Logistica 1

industrielogistik
International Logistics
Programa de Ingeniera Industrial
Universidad de Ibagu
Prof. Helmut E. Zsifkovits

Montanuniversitt Leoben, Austria
Course Objectives
Understand the trends and challenges in international logistics

Know approaches to Supply Chain strategy planning
Describe supply chain configurations and the associated roles
Examine transportations role in logistics and its relationship to
other processes
Examine international dimensions of transportation
Describe alternative transport modes, intermodal
combinations, and other transportation options
Examine the issues of transportation cost and performance
measurement
Identify major risks and technolgy enablers
Understand related terminology
Helmut E. Zsifkovits - International Logistics
Contents
Course Structure
Methodology
Lecture
Real-life examples and cases
Team and individual exercises
Evaluation
Exams (written)
50 %
Class works (small projects, with presentation) 30 %
Final work
20 %
Bibliography
Recommended:
Ronald H. Ballou: (Management) Business Logistics
Management - Planning, Organizing, and Controlling the
Supply Chain [available in the library]
Douglas M. Lambert et al., Fundamentals of Logistics
John Mangan, Chandra Lalwani & Tim Butcher, Global
Logistics a& Supply Chain Management
Additional:
Martin Christopher, Logistics & Supply Chain Management:
creating value-adding networks [available in the library]
David Simchi-Levi, Philip Kaminsky, and Edith Simchi-Levi,
Managing the Supply Chain: The Definitive Guide for the
Business Professional, 2003
David Simchi-Levi (Modeling, Algorithms) [available in the
library]
Trends in World Trade

Challenges for Logistics
Lean vs. Agile Supply Chains
Case: Nord Stream
1. THE INTERNATIONAL
BACKGROUND
Global Challenges
Source: The Millennium Project (UN), 2010 State of the Future

Challenges Facing Logistics and Supply

Chain Management
Challenges
Examples
Demographic
changes
Aging domestic populations require new markets for existing

products, new products for existing markets;
Population growth to 9 billion (2050), 60 % live in cities
Geopolitical
changes
The rise of the BRIC countries is driving a change in global

power structures and economic centers of gravity;
Global player companies (acting in more than one
continent): 17,000 (1990), 75,000 (2009), 170,000 (2020)
Environmental
concerns
Pressures to reduce carbon emissions, waste, and resource

use are driving location and operational considerations
Technology
Smart networks and auto-ID technologies are enabling the

"network of things"
Supply chain risks
Increased complexity and length of supply chains are

causing concerns about disruptions and delays
Source: Grosse-Ruyken, Jnke, Wagner, and Franklin (2011); Straube (2010)

Risk Issues
Emerging risk issues which will impact the world economy
and society in the decade ahead (World Economic
Forum 2008):
Systemic financial risks

Food security
Energy supply
Supply chain disruptions and
supply chain vulnerability
Source: Wagner 2010

Adverse Events Affecting Supplies
Source: Wagner 2010

10
Volatility Poses Risks
Source: Wagner 2010

11
Supply Chain Concepts
Source: Langley 2010

12
Supply Chain Trends Europe
Centralisation of European
supply chain structures
Shortening product life
cycles
Outsourcing of warehousing
and transport operations to
logistics service providers
Consolidation in the logistics
service provider industry
Global operations
Country or customer
specific assembly or kitting
operations as close to the
customer as possible
13
Location: Logistics Criteria Decide

Location decision criteria
Level of
importance
Explanation
How good is the transport infrastructure (rail, road, air, inland water / sea,
multi-modal) within each country?
Transport infrastructure
Wages and benefits
What are the labour costs within each country?
How well is the country aligned with major seaports?
Proximity to seaports
General business environment How easy is it to do business in each country?
How well is the country aligned with major airports?
Proximity to airports
How well is the country aligned with major rail hubs?
Proximity to rail hubs
Labour availability
How easy is it to find employees for a facility / operation?
Labour flexibility
How easy is it to adjust employee numbers to the volatile marketplace?
How close is the country situated to major European customer areas?
Proximity to customers
How close is the country situated to major European industry supplier
Proximity to suppliers /
areas?
sources
Real estate costs
What are the total costs of real estate?
How many incentives does each country provide to companies in this
Incentives
industry?
Corporate taxes
How many corporate income taxes need to be paid in each country?
Multilingualism
How multi-lingual are the countrys inhabitants?
What is the congestion risk in each country?
Congestion risk
How good is the utility infrastructure (gas, water, electricity) within each
Utility infrastructure
country?
Source: Cap Gemini/Ernst & Young
14
5
5
4
4
3
3
3
3
3
3
3
3
3
2
2
1
Supply Chain or Supply Network?
Deliver
Source
Your Supplier
Make
You
Deliver
Source
Your Customer
Source: SCC, Fraunhofer IML (2001)

15
Role of Emerging Markets

in Global Supply Chains
China Factory of the World

India Service Factory of the World
Eastern Europe Factory of Europe
Latin America, Russia Resources of
the World
United Arab Emirates Hub of the
World
Source: Straube (2010)

16
Brazilian Export (2007)
jeans
ethanol
motorbikes&shoes
paper and textile
beer and aircrafts
cds and automotive

17
Brazilian Infrastructure (1)
timo
Bom
Regular
Ruim
Pssimo
=
=
=
=
=
very good
good
sufficient
bad
very bad
69 %

18
Brazilian Infrastructure (2)
Sao Paulo > 20 Mio. population

> 6 Mio. cars
1000 new cars per day
Weak public transportation system
> 200 km congestion

19
Globalization Issues
Growth in recent decades in international trade
Regional and country differences
(Unequal) distribution of economic wealth among
the worlds countries
Drivers for globalization
Role of multinational companies and impact of
overseas investment
Role of outsourcing and offshoring in global trade
and logistics
Role of logistics infrastructure
Unequal volumes or types of freight flow in opposite
directions in freight markets
20
Views on Globalization
Ethnocentricity:
a company when doing business abroad thinks and
acts as if they were still operating in their home
country
Polycentricity:
a company adopts the host country perspective
Geocentricity:
a company acts completely independent of
geography and adopts a global perspective, and
will tailor to the local environment as appropriate
(i.e. glocalisation)
21
Global Logistics Performance Index

Top 10 Countries in the Global Logistics Performance Index ( LPI)
1
Singapore
Netherlands
Germany
Sweden
Austria
Japan
Switzerland
Hong Kong, China
United Kingdom
10
Canada
22
Foreign Direct Investment (FDI) Flows

FDI Inflows and Outflows in 2005 (US$ billion)
Region
FDI Inflow
FDI Outflow
EU
422
555
USA
99
-13
Other developed economies
21
104
Africa
31
Latin America and Carribean
104
33
Asia
200
84
Oceania
0.4
South East Europe and the CIS
40
15
World Total
917
779
23
Outsourcing and Offshoring

Outsourcing: The transfer to a third party of the
management and delivery of a process previously
performed by the company itself
To reduce costs
To increase flexibility
To focus on core competences
To gain access to the latest technologies
Offshoring: The transfer of specific processes to

lower cost locations in other countries
Not the same as outsourcing
Outsourcing involves handing process ownership over to a
third party
In offshoring, the company may still own and control the
process itself in the lower cost location
24
Reasons for Offshoring
Some of the reasons why companies offshore

Lower costs in offshore regions
Less stringent regulatory control in offshore regions
Deregulation of trade facilities offshoring
Lower communications and IT costs
Improving capabilities in offshore regions
Clusters of specific activities (e.g. call centres) emerging in
certain regions
25
Directional Imbalances
Mismatches in the
volumes or types
of freight moving
in opposite
directions in a
freight market
Traditional versus circular routings

26
Overseas Site Selection Factors

Site Selection Factors
Labour costs
Political stability
Employment regulations
Environmental regulations
Available skills
Taxation rates
Land costs and availability of

suitable sites
Government supports
Energy costs
Currency stability
Availability of suitable suppliers
Benefits of being part of a cluster of

similar companies
Transport and logistics costs
Preferred locations of competitors
Transport linkages
Access to markets
Communications infrastructure and Community issues and quality of life

costs
27
Logistics - Supply Chain

Logistics involves getting, in the right way, the right product, in
the right quantity and right quality, in the right place at the
right time, for the right customer at the right cost
The supply chain is the network of organizations that are
involved, through upstream and downstream linkages, in the
different processes and activities that produce value in the
form of products and services in the hands of the ultimate
consumer
Supply chain management (SCM) is the management across
a network of upstream and downstream organizations of
material, information and resource flows that lead to the
creation of value in the form of products and / or services
Flows:
Physical flow of materials
Flow of information that inform the supply chain
Resources (finance, people and equipment
28
Logistics Goals - Service Level and Costs

Logistics Performance Goals
Service Level
Delivery time
Reliability
Flexibility
Condition of goods
received
Service Level
Logistics Costs
Control Costs
Inventory Costs
Warehouse Costs
Transport Costs
Handling Costs
Logistics
Costs
29
Service Level Policy (Example)

Delivery lead time:
delivery within 5 days
Reliability:
95% of deliveries within 5 days, 100 % within 10 days
Availability:
97% of A goods in stock
Delivery quality:
98% of orders right in type and quantity
Information:
Confirmation of availability and delivery schedule
within 4 hours
...
30
Logistics Costs (Manufacturing and Trade)

Compared to Gross Domestic Product (GDP)

Logistics costs are 8% to 12% of GDP

In the USA,

Compared to (US):

Transportation is approximately 60% of the total

Inventory 20-25%
Warehousing 9-11%
Advertising expenditures in 2007 - $279.6 billion or 2% of GDP.
Health care spending in 2008 - $2.4 trillion or 17% of GDP.
DoD budget in 2008 - $481.4 billion or 3.4% of GDP.
Transport grows faster than world trade and GDP

Source:
Source:
Source:
Source:
Source:
will double (2025) and again until 2060

25 % of trucks in Europe run empty
Douglas M. Lambert (2010)

Frank Straube (2010)
National Coalition on Health Care, http://www.nchc.org/facts/cost.shtml
http://www.galbithink.org/ad-spending.htm
http://www.whitehouse.gov/omb/rewrite/budget/fy2008/defense.html
31
Logistics Costs
Source: H. Baumgarten, TU Berlin

32
Design of Distribution Systems in an International Perspective

Strategies
Networks and Cooperation
Processes
Case: Lean vs. Agile Supply Chains
2. DISTRIBUTION MANAGEMENT
33
Logistics Name Confusion

The major professional organization (USA) was originally
named the
NCPDM (National Council of Physical Distribution
Management)
1986: NCPDM changed its name to
CLM (Council of Logistics Management)
2003: name changed again, to
CSCMP (Council of Supply Chain Management Professionals)
The first name change made sense but the second did not
Further names:
Demand Chain
Supply-Demand Chain
Value Chain
Value-added Networks
Supply Chain Management is as good as any name (Lambert)
34
Inter-Company Business Process Links
Source: Lambert (2010)

