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BOOK1
APICS CLTD Exam Content Manual (ECM) - Version 1.0
Course Overview
elu pele omy Nena Uo EWU Lo]
2017
eT
SYSTEM
VERSION 1.0 Book 1
Table of Contents
APICS CLTD EXAM CONTENT MANUAL (Version 1.0)
COURSE OVERVIEW.
MODULE 4: LOGISTICS AND SUPPLY CHAIN OVERVIEW
Introduction.
Section A: Logistics Fundamentals
Topic 1: Logistics Introduction ..
Topic 2: Supply Chain Management and the Role of Logistics.
Topic 3: The Value of Logistics Management
Topic 4: Logistics Costing,
Section B: Logistics Strategy within the Supply Chain.
Topic 1: Goals and Objectives.
Topic 2: Value Propositions.
Topic 3: Cost and Service Optimization
‘Topic 4: Segmentation
Topic 5: Product Life Cycles
‘Topic 6: Organizational Design and Supply Chain Synchronization
Topic 7: Logistics Relationships smn
Topic 8: Risk Management ..
Topic 9: Performance Management and Key Performance Indicators,
Section C: Lean Logistics.
Topic 1: Lean Principles un
Topic 2: Agile Supply Chain:
Topic 3: Six Sigma,
MODULE 2: CAPACITY PLANNING AND DEMAND MANAGEMENT
Introduction.
Section A: Aligning Supply and Demand
‘Topic 1; How and Why Forecasts Are Created.
‘Topic 2: Interpreting Forecasts..
2026 nes LTO version 3.02037 Eaton
Alrgits resend Q reseesinsernr sn rte ‘Section 8: Translating Demand into Capacity Plannin
Topic 1: Information Flow..
Topic 2: Transportation Considerations .n
Topic 3: Warchousing Considerations...
Section C: Demand Management.
‘Topic 1: Demand Characteristics.
Topic 2: Planning and Scheduling...
Section D: Sourcing and Procurement of Inventory.
Topic 1: Procurement Proce:
‘Topic 2: Purchasing Strategy
‘Topic 3: Supplier Selection,
Topic 4: Contracts...
Topic 5: Coordinated Logistics
‘Topic 6: Procurement Technology
‘Topic 7: Key Metrics
snnsnnsnaninnie BLL
2-116
Cumulative Course Bibliography...
Cumulative Course Index..
©2016 APICS {LID Version 1.0, 2047 Edition
Al rignts reserved ean Log crm eee APICS Certified in Logistics, Transportation and Distribution
(CLTD) Learning System
‘This product is based on the APICS CLTD Exam Content Manual (ECM) developed by APICS. Although the text is
based on the body of knowledge tested by the APICS GLTD exem, program developers do not have access to
the exam questions. Therefore, reading the text does not guarantee a passing score.
The references in this manual have been selected solely on the basis of their educational value ta the APICS
CLTD certification program and on the content of the material. APICS does not endorse any services or other
‘materials that may be offered or recommended by the authors or publishers of books and publications listed in
this module,
Every effort has been made to ensure that allnformation is current and correct, However, laws and regulations
are constantly changing. Thereforo, this product s distributed with the understanding that the publisher and
‘authors are not offering legal or professional services.
Acknowledgments
‘We would lke to thank the following dedicated subject matter experts who shared thet time, experience, and
insights uring the intial development ofthe CLTO program.
CCLTD Job Task Analysis Committee:
Patricia Aled Tim Griesgraber, CSCP Gerard OBrien
‘The Home Depot ©. Robinson Carisle Companies
Dr. Yemisi Bolumole, PhO, CTL Mari. Hardison, GF PIM, CSOP. Francesco Parella
Michigan State University Jubilant Life Seiences Ltd, GE OI & Gas
Blake Bowin ‘Kathy Himes, CSCP Melinda Patterson
Caterpillar Ino. BASF Boeing
Jim Caruso, CPIM, CSCP Dr. Mary Holeomts, PO ‘ulkhairi Sanaruddin, CSCP
Covidien University of Tennessee ALJ Import and Distributor Co.
Eric Copeland Clifford Lee, CPIM a
Eaton DuPont Darren Smith
Northrop Grumman
Jetty Critchfield, CSP Bruce MeMahon, CPIM .
‘Schneider National Regis Corporation Gary Smith, CFPIM, CSCP
‘New York City Transit Authority
Peter Dill Kevin J Meyers, CSCP, CPIM, CIRM Y "
FMC Technologies Saudi Arameo (ret)
Brent Goddard Tricia Mims
Ingersoll Rend Delta Air Lines
CLTD Learning System Courseware Development Subcommittee:
Patricia Allred Bruce MeMahon, CPIM Cobus Ressouw
Tim Griesgraber, CSCP Tricia Mims Darren Smith
De, Mary Haleom®, PAD Curt Reynolds
(© 2016 aPICS ‘CLTD Version 1.0, 2017 Edltion
Allright reserved enn 30pm tae Key Terminology
‘An understanding of the following list of terms
is recommended. The lst is intended to be
‘thorough but not exhaustive. The candidate is
also expected to be familiar with the
definitions of terms identified in the content
outline, Definitions of these terms can be
found in the APICS Dictionary, 45th edition.
