GS 120 – iGlobalization: Moving The Things We BuyProfessor: Dr. Jean-Paul Rodrigue

Hofstra University, Department of Global Studies & Geography

Topic 6 – Logistics and Supply Chain Management

A – Logistics and Value ChainsB – Distribution FacilitiesC – Distribution Systems

A – The Role and Function of Logistics

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Logistics

■ Is there a difference between logistics and supply chain management?• Yes and no…• A wide set of activities dedicated to the transformation and

distribution of goods, from raw material sourcing to final market distribution as well as the related information flows.

■ Physical distribution• Activities involved in the movement of goods from points of

production to final points of sale and consumption.■ Materials management• Activities involved in the manufacturing of commodities in all

their stages of production along a supply chain.

The Nature of a Supply Chain

Supplier CustomerManufacturer /Distributor

Orders

Transportation

Orders

Transportation

InventoryParts or

raw materials

In-process inventoryParts or

finished goods Inventory

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Logistics Goals and Operations

Fulfillment (Goals)Order• Right product• Right quantity

Delivery• Right location• Right time

Quality• Right condition

Cost• Right price

Demand (Operations)

Transportation• Handling• Packaging

Stock Management• Production

scheduling• WarehousingOrders Processing• Sales• Purchase

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A Simple Distribution between a Supplier and a Customer…

… can Generate a Large Amount of Logistics Activity

Value Added by Logistics

Production CostsImproved efficiency of manufacturing with appropriate shipment size, packaging and inventory levels.LocationTaking better advantage of various locations, implying access to expanded markets (more customers) and lower distribution costs.TimeHaving goods and services available when required along the supply chain.

ControlBetter marketing and demand response.

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Supply Chain Differentiation: Selective Performance Preferences

CostsStability of the cost structure.Dependent on the cargo being carried.TimeInfluence inventory carrying costs and inventory cycle time.Routing options in relation to value / perishability.ReliabilityStability of the distribution schedule.Reliability can mitigate time.

RiskLevel of confidence that the shipment will reach its final destination within expected costs, time and reliability considerations.

Explain how logistics adds value and how supply chains are differentiated.

Logistical Improvements, Manufacturing Sector, 1960s to 2010s

1960s 1970s 1980s 1990s 2000s 2010s0

2

4

6

8

10

12

14

16

18

20

0

5

10

15

20

25

30

35

40

35

25

74 3 2

Logistics Costs (% GDP) Inventory Costs (% GDP)Cycle Time Requirements (days)

% o

f GDP

Days

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Logistic Performance Index, 2016

Worldwide Logistics Costs, 2002

39%

27%

24%

6%4%

Chart Title

TransportationWarehousingInventory CarryingOrder ProcessingAdministration

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What are the main components of logistics costs and what do they mean?

Warehousing costs: fixed costs of owning or leasing warehousing space. They vary according to the number and the size of facilities and are irrespective of the amount of inventory being handled.Inventory carrying costs: variable costs of maintaining inventory in a warehouse (utilities, insurance, taxes, labor costs). It varies according to the volume handled.

Logistics Costs and Economic Development

0 10,000 20,000 30,000 40,000 50,000 60,000 70,0000

5

10

15

20

25

30

35

United StatesJapan

South Korea

Singapore

Malaysia

Thailand

Vietnam

Indonesia

China

Peru

ArgentinaBrazil

Colombia

MexicoChile

South Africa

FranceIndia

Finland

AustraliaCanada

Germany

GDP per Capita (in current US dollars)

Logi

stics

Cos

ts (S

hare

or G

DP)

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From Push to Pull Logistics

Supplier Supplier Supplier

Manufacturer

Customer

Distributor

Supplier Supplier Supplier Supplier

Supplier Supplier Supplier

Manufacturer

Distributor

Customer

3PLReturns / Recycling

Point-of-sale data

Freight flow

Push Pull

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Main Actors of the Logistics Chain

Cargo owners Carriers

Logistics service providers

Lead logistics providers & consultants

Layers to Logistics Services

1PL2PL

3PL4PL

Manufacturing, Retailing

Transportation

Logistics

Supply chainmanagement

Cargo owners

Carriers

Logistics serviceproviders

Lead logistics providers& consultants

Supply chain integration

Actors Services

Service integration

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Value Chains

■ Definition• Functionally integrated network of production, trade and

service activities.• Covers all the stages in a supply chain:

• Transformation of raw materials.• Intermediate manufacturing stages.• Delivery of a finished good to a market.