35
It is Not Really Supply Chain vs. Supply Chain
Source: Lambert (2010)

36
The Contribution of Supply Chain

Strategy
Vision
Mission
Business
Strategy
Customer
Strategy
Customer
Relationship
Management
Concepts
Implementation
Product
Strategy
Product
Lifecycle
Management
Concepts
Implementation
Supply Chain
Strategy
Supply Chain
Management
Concepts
Implementation
Results
37
Supply Chain as a Strategic Differentiator

Dell:
Sell direct, build to order, and ship direct
Mass Customization
Wal-Mart:
Partnership with Procter & Gamble to replenish inventory
showed the power of integrating with key suppliers, shifted
from buying from distributors to buying directly from
manufacturers
Cross-docking: moving goods through a distribution center
in less than a day. Rapid inventory turns contribute to the
lower costs, and the speed of the flow of inventory results in
the increase in customer service.
Benetton:
By developing a QR (Quick Response) system utilizing bar
coding of cartons and linking production to retail locations,
Benetton achieves low in-store inventory, right stock
availability, and high levels of customer service.
Postponement: applying color at a late stage of the textiles
supply chain
38
Configuration Components
in Supply Chain Strategy
Operations strategy
Channel strategy
Outsourcing strategy
Customer service strategy
Asset network
Companies tended to make decisions about these

components in isolation - often as part of a functional
strategy related to sales, purchasing, or manufacturing.
Source: Cohen/Roussel (2005)

39
Operations Strategy
Make to stock - best strategy for standardized products
that sell in high volume. Larger production batches keep
manufacturing costs down. Having products in inventory
means that customer demand can be met quickly.
Make to order - preferred strategy for customized products
or products with infrequent demand. Produce a shippable
product only based on a customer order in hand. This
keeps inventory levels low while allowing for a wide range
of product options.
Configure to order - hybrid strategy in which a product is
partially completed to a generic level and then finished
when an order is received. Preferred when there are many
variations of the end product and you want low finishedgoods inventory and short customer lead times.
Engineer to order goes beyond make to order, used in
industries where complex products/services are created
and manufactured to unique customer specifications.
40
Customer Order Decoupling Point

(Example: Make-to-Order)
41
Operations Strategies by Industry
42
Channel Strategy
How to get products and services to buyers or end
user
Sell
indirectly through distributors or retailers or
directly to customers via the Internet or a direct sales force
Profit margins vary

Channel mix
Examples
Dell - direct-sales model
Novell - value-added reseller channel
Microsoft - dealer channels
43
Channel Strategy Bottled Water

2 major markets: spring water and distilled water.
Spring water requires on-site bottling, distilled
water can be bottled at any municipal water
source using any local bottling company.
3 different distribution channels to serve 3 major
consumer segments:
Traditional retail distributors serve the retail customers,
Vending machines serve the individual consumer market,
Service agents install, maintain, and replenish onsite
water units for home and office users.
Each segment requires different supply chain

processes, assets, channels, and supplier
relationships and performance levels.
44
Channel Strategy - Best Buy

Integrating Retail, Catalog and Online Sales
Let customers order over the Internet and pickup items
at a retail store location.
45
Outsourcing Strategy
What areas of expertise are or could become strategic
differentiators? > keep in-house
Consider for outsourcing: low strategic importance, or
activities that a third party could do better, faster, or at
lower cost. Added flexibility and agility.
Outside partners can deliver three potential advantages:
Scale -Third-party providers often can offer services at lower
cost because of a large customer base that keeps utilization
rates high and unit costs low. Also can help companies to
scale up production quickly without having to invest in new
manufacturing capacity.
Scope - For companies that want to expand into new
markets or geographies, outsourcing partners can provide
access to operations in new locations which would not be
economical to replicate internally at current business
volumes.
Technology expertise - Outsourcing partners may have
mastered a product or process technology that would
require a sizable investment to develop internally.
46
Customer Service Strategy
Based on two factors:
Information
the overall volume and profitability

of your customer accounts and Reuse, Recycling
an understanding of what your
customers really want.
Customer service has many

different facets
Project
Planning
Spare Parts
Should all customers get same-day

delivery, or should you aim for
different service levels depending
on customer importance?
Should all products be equally
available, or should some customers
have quicker, easier access?
Assembly /
Installation
Order Handling
Distribution
Development
Manufacturing
Procurement

47
Asset Network
Decisions on the location, size, and mission regarding the

companys asset network - factories, warehouses, production
equipment, order desks, and service centers.
3 network models based on business size, customer service
levels, tax advantages, supplier base, local content rules, and
labor costs:
Global model - Manufacturing of a product line is done in one
location for the global market. Driven by factors such as the need
to colocate manufacturing with research and development (R&D),
the need to control unit manufacturing costs for very capitalintensive products, or highly specialized manufacturing skills.
Regional model - Manufacturing is done primarily in the region
where the products are sold, although some cross-regional flows
may exist based on production-center specialization. Factors
including customer service levels, import duty levels, and the need
to adapt products to specific regional requirements.
Country model - Manufacturing is done primarily in the country
where the market is. For goods that are prohibitively expensive to
transport. Other factors include duties and tariffs and market
access that is conditional on in-country manufacturing.
48
Asset Network & Markets
Markets
Production
Source: Wrede (2000)

49
Focus of Supply Chain Strategies

The focus of supply chains can be on
Time
Technology
Relationship
Asset Productivity
50
Relationship-Based Strategies
Collaboration
Parties involved dynamically share and interchange
information.
Group benefits more than individual benefits.
All parties modify their business practices, conduct
business in new and visibly different ways.
All parties provide a mechanism and process for
collaboration.
Value Nets or Virtual Enterprises
51
Gateways Value Net
52
Types of Collaboration/Integration
Suppliers
Supplier #1
Supplier #2
Manufacturers
Manufacturer #1
Manufacturer #2
Distributors
Distributor #1
Distributor #2
Retailers
Retailer #1
Retailer #2
Vertical collaboration
Horizontal collaboration
53
Forms of Vertical Integration

Iron Ore
Silicon
Steel
Farming
Raw Material
(Suppliers)
Flour Milling
Backward
Integration
Automobiles
Integrated
Circuits
Current
Transformation
Distribution
System
Circuit Boards
Forward
Integration
Dealers
Computers
Watches
Calculators
Baked Goods
Finished Goods
(Customers)
54
Classification of Products
Corn Flakes
New music recordings
Lawn fertilizer
New computer games
Ball point pens
Fashion clothes
Light bulbs
Art works
Auto replacement tires
Movies
Some industrial chemicals
Consulting services
Tomato soup
New product introductions
What makes these two groups different?

55
Product Characteristics
Function Product
Product
Stable demand
Characteristics pattern
Customizable
product
Semi-predictable
demand pattern
Innovative product
Unpredictable
demand pattern
Long life cycle
Medium life cycle Short life cycle
Low product
differentiation
High product
differentiation
SCN goal
Supply at the
lowest cost
Customize to
Match supply with
individual demand market demand
Key action
Coordinate
activities of
channel partners
Assemble to
customer demand
Sense market signals

and respond
Efficient
Customizable
Responsive
SCN objective
High/low product
differentiation
56
Choosing the Right Supply Chain Strategy

Efficient supply
chain
Economical production runs

Finished goods inventories
Economical buy quantities
LEAN
Large shipment sizes
Supply-tostock
Batch order processing
Responsive
supply chain
Excess capacity
Quick changeovers
Short lead times
AGILE
Flexible processing
Premium transportation
Supply-toorder
Single order processing
57
Supply Chain Paradigms Lean and Agile

Responsive vs. Efficient dichotomy 2 contradictory paradigms:
Leanness
Aiming at productivity, focusing on the elimination of all waste in
resources, the minimization of inventory and the maximization of flow,
based on a set of practices, defined in rules
Empirical evidence: lean supply chains are more effective, more mature
Products with predictable demands and long life cycles (like
commodities) call for cost-orientation in lean systems and processes
Agility
Requiring speed and maneuverability to exploit opportunities in a volatile
marketplace, key feature of agile organizations is flexibility
More vulnerable and difficult to control than lean supply chains
Products and markets, like fashion goods, are very volatile in demand and
require flexibility in rapidly changing environments
Leanness and agility can sometimes be found in the same company,

for different products, or even in the same SC
Agility
Speed
Flexibility
Dichotomy
Combination ?
Leanness
Cost efficiency
Productivity
58
Comparison Lean vs Agile Supply:

Distinguishing Attributes
Distinguishing Attributes
Lean Supply
Agile Supply
Typical Products
Commodities
Fashion Goods
Marketplace Demand
Predictable
Volatile
Product Variety
Low
High
Product Life Cycle
Long
Short
Customer Drivers
Cost
Availability
Profit Margin
Low
High
Dominant Costs
Physical Costs
Marketability Costs
Stockout Penalties
Purchasing Policy
Long Term
Contractual
Buy Materials
Immediate and
Volatile
Assign Capacity
Information Enrichment
Highly Desirable
Obligatory
Forecasting Mechanism
Algorithmic
Consultative
Source: Mason-Jones, Naylor and Towill (2000)

59
Logistics Subsystems
Supplier Market
Customer Market
Production
Supplier
Raw Materials
Warehouse
1 2 3 4 5 n
Semi-finished Goods
Procurement
Logistics
Finished
Goods
Warehouse
Customer
Spare
Parts
Production
Logistics
Distribution
Logistics
Reverse
Logistics
Additional subsystems:
Spare parts management and service support
Information Logistics
Energy Logistics
60
Distribution Logistics
Supplier Market
Customer Market
Production
Raw Materials
Supplier
Warehouse
Procurement
Logistics
Semi-finished Goods
Production
Logistics
Finished
Goods
Spares
Customer
Distribution
Logistics
All activities in supplying finished goods and spares to the

customer. Delivery can be from the production process or
from a warehouse.
Trends in distribution:
Direct delivery to customer
Logistics service providers with wide range of services
(3PL-Third Party Logistics, 4PL Fourth Party Logistics
Electronic document interchange(EDI)
Electronic documentation (paperless)
Standard pricing (units, weight, zones)
61
Distribution Options
Traditional Cut-Flower Industry Chain
Participant
Grower
Carrier
Customer
Price Charge
$8.00
Markup
50%
Wholesaler
$12.00
Florist
$24.00
100%
$60.00*
150%
* Survey of Boston florist, price included delivery charge and tax
Calyx & Corollas New Cut-Flower Industry Chain

Participant
Grow
er
Price Charged
* Calyx & Corolla catalog
Customer
Calyx & Corolla