A
advanced planning and scheduling (APS)
agile manufacturing
allocation
anti-bribery regulations
assemble-to-order
asset recovery
associative forecasting
automatic identification and data capture
(alboy
automatic identification system (AIS)
available-to-promise (ATP)
B
backorder
balanced scorecard
barge
benchmarking
bill of lading (uniform)
break-bulk
bribes
broker
business intelligence
c
carbon offsets
cash-to-cash cycle time
center-ofegravity approach
closed-loop systems
commodity rate
container security initiative (CSI)
‘continuous replenishment
cost of goods sold (COGS)
ceross-docking
‘ross-docking warehouse
cube rate
cube utilization
customs trade partnership against terrorism
(cTPAT)
customer service ratio
D
demand forecasting
demand planning,
detention
dunnage
dwell
E
80-20
‘embargo
F
fill rate
freight rate
6
gatekeeping
H
Harmonized Tariff Schedule (HTS)
1
inventory accuracy
inventory shrinkage
L
landed cost
life cycle analysis
line haul
M
make-to-order
make-to-stock
master service agreement
motor cartier
multisourcing
N
nonvessel-operating common carrier (NVOCC)
°
order fill rate
order to cash cycle
order transmittal
CLTD Exam Content Manual 23 Pp
pallet
Pareto analysis
part-to-picker system
perfect order
picker-to-part system
piokto-ight
pick to-voice system
postponement
private warehouse
public warehouse
R
radio frequency identification (RFID)
rail gauge
reorder point
s
seasonality
short-sea shipping
slip sheet
software-as.a-service (SaaS)
sorting,
stockkeeping unit (SKU)
stowability
strategic planning
T
tems of trade
time series forecasting
total cost of ownership (TCO)
trailer on a flatcar (TOFC)
transportation management system (TMS)
truckload carriers
‘wenty-foot equivalent unit (TEU)
w
warehouse receiving
warehouse storage
24 @APICS Bibliography
All test candidates should familiarize
themselves with the following references for
this examination. The recommended
references pertaining to the diagnostic area
are listed atthe end of each section of the
content outline, The APICS Dictionary is
available from the APICS Bookstore. Please
visit apics.org/shopapics. All other references
can be found at the APICS Amazon store at
astore.amazon.com/apics01-20.
1, APICS Dictionary, 15th ed., 2016.
2. Bowersox, Donald J., David J, Closs, M.
Bixby Cooper, and John C. Bowersox.
‘Supply Chain Logistics Management.
Ath ed., McGraw-Hill, 2013,
3. Coyle, John J., C. John Langley Jr, Robert
‘A. Novack, and Brian J. Gibson
Managing Supply Chains ~ A Logistics
Approach. 9th ed., South-Western,
Cengage Leaming, 2013.
4, Coyle, John J., Robert A. Novack, and
Brian J. Gibson. Transportation ~ A
Global Supply Chain Perspective. 8th
ed., Cengage Learning, 2016.
5. David, Pierre. International Logistics.
4th ed., Cicero Books, 2013,
6. Murphy, Paul R.Jr., and A. Michael
Kknemeyer. Contemporary Logistics ~
Global Edition. Eleventh ed., Pearson
Education Limited, 2015.
7. Myerson, Paul A. Supply Chain and
Logistics Management Made Easy.
Ast ed., Pearson Education, Inc. 2015,
8. Richards, Gwynne. Warehouse
Management ~ A Complete Guide to
Improving Efficiency and Minimizing
Costs in the Modiern Warehouse. 2nd
ed., Kogan Page Limited, 2014.
9, Ross, David F, Distribution Planning and
Control ~ Managing in the Era of Supply
Chain Management. 3rd ed., Springer,
2015.
10. Rushton, Alan, Phil Croucher and Peter
Baker. The Handbook of Logistics and
Distribution Management:
Understanding the Supply Chain. 5th
ed., Kogan Page Limited, 2014,
LTD Exam Content Manual 25 Sample Questions
The following ten questions are similar in
format and content to the questions on the
CLTD exam. These questions are intended for
practice—that is, to enable yau to become
familiar with the way the questions are asked.
‘The degree of success you have in answering
these questions is not related to your potential
for success on the actual exam, and should
not be interpreted as such, Read each
‘question, select an answer, and check your
responses with the explanations on pages 28-
29,
1
In its simplest form, logistics:
(A) is concerned with only the
distribution of products.
(6) is another term for transportation.
(C) integrates inbound logistics with
‘outbound logistics.
(D) does not involve customer service.
Warehouse management system (WMS)
based task interleaving combines:
(A) Putaway and replenishment
operations
(8) Replenishment and shipping
operations
(©) Shipping and put-away operations
(0) Receiving and shipping operations
A logistics manager works within a
business where transportation capacity
is near critical mass. Load planning is,
inefficient given the increasing volume
of loads. Which of the following,
applications would enable better
decision making and efficiency in
planning loads?
(A) Advanced planning and scheduling
(aps)
(8) Distribution requirements planning
(ORP)
(©) Enterprise resources planning (ERP)
(0) Transportation management system
(mms)
26 @APICS.
|. Which of the following metries is
considered external thus customer-
facing?
(A) Perfect order
(8) Line fill
(©) Inventory turns,
(0) Oycle count
Inventory carrying costs generally
include:
(A) Inventory capital, storage, service,
and risk costs.
(B) Inventory capital, order, storage, and
setup costs.
(©) Inventory risk, service, setup, and
order costs.
(0) The fixed costs associated with a
‘company-owned warehouse.
Pollet flow racking is perfect for
feciltating:
(A) last in, frst out (LIFO),
(8) cycle counts.
(©) first in, frst out (FIFO).
(0) low velocity moves.
The standard gauge of most of the
world's rails will measure at
(A) 4 feet 6 inches.
(8) 4 feet 8 inches.
(©) 5 feet 6 inches.
(0) 6 feet 4 inches.
{A ship, which is able to carry 6,000
twenty-foot equivalent unit (TEUs), would
‘maximize its capacity by carrying which
Of the following containers?
(A) 3,000 20' containers
(8) 3,000 40° containers
(C) 4,500 20' and 1,500 40' containers
(0) 3,000 20' and 3,000 40' containers 9, Which of the following functions are
associated with a supplyfacing,
warehouse?
(A) Manufacturing operations
(8) Consolidating shipments of finishes
goods
(C) Marketing strategies
{D) Inbound materials and components,
10. A marketing initiative increases.
packaging dimensions for an existing
product that remains unchanged. While
the larger packaging may increase sales
of the product, the impact on
sustainability will be that:
(A) less packaging will be thrown out,
(8) transportation capacity will be
wasted.
(©) shipment density will increase.
(0) fewer shipments will be required.
