Logistics Logistics An Introduction to Supply Chain Management Donald Waters © Donald Waters 2003 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2003 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN 0–333–96369–5 paperback This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Waters, C. D. J. (C. Donald J.), 1949– Logistics : an introduction to supply chain management / Donald Waters. p. cm. Includes bibliographical references and index. ISBN 0–333–96369–5 (paper) 1. Business logistics. 2. Industrial management. I. Title. HD38.5 .W384 2002 658.5—dc21 2002073544 Editing and origination by Aardvark Editorial, Mendham, Suffolk 10987654321 12 11 10 09 08 07 06 05 04 03 Printed in Great Britain by Ashford Colour Press Ltd, Gosport To Dan and Sue Contents List of Figures ix 4 Implementing the Strategy 82 Preface xi Relating Strategy to Lower Decisions 83 Areas for Decisions in Implementation 85 PART I Managing Change 95 Introduction 1 Discussion Questions 103 References 103 1 The Context of Logistics 3 5 Locating Facilities 104 Introduction 4 Importance of Location 105 Definitions 4 Choosing the Geographic Region 109 The Supply Chain 7 Infinite Set Approaches 113 Activities of Logistics 12 Feasible Set Approaches 119 Aims of Logistics 17 Network Models 126 Importance of Logistics 19 Location Planning 130 Discussion Questions 25 Discussion Questions 136 References 26 References 136 Further Reading 26 Further Reading 136 2 Integrating the Supply Chain 27 6 Planning Resources 137 Progress in Logistics 28 Types of Planning 138 Current Trends in Logistics 30 Capacity Planning 139 Integrating Logistics Within an Adjusting Capacity 144 Organisation 34 Tactical Planning 150 Integration Along the Supply Chain 39 Short-term Schedules 158 Achieving Integration 43 Discussion Questions 165 Discussion Questions 53 References 165 References 54 Further Reading 165 PART II 7 Controlling Material Flow 166 Planning the Supply Chain 57 Material Requirements Planning 167 Extending the Role of MRP 174 3 Logistics Strategy 59 Principles of Just-in-time 178 Strategic Decisions 60 Achieving Just-in-time Operations 183 Logistics Strategy 62 Extending JIT Along the Supply Chain 189 Strategy Options 66 Discussion Questions 194 Designing a Logistics Strategy 73 References 194 Discussion Questions 80 Further Reading 195 References 80 viii CONTENTS 8 Measuring and Improving 11 Warehousing and Material Performance 196 Handling 282 Measuring Performance 197 Purpose of Warehouses 283 Comparing Performance 207 Activities Within a Warehouse 285 Analysing a Supply Chain 209 Ownership 290 Improving Performance 215 Layout 292 Discussion Questions 222 Materials Handling 297 References 223 Packaging 302 Further Reading 223 Discussion Questions 306 References 306 PART III Further Reading 307 Activities in the Supply Chain 225 12 Transport 308 Introduction 309 9 Procurement 227 Mode of Transport 310 Definitions 228 Intermodal Transport 319 Choosing Suppliers 232 Ownership of Transport 321 Procurement Cycle 236 Routing Vehicles 325 Types of Purchase 242 Discussion Questions 331 Discussion Questions 249 References 331 References 249 Further Reading 331 Further Reading 250 13 Global Logistics 332 10 Inventory Management 251 International Trade 333 Reasons for Holding Stock 252 Problems with International Logistics 338 Economic Order Quantity 259 Organising International Operations 342 Uncertain Demand and Safety Stock 267 Discussion Questions 349 Periodic Review Systems 270 References 349 Effort of Stock Control 274 Further Reading 349 Discussion Questions 280 References 281 Index 350 Further Reading 281 List of Figures 1.1 Spectrum of products 5 4.5 Capacity of a supply chain set by the 1.2 Operations creating outputs 5 bottleneck 92 1.3 Cycle of supply and demand 6 4.6 Summary of logistics at Ralston 1.4 The role of logistics 6 Energy Systems s.r.o. 93 1.5 Outline of the supply chain for paper 8 4.7 Deming wheel 97 1.6 Activities in a supply chain 9 4.8 Rate of performance improvement 100 1.7 Supply chain around a manufacturer 9 5.1 Break-even analysis for location of 1.8 Using intermediaries to