$54.00**
62
Order handling
Warehousing and Inventory Management
Packaging and Container Management
Transport Modes
Intermodal Transport
Roles and Regulations
Cost of Transport
Case: Transportation Modes
3. PHYSICAL DISTRIBUTION AND

TRANSPORT MANAGEMENT
63
Physical Logistics Processes
Warehousing
Inventory
Management
Order
Management
Transport
Packaging &
Container
Management
Source: Pfohl
64
Order Management
Order cycle: time from when
an order is received from a
customer to when the goods
arrive at the customers
receiving dock. 5 stages :
1. Order planning: even out
workloads
2. Order transmittal:
postal/telephone,
scanners, bar codes, EDI
3. Order processing: internal
orders (purchasing,
manufacturing, )
4. Order picking and
assembly
5. Order delivery
Inventory
Management
Warehousing
Order
Management
Packaging
& Container
Mgmt
Transport
Acquire Clients
via Catalog/
Advertising
Acquire Clients
via Internet
Fulfillment
Process
Customer opens
package next morning
Fulfillment
Process
Customer opens
package
in a week
65
Inventory Management
Inventory
Management
Order
Management
Stock Level
Transport
Problems
Inventory hides:
Error-sensitive processes
Lack of delivery reliability
Unbalanced workload
Lack of flexibility
Quality deficits
Warehousing
Inventory allows:
Smooth production cycle
Bypassing breakdowns
Delivery reliability
Constant workload
Economical lots
Problems
visible
Stock Level
66
Packaging
& Container
Mgmt
Inventory Management
Total
Assets
$M
Inventory
$M
% of Sales
Turns
Days
Northern Telecom 5878
820
15.2
3.9
92
AT&T
35152
3392
29.9
1.9
186
Alcatel
9521
2747
23.6
2.9
123
Siemens
30107
9962
33.2
2.1
169
IBM
73037
9565
23.9
1.8
197
Motorola
6710
1144
13.9
4.4
82
Apple
2082
462
11.3
4.3
83
10112
1515
20.1
1.9
187
7497
1478
19.2
Toshiba
27673
5942
20.8
3.5
104
NEC
25161
5140
22.2
3.1
117
DEC
HP
The total cost of

2.3
inventory
is 30-155
50%
67
Elements of Inventory
Over time, demand and the ability to service demand (replenish
inventory) can vary. Forecasts may not be precise due to
uncertainties, so, a reserve of stock (safety stock) may be
necessary to reduce inventory shortages (stock-outs). Inventory
levels above the safety stock and normal demand are considered
excess inventory.
Inventory
Level
Excess stock
Replenishments
Safety stock
Time
68
Inventory Costs
Order/set-up costs:
Cost of replenishing inventory through changes in the
production run for a different item
Includes labour and other associated costs
Carrying costs:
Cost of capital
Insurance costs
Costs of space, staff
Onventory handling, deterioration, damage,
obsolescence, insurance
Opportunity costs:
Restriction of other investments that could have been
made with the same money
Stock-out costs:
Lost sale
Halted production
69
Economic Order Quantity (EOQ)
Cost
The Total-CostCurve
Holding costs
Ordering Costs
QO (optimal order quantity)
Order Quantity(Q)
70
Warehouse Management
Inventory
Management
Order
Management
Distribution Centers and warehouses

Transport
in the supply chain perform the sorting
function
They are the point at which goods are concentrated;
from this concentration a new and different assortment
of goods is selected
and moves forward to be dispersed to the next level.
Types of warehouses:
Public warehouses:
are used by firms that either cannot justify the costs of
having their own facilities or prefer not making a
commitment to owning and operating their own facilities
Private warehouses:
owned or occupied on a long-term lease by a firm using
them
Contract warehouses:
form of public warehousing covered by a longer contract
between the two parties
Warehousing
71
Packaging
& Container
Mgmt
Types of Warehouses by Function/Location

Raw material / component warehouses / work-inprocess / finished goods warehouses
Plant warehouses: associated with manufacturing
operations
Distribution centers: emphasize the distribution
aspects of warehousing instead of the storage
operations
Local central warehouses
Value-added warehouses
Stock-holding warehouses - Stockless depots
(Transshipment / Cross-docking depots)
72
Types of Warehouses by Level of

Centralization
Central Warehouse
Predominant for SMEs
Advantages
Lower inventory
Safety stock lower than
accumulated safety stock
in local warehouses
Lower capital lockup
Better land use
Higher material turnover:
lower perishableness
More economical use of
personnel
More effective usage of
warehouse inventory
Local Warehouse
If vicinity to customers or
production is important
Advantages
Disposition of materials in the
production area is more
accurate
Provides specialized storing
conditions for different
materials
Individual environmental
factors like heating,
ventilation, humidification
Specially trained warehouse
personnel available
73
Crossdocking - Overnight Parcel

Delivery
Workers speak the final digits of the destination zip code of incoming
packages into a voice data collection system.
This information is then used to sort packages to the correct shipping
lane.
Before loading on over-the road trailers, a worker with a fingermounted scanner connected to a wearable computer with radio
frequency capabilities scans the bar code of the package, clearly
identifying that it passed this point at a specific time.
74
Conflict: Inventory vs. Transport

$
# Locations
75
Warehouse/Transport Functions
76
Packaging & Container

Management
Building-blocks concept:
Warehousing
Order
Management
Packaging
& Container
Mgmt
Transport
Retail packages, cartons

Boxes
Pallets
Unit Load: the boxes or other
containers secured to a pallet
Containers (20/40 feet)
Inventory
Management
Legal
Restrictions
Economics
Functions:
Promotional Functions
Protective Functions
Handling Functions
Labeling Functions
Returnable/reusable
packaging
Environmental
Protection
Marketing
Packaging
Consumer
Product
Attributes
Logistics
Source: Johnson/Wood: (Contemporary Logistics)
77
Modules As Standardized Building-Blocks
78
Inventory
Management
Transport
Warehousing
Order
Management
Most important element in logistics costs,

between one-third and two-thirds of
total logistics costs
Economically important sector
Transport
Packaging
& Container
Mgmt
Global transportation expenditures exceed $2 trillion annually

15% of GDP, 17% of household expenditure, 8% of public
expenditure (UK)
Affects prices of most products
Requires extensive public subsidies
Negative external effects (environment)

Market trends
Globalization
Intermodality
Vorlauf
Nachlauf
Hauptlauf
Streckenverkehr
Flchenverkehr
Flchenverkehr
79
Variations in Transport Demand

Cargo transport is derived from:
production of goods and services
location of raw materials, production
sites and markets
Passenger transport is derived from:

travels to work i.e. location of
workplace and home
from family activities i.e. shopping,
schools, kindergarten, recreation
Transport is characterized by:

Seasonal variations
Variations over the week and day reflect working hours
These systematic changes result in:

Variations in capacity utilization of equipment and
infrastructure
Low utilization most of the time, and congestion at
peak hours
Source: London Underground travel by time of day, Cole 1998
80
Elasticity of Transport Demand

Leisure travelers vs. Business travelers
Source: Strandenes, www.nhh.no

81
Key Concepts in Transport

Consolidation:
the process of receiving multiple lots in small quantities,
which are accumulated and then repackaged into one
larger lot.
Cross docking:
unloading the cargo from several trucks and then
immediately reload it into one container for delivery to a final
destination
Distribution warehouse:
a facility designed to assemble and then redistribute goods
in a way that facilitates rapid movement to customers.
Unitization:
a technique for grouping boxes on a pallet or skid for later
movement by pallet jack, forklift, conveyor and/or truck.
Containerization:
the process of combining several unitized loads into a single
well-protected load.
Intermodal:
interchange point from one transportation mode to another.
82
Transport Trends
Deregulation of transportation (1980s) and computerization
yielded more flexible and rapid service from carriers
Substituting transportation for inventory: same service
level achieved with fewer inventory holding points more
distant from the customer base
Substituting information for inventory:
improved forecasts, transportation schedules, etc.
This resulted in a dramatic reduction in the ratio of logistics
costs to GNP (1980: 14%, 1996: 10%, US)
Now, transportation expenses are rising disproportionately
versus other logistics costs, due to
Increasing international trade and global orders
Smaller, more frequent orders
Decreased carrier competition due to carrier mergers and
acquisitions
Rising fuel charges, environmental concerns
Labor shortages
Overburdened transport infrastructures
83
Overall Goal in Transportation

Connect sourcing locations with customers at the lowest possible
transportation cost within the constraint of the customer service policy
Total Transportation costs

include
Freight
Fleet
Fuel
Maintenance
Labor
Insurance
Loading/unloading
Insurance
Demurrage/detention
Taxes/tolls, international fees
Requirements include
Response time
Time windows
Volume requirements (cube or
weight)
Frequency requirements
Minimal damage in route
Restrictions to observe:
Lane capacities (cube, weight, travel speed, frequency restrictions)

Vehicle capacities (cube, weight, operating hour restrictions)
84
Transport Fundamentals
A shipper pays a carrier to transport cargo from an origin to a
destination where the consignee receives the cargo.
The payment made to a carrier is called a freight payment and
the document describing and contracting the movement of
the goods is called a bill of lading.
Cargo is housed in a container (trailer, railcar, or ocean
container) and is moved by a vehicle (locomotive, airplane, or
ocean vessel).
Cargo is moved to, from, and between various logistics
facilities (warehouses, terminals, distribution centers, and ports).
The arrangement and location of logistics facilities is called
transportation network.
A shipment is one or more orders traveling together.
85
Types of Carriers
Express/parcel carrier (UPS, FedEx)
Less-than-truckload (LTL) trucking company
Full-truckload (FTL) trucking company
Ocean liner (Maersk Sealand, Evergreen;
Hapag-Lloyd)
Railroad
Air carrier/integrator
86
Players and Conflicting Goals

Cargo owners
Want reliable, frequent and low-cost transportation
Ship owners and operators

Small units, fragmented industry
Shippers and agents

Road preference: Flexibility and easier to handle singlemode operations
Ports
Many are expensive, inefficient and lack strategic logistical
positioning
Road and rail operators

Pro: Extended infrastructure investments
Con: Tolls and regulations
Authorities and politicians

Source: Strandenes, www.nhh.no, Wergeland 1998
87
Transport Performance Criteria

Output performance
Efficiency measures
Tons cargo or number of

passengers measure
transport volumes
Tons-km or passenger-km
measure transport work
Maximize revenue
vehicle-km relative to
total vehicle-km
Peak-interpeak capacity
ration
Smaller difference gives
higher average capacity
utilization
Costs per vehicle km,

freight-km or passengerkm
Costs per employee or
vehicle
Hours of operation per
vehicle
88
Basic Transport Modes
Traffic Systems
People
Transport System
Goods
Transport System
Land
Road
Rail
Pipeline
Message
Transmittal
Air
Water
Air Freight
Ship
Five transportation modes road, rail, air, water, and pipeline.