CCLTD Exam Content Manual 27 Answers to Sample Questions
Note: References to the content outline
appear in parentheses.
a
C(IAL) Gis correct because the
‘combination of materials management.
(inbound logistics) and outbound
logistics of physical distribution was a
natural progression of the post-
deregulation development of logistics
during the 1980s. A and B are
incomplete perspectives of the system
that defines logistics. D is incorrect
because customer service is one of the
key outputs of the logistics system,
A(IB4) Ais correct because putaway and
replenishment (picking) are typically
‘opposite operations in warehouses, Task
interleaving is a WMS-based task that
typically combines dissimilar tasks in
order to reduce traveling and increase
productivity.
D (182) D is correct because the
planning capabilities of a transportation
management system (TMS) assists
‘transportation buyers and managers
with Key pre-shipment decisions. Critical
TMS planning applications include
routing and scheduling, load planning
and optimization, and appointment
scheduling. Advanced planning and
scheduling (APS) isa system of
techniques that integrates demand,
production, and distribution planning
during short, intermediate, and long-
term time periods. An APS system
allocates raw materials and production
capacity optimally to balance demand
and plant capacity. Disttibution
requirements planning (ORP) is used to
help determine the appropriate level of
inventory in order to manage and control
replenishment schedules between an
‘organization's manufacturing facilities
and its distribution centers. Enterprise
resources planning (ERP) systems are
multi module application platforms that
help organizations integrate information
28 @APICS
and key business processes via a
‘common software platform and
centralized database system,
AlllC4) Ais correct because customer
‘service can be looked at from an
internal or external key performance
indicator (KPI) perspective. B, C, and D
are internal metrics while external
metrics include perfect order and order
fill rate performance, These external
metrics are obvious to the customers,
and often directly influence customers!
sales behavior since they impact
customers perception of the
organization's strategies.
A(WVB4) Ais correct because inventory
camying costs generally include those
costs that are only incurred by inventory
at rest and waiting to be used, Le, those
costs associated with manufacturing
and moving inventory from one point to
another within the firm's supply chain,
There are four components of inventory
carrying costs: capital costs, storage
space cost, service costs, and risk costs.
The fixed costs associated with a
company-owned warehouse (option D)
<0 not vary with volume of inventory
manufactured/purchased. Setup costs
{options B and ¢) refer to the expense
incurred each time an organization
modifies production or assembly
processes,
C (IVE4) Cis correct because pallet flow
racks are driven by gravity, making them
perfect for fast-moving products with a
first in, first out (FIFO) stock rotation.
Last in, first out (LIFO) would be
Incorrect since this is typically more
feasible with a push-back racking
system. The other 2 options of cycle
‘counts and low velocity moves are not
relevant options in this case. 7. B(VB2)Bis correct because 4 feet 8
inches is the global standard gauge as
about 60% of the world uses this gauge.
‘Answer A would be considered narrow
gauge and answers C and D would be
Considered broad gauge rail.
8. B(VB4) Bis correct since it equals 6000
TEU’s which would maximize the
capacity of the ship. Answers A and C do
not maximize the capacity of the ship
while D would be over the capacity of
the ship,
9. D(VIIA2) Dis correct because supply-
facing warehouses are used for
incoming material and components into
the facility. Options A, 8, and C are
‘wrong because they are all associated
with demand or outgoing facing
warehouses,
10. B (VIlIB2) B is correct because
increasing the package size only creates
more wasted space. Fewer products in a
shipment mean increased shipments
using more fuel. Ais incorrect because
‘more packaging will be thrown out. Cis
wrong because shipment density will
decrease, not increase. Dis also wrong
because more shipments are needed
due to reduced density
(CLTD Exam Content Manual 29 Module 1: Logistics and
Supply Chain Overview Module 1 Introduction
Module 1, Logistics and Supply Chain Overview, addresses the scope of
logisties, which includes transportation and distribution, among other
things.
Section A outlines the principles that make logistics useful and the
range of drivers in today's global economy that shape logistics. The
section goes on to clarify how logistics fits within the larger dimension
of supply chain management.
Section B looks at the value proposition that logistics professionals can
make toward overall organizational success throughout each product's
life cycle and how logistics professionals can help capitalize on
‘organizational strengths and opportunities while minimizing the
negative impact of the organization's weaknesses and threats to it. Since
modern logistics must integrate both with other internal functions and
with other supply chain partners to ensure that itis lean and resilient,
the section also addresses developing collaborative relationships at
various levels. The section concludes with a discussion of performance
measurement.
Section C presents continuous improvement philosophies, including.
lean principles. These methodologies need to hecome ingrained in the
organization's culture and strategies if they are to succeed, and so they
are addressed up front from the perspective of logistics’ role in
eliminating all forms of waste while maintaining high quality and
designing in supply chain agility.
"© 2016 APICS
Allnights reserved
a (LTO Vorsion 2.0, 2027 Eaton Section A: Logistics Fundamentals
(© 2016 APics.
Align reserved
After completing this section, students will be able to
+ Define logistics, its scope, and its principles and components
List the drivers that are influencing change and growth in logistics
‘¢ Determine how logistics fits within and impacts supply chain
management
‘¢ Show how logistics professionals can use management and
leadership skills to increase their influence and drive positive change
for the benefit of the organization, customers, and employees
+ Describe different ways logistics costs are accounted for, including
traditional allocation and activity-based costing.
/hile the first topic in this section defines logistics more formall
logistics generally is considered to include physical supply, materials
‘management, and distribution, which themselves encompass
warehousing, materials handling, packaging and unitization (load
preparation for easier handling), inventory management, order
management, transportation, and the flow of information between these
functions as well as to and from the areas that make up the greater su
None of these functions is new. Indeed, they have been necessat
for as long as any form of trade has existed, The term “logistics” itself has
been long used in a military context, meaning the movement of troops
‘and all of the materials needed for those troops to be effective—the right
equipment, weapons, and rations at the right time and place.