• A series of nodes, linked by transactions, such as sales and intra firm transfers.

• Each successive node involves the acquisition or organization of inputs for the purpose of added value.

The Commodity Chain (or Value Chain)

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Explain the three main stages of a value chain

Transport Chain

Rawmaterials

Manufacturingand assembly Distribution

Bulk shipping Unit shipping

High volumesLow frequency

Low volumesHigh frequency

LTL shipping

Average volumesHigh frequency

1- Commodities 3- Final Goods2- Intermediate Goods

Attributable to climatic (agricultural products, forestry products) or geological (ores and fossil fuels) conditions.

Transformation that confers added value. Materials and parts used to make other goods.

Goods shipped to large consumption markets (cities). Flow and inventory management.

StagesMarket

Flows

Market

Storage Warehouse Distribution center

Benefits of Improved Freight Transportation on Value Chains

Direct

Indirect

Induced

Cost reductions to carriers and shippers.Reduced transit times.Increased reliability of shipments.

Improvements in logistics and sourcing.Lower inventory levels and costs.

Lower costs for suppliers and customers.Improved diversity of parts and goods.

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Value Chains and Types of Transported Freight

Extraction

Transfer Processing

Intra-industrial linkages

ManufacturingRetailing

Distribution

Raw materials Semi-finished products Manufactured goodsRead this content

The Automobile Supply Chain

Supplyingindustries

Steel and

other metalsRubber

Electronics

Plastic

Glass

Textiles

Bodies

Components

Engines and transmissions

Final Assemb

ly

Manufacture and

stamping of body panels

Body assembling

and painting

Manufacture of mechanical and electrical components (wheels, tires, seats, breaking systems,

windshields, exhausts, etc.)

Forging and casting of engine and transmission

components

Machining and assembly of engines and

transmissions

Consumer

market

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Commodity Chains and Added ValueRead this content

Global value chains involves competition over three main dimensions. What are they?

Value Chain

Adde

d Va

lue

Low

High

Manufacturing

R&D Fabrication

DistributionProcurement

Design / Branding Marketing

Sales / Services

Concept Logistics

Production(Tangible Activities)

Pre-Production(Intangible)

Post-Production(Intangible)

Short Assignment: Logistics Goals and Operations

Logistics has several goals. Explain what they are and how they are achieved.

B – Distribution Facilities

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Warehouses versus Distribution Centers

■ What are the differences between a warehouse and a distribution center?• Both are physically similar with docking areas and storage

racks.• Time; inventory is stored in a DC for shorter periods of times

than a warehouse (days or weeks).• A warehouse tends to be supply-driven while a DC is focusing

on the demand.

Warehouses versus Distribution Centers

■ Warehouse (Storage)• Holding goods in inventory for an extended period of time and

releasing them on demand.• Ownership of the cargo.• Usually a buffer related function.

■ Distribution center (Distribution)• Consolidating, deconsolidating, sorting a cargo load or

changing the load unit.• Cargo usually owned by others.• Usually a throughput related function.

Types of Freight Facilities

FabricationStorageDistributionHeavy manufacturingLight manufacturing

Bulk warehouseWarehouse

Multitenant facility

Cold storage facility

Distribution centerCross-docking facility

E-fulfillment centerSortation center

Urban logistics depot

ImportanceHigh

AverageLow

Intermodal TerminalBulk or transload terminal

Manufacturingfacilities

Terminalsfacilities

Storagefacilities

Distributionfacilities

Parcelfacilities

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Container Terminal, Port of Gothenburg, Sweden

Coal Bulk Facility, Mobile, Alabama

Bulk Warehouse (Corn)