Intermodal combinations - railmotor, motor-water, motor-air, and rail-water
89
Goods Transport by Mode in the

European Union
Modal split for freight transport in the EU 25 in 2005

(% tonne kilometres)
2008 John Wiley & Sons Ltd.
www.wileyeurope.com/college/Mangan
90
Road
Manufactured products are transported primarily by motor carriers.
Private fleets (52 percent)

For-hire truckload (29 percent)
Package and express delivery (10 percent)
Less-than-truckload shipments (9 percent). (US, Lambert 1998)
Motor carriers compete

with air for small shipments and rail for large shipments
with air carriers on point-to-point service if the distance involved is 500
miles or less
directly with railroads for truckload (TL) shipments that are transported 500
miles or more
Average length of haul for motor carriers is approximately 500 miles.

Flexibility of motor carriers is made possible by a network of roads.
Enabling them to offer point-to-point service between almost any
origin-destination combination
Virtually any product can be transported by motor carriers.
91
Rail
Railroads carry the largest share of intercity ton-miles

Average length of haul of approximately 763 miles
Terminal-to-terminal service rather than point-to-point service unless
companies have a rail siding at their facility
Generally costs less than air and motor carriage
Disadvantages in terms of transit time and frequency of service
Trailer-on-flatcar (TOFC) or container-on-flatcar (COFC) service
offer the economy of rail or water movements combined with the
flexibility of trucking (piggyback service)
Truck trailers or containers delivered to the rail terminals, loaded on
flatbed railcars. Containers may be single or double stacked.
Positive outlook:
Relative energy-efficiency advantage of railroads over motor carriers

Deregulation of the rail industry
More competition through privatization
Trend toward consolidation through mergers and acquisitions
92
Air
Less than 1 percent of ton-mile traffic (US)
Air transport as a premium, emergency service, higher cost
Average length of haul domestically is more than 800 miles,
international movements may be thousands of miles
Air carriers generally handle high-value products
Air transport provides rapid time-in-transit, but terminal and
delivery delays and congestion may reduce this advantage
It is the total transit that is important to the shipper rather than
the transit time from terminal to terminal
Continuing growth of air transport for critical parts/spare parts
93
Water
Most inexpensive method of shipping high-bulk, low-value

commodities
Several distinct categories:
1. Inland waterway, such as rivers and canals
2. Lakes
3. Coastal and intercoastal ocean
4. International deep sea
Majority of commodities carried by water are semiprocessed or
raw materials transported in bulk where speed is not critical,
dominant mode in international shipping
Limited availability of rivers, canals, or intercoastal waterways
Very large crude carriers (VLCCs, supertankers) for petroleum
transport
Many domestic and international shipments involve use of
containers
94
Pipeline
Limited number of products, including natural gas, crude oil,
petroleum products, water, chemicals, and slurry products
18.4 percent of all domestic intercity freight traffic measured in
ton-miles (US)
High level of service dependability at a relatively low cost:
The flows of products within the pipeline are monitored and
controlled by computer.
Losses and damages due to pipeline leaks or breaks are
extremely rare.
Climatic conditions have minimal effects on products moving in
pipelines.
Pipelines are not labor-intensive; therefore, strikes or employee
absences have little effect on their operations.
95
Comparison of Transportation Modes

Motor
Rail
Cost
Moderate
Market coverage
Point-to-point Terminal-to-terminal
Degree of competition
(number of competitors)
Predominant traffic
Many
All types
Average length of haul

(in kilometers)
Equipment capacity
(tons)
Speed (time-in-transit)
Availability
Consistency (delivery
time variability)
Loss and damage
Flexibility (adjustment to
shippers needs)
Low
Air
Water
Pipeline
High
Low
Low
Terminal-to-terminal
Few
Terminal-toterminal
Moderate
Few
Terminal-toterminal
Few
350
Low-moderate value,
mod.-high density
1,000
High value, lowmoderate density

330
Low value, high

density
500 to 2,000
Low value, high

density
400-500
10 to 25
50 to 12,000
5 to 125
1,000 to 60,000
30,000-2,500,000
Moderate/fas
t
High
Moderate
Fast
Slow
Slow
Moderate
Moderate
Low
Low
High
Moderate
High
Low to moderate
High
Low
Moderate
Low
Low to moderate
Low
high
Moderate
Moderate to high
Low to moderate
Low
96
Intermodal Services
Intermodal movements combine the cost and/or
service advantages of two or more modes in a
single product movement.
Selected Forms of Intermodal Transportation

97
Intermodal Transport
Where freight moves within a

loading unit (known as an ITU
intermodal transport unit), this
unit may move upon different
transport modes.
Freight remains within the unit
at all times.
Various types of ITUs:
Rail
Air
Piggyback
Birdyback
Truck
Fishyback
Pipeline
Water
Standard sized containers (typically 20 and 40 feet in length)

Igloo containers used in air freight
Containers in intermodal logistics

Shortens time in transit because of reduced port turnaround time
Allows the shipper to take advantage of volume shipping rates
Largest ocean water carriers are Maersk Sealand, Evergreen

Line, Hanjin Shipping. The container ships are able to carry the
equivalent of 14,000 twenty-foot containers (TEU).
and other sources
98
Third Parties (1)

Third parties are companies similar to channel intermediaries
that provide linkages between shippers and carriers. Types:
Transportation Brokers
Companies that provide services to both sippers and carriers by
arranging and coordinating the transportation of products.
Shippers can use brokers to negotiate rates, oversee shipments.
Freight Forwarders
Purchase transport services from various carriers, although they
own the equipment themselves domestic or international.
Third-Party Logistics Service Providers (3PL)

With global supply chains, some companies have outsourced
large parts of their logistics operations to third parties, dealing
with one 3PL who will handle all or most freight offers
Advantages including the management of information by the
third party, freeing the company from day-to-day interactions
with carriers, and having the third party oversee shipments
99
Third Parties (2)

Small-package carriers
Use a combination of transport modes
Such as Federal Express (FedEx), United Parcel Service (UPS), DHL
and parcel post
Parcel Post
Advantages are low cost and wide geographical coverage,
both domestically and internationally
Disadvantages include specific size and weight limitations,
variability in transit time, higher loss and damage, inconvenience
because packages must be prepaid and deposited at a postal
facility
Air Express Companies: FedEx, UPS, TNT Worldwide, Airbone

Express, DHL Airways
100
Logistics Service Providers - 3PL and 4PL

Carriers and freight forwarders have developed tailored
logistic solutions for customers and thus become logistics
service providers.
By additional value added services and the management
of such value partnerships, with taking over of responsibilities
for the whole logistic process (third party logistics provider
(3PL) contract logistics), they are deeply integrated in their
customers systems.
Lately, these concepts have been extended to fourth party
logistics (4PL) being system managers. Often these are
logistics service providers who organise the whole network
without owning assets for providing services themselves.
Logistics Outsourcing:
approach to cross-corporate cooperation in the logistics
chain is outsourcing of whole logistic areas to service
providers.
In spite of all the postulated synergy effects of these
concepts, the danger of losing know-how and flexibility by
additional interfaces should not be overlooked.
101
Carrier Responsibilities
When freight moves from consignors to consignees is to
understand who has responsibility at various stages for
the freight?
If something happens to the freight, for example it
becomes damaged, who will be held responsible?
If charges for customs clearance are to be paid before
the freight can be collected, then who should pay such
charges, the consignor or the consignee?
resolved by using Incoterms (an abbreviation for
International Commercial Terms)

www.wileyeurope.com/college/Mang
102
an
Incoterms
Incoterms (International Commercial terms) are a series of predefined commercial terms published by the International
Chamber of Commerce (ICC) widely used in international
commercial transactions.
A series of three-letter trade terms related to common sales
practices, Incoterms are intended primarily to clearly
communicate the tasks, costs and risks associated with the
transportation and delivery of goods.
Incoterms are accepted by governments, legal authorities
and practitioners worldwide for the interpretation of most
commonly used terms in international trade.
Source: http://en.wikipedia.org/wiki/Incoterms
103
Rules Defined by Incoterms 2010
EXW Ex Works (named place of delivery)

The seller makes the goods available at its premises. This term places the maximum
obligation on the buyer and minimum obligations on the seller. Seller has the goods
ready for collection at his premises (works, factory, warehouse, plant) on the date
agreed upon. The buyer pays all transportation costs and also bears the risks for
bringing the goods to their final destination. The seller doesn't load the goods on
collecting vehicles and doesn't clear them for export.
FCA Free Carrier (named place of delivery)
The seller hands over the goods, cleared for export, into the disposal of the first carrier
(named by the buyer) at the named place. The seller pays for carriage to the named
point of delivery, and risk passes when the goods are handed over to the first carrier.
CPT - Carriage Paid To (named place of destination)
The seller pays for carriage. Risk transfers to buyer upon handing goods over to the
first carrier.
CIP Carriage and Insurance Paid to (named place of destination)
The containerized transport/multimodal equivalent of CIF. Seller pays for carriage
and insurance to the named destination point, but risk passes when the goods are
handed over to the first carrier.
DAT Delivered at Terminal (named terminal at port or place of destination)
Seller pays for carriage to the terminal, except for costs related to import clearance,
and assumes all risks up to the point that the goods are unloaded at the terminal.
DAP Delivered at Place (named place of destination)
Seller pays for carriage to the named place, except for costs related to import
clearance, and assumes all risks prior to the point that the goods are ready for
unloading by the buyer.
DDP Delivered Duty Paid (named place of destination)
Seller is responsible for delivering the goods to the named place in the country of the
buyer, and pays all costs in bringing the goods to the destination including import
duties and taxes. This term places the maximum obligations on the seller and
minimum obligations on the buyer.
104
Allocation of Costs and Responsibilities

for Delivery
Blue - seller's costs.

Yellow - buyer's costs
Green - seller's
responsibility for the
delivery
Red - buyer's
responsibility for the
delivery.
Grey - exception
105
Transport Optimization
Routing/Shortest
Path
Network
Partitioning
Sample
Traveling Salesman
106
Transport Cost - Distance and Weight

Define Rate
Relationship between
rate and distance
Relationship between rate per

kilo and consignment weight
107
Transport Cost
Summary of costs and relative operating characteristics of different transport modes
Mode
Relative Costs and Operating Characteristics by Mode
Air
Fixed cost is on the lower side but variable cost, including fuel,
maintenance, security requirements, etc., is high. The main advantage of
air is speed; it is however limited in uplift capacity, similarly other modes of
transport are required to take freight to and from airports, thus air cannot
directly link individual consignors and consignees
Road
Fixed cost is low as the physical transport infrastructure, such as motorways,

is in place through public funding; variable cost is medium in terms of
rising fuel costs, maintenance and increasing use of road and congestion
charges. In terms of operating characteristics, road as a mode of transport
scores favourably on speed, availability, dependability, and frequency, but
not so good on capability due to limited capacity on weight and volume.
Uniquely among transport modes, it can allow direct access to consignor
and
consignee sites.