What makes this relatively new concept of logistics for business so
important? Some of the top organizations in the world have emphasized it
asa primary core competency and use it to achieve and maintain market
dominance, Why should you be interested in honing your skills asa
logistics professional? In short, the profession has come a long way ina
relatively short time. If you invest in learning more about this profession,
you can be in a position to advance it and your organization beyond even
the dizzying heights logistics has thus far reached.
Abrieflook at the developments in logistics in recent times will help
show how logistics has transformed organizations and will continue to be
\egral contributor and shaper of our new global economy.
In the 1970s, organizations and academicians began to realize that
warehousing, transportation, inventory, order management, materials
handling, and packaging were interrelated and that minimizing the cost of
2 ‘GLTD Version 2
‘2027 Eaton Section A: Logistics Fundamentals
any one of these exclusively would negatively impact the costs of the
others, They recognized that the system overall had incredible complexity
but could not at that time optimize it. However, the need for an outbound
physical distribution manager was recognized, and manufacturers used
this role to form systemwide plans for total cost minimization while
simultaneously improving service. As major retailers picked up on this
concept, they developed regional distribution centers and steadily
increased their influence over manufacturers after building up their own
distribution functional areas and organizational structures. Demographic
changes such as a large increase in the number of women participating in
the workforce in many countries was another trend. (This has its roots in
World War Il workforce participation.) Changes in family dynamics
increased the need for convenience in shopping, for example, extended
store hours. Including customer service in the logistics equation took on
greater relevancy.
‘The advent of computers in the 1980s helped highlight the true cost of
inventory and distribution systems and enabled longer-term planning.
‘There was a movement toward centralized distribution and cost savings.
‘Third-party distribution services also grew quickly and pioneered research
and development in equipment and systems. Globally, lower-cost labor and
materials began to be sought out, and outsourcing became a mainstream
survival strategy to compete against organizations in countries that already
had lower labor costs. Primarily in the U.S. butalso in Europe,
transportation deregulation was reducing government control over
transportation carriers’ rates, routes, and fares, which led to price
competition that did not truly exist before then, thus allowing purchasers of
transportation much more control over one of the primary costs in logistics.
Mergers created economies of scale that larger providers could then
leverage. Toward the end of the 1980s and the beginning of the 1990s, the
term “logistics” began to be commonly used to describe the merger of
inbound materials management with outbound physical distribution,
Customer service continued to increase in importance as customers
became used to higher levels of service. This interplay of increasing
capabilities and increasing customer expectations was much like the arms
race taking place between East and West at this time. What was an order
winner soon became just an order qualifier. The need to focus on perceived
and actual customer service continues to this day; the interplay of service
level versus cost to serve remains a core logistics tradeoff.
Even with these advancements, in the 1990s, a typical order-to-delivery
eydle was between 15 and 30 days or more, (The APICS Dictionary, 15th.
edition, defines order-to-delivery cycle as “the period of time that starts
‘©2016 aPics.
Allnights reserved
1 {CLTD Version 1.0, 2047 Edition
@ rveres to. sencommermase ocean Module 4: Logistics and Supply Chain Overviow
when the customer places an order and ends when the customer receives
the order.") This was despite the advent of electronic means of order
processing such as electronic data interchange, the internet, and computer
systems, When stockouts, paperwork errors, or misdirected shipments
occurred, the cycle time became even more unpredictable and contributed
toa phenomenon called the bullwhip effect. (While this is addressed in
Module 2, basically, when information on consumer demand isn’t shared
and only one’s immediate customer orders are known, any variance in
supply encourages customers to order more inventory the next time. If
these spikes in orders to increase safety stock are incorrectly interpreted as
an increase in demand, the distribution centers also order too much and
manufacturers produce too much, This creates a ripple effect, with the net
impact being an overall increase in inventory.) These and other issues led
to the development of the concept of su
‘The continued importance of
supply chain management recognizes that competitive advantage cannot be
sustained in today's economy without looking both inward and outward to
the contributions and innovations of business partners and third parties.
In the 2000s, logistics and supply chain management became recognized as
critical areas for business success, meaning that either the organization had
to excel at them or partner with someone who could. Rather than viewing
these areas.as cost centers to be shrunk, the new view was on what value
could be attached to faster, better, and more consistent service as well as to
new service capabilities, Entire processes, networks, and information
systems were reengineered to provide competitive advantage. The
expectation now is fo
Qs technologies such as radio-frequency directed item picking
‘and the now ubiquitous shipping container have enabled these dual wins.
‘The current decade has seen new threats and opportunities in the form of
constantly increasing global competition and customer expectations and
‘ect-to-consumer business model
© 2016 APICS. 1 LTD Version 2.0, 2047 Eaton
Allrghts reserved Qs onto ntconenernse reso Section A: Logistics Fundamentals
Topic 1: Logistics Introduction
Definitions
Logistics isa diverse and dynamic field that continues to be redefined as
constraints and the changing environment affect the discipline. Various
organizations and industries adapt what they include in logistics to ft
their needs, so any single definition of the term will seem incomplete to
some and too broad for others. A common element is the recognition that
logistics needs to coordinate the interrelationships between various
subsystems and people so they can be more effective as a whole.
‘The APICS Dictionary, 1Sth edition, defines logistics as follows:
Other definitions of logistics include concepts such as coordinating supply
and demand; creating time, place, possession, and form utility by
geographically positioning inventory just in time; and getting the right things
exactly where they need to be at the right time, cost, and quality.
What about some of the components of logistics? Here are some APICS
Dictionary, 15th edition, definitions of some logistics components.
(©2026 APICS.