Aluminum Parts Warehouse

Walmart Distribution Center

Cold Storage Facility

Grocery Chain Cold Storage Facility, Regina

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Large Scale Grocery Cold Chain Distribution Center

Storage / Sorting

Outbound

InboundAmbient (20 °C)‘Banana’ (10 °C)Chilled (2 °C)Freeze (-10 °C)

Suppliers

Customers

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Subtropolis Distribution Center, Kansas City

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Amazon E-Fulfillment Center

Amazon Sortation Center

Extended Distribution Center System of JVC Belgium

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Palletization of “Floor Loaded” Shipments, Belgium

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The Role of Distribution Centers and Warehouses

Production unit

Distribution center

Retail store

Deliveries

Deliveries

Producers’ warehouse

Distribution Center Only

Distribution center

Deliveries

Deliveries

Deliveries

Distribution Center and Warehouse

Delivery vehicle

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Consignment

Cross-Docking Distribution Center

Suppliers

Customers

Receiving

Shipping

Sorting

LTL

Suppliers

Customers

FTL

FTL

Cross-Docking DC

Distribution Center Before Cross-Docking

After Cross-Docking

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Asynchronism and Distribution Centers

Production and Consumption

Shipment Size

Supply Chains

Consumption

Production

DC

DC

DC

Market Areas

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Optimal Location and Throughput by Number of Freight Distribution Centers

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Short Assignment: Distribution Facilities

Explain what are the main types of distribution facilities and the role they each play

C – Distribution Systems

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Read section 1

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The Evolution of Retail Logistics

1970sDirect

replenishment

Suppliers / Wholesalers Stores

1980sRationalization

Distribution Centers

1990sGlobal sourcing

Overseas suppliers

Domestic suppliers

Import Centers

2000s

E-fulfillment centers

Parcel hubs

Sortation centers

Parcel delivery centers

Local depots

Customer home

Collection pointE-commerceDelivery point

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Logistics Facilities Supporting E-commerce

Facility Type Facility Attributes Locational AttributesE-Fulfillment Center Large-sized facility (half a million to one

million square foot).Cross-docking configuration common.High racks storage.Push towards automation.

Low land costs.Proximity to highway.Access to a major parcel hub.

Parcel Hub / Sortation Center

Large-sized facility (half a million square foot).Cross-docking configuration for handling trucks.Automated and semi-automated sortation.

Low land costs.Accessibility to regional distribution.

Parcel Delivery Center / Urban Logistics Depot

Medium-sized facility.Cross-docking configuration for loading vans.

Periphery of metropolitan areas.

Freight Station / Pickup Location

Small or micro-sized facility.Store-like facility (pickup location).Locker banks (freight station).

High density neighborhood locations.

The Courier, Express and Parcel Market

Same Day

Next Day

Day KnownDay

UnknownDocum

ent Parcel LTL FTL1 kg

(2.2 lbs)32 kg

(70 lbs)10,000 kg

(22,000lbs)

Air / Road ExpressPriority ExpressDeferred ExpressPostal

Freight Forwarder

Express Freight

Air CharterCourier, Express, Parcel

Retail Logistics and E-commerce

Retailer(In store inventory)

Suppliers

E-Retailer

Customers Customers

Suppliers

RDC

Conventional Retail Logistics

Travel to store

Online purchases

Store Deliveries

E-commerce Retail Logistics

Home Deliveries

Parcel Delivery Company

RDC

Regional Distribution Center

Order

RDC

Read this contentExplain the main logistical differences between standard retailing and e-commerce

Footprint of Retail-Based and Distribution-Based Commercial Activities

Com

mer

cial

Foo

tpri

nt

Retail Footprint

Distribution Footprint

Total Footprint

Retail-Based Distribution-BasedStore

Distribution center

Information Technologies

Consumer

COMMERCIAL E-COMMERCIAL

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Order-Delivery Sequence of an Apple iPad

Note: Path is approximate

Order Fulfillment (Cycle time of 12 days 18hrs 08min)Order placed online

3hrs 34min

Order processed

12 days 15hrs 34min

Shipment notification

Delivery (Lead time of 48hrs 11min)