108
Transport Cost
Summary of costs and relative operating characteristics of different transport modes
Mode
Relative Costs and Operating Characteristics by Mode
Water
Fixed cost is on the medium side, including vessels, handling equipment and
terminals. Variable cost is low due to the economies of scale that can be
enjoyed from carrying large volumes of freight, this is the main advantage
of the water mode, together with its capability to uplift large volumes of
freight. Like air, it cannot offer direct consignor to consignee connectivity,
and vessels are sometimes limited in terms of what ports they can use. It is
also quite a slow mode.
Rail
Fixed cost is high and the variable cost is relatively low. Fixed cost is high
due to expensive equipment requirements, such as locomotives, wagons,
tracks and facilities, such as freight terminals. On relative operating
characteristics, rail is considered good on speed, dependability, and
especially capability to move larger quantities of freight.
Pipeline
Fixed cost is high due to rights-of-way, construction and installation, but the
variable cost is relatively low and generally just encompasses routine
maintenance and ongoing inspection/security. On operational
characteristics, the dependability is excellent but this mode can only be
used in very limited situations.
109
Poor Asset Utilisation in Transport

110
Factors Influencing Transportation Costs

and Pricing
Transportation may account for a significant portion of the selling
price of some products. This portion varies between
basic raw materials (e.g., sand and coal)
computers, business machines, and electronic components
Factors influencing transportation costs/pricing can be grouped
into two major categories:
Product-related factors and
Market-related factors
Source: Lambert et al.

111
Product-Related Factors (1)

1. Density refers to a products weight-to-volume ratio.
Steel, canned foods, building products, bulk paper goods high
weight-to-volume ratios.
Electronics, clothing, luggage, and toys have low-weight-tovolume ratios. In general, low-density products tend to cost
more to transport on a per pound (kilo) basis.
2. Stowability is the degree to which a product can fill the

available space in a transport vehicle.
For grain, ore, and petroleum products in bulk excellent
stowability. Automobiles, machinery, livestock, and people, do
not have good stowability, or cube utilization.
Stowability depends on its size, shape, fragility, and other physical
characteristics.

112
Product-Related Factors (3)

3. Ease or difficulty of handling:
Products that are uniform in their physical characteristics or that

can be manipulated with materials-handling equipment require
less handling expense
e.g. raw materials and items in cartons, cans, or drums
4. Liability
Products that have high value-to-weight ratios
5. Other factors
Products hazardous characteristics

need for strong and rigid protective packaging

113
Market-Related Factors (1)

1. Degree of intramode and intermode competition
2. Location of markets, which determines the
distance goods must be transported
3. Nature and extent of government regulation of
transport carriers
4. Balance or imbalance of freight traffic into and out
of a market
5. Seasonality of product movements
6. Whether the product is transported domestically or
internationally
114
Market-Related Factors (2)

Service factors, transportation service characteristics affecting
customer-service levels:
Dependability consistency of service.
Time-in-transit.
Market coverage the ability to provide door-to-door service.
Flexibility handling a variety of products and meeting the
special needs of shippers.
Loss and damage performance.
Ability of the carrier to provide more than basic transportation
service (i.e., to become part of a shippers overall marketing
and logistics programs).

115
Global Issues in Transportation

Within countries, differences can exist because of taxes,
subsidies, regulations, government ownership of carriers,
geography, and other factors.
In general, international transportation costs represent a much
higher fraction of merchandise value than domestic
transportation costs. Primarily due to the longer distances
involved, administrative requirements, and related paperwork.
Intermodal transportation is much more common in
international movements.
Regulatory issues differ between countries.
116
Regulatory Issues
Areas of Transportation Regulation
Economic regulation
affects business decisions such as mode/carrier selection,
rates charged by carriers, service levels, and routing and
scheduling.
Safety regulation
deals with labor standards, working conditions for
transportation employees, shipment of hazardous
materials, vehicle maintenance, insurance, and other
elements relating of public safety.
In the 1970s, 1980s, 1990s: deregulation in North

America, Europe, and throughout the world.
117
Regulatory Issues
Legally Defined Forms of Transportation
Common carriers
Offer their services to any shipper to transport products, at
published rates, between designated points.
Must offer their services to the general public on a
nondiscriminatory basis.
Contract carrier is a for-hire carrier, that instead-serves a

limited number of shippers under specific contractual
arrangements.
Exempt carrier is a fore-hire carrier that transports certain
products such as unprocessed agricultural and related
products, e.g. carriers of newspapers.
Private Carrier is generally not for-hire and is not subject of
federal economic regulation. Firm is providing transportation
primarily for its own products.
118
The Reverse Logistics Process

Return to suppliers, Resell, Repair, Refurbish/Recondition,
Remanufacture, Reclaim Parts, Recycle
Management of Reverse Logistics
Barriers to Reverse Logistics
4. REVERSE LOGISTICS
119
Background
Space and natural resources on earth have
limitations
Development and consumption at any generation
should not affect the development and healthy life
of subsequent generations
Resultant global missions in economic development:
Reduction of disposable wastes, meant for landfilling
and incineration
Lowering of resource use in economic activities
Re-use of non-biodegradable and harmful
substances
Devising mechanism for low-cost production to
meet ever-expanding consumer market
Reverse Logistics
According to CLM definition, managing reverse flows is
part of Logistics Management: Logistics Management is
that part of Supply Chain Management that 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 customers
requirements
Reverse logistics is the process of moving goods from
their typical final destination for the purpose of capturing
value, or proper disposal. Remanufacturing and
refurbishing activities also may be included in the
definition of reverse logistics.
The reverse logistics process includes the management
and the sale of surplus as well as returned equipment
and machines from the hardware leasing business.
121
Reverse Logistics An Example

A manufacturer produces product A which moves through
the supply chain network reaching the distributor or customer.
Any process or management after the sale of product A
involves Reverse Logistics.
If product A happened to be defective the customer would
return the product.
The manufacturing firm would then have to organize shipping
of the defective product, testing the product, dismantling,
repairing, recycling or disposing the product.
Product A will travel in reverse through the supply chain
network in order to retain any use from the defective product.
This is what reverse logistics is about.
122
Business Impacts
Reverse logistics helps business in product recycling in order to
recapture the value and its disposal. Returns need not be financial
write offs, some could be refurbished and sold again, part of the
product could be recycled/remanufactured.
Reverse logistics is critical in asset disposition (electronic
waste/chemicals) to protect environment and recover IT data.
Reverse logistics is more than just returns management, related to
returns avoidance, disposal and other after-market issues.
4% to 6% of retail purchases are returned, costing the industry about
$40 billion per year. Reverse logistics costs: almost 1 % of the total US
gross domestic product (RL Magazine, Fall 2006).
Return of unsold goods: In certain industries, goods distributed to
downstream members in the supply chain may be returned for credit
if they are not sold (e.g. newspapers and magazines). The risk of
obsolescence is borne by the supplier who effectively finances the
inventory for the downstream member.
Reverse logistics is an opportunity to generate additional revenue,
differentiate market position and support product demand, and
establish better customer relations.
Prime Motivators / Drivers

Environment concerns, take-back obligations, disposal bans, e.g.
EU Directive on Waste from Electrical and Electronic Equipment
German Recycling and Waste Control Act and End-of-Life (ELV)
take-back policy
European consumer packing take-back policy
Universal Waste rule of US on take-back of rechargeable batteries
Extended producer responsibility law for electrical home appliances
in Japan
Environmentally conscious customers / Green corporate image
Voluntary take-back programs of Fuji Film for its cameras
Asset Recovery Program of Xerox
Economically attractive
Save 40 to 60% of the cost by remanufacturing, requiring only 20% of
the energy
Saves processing and manufacturing costs (time, energy, etc.)
Recovered parts may be used as spare parts
Remanufactured spare parts particularly useful during post-product life
cycle and aftermarket
Some Global Product Recovery Initiatives

US: over 73 000 remanufacturing firms with total sales of $53
billion, employing 480 000 workers, average profit margins
exceed 20%.
VW & Opel started taking back in 1992, BMW & VW followed.
Remanufactured parts of BMW cars sold at 50 to 70 % of
original price.
75% of discarded metal from car recycled.
IBM Europe (Germany, UK & The Netherlands) product
recovery program 1990.
5700 tons of mainframe and PCs of Siemens Nixdorf
Informatics System (Germany) recovered as 33% of total sales
in 1997-98.
Since 1991, HP returned & recycled more than 60 million inkjet
printers, cartridges etc.
Forward and Reverse Logistics
"Forward
Logistics"
describes the
conventional
manufacturer-tocustomer supply
chain.
"Reverse Logistics"
is the process of
returning goods
from consumers
back to suppliers.
Industry Scope
Publishing In order to encourage sellers to stock new books, publishers

began the reverse flow of unsold books. E.g. return costs the publisher 25
cents in transportation, books are destroyed that cost between $2 to $2.50 to
print.
IT Hardware and Electronics short product life cycles - long warranties.
Obsolescence causes return flows. Carnegie Mellon University: approximately
325 million personal computers become obsolete in the US (1985- 2005). Out
of that, 55 million placed in landfills (safe disposal), 143 million recycled.
Chemicals and Paints Paint is a mixture of four basic ingredients: Pigments,
Resins, Solvents and Additives. Solvents determine how it may disposed.
Retail Returns as a competitive strategy to attract customers. However,
some abuse returns policy. Cranfield School of Management: 30% of returns
in catalog retailing, 2.8 million worth of goods. 90% of the retailers ignore
returns processing and do not have any system in place to manage returns.
Consumer Electronics returns account for 2 to 3 percent of a retailers sales
and 5 to 6 percent of a manufacturers sales in consumer electronics.
Automotive Automobile at its end of life will end up with salvage yard and
some of the parts are recycled. Automotive recyclers handle more than 10
million vehicles every year. Their efforts supply more than 37 percent of the
United States ferrous scrap for the scrap-processing industry.
Food Hotels engage in charity distributing the leftovers to the needy.
A company in Singapore recycles soya bean waste, spent grains and yeast
into animal feed. A food waste treatment plant was set up to turn food waste
from food courts, hotels and factories into compost and biogas.
Causes of Product Returns
Planned Return/Reuse: Products given to the customer on a

lease/rent basis are returned and can be reused/refurbished.
Containers: Loading devices (pallets etc.) and containers designed
for multiple uses are returned. These often have standard
dimensions for interoperability.
Defects: Product doesnt meet the quality standards set by the
manufacturer. In a high cost product segment, the defects are
rectified and where as in low cost products segment, replacement
will be offered, defective product is returned for refurbishing or
remanufacturing.
Product Recalls: Manufacturers may recall the product to address
the product quality issues which cannot be rectified in the field.
Competitive Reasons: Major retailers agree to take back product in
order to gain confidence of consumers. (catalog /internet sales)
Abuse: Some consumers make use of the returns policy and abuse
the system in order to achieve individual gains.
Charity: Organizations use reverse logistics function for
philanthropic goals. Prevalent in food industry; star hotels distribute
the leftovers to the needy.
Reclaim Parts: Organizations recycle the parts.
New product introduction: triggers reverse flows to clear channel
inventory.
Product Recovery Options