Alright reserved Module 1: Logisties and Supply Chain Overview
Order management: The planning, directing, monitoring, and controlling of
the processes related to customer orders, manufacturing orders, and
Purchase orders. Regarding customer orders, order management includes
order promising, order entry, order pick, pack and ship, billing, and
reconciliation of the customer account. Regarding manufacturing orders,
order management includes order release, routing, manufacture, monitoring,
and receipt into stores or finished goods inventories, Regarding purchasing
orders, order management includes order placement, monitoring, receiving,
{coptance, and payment of suppli
The scope of Exhibit 1-1 presents one view of the scope of logistics activities,
logistics
Exhibit 4-4: Th
Order management
Logistics information systems
Customer service management
‘This view concentrates on the core activities of logistics, and the definitions
above were selected in support of this
(© 2016 aPICS. 16 (CLTD Version 1.0, 2047 Edition
Allrights reserved Pen osama ace pe Section A: Logistics Fundamentals,
‘There are some other topics covered in this course that do
not fit in this scope breakdown,
|} rcrraaeseeeremeenemeel
"Some logistics authorities have instead listed the inbound component of
| ogistcs = Materials Management + Distribution
hile materials management is not as broad in scope as physical supply,
materials management was used as a blanket term for inbound logistics,
because historically the buyer took responsibility for shipments from
suppliers only at the door of their warehouse or manufacturing facility.
Suppliers handled their own distribution, as they still often do. However,
there may be opportunities for buyers to reduce their cost of goods sold
(COGS) by controlling the distribution from the supplier to the door of
their warehouse or manufacturing facility. The APICS Dictionary, 15th
tion, defines these terms as follows:
istribution: 1) The activities associated with the movement of
material, usually finished goods or service parts, from the manufacturer
to the customer. These activities encompass the functions of
transportation, warehousing, inventory control, material handling,
order administration, site and location analysis
data processing, and the commu
effe
industrial packaging,
ations network necessary for
ive management. t includes all activities related to physical
ribution, as well asthe return of goods to the manufacturer. In many
cases, this movement is made through one or more levels of field
warehouses. 2) The systematic division ofa whole into discrete parts
having distinctive characteristics
‘© 2016 APICS 7
‘CLTD Version 4.0. 2047 Eaton
‘iris reserved
QD reese 0s nse meet oe Module 4: Logistios and Supply Chain Overview
these definitions acknowledge that the scope of logistics combines two
previously separate disciplines: inbound physical supply and materials
‘management activities and outbound distribution activities. Recall that
inbound and outbound logistics activities were considered to be separate
lines until the 1980s. Inbound logistics integrated the following
disciplines that until then were fragmented individual business functions:
Demand management and forecasting
Purchasing
Production planning
Manufacturing inventory
Raw materials and subassembly warehousing
Materials handling
Industrial packaging
‘Transportation
jmilarly, outbound logistics activities integrated the following functions;
Finished goods and distribution center warehousing,
Finished goods inventory
Materials handling
Industrial packaging
Distribution requirements planning
Order processing
Transportation,
Customer service management
‘As we will explore later, supply chain
management starts with this core and expands the purview of integration
even further, primarily outside the walls of one organization, but italso
focuses more on product design and production planning than our,
In Europe, logistics goes from raw materials to
the final delivery to the customer, thus including production planning and
‘manufacturing, while in the U.S,, manufacturing is not usually under the
purview of logistics. These elements are addressed in this course but at a
Jevel of awareness rather than proficiency.
However, these areas encompass all of the activities listed in Exhibit 1-1.
‘© 2016 aPICS 18 ‘OLTD Version 4
Arig reserved
2017 Edition Section A: Logistics Fundamentals
Systems or
total cost
concept
Logistics network design is the subject of Module 7; reverse logistics and
sustainability are addressed in Module 8.
‘The APICS Dictionary, 15th edition, defines the systems concept as,
an attempt to create the most efficient complete system as opposed
to the most efficient individual parts. A “whole process” or “whole
company" operating system that is driven by cause and effect,
When the systems concept is applied to logistics, the cause that drives
the entire system is demand and the effect is providing supply at the
‘most competitive price possible at the time and place it is demanded.
‘This overall goal cannot be accomplished optimally if the elements of
logistics aren't working together as a team. It takes leadership to get
individual team members to make the necessary sacrifices to ensure that
the team as a whole has a victory. These sacrifices, or tradeoffs, are
ussed after we look at some of the costs of logistics,
‘The balancing act described above is also known as the total cost concept.
‘The APICS Dictionary, 15th edition, defines the total cost concept as follow:
In logistics, the idea that all logistical decisions that provide equal service
levels should favor the option that minimizes the total of all logistical
costs and not be used on cost reductions in one area alone, such as lower
transportation charges.
‘What costs make up the total logistics cost? Five main expenses fee
comprehensive expenditure, as seen in Exhibit 1-2,
Exhibit 4-2: Total Logistics Cost
Local delivery costs. —————>
Primary transport costs. ————> rat
Distribution center storage costs. —> Logistics
Inventory carrying costs. ————». Sest
Information system costs ————».
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Local delivery
costs
Primary transport
costs
Distribution center
storage costs
Inventory carrying
costs
Let’s take a closer look at each of these costs.
Costs for local delivery (sometimes called secondary transport or the last
ile or kilometer) are the expenses incurred in delivering an order from a
depot or distribution center (DC) to the customer. This can be done using
the company’s own vehicles or by hiring a third-party carrier. The cost is
determined by the distance that needs to be traveled. That distance is
divided into two distinct portions. The distance traveled once a drop or
delivery zone has been reached is called the drop distance; the distance to
and from the delivery zone is termed the stem distance. The drop distance
remains the same no matter what the distance is from the depot or DC
providing the product, but the stem distance will vary based on the number
of depots or DCs in the system. The greater the number of depots or DC
sites, the less the stem distance.
Primary transport costs are those associated with line haul. As defined in
the APICS Dictionary, 1Sth edition, line haul is,
the portion of a transportation journey that moves between two
transportation terminals. Itis distinguished from and excludes the
pickup and delivery portions of a journey used to acquire or distribute
LTL freight. For motor carrier transportation, the shipment is loaded
in a semi-permanent trailer configuration that maximizes the amount
of freight that each driver can legally haul over that portion of the
journey, This may involve hauling multiple trailers.
‘The primary transport costs are also impacted by the number of depots or
DCs. In general, the larger the number of depots or DCs, the greater the
primary transport costs.