simplify the Warwick Supplies 108 supply chain 12 5.2 Hierarchy of decisions for locations 109 1.9 Examples of organisational structure 16 5.3 Alternative choices of location 114 1.10 Influence of logistics on ROA 21 5.4 Variation in transport cost with 2.1 Summary of logistics activities 35 location 115 2.2 Three levels of logistics integration 40 5.5 Calculation of centre of gravity 116 2.3 Varying demand 40 5.6 Locations for van Hendrick Industries 117 2.4 Spectrum of relationships 46 5.7 Weakness of the centre of gravity 2.5 Different levels of vertical integration 49 method 117 5.8 Map for Bannerman Industries 120 3.1 Types of strategic decision 61 5.9 Comparison of sites 121 3.2 Role of logistics managers in strategic 5.10 Variation in transport cost with decisions 63 number of facilities 121 3.3 Different amounts of input from 5.11 Finding the optimal number of logistics managers 63 facilities 122 3.4 Factors in the design of a logistics 5.12 Map of Ian Bruce’s problem 127 strategy 74 5.13 Spreadsheet of calculations for Ian Bruce 127 4.1 Levels of decision in logistics 86 5.14 Road network showing travel time 4.2 Structure of a supply chain 87 in minutes between locations 129 4.3 Different shapes of supply chain 88 5.15 Solution to the covering problem 129 4.4 Simplified supply chain for 5.16 Network for Problem 6 135 distributing shoes 89 x LIST OF FIGURES 6.1 An approach to planning logistics 138 9.1 Relative power of a customer and 6.2 The bottleneck of a supply chain a supplier 234 limits the capacity 140 9.2 Outline of steps in a procurement 6.3 Capacity of distribution at J&R cycle 237 Softdrinks 142 9.3 Some arrangements for delivery 246 6.4 Alternative timing of capacity 10.1 Aggregate stock as a percentage expansion 144 of GDP for the UK 253 6.5 Alternative size of capacity expansion 145 10.2 Types of stock 255 6.6 A typical learning curve 147 10.3 Repeated pattern of stock cycles 259 6.7 Cost of maintenance 148 10.4 Variation of cost with order size 260 6.8 An iterative approach to planning 152 10.5 Using a reorder level to time orders 263 6.9 Graphical approach to planning – 10.6 Order patterns when lead time is plotting cumulative demand and longer than stock cycle 263 supply 155 10.7 The cost curve is shallow around 6.10 Revision of plans during cycles 156 the economic order quantity 265 6.11 Spreadsheet to help with planning 10.8 Safety stock raises the average in Piotr Hucek 158 stock level 267 7.1 Comparison of stock levels 168 10.9 Alternative approaches to ordering 271 7.2 Part of a bill of materials for a table 169 10.10 Order placed at A has to cover 7.3 Summary of MRP procedure 170 demand until B 272 7.4 A closed-loop MRP system 175 10.11 Typical results for an ABC analysis 274 7.5 Enterprise resource planning 177 10.12 Original supply chain for Nalco/ 7.6 Stock levels with different types of Exxon 276 control 180 11.1 Using warehouses to reduce 7.7 The simplest form of message for JIT 185 transport costs 287 7.8 A two-card kanban system 186 11.2 Meeting demand with a mixture 8.1 Capacity and utilisation in a supply of private and public warehouses 291 chain 199 11.3 Break-even analysis for public/ 8.2 Structure of the UK frozen food private warehouses 292 industry 206 11.4 Basic layout of a warehouse 293 8.3 Steps in benchmarking 208 11.5 Schematic of a common warehouse 8.4 An informal process chart 210 layout 293 8.5 Format for a process chart 211 11.6 Layout of paint in worked example 296 8.6 Part of a process chart for deliveries 11.7 Choice of automation and at a supermarket 211 warehouse size 300 8.7 Precedence diagram, with activity 11.8 Outline of Handemann Group’s B following activity A 212 warehouse 301 8.8 Precedence diagram for worked 12.1 Freight moved by transport mode example 213 in the UK 311 8.9 Example of a multiple activity chart 213 12.2 Transporting coal across Canada 318 8.10 Multiple activity chart for worked 12.3 The travelling salesman problem 326 example 214 12.4 Solution to routing problem 328 8.11 Part of a simulation for Ed’s Drive- through Bottle Shop 221 Preface SUBJECT This is a textbook about logistics.