Return to suppliers
Resell
Repair to bring a product to working condition
(replacing or fixing some parts)
Remanufacture - done by the original manufacturer or an
authorized representative. Returns are completely
disassembled to parts/components, thoroughly inspected,
defective and worn-out parts are repaired or replaced by
new ones and then finally reassembled Full
manufacturers warranty.
Refurbish/Recondition - performed by third party
company. Limited warranty.
Reclaim parts (cannibalization) recovery of
parts/components,
Recycle - recovery of material, identity of original
product/parts is lost
Examples:
Xerox ModiCorp Ltd. (remanufacturing photocopiers)
United Van der Horst Ltd. (repairing, refurbishing and remanufacturing
marine, oilfield and industrial products)
Safe Disposal
Materials that contain hazardous elements should be properly
disposed to protect the environment from hazardous
chemicals and compounds.
Materials such as lead, mercury, lithium, and other forms of
toxic waste are considered hazardous and subject to strict
governmental environmental compliance regulations.
Agencies such as U.S. Environmental Protection Agency (EPA)
and state environmental agencies regulate the impact of
businesses on the environment. These agencies develop and
enforce regulations that implement environmental laws
enacted by the government.
A major objective of the reverse logistics function is safe
disposal of waste.
Barriers to Reverse Logistics
Lack of proper reverse logistics IT systems

Lack of importance
Lack of financial/human resources, management inattention
Legal issues
Technical infeasibility
Complex reverse logistics network
Customers unacceptability of remanufactured products
With growing awareness of environmental protection, safe

disposal methods will improve in developed economies.
Developing countries should not become dumping grounds
for hazardous waste!
The Scope of Reverse Logistics

Terms synonymous to
Reverse Logistics are
Aftermarket Logistics,
Retrogistics, Product
Recovery Management
or Aftermarket Supply
Chain.
Types of activity reverse
logistics includes:
logistics, warehousing,
repair, refurbishment,
recycling, e-waste,
after market call center
support, reverse
fulfillment, field service
etc.
Comparison with Traditional SCM

Factors
Reverse / closed-loop SC environment
Traditional manufacturing or
SC environment
Logistics
Forward and reverse flows

Uncertainty in timing and quantity of returns
Supply-driven flows
Open forward flow

No returns
Demand-driven flows
Need to balance demands with returns

Material recovery uncertainty
Stochastic routing and processing time
Manufacturing system has three major components:
disassembly, cleaning, testing, repair/replacement
and reassembly
No such need
Certainty in planning materials
Fixed routings and more stable
processing times
Manufacturing system has two major
components: fabrication and assembly
Forecast only end products
No parts forecasting needed
Production
planning and
control
Forecasting
Inventory
management
Forecast both returns availability and end product

demand
Forecast part requirements because materials
recovery rates are uncertain
Types: returns, remanufactured parts, new parts,
new and remanufactured substitute parts, original
equipment manufacturer parts
Types: raw materials, work-in-process,

finished goods
Reverse Logistics - Closed Loop Supply

Chains
Product Recovery Process = management of
product recovery process + related supply chain
Procurement &
Supply
Production
Product
Recovery
Operation
Market
Disposal
Material
Recycling
Comprehensive Framework of Product Recovery System
Key Management Decision Areas in

Reverse Logistics
Returns Acquisition
Management
Sales and
Marketing
Management of
Remanufacturing
Activities
Remanufacturing
operations
Reverse
Logistics
Inventory
Management
Strategy Framework
Product Variety and Complexity
Environmental Issues
Risk and Security
Technology
Case: Wipers
5. SPECIAL ISSUES
136
Strategy Framework Porters Five Forces Model
Potential
New Entrants
Bargaining Power
of Suppliers
Intraindustry Rivalry
Customer Power
and Preferences
Substitute Products
or Services
137
Generic Strategies Drive Product Variety

(Porter)
Market Scope / Customer Coverage

(Demand Side)
Competencies / Distinguishing Features

(Supply Side)
Broad
Narrow
Price
Uniqueness
Cost
Leadership
Differentiation
Segmentation (Focus)
138
Cost Leadership - Economies of Scale

Economies of scale - average total cost (ATC) declines when
output increases. Sources: indivisibility and the spreading of fixed
costs (plant & equipment, overhead, advertising, inventory,
R&D), efficiency through specialization
Diseconomies of scale may exist where ATC rises as output rises
(sources: physical limits to efficient size, limits to managerial
cognition, worker motivation, distance to suppliers and markets)
The shape is determined by the underlying technology.
Minimum efficient scale (MES) is the point of minimum average
cost.
ATC(Q)
MES
ATC(Q)
MES
139
Cost Leadership - Learning by Doing

AVC(Q)
Variable cost falls as
cumulative production
increases.
10
80% Learning
This learning curve has a
Curve
distinctive shape costs fall by
a constant percent every time
cumulative output doubles
5
With the 80% learning curve,
cost falls by 20% with every
doubling of cumulative output. 2
50
100
Cumulative Output = Qi
140
Product Strategy
A business-level strategy takes action to obtain
competitive advantage in specific, individual product
markets
Elements of business strategy
Differentiation - Which customers needs to satisfy (what) firms
distinguish their products and services from rivals based on low
price or unique characteristics
Segmentation - Which customers to serve (who) firms distinguish
coverage between broad and narrow coverage of customer
preference space
Range of Customer Preferences
141
Firm
Coverage
Broad
Broad
Narrow
Differentiation
Differentiation allows firms to
command a premium price
Competitive advantage is
earned if price premium > cost
Requires a deep understanding
of customer needs detailed
customer segmentation analysis
Is not limited to product
characteristics
Differentiation potential is limited
by
Technical complexity
Complexity of needs to satisfy
(non-)conformance to technical
standards
Bases of Differentiation
Product features
Linkages between functions
Timing
Location
Product mix
Links with other firms
Reputation
Quality of inputs
Customization
Product complexity
Consumer marketing
Distribution channels
Service and support
Technology embodied in
design and manufacturing
142
(Market) Segmentation
Segmentation concentrates on a select few target markets.
It is also called a focus strategy or niche strategy.
Analysis of customer needs to identify distinct groups of
customers who are homogeneous in their preferences
Objective is to identify a profitable strategy for each needbased segment that avoids the risk of
Oversatisfying some customer segment needs (financial cost)
Undersatisfying other customer segments (market share
opportunity cost)
Implementing Differentiation through Segmentation
143
Complexity in Order Configuration
Customer selects
at ordering
C-Class Limousine
Engine
9
Drive (l/r)
x2
Powertrain
x3
Country variants x 3
-> 96 serial types
additional
until SOP 7 days
x 80
x 14
x5
x3
Special accessories
Colors exterieur
Colors interieur
Textiles
Source: Fraunhofer IML 2004

144
Complexity Induced by Product Variety
Endogeneous (Internal) Variety

Complexity in processes
Increases average cost per unit
Bad Complexity
Exogeneous (External) Variety

Potentially creates customer value
Good Complexity
Source: A.T. Kearney 2006

145
Complexity (Structural System Features)
Complexity
Connectivity
(Relational
Variety)
Relation Types
# Relations
(Relational
Density)
Variety
(Elements
Variety)
Element Types
# Elements
Source: translated from Firchau 2002

146
= product variety = exogeneous Variance
Market Variants
Market Variety vs. Engineering Complexity
Building Variants
= complexity of structures and processes = endogeneous variance

147
Postponement
Early differentiation
Unfavourable configuration of
production process
Late differentiation
Favourable configuration of
production process
148
Levels of Customization
Source: Ramani et al. 2004, adapted from [Lampel96]

149
From Mass Production to Mass Customization
Mass Customization is the ability to design and manufacture

customized products tailored to meet a customers needs at mass
production costs and speed. (Ramani et al. 2004)
150
Enablers for Mass Customization

Modularization of products and processes
Intelligent knowledge-based software for product
configuration
Flexible automation
in manufacturing
Logic of product
platforms
modular architecture
Interfaces
standards (design
rules)
Source: Ramani et al. 2004

151
Process Reference Models

as a Process Configurator
A process reference model contains:
A standard set of business processes

A framework of relationships among the processes
Standard metrics to measure process performance
Management practices for best-in-class performance
Guidelines for implementation of the processes
Reference models help to describe and

communicate processes, tune them, measure and
control process performance and implement
processes more efficiently.
They provide a comprehensive set of processes on
different levels of abstraction, to select and
integrate them into a way that best fits the specific
organization / supply chains.
152
Supply Chain Operations Reference

Model (SCOR)
Plan
Plan
Deliver
Return
Suppliers
Supplier
Plan
Source
Make
Return
Plan
Deliver
Return
Source
Source
Make
Return
Deliver
Deliver
Return
Return
Customer
Internal or External
Supplier
Internal or External
Make
Plan
Return
Your Company
153
Source
Return
Customers
Customer
Supply Chain Operations Reference

Model (SCOR)
Level
No.
Description
Schematic
Plan
Top Level
(Process Types)
Source
Make
Deliver
Return
Configuration
Level
(Process
Categories)
Process Element
Level
(Decomposed
Processes)
The SCOR model is

endorsed by the
supply-chain council,
an independent, notfor-profit corporation
of more than 1000
companies.
P1.1
P1.2
4
Not in
Scope
P1.3
P1.4
Implementation
Level
(Decomposed
Process Elements)
154
SCOR Processes
Plan
P1 Plan Supply Chain

P3 Plan Make
Source
S1 Source Stocked Products
S2 Source MTO Products
S3 Source ETO Products
P4 Plan Deliver
Make
M1 Make-to-Stock
M2 Make-to-Order
M3 Engineer-to-Order
P5 Plan Returns
Deliver
D1 Deliver Stocked Products
D2 Deliver MTO Products
D3 Deliver ETO Products
Return
Deliver
Return
Source
Enable
155
Customers
Suppliers
P2 Plan Source
Risk and Supply Chains

Risk results from direct and indirect adverse consequences
of not accounted outcomes and events and concerns
their effects on firms or the society at large.
Consequences are:
the result of failures and misjudgements
the results of uncontrollable events or events we cannot
prevent
The effect of risk on the performance of supply chains can

be substantial arising due to many factors like:
external factors (war, natural disaster, etc.)
internal factors (human errors, mishapes of operating
machines, etc.)
information asymmetry
lack of information
156
Supply Chain Disruptions