Distribution center storage costs are impacted by the number of these
facilities in the distribution network as well as their size. Larger DCs
typically are able to achieve economies of scale by better equipment and
space utilization. The larger the DC, the less buffer stock and safety stock
required.
As the number of DCs increases, total storage costs will also increase.
Factors that impact these costs include each site's rent costs, the location
(urban, suburban, rural), and the respective labor costs.
Inventory carrying costs are the expenses related to the amount of inventory
a company determines it must hold to meet customer service levels. It is
critical to determine the appropriate balance of cost and customer service,
‘©2016 APIcS
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Information
system costs
Additional costs
Inventory carrying costs can be broken down into these types:
‘¢ Capital cost, The cost of the physical inventory and its financing charges.
4 Service cost. The cost of inventory management and insurance,
4 Risk cost, Costs associated with pilferage, inventory deterioration,
damage, and obsolescence.
‘The final component of total logistics cost is the information system costs.
‘These expenses may entail a mix of often computerized communication
and data management systems that coordinate everything from order
processing to load assembly lists. The level of these costs is dependent
upon how often technology is upgraded and/or changed. Generally, the
larger the number of DCs, the higher the information system costs.
Choices made about how the distribution network is configured will
impact other logistics-related activities and their relevant costs, For
instance, packaging costs for each product are determined in part by
transportation mode and shipping requirements as well as the type of
load unitization chosen, Those packaging decisions in turn impact both
transport and inventory carrying costs based on the size and shape of
each package type.
Production methods impact the types of inventory that are held and the
frequency of transportation. The APICS Dictionary, 15th edition, defines
the following common production methods:
Make-to-order: A production environment where a good or service
can be made after receipt of a customer's order. The final productis
usually a combination of standard items and items custom-designed
to meet the special needs of the customer. Where options or
accessories are stocked before customer orders arrive, the term
assemble-to-order is frequently used.
Make-to-stocke A production environment where products can be
and usually are finished before receipt of a customer order.
Customer orders are typically filled from existing stocks, and
production orders are used to replenish those stocks.
Assemble-to-order (ATO): A production environment where a
good or service can be assembled after receipt of a customer's
order, The key components (bulk, semi-finished, intermediate,
subassembly, fabricated, purchased, packing, and so on) used in the
assembly or finishing process are planned and usually stocked in
anticipation of a customer order. Receipt of an order initiates
assembly of the customized product. This strategy is useful where a
large number of end products (based on the selection of options and
accessories} can be assembled from common components.
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aa (CLTD Version 4.0, 2047 Eation Module 1: Logistios and Supply Chain Overview
Tradeoffs
Tradeofts in scope
areas
‘The potential costs of lost sales should also be considered when
‘examining the optimal balance. For instance, the close proximity of DCs
to customers can positively impact the delivery speed of product to
customers, resulting in high customer satisfaction.
‘The concept of tradeoffs among logistics activities illustrates how very
interrelated the various activities of logistics are, and knowledge of
tradeofts can help logistics professionals predict the impact a decision
will have on other areas within and outside of logistics. Understanding
tradeofls can be seen as a risk mitigation tool and as a tool to find
innovative solutions to problems.
4 Asa risk mitigation tool, understanding tradeoffs helps a logistics
professional trom falling into the trap of suboptimization, which is
defined in the APICS Dictionary, 15th edition, as
a solution to a problem that is best from a narrow point of view
but not from a higher or overall company point of view. For
‘example, a department manager who would not have employees
‘work overtime to minimize the department's operating expense
may cause lost sales and a reduction in overall company
profitability,
+ From an innovative solution perspective, a logistics professional can
use a knowledge of tradeoffs to find new ways to solve a problem. For
example, in an effort to reduce the total cost to serve a customer, a
solution might be to spend more money on transportation to ensure
that itis reliable, The logistics professional would measure the impact
this has on inventory levels to determine if reduced uncertainty or less
sk of obsolescence translates to lower safety stocks, other actual net
savings, or increased sales revenues and/or margins.
‘Tradeoffs can be among areas in the scope of logistics, within individual
logistics functions, with other stakeholders in the organization, and with
extended supply chain partners.
Exhibit 1-3 presents tradeoffs for each scope area.
‘The integrated nature of all of the components of logistics—especially
transportation, warehousing, and inventory—highlights the systems
concept premise that optimum solutions for the lowest overall cost can be
found only when all of the relevant logistics costs are considered
simultaneously, from order cycle time to transportation cost to inventory
holding costs.
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Logistics Area
Warehousing
Transportation
Inventory
management
Exhibit 4-3: Logistics Area Tradeoffs (continued on next page)
Description
Choices include how many
warehouses, how much inventory per
‘warehouse, full of selected
assortments, and size, layout, and
location relative to where suppliers and
customers are
Often the largest variable cost in
logistics. Fleets may be owned, but
‘many only use third parties, Modes and
carriers for moving raw materials,
components, and finished goods must
be selected, Rates and services must
bbe negotiated.
Involves determining what levels to
maintain per location, who controls
reordering, how to reorder, and how to
verity accuracy of physical inventory
levels.
Common Tradeoffs
Warehousing, transportation, and
inventory management are all directly
imerelated:
‘+ Slower transportation (e.g., ocean)
requires more inventory and
warehousing due to bulk shipments.
with long lead times,
‘¢ Faster transportation reduces
inventory and warehouse
requirements but increases transport
cost. The cost for air transport is
‘much higher.
‘¢ More warehouses reduce
transportation costs and increase
‘warehouse and inventory costs.
+ Neamess to suppliers reduces
inbound transportation; nearness to
customers reduces outbound
transportation.
+ Warehouse layout and capabilities
impact transportation frequency and
inventory levels,
Importiexport
Packaging
Demand
management and
forecasting
Purchasing
Organizations may develop a local
presence and expertise in
documentation and customs clearance
or get agents,
Protection of goods during
transportation and storage includes
‘options for reusable or sustainable
packaging
‘Marketing demand forecasts are a basis,
for inventory, production planning, and
logistics capacity planning,
Procurement of raw materials,
or finished goods.