2hrs 45min

Shipment notificationShipment picked up

4hrs 23minLeaving local DC

7hrs 34min

At Hong Kong hub

17hrs 04minAt Anchorage hub

1hr 57min

Cleared customs

1hr 22minLeft Anchorage hub

6hrs 03min

At Newark hub

4hrs 00minLeft Newark hub

1hr 11min

At local DC

2hrs 48min

Delivered

Consolidation (Shenzhen/HK) Transfer (Anchorage) Deconsolidation (NY Metro)

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Logistic Activities and their Green Dimensions

ConsumersProducers Distributors

CollectorsRecyclersReverse ChannelSuppliers

Forward Channel

Forward and Reverse Distribution

Product Design and Production

PlanningPhysical

DistributionMaterials

Management

Product designNear sourcingSustainable

sourcing

Certified distribution

facilitiesCertified carriers

Load consolidationAlternative modes

and fuels

PackagingRecycled inputs

Recyclable outputs (waste management)

How can logistics help promote sustainability?

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Packaging with Less Footprint

Concentrated Detergent

Packed Memory Foam Mattresses

The Cold Chain Market: Products, Geography and Distribution

Product• Physical attributes requiring

specific temperature and humidity conditions.

Geography (Origin / Destination)• The supply and demand of

perishable goods.• Distance and seasonality.Distribution• Infrastructural and managerial

capabilities.• Fixed and mobile assets.

Operational Conditions of Cold Chain Logistics

Conditional demand• Each product has a specific perishability.• Shelf life and revenue.• Demand conditional to qualitative

attributes.

Load integrity• Reefers as the common load unit.• Packing, packaging and preparation.• Empty backhauls.

Transport integrity• Uninterrupted integrity of the transport

chain (modes, terminals and DC).• Specialized modes (speed) and terminals?

Read this contentExplain the main elements of a cold chain

The Cold Chain Technology

Fabrication

Storage

Terminal

Transport

Monitoring

Preparation methods Packing

WarehousingDistribution center

Reefer storage

ReefersPower generators

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A Focus on the Maritime Reefer: Basic Facts and Figures

2.02 M TEUs of reefers (2011); 5% of the global capacity.$5,000 regular container; $30,000 for a reefer.12% less volume than a similar sized container.Cold chain products usually heavier.FCL use for point to point trade.White paint for higher albedo.

Availability of Fresh Produce by Season and Region

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

ApplesArgentina

ChileNew ZealandUnited States

CitrusUnited States

ChilePeru

Australia

AvocadosChile

PeruMexico

Bananas Ecuador, Costa Rica, ColombiaPineapples Costa Rica, Ecuador, Philippines

Grapes

BrazilChile Chile

MexicoPeru Peru

United States

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Temperature Standards for the Cold Chain

-30 -25 -20 -15 -10 -5 0 5 10 15

Deep Freeze

Frozen

Chill

Pharmaceutical

"Banana"

Degrees Celcius

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Shelf Life of Selected Perishable Food Products

Product Shelf Life (Days) Optimum Temperature (Celsius)Apples 90-240 0

Bananas 7-28 13.5

Bell Peppers 21-35 7

Cabbage 14-20 1

Eggs 180 1.1

Onions 30-180 1

Lettuce 12-14 0.6Fresh Meat (beef, lamb, pork, poultry) 14-65 -2

Oranges 21-90 7

Pears 120-180 -0.6

Potatoes 30-50 10

Seafood (shrimp, lobster, crab) 120-360 -17.8

Strawberries 5-10 0.6

Tomatoes 7-14 12

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Lettuce Shelf Life by Storage Temperature

0 5 10 15 20 250

2

4

6

8

10

12

14

Temperature (Celsius)

Shel

f Life

(Day

s)

Seaborne Reefer Trade, 2008

20%

7%

10%

3%

19%

24%

3%

14%

BananasCitrusDeciduous FruitExoticsFish & SeafoodMeatDairyOther

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Reefer Stacking Area, Maher Terminal, Newark

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Final Essay: Transport, Logistics and Globalization

Define iGlobalization…