Survey by Hendricks/Singhal (2005) analyzes 838 supply chain disruptions
announced by Wall Street Journal and Dow Jones News
Nike Warns Fiscal 3rd-Quarter Earnings Will Miss Estimates by at Least
28% (Wall Street Journal, February 27, 2001)
Sony Sees Shortage of Playstation 2s for Holiday Season
(Wall Street Journal, September 28, 2000)
Hershey will miss earnings estimate by as much as 10% because of
problems in delivering order (Wall Street Journal, September 14,
1999)
Boeing pushing for record production,
finds parts shortages, delivery delays
(Wall Street Journal, June 26, 1997)
Apple Cuts 4th period forecast citing
parts shortages, product delays
(Wall Street Journal, September 15, 1995)
Number of disruptions is growing
157
Risk Basics and Concepts
Risk: A possible future event which if it occurs will lead to an

undesirable outcome.
Supply Chain Risk: The cumulative effect of the chances of an
uncertain occurrence that will adversely affect supply chain
objectives.
Risk Management: A systematic and explicit approach for identifying,
quantifying, and controlling project risk.
Uncertainty (PMI Classification): Lack of knowledge of future events.
Entails the notion that there are several possible outcomes
Knowns: Complete certainty (no risk)
Unknowns: We know they can happen, cannot predict frequency or impact
Known unknowns: Expected, but uncertain (weather, gambling)
Unknown unknowns: Unexpected, (9/11s, there must be a game plan
to deal with them)
Resilience is the ability of a system to return to its original state or move

to a new, more desirable state after being disturbed. (Christopher)
Implicit in this definition: flexibility, and adaptability.
158
The Uncertainty Spectrum
NO
INFORMATION
(UNKNOWN
UNKNOWNS)
PARTIAL
INFORMATION
COMPLETE
INFORMATION
(KNOWN
UNKNOWNS)
(KNOWNS)
Region of Risk
TOTAL
UNCERTAINTY
GENERAL
UNCERTAINTY
SPECIFIC
UNCERTAINTY
TOTAL
CERTAINTY
Scope of Risk Management
159
Quantitative Risk Ranking - Risk Chart

PROBABILITY OF LOSS
High
Low
HIGH RISK
MEDIUM
RISK
LOW RISK
MAGNITUDE OF IMPACT (Amount at stake) Large
No
Impact
Impact
Risk = f (Probability of Occurrence, Impact)

160
Risk Classification
Business risks vs. pure (insurable) risks

Classified by uncertainty (business risks)
Classified by point of impact
Classified by their nature
Classified by their source: internal - external
Classified by their probability to occur and impact
161
Types of Risk
Business risk
A risk that has both profit and loss potential

E.g. joint venture, market shift, regulatory changes, new product
launch
Pure (insurable) risk
A risk that only has loss potential , usually can be insured against
E.g. ice storm, fires, earthquake
Internal risk (controllable by the organization)
Financial: cash flow problems,

Schedule: labor stoppages
Technical: changes in technology, design issues etc.
Legal: licenses, patent rights, law suits, etc.
External risk (outside the span of control of the organization)

Unpredictable (unknown-unknown)
Predictable (but uncertain) - (known-unknown): government
regulations, natural hazards, acts of god, financial
Point of Impact Classification
Scope risks
Quality risks
Schedule risks
Cost risks
Technology risks
Procurement risks
162
Risk Management Processes (PMBoK)

Risk Management Objectives:
Reduce the number of surprise events
Minimize consequences of adverse events
Maximize the results of positive events
Reactive vs. Pro-active risk management
Project Risk
Management
11.0
Risk
Identification
11.1
Risk
Quantification
11.2
Risk Response
Development
11.3
Risk Response
Control
11.4
PMBoK: Project Management Institutes Body of Knowledge

163
SC Risk Measurement Model
Source: Protiviti, APICS

164
Risk Identification - Tools and Techniques

Checklists: Project / Supply Chain Healthcheck
Flowcharting
Cause & Effect (Fishbone or Ishikawa charts):
What could happen -> What ensues
Effect & Cause
Outcomes to avoid -> How they occur
System or Process flowcharts
Project Risk
Management
11.0
Interviewing
Brainstorming
Risk
Identification
11.1
Risk
Quantification
11.2
Risk Response
Development
11.3
Risk Response
Control
11.4
165
Risk Quantification - Tools and Techniques
Expected monetary value

Statistical sums
Simulation
Decision trees
Expert judgment
Project Risk
Management
11.0
Risk
Identification
11.1
Risk
Quantification
11.2
Risk Response
Development
11.3
Risk Response
Control
11.4
166
Risk Quantification Tools and Techniques :

Expected Monetary Value (EMV)
Product of Risk event probability and Risk event value
Valuation of the risk event is key
Must include tangible as well as intangible value
Eg. 1 week slippage - minor client impact, 6 week - major
client impact
Example:
Optimistic
Most likely
Pessimistic
Cost
$100,000
$130,000
$180,000
Probability
0.20
0.60
0.20
Expected Value Calculation:

Optimistic
Most likely
Pessimistic
$100,000 x 0.20
$130,000 x 0.60
$180,000 x 0.20
= 20,000
= 78,000
= 36,000
Expected Monitary Value

$134,000
If no probabilities are given, use EMV=(Opt + 4*ML + Pes)/6
167
Risk Response Development

Defines steps for
enhancing opportunities
responding to threats
Types of responses
Prevent risk from occurring
Reduce the probability that the event will occur
Eliminate means P=0
Reduce the impact (think containment)

Buy insurance (monetary)
Alternative strategies
(additional supplier to PDQ)
Risk
Identification
11.1
Project Risk
Management
11.0
Risk
Quantification
11.2
Risk Response
Development
11.3
Risk Response
Control
11.4
168
Response Options
Avoidance
take appropriate steps to avoid a situation
Absorption
Risk is recognized but not acted upon, accept the risk AS IS
Retained & absorbed (by prudential allowances)
Unrecognized, unmanaged, or ignored (by default)
Adjustment - Modification of
Scope
Budget
Schedule
Quality specification
Deflection - Transfer of risk by

Contracting out to another party
Insurance or bonding
By Recognizing it in the Contract
Contingent Planning
Establishment of management plans to be invoked in the event of
specified risk events
Address risks through a formal process, provide resources to meet the risk
events
Eg. contract strategy
A Combination of the Above

169
Contract Type vs. Risk

Project A
Well defined scope and work content.
High probability ofachieving realistic cost
estimate at 100%
P
R
O
B
A
B
I
L
I
T
Y
Project B
Fairly well defined scope and work
content. Fair probability of achieving
100% cost estimate
Project c
Poorly defined scope and content.
probability of 100% low cost
estimate.
80%
90%
95%
100%
110%
120%
140%
COST ESTIMATE VALUE

+/- 15%: FFP
+/- 25%: CPFF
Suggested types of
contract for various
spreads
+/- 50%: CPIF

> 50%: CPPF
170
Risk Management Strategies
Source: Wagner 2010

171
Supply Chain Risk - Summary

Risk management in supply chains is multi-faceted.
It is conceptual and technical, blending behavioral
psychology, financial economics and decision making
under uncertainty into a coherent whole that justifies the
selection of risky choices and manages their consequential
risks.
In a supply chain the management of risks is both active
and reactive (actions can be taken to improve a valuable
process or preventing recurrent problems).
General problems occur for a number of reasons:
unforeseeable events
adversarial situations resulting from a conflict of interests
between contract holders
information asymmetries including risks
poor organization and control of processes
Risk management requires a planned process from

identifying risk to response planning and monitoring
172
Technology Enablers in Supply Chains

Market-/Customer-Driven Technology Innovations (FedEx)
1973: First air freight/parcel enterprise air/ground express
industry born
1979: The computer system COSMOS (Customers, Operations
and Service Master Online System) is brought on the market;
packages, weather scenarios, employee, routes etc. are
planned and accomplished "real time".
1980: First express enterprise with DADS (Digitally Assisted
Dispatch System): Communication system in delivery vans,
pick-up immediately feasible
1984: First automatic shipping system
1986: First hand bar code scanner the SuperTracker is
introduced
1994: First company, which offers on-line tracking
1996: First company to allow customers to process package
shipments on the Internet with FedEx interNetShip

Source: Wagner 2010
173
DistributionShared Resources
The three retail stores in the
region share a warehouse
and are linked together via
Internet.
Manufacturing
plant
A
Warehouse
B
Retail Store
B
Retail Store
Retail Store
C
C
C
INTERNET
Product flow via regular delivery
Warehouse aggregates the

sales scanner data and sends
the information to the plant.
Plant ships product to
replenish warehouse
inventory.
Retail stores send sales
scanner data to warehouse
Stores replenish inventory from
warehouse
Stores are linked via Internet.
If one store is short of a
product it can get an item
from another store.
Stores can coordinate their
pricing and ad promotions.
Information flow via Internet

174
Electronic Data Interchange (EDI)

EDI (Electronic Data Interchange) is
exchange of structured messages
between business partner (e.g. order,
invoice, ...), using heterogeneous
platforms, hardware, software and
communication systems.
Defined data elements with standardized
syntax
EDI Standards: national, international
standards, industry standards
EDI & Internet: new standards based on
XML (Extended Markup Language)
Sender
Host: Order
Release
Order
Data
Conversion
EDIFACT Message
Network/
Service
Data Transmission
EDIFACT Message
international
ODETTE
Recipientr
EDIFACT
SWIFT
VDA
national
SEDAS
Industryfocused
Data
Order Received
Conversion
GTDI
ANSI X12
Industryindependant
Order
Processing
175
Web-based Transactions
Web Business Community
Buyer
1. Select
product
via
browsers.
Seller
3.Buyer pays by
credit cards
Browser
Payment
System
2.Put selected
merchandise
into
shopping
cart.
Web catalog
5.Ship
product
to
buyer
system
4.Authorization
from bank or
credit card
company
Bank
1. Provide
product and
pricing
information.
2. Update info
periodically.
ProductAd
Manager
Manages
product ad
etc.
Web Catalog
Product
Product
176
E-Business Trends
from Direct Model
sell
to Net Market Model
buy
market
sell
market
B-to-B
storefronts
EDI
buyer-controlled
expensive
proprietary
one-to-one
Customercentered
procurement
EDI-like,
seller-controlled
internet-based
high transaction
one-to-one
costs
high search costs
one-to-one
market spacenet markets

auctions,
quotations,
catalogs,
exchange
many-to-many
Hosted private
markets
177
E-Business - Models for Electronic Markets
Functional Integration
Multiple
integrated
functions
Value Chain Integrator

