of logistics services customers, and that cultural and organizational characteristics may modify the LSQ–customer satisfaction relationship.
By identifying specific customer segments, some which may transcend national borders, logistics managers can benefit from reduced costs, enhanced revenue, and the ability to differentiate their offering from the highly competitive marketplace.
The article investigates two research questions that are important to the development of global logistics for the multinational firm:
- What logistics service factors account for differences in business customer satisfaction across national borders? In other words, what value differences exist for specific logistics functions across customers?
- How do these differences reflect distinct segments in the global logistics services market?
Building upon this literature, Mentzer et al. (1999) conceptualized and tested LSQ as a second-order construct, with two categories of nine dimensions:
• Order placement—personnel contact quality (PQ), order release quantities (OR), information quality (IQ), ordering procedures (OP), and
• Order receipt—order accuracy (OA), order condition (OC), order quality (OQ), order discrepancy handling (OD), timeliness (TI).
P1: Horizontal market segments exist such that different customer groups’ satisfaction level responses are driven by the same sets of LSQ dimensions of perception of order placement activities and perception of order receipt and in the same process manner.
P2a: Horizontal market segments exist such that customers with similar organizational characteristics place similar emphasis on the LSQ dimensions of perception of order placement activities.
P2b: Horizontal market segments exist such that customers with similar organizational characteristics place similar emphasis on the LSQ dimensions of perception of order receipt.
P3: Vertical market segments exist such that the effects of dimensions of LSQ on customers’ satisfaction level response are moderated by national and regional variables.
Findings
The main finding of the article is that they present a new approach on how to segment the global market not based on regions but instead focusing on customer preferences. This approach to market segmentation assists in the identification of market segments across nations and regions, whereby logistics service offerings may be customized to customer preferences for specific service attributes. There are three good arguments for this:
1) Costs reduction
2) Customization of logistics services offerings
3) Firms can benchmark specifically on the customer preferences and thus increase their specific offerings
Critique of the paper or critique in the paper
The paper criticizes the majority of research as it has focused on the identification of customer characteristics relevant to the segmentation of markets for tangible goods, rather than services. Services are more likely candidates for customization for market segments since service expectations differ across national and cultural boundaries, enhanced personal interaction frequently occurs in service settings, and service use patterns frequently differ across countries.
DSV presentation:
Main issue: value problem in the market
Main trends in the logistics industry
1. Customer demand and market changes
• Shifting towards the east while manufacturing is being nearshored
2. Industry consolidation
• M&A and organic growth of big players
3. New technology
• Robotics, predictive analytics, 2D printing, block chain, internet of things etc.
20 year ago – offshoring Ability to forecast demands allowed for long lead times Drivers: - Race to minimize unit costs - Labour arbitrage - Etc.
Today- near shoring
- Speed to market over marginal cost advantages
- If you look at labour arbitrage it is becoming less beneficial partly do to automation
How DSV responds to these changes
- SC innovation: optimised (better/leaner) = greener SCs
o Different value propositions, that have different customer service goal
• Segmentation extremely important
• Different changes need different attributes
o E.g. you want to optimise your sales window for unpredictable demand products
o Once the goals is understood we can understand the strategy needed i.e. demand planning, supply planning and inventory modelling
• Then it is possible to determine the inventory strategy
• Overstocked and poor availability level
• As well as location strategy (center of gravity and location analysis)
• Hence then we can decide upon transport strategy
o Lead time mapping
- Lead logistics
o Enabling intelligent SC: orchestrating everything (management from end to end
- Digitalisation
o Huge investment
- M&A
o Convert 100% to cash which is different from asset heavy companies
- Innovation lab