‘elude local versus long-
distance suppliers and volume and
frequency of orders.
Fast response, justin time operations
with low inventory tradeoff against low-
cost imports with long lead times and
high variability shipments
(Ocean and rail raise packaging
expense to protect against rough trips
or moisture. Air freight needs litle
packaging. Sturdy packaging may
allow stacking rather than racks
Forecasting early gives more time for
response; however, it may result in
an inflated or deflated demand,
Forecasting late improves the
forecast but gives less time for
response.
‘Sourcing internationally or
domestically creates transportation
‘service time tradeoffs and potential
cost tradeoffs. Intemational sourcing
decisions call for additional subject
matter expertise to understand
‘global trade requirements. Bulk
versus multiple small orders affects
inventory and transportation mode.
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Exhibit 4-3: Logistics Area Tradeoffs (concluded)
Logistics Area
Description Common Tradeoffs
Production planning
Production planners determine Operating environment stonaly
operating environment e.g.,, affects finished goods warehousing
rmake-to-order, make-to-stock) and inventory requirements. Raw
{and execution details. Close materials and components inventory
logistics coordination is ‘and warehousing may stil be
needed for multiple needed in make-to-order situations.
products/stockkeeping units
(SKUs).
Materials handling ‘Order picking is often the Handling equipment and layout
largest percentage of impacts types of pallets, non-
warehouse cost, soit and palletized goods, and containers that
Order management
‘other movements need to be can be processed effectively. If
Planned and efficiently laid out. space is at a premium, dense
automated arrangements may be
cost-ustified
‘Administrative processing of Speeding up this part of the order-to-
customer orders. Computer delivery cycle might achieve the
processing needs to nish samme lead time while allowing a
before orders can be picked slower, less costy shipping mode.
and shipped.
Logistics information Warehouse management and Information replaces inventory
systems control and transportation Sharing actual demand data reduces
management systems. need for safety stock, Transportation
could be rerouted mid-shipment.
‘Customer service Need to meet service evel Shorter lead times on ATP quotes
‘management goals. During order taking, _—_requite increasingly expensive
logistics role i to have investments in more warehouses,
inventory available-to-promise inventory, or transportation costs.
(ATP) and to be able to quote Accuracy requires reducing
an accurate delivery date, variably in other processes.
Tradeoffs within a
logistics area
‘There can be a number of tradeoffs within any given area in
logistics. For example, warehouses frequently use random location
storage rather than fixed location storage because it increases the
capacity utilization of the warehouse. The tradeoffs that it makes
order picking more complex, thus usually requiring an investment
in computer-directed picking and put-away. Another example is the
decision as to whether existing warehouses and transportation
systems will handle reverse log
ics or if independent networks
will be designed. The tradeoffs within each individual function will
be addressed in this course when each of the areas is discussed in
detail.
‘© 2016 APICS
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@® rovsnse Section A: Logistics Fundamentals
Tradeofts with
other stakeholders
Finance, production, and sales and marketing often will have different
priorities than logistics. Even when they have the same priorities, they
will have different perspectives.
For example, both finance and logistics want to minimize inventory
costs. However, finance typically views this cost in monetary amounts,
while logistics views it primarily in terms of units. Itis important to
understand that a unit-driven budget will be a defense against a money-
driven budget. The unit-driven budget might show that the cost per unit
is improving but the total volume is higher, thus explaining the higher
total cost despite improvements.
Different ways of seeing a problem will also lead to different proposed
solutions, From a finance perspective, moving more high-value goods
will improve the apparent productivity faster than moving the same
number of low-value goods. From a logistics perspective, productivity.
will be increased by moving units of any value optimally. Each proposed
solution to any given business problem will generate a different set of
tradeoffs, The development of ABC inventory analysis (A items being
high-value or fast movers, B items being middle-value or speed, C items
being low-value or speed) was one solution developed to account for
both the value and units of goods and thus satisfy both perspectives. Of
course, any tradeoff made to meet the interests and goals of one or
more party will frequently create cost increases or at least increase
uncertainty (risk) or complexity for other parties.
From a manufacturing perspective, production may want to have long,
runs to minimize changeovers and reduce the cost per unit. Even in lean
production systems, this strategy may be pursued to build up stock in
anticipation of seasonal demand, thus preventing the need for overtime
or extra shifts later. Marketing and finance will appreciate that this,
could result in lower prices to the customer or lower costs and higher
profit margins. However, logistics will see an increase in inventory and
thus also warehousing costs as larger orders wait to be sold. Other
inventory items might still be at risk of stockout. When this strategy is
considered, logistics professionals need to ensure that the long-term
inventory storage costs are factored in to the profit equation.
On the other hand, many organizations are pursuing lean or justin time
‘manufacturing methods with short production runs, fast changeovers, and
minimal inventory levels. Logisties professionals will have lower inventory
and warehousing costs but could experience higher transportation costs as
shipments may not be able to use full trucidoads, train loads, or container
© 2036 aPICS.
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346 ‘CLID Vorsion 1.0, 2017 Eation
@ rrrscn oso cormerwasn eo Module 1: Logistics and Supply Chain Overview
loads, Finance will appreciate this tradeoff if the inventory savings
‘outweigh the transportation cost increases. However, marketing may fee!
some pain if there are stockouts or longer delays for filling orders.
Production will face higher costs per unit when production runs are
shorter; errors in timing or transportation mishaps could halt production
entirely.
How will fewer warehouses affect other stakeholders? Finance will be
happy so long is there is a net cost reduction after increased transportation
costs are factored in. The decision will likely have little impact on
production, and logistics will likely be less complex and easier to oversee.
However, marketing will not be pleased if there isa reduction in customer
service, which would be primarily due to longer delivery times or more
expensive shipping if these costs are passed on to the customer.