Third Party Marketplace
Collaboration Platform
Virtual Community
eMall
Value Chain Service Provider

eProcurement
eShop
Single
Function low
eAuction
Trust Services
Info Brokerage
high
Innovation
Source: International Journal of Electronic Markets
178
E-Logistics - Problems and Tendencies

E-Logistics
Internal Problems
Tendencies
Order
structure
Heavily fluctuating incoming

orders
Expanding number of parcels
Less positions per order

Increased order frequency
Selling
behaviour
Lack of historical data for forecasts

High quantity growth
International/global handling
Poor customer loyalty
Customer
expectation
Intermediate deliveriy
Returns free of charge
Increased cost pressure due to

more expensive logistic handling
incl. returns shipment
Change of priority from front-end
(e-shop) to back-end (e-fulfilment)
Standardized individual service
due to increased individualism of
the customer
Flexible automation in
warehousing and conveying
technology
Shipment tracking
Customer service
179
Last Mile Concepts For E-Business Delivery
180
Von Many-to-Many zu Many-to-One

durch standardisierte Nachrichtenformate
Quelle: Open Applications Group 2000
181
Identification - Technologies and Standards

Automated Identification (Auto-ID) in material flows
Barcode (EAN128, consumer goods)
Barcode (2D-Code, e.g. Datamatrix, document flow)
Letter Post Standard
OCR (Optical Character Recognition)
Biometry
Iris-Scan
Fingerprint Scan
Palm Scan (Hand)
RFID (Radio-Frequency Identification)
Chip Cards/Magnetic Cards
Electronic Product Code (EPC)
Speech Recognition
182
Symbologies - Background
There are many ways to arrange the bars and spaces
A bar code symbology is a combination of bar code
characters (start/stop characters, quiet zones, data
characters, check characters), that forms a complete,
scannable entity
A bar code symbology defines

technical details
width of bars
character set
method of encoding
checksum specifications
capabilities
how much data it can hold
what kind of data it can hold
common uses
183
Symbologies - Composition
Bar Code
Quiet
zone
Quiet
zone
Quiet
zone
Bar Code Symbol

Start
Data (message)
Quiet
zone
Start
character
Data
characters
Check digit
Check
Stop
digit
Quiet
zone
Quiet
zone
Stop
character
184
Symbologies - Types
Retail
Numeric
UPC (USA)
Numeric
EAN (Europe)
Numeric
Industrial
applications
Alphanumeric
2-Dimensional
GTIN
Interleaved 2 of 5
Code 39
Code 128
PDF417/Stacked Bar
DataMatrix
185
Symbologies EAN / GTIN
An eight- or thirteen-digit code to uniquely identify themselves and

their products worldwide
Fixed length numeric only code
EAN (European Article Number), UPC (Universal Product Code) joined
in 2009
-> GTIN (Global Trade Item Number)
Country
Code
Manufacturer
Check digit
EAN contains an extra digit as part of the identification of the country

where the product originated
186
GTIN Global Database

GEPIR GS1 Germany
(http://www.gepir.de/v31_client/gtin.aspx?Lang=
de-DE)
Options:
Search GTIN
Search GLN (Global Location
Number), first part of GTIN,
identifies supplier
Sear NVE (number of packing
unit)
Mobile search, using mobile
phone as barcode scanner
187
Symbologies - 2D Codes
2D codes can hold up to 2000 characters as opposed to 1D symbols

holding 15 - 22 characters (more information in less space).
A 1D code encodes a reference to a record in a database, a 2D code
encodes the entire record
2D codes can be read with 100 % accuracy in spite of damage,
abrasion, dirt, low contrast, curved surfaces or warping, thanks to error
detection features
2 types: stacked bar codes and matrix symbology
PDF417 (stacked bar)
Datamatrix (matrix symbology)
188
Bar Code Benefits

Fast and accurate data collection
fast: 6 times as fast as a typist
accurate: error rate is reduced from 1 in 300 (keyboard
data entry) to 1 in 3 million
Reduced costs
labor
capital: reduced inventory levels
Improved management
better decision making
faster access to information
189
Bar Code Applications

Point of Sale
Maintenance
fast billing
detailed receipts
stock management
when a work order is started, bar code on

work order is scanned
bar code on name badge is scanned
Manufacturing
bar codes from used parts are scanned
work in progress
productivity management
quality control
Warehousing and
distribution
inventory control
packaging
when a work order is finished, bar code on

work order is scanned again
data can now be analyzed
Security systems
access control
equipment usage control
Collection of data from forms
190
Other Auto-ID Standards

Name
Bezeichnung
Anwendung
GRAI
Global Returnable Asset Item
Reusable Packaging
IMEI
International Mobile Equipment Identity
Mobil phones
ISBN
International Standard Book Number
Books
ISIN
International Securities Identification

Number
Bonds etc.
ISMN
International Standard Music Number
Music
ISO 10957:1993
ISRC
International Standard Recording Code
Music
ISO 3901:2001
ISSN
International Standard Serial Number
Newspapers
ISO 3297:1998
MIC
Machine Identification Code
Prints, copies
NVE
Nummer der Versandeinheit
Transport
PZN
Pharmazentralnummer
Medication
VIN
Vehicle Identification Number
Vehicles
ISO 3779:1983
WMI
World Manufacturer Identifier
Vehicle Manufacturers
ISO 3780:1983
WPMI
World Parts Manufacturer Identifier
Vehicle Parts
ISO 4100:1980
Norm
ISO 2108:2005
191
RFID What is it?

Radio Frequency Identification Device
Holds unique data a serial number or other unique
attribute of the item
The data can be read from a distance no contact or
even line of sight necessary
Enables individual items down to a can of beans to be
individually tracked from manufacture to consumption!
EPC Code, eg 613.23000.123456.123456789
Product manufacturer
Product type
Serial Number Unique ID for that product item
192
RFID Tags
Passive RFID Tags
Used in retail security applications
Tag contains an antenna, and a small

chip that stores a small amount of data
Tag is powered by the electromagnetic
field generated by the antennas
Price will come down from $0.80 to

$0.05 in the next 2 years.
Active RFID Tags

Battery Powered tags
much greater range 100m

much more information
sensing technology (temperature)
Can signal at defined time
Used for higher value items
Shipping containers
Babies
Electronic assets
Cost $20 to $40 per item
193
Conclusion Supply Chains Today &

Tomorrow
Competitive advantage derives from the combined capabilities of

the network of linked organizations that today we call the supply
chain. This is a fundamental shift in the traditionally held view of a
business model based upon a single firm.
Markets today are increasingly volatile and hence less predictable
and so the need for a more agile response has grown.
Putting these two ideas together leads us to the conclusion that a
pre-requisite for success in these markets will be an agile supply
chain.
Required is a framework for agility that is contingent upon the
context in which the business operates. It is feasible to bring together
the lean and agile philosophies to highlight the differences in their
approach but also to show how they might be combined for greater
effect.
The wider operating environment will demand not a single off-theshelf solution, but hybrid strategies which are context specific.
194
Helmut E. Zsifkovits
Prof. of Industrial Logistics, Montanuniversitt Leoben
Member of the Executive Board, BVL (Austrian Logistics Association)
Education:
Studied at the University of Graz, Austria: Business Administration,

Languages (English, Spanish)
Professional Career:
1982-97
1988-94
1989-96
Logistics
1995-99
1997-2000
seit 2001
Research assistant, Institute of Business Administration, University of Graz

Head of Department IT/Logistics, Austrian Academy of Management
Managing Director, Bundesvereinigung Logistik sterreich (BVL, Austrian
Association)
Managing Director, Systemlogistik GmbH&Co KG
Manager Information Office, UBG/DaimlerChrysler
Head of Unit eLogistics, evolaris eBusiness Competence Center
Projects, Presentations:
Project manager in various projects (IT, Organization, Logistics, TQM)

Speaker in management seminars on IT Management, Project Management, Quality
Management
Presentations in conferences in Austria, Germany, Spain, USA, UK, Australia
Publications:
Author of books; Executive Information Systems with E. Tiemeyer, CW-Edition 1995) and
DV-Werkzeuge fr das Projektmanagement (with H. Karnovsky, expert Verlag 1995)
Editor of books: "Markterfolg durch Qualitt", "Total Quality Management" and "Erfolgsfaktor
Servicequalitt" (Verlag TV Rheinland, Kln)
Publications in several journals
195
Contact
Prof. Dr. Helmut E. Zsifkovits
Montanuniversitt Leoben
Chair of Industrial Logistics
Franz-Josef-Strasse 18
AT-8700 Leoben
Austria/Europe
Email: helmut.zsifkovits@unileoben.ac.at
Tel.: ++43-3842-402-6020
196

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Prof. Helmut E. Zsifkovits

Understand the trends and challenges in international logistics

Helmut E. Zsifkovits - International Logistics

Helmut E. Zsifkovits - International Logistics

Helmut E. Zsifkovits - International Logistics

Helmut E. Zsifkovits - International Logistics

Trends in World Trade

Source: The Millennium Project (UN), 2010 State of the Future

Challenges Facing Logistics and Supply

Aging domestic populations require new markets for existing

The rise of the BRIC countries is driving a change in global

Pressures to reduce carbon emissions, waste, and resource

Smart networks and auto-ID technologies are enabling the

Supply chain risks

Increased complexity and length of supply chains are

Source: Grosse-Ruyken, Jnke, Wagner, and Franklin (2011); Straube (2010)

Systemic financial risks

Source: Wagner 2010

Adverse Events Affecting Supplies

Source: Wagner 2010

Volatility Poses Risks

Source: Wagner 2010

Supply Chain Concepts

Source: Langley 2010

Supply Chain Trends Europe

Helmut E. Zsifkovits - International Logistics

Location: Logistics Criteria Decide

Supply Chain or Supply Network?

Source: SCC, Fraunhofer IML (2001)

Role of Emerging Markets

China Factory of the World

Source: Straube (2010)

Brazilian Export (2007)

Source: Straube (2010)

Brazilian Infrastructure (1)

Source: Straube (2010)

Brazilian Infrastructure (2)

Sao Paulo > 20 Mio. population

Source: Straube (2010)

Helmut E. Zsifkovits - International Logistics

Helmut E. Zsifkovits - International Logistics

Global Logistics Performance Index

Hong Kong, China

Helmut E. Zsifkovits - International Logistics

Foreign Direct Investment (FDI) Flows

Other developed economies

Latin America and Carribean

South East Europe and the CIS

Helmut E. Zsifkovits - International Logistics

Outsourcing and Offshoring

Offshoring: The transfer of specific processes to

Reasons for Offshoring

Some of the reasons why companies offshore

Helmut E. Zsifkovits - International Logistics

Traditional versus circular routings

Overseas Site Selection Factors

Land costs and availability of

Availability of suitable suppliers

Benefits of being part of a cluster of

Transport and logistics costs

Preferred locations of competitors

Communications infrastructure and Community issues and quality of life

Logistics - Supply Chain