‘What if finance suggests reducing the number of supervisors at
warehouses? This will certainly reduce warehouse overhead costs, but
logistics might need to track whether this increases other warehouse costs
such as picking and put-away efficiency or pilferage. If order picking
accuracy is reduced, marketing will also be affected by this choice.
Perhaps some tradeoffs will involve trying to cut costs on packaging,
Marketing will not appreciate any increase in damaged goods getting to
customers, nor would they be happy if the industrial packaging adversely
impacted the marketing-related packaging that they could select for
consumer products. Finance may initially like the cost savings from what
they consider to be non-value-added expenses, but if returns and lost
customers are included in the calculations, then finance will also appreciate
anything that keeps net costs the lowest. The main impact reduced
packaging will have on logistics is that they will have fewer options for
transportation mode if they want to prevent those returns and dissatisfied
‘customers, This could in turn reduce any net gain from this choice.
‘What about processes such as postponement, where warehouse personnel
are asked to do final assembly given actual orders? This will reduce
production costs, so production and finance will like this option, Marketing
will also benefit, but only if logistics trains final assembly personnel well
‘enough to avoid errors or increased order-to-delivery time. Logistics will
have increased administrative, training, and staffing costs and will need to
‘work closely with production to get special instructions.
Like manufacturing, logistics and marketing have a highly interrelated
relationship. Where materials are placed in the network and how easily,
they get to customers heavily impacts marketing, Tradeofis often take the
‘© 2026 APics
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26 ‘CLID Version 4.0, 2017 Eaton
@ mmiesern Section A: Logistis Fundamentals,
Four Ps
Product.
Price
Place
Promotion
form of choices related to or impacts on one of the four Ps, which,
according to the APICS Dictionary, 15th edition, are
a set of marketing tools to direct the business offering to the customer.
‘The four Ps are product, price, place, and promotion.
Exhibit 1-4 describes each of these areas and explores how tradeoffs may
‘occur for each of them,
Exhibit 4-4: Tradeoffs Related to the Four Ps of Marketing
Description
Design of products’ size, weight, density,
dimensions, configurability, industrial and
‘consumer packaging, and promotional
displays,
Determining the price that will maximize
profit margins (to0 high a price will drive
down sales, too low a price will reduce
profit margins).
Transactional vitual, and physical
distribution channels, including which
echelons (supply chain nodes) to use
(€49,, use wholesaiers7). Includes both
where to locate inventory as well as when
itis needed (ie., acceptable lead time),
‘Advertisements and other demand
generation. Communication of
advertisement timing and level of forecast
and actual demand, Push promotions get
wholesalers and retailers to participate by
offering discounts or displays; pull
promotions are advertisements that
directly market to consumers.
Tradeoffs with Logistics
Logistics works with marketing to ensure
that products in their consumer packages fit
‘well in unit loads, an conveyors or other
hhandiing equipment, on standard pallets,
and in ttuck, rail, and container loads. This
is important even for extras lke promotional
displays,
‘Setting discounts for bulk purchases should
bbe done in consultation with logistics based
‘on full loads (by cube or weight). A
‘minimum weight requirement for
‘transportation can be a price break point
Logistics needs sufficient quantities in
inventory and warehouse space to ship at
bulk levels. (These costs should be factored
into the price decision.) For e-commerce an
expectation of free shipping could reduce
margins; not offering it could reduce sales.
Choice of echelons wil simply or
Complicate logistics’ role (e.g., only working
with wholesalers removes many
complexities), while dealing with small
retailers or direct customer shipments adds,
significant complexity.
Push promotion tends to have orderly
demand pattems, Pull promotion is harder
to predict and can strain logistics, Both are
usually needed. Promotions that generate
far different actual results than were
forecast can burden logistics
(overstocks/stockouts and transportation
and warehouse capacily issues).
Note that, for logistics, place is practically synonymous with time. While
logistics doesn't influence where demand exists, it plays a key role in
fulfil
1g demand,
‘© 2016 APICS.
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‘CLID Version 1.0, 2017 Eaton Module 1: Logistics and Supply Chain Overview
Tradeoffs among.
extended supply
chain partners
Principles and
components
Facilitating flow of
goods/services,
information, and
finances
Suppliers, manufacturers, distributors, and customers frequently make
tradeoffs with one another. Passing on costs to another supply chain
partner is generally a good idea only if it reduces the overall cost for all
members of the supply chain, meaning that the final price for the good
oor service can be lower. When this is not the case, fewer units will be
sold and all parties, including the one who passed off those costs, will
suffer. This type of tradeoff is usually part of supply chain management
rather than logistics.
‘The principles and components of logistics are the things that need to
be integrated and executed correctly, in alignment with the
organization's strategic business plan and network design, to ensure
that logistics adds value for the business and its customers. Itis
imperative that logistics and supply chain strategies be aligned with the
organization's overall three- to five-year business strategy if the
organization is to achieve positive and sustainable results, This
integration needs to be both internal and external. Getting the internal
components of the organization and its subsidiaries to collaborate is the
first challenge; getting your direct external contacts to collaborate is
then the next challenge. A good way to discuss several of the principles
of logistics is to start by illustrating the various flows that make up a
supply chain or logistics network.
Exhibit 1-5 on the next page shows that goods and services flow
between various intermediaries or echelons in a logistics network.
According to the APICS Dictionary, 15th edition, an echelon is
a level of supply chain nodes. For example, a supply chain with two
independent factory warehouses and nine wholesale warehouses
delivering product to 350 retail stores is a supply chain with three
echelons between the factory and the end customer. One echelon
Consists of the two independent factory warehouses, one echelon
Consists of the nine wholesale warehouses, and one echelon
consists of the 350 retail stores. Each echelon adds operating
expense, holds inventory, adds to the cycle time, and expects to
make a profit.
‘The flows include information flows in each direction, funds flows that
go upstream (away from the customer), goods and services flows that
go downstream (toward the customer), direct flows downstream to
customers from any given echelon, and reverse flows that go upstream
(and refunds that go downstream).
(© 2016 APIS.
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18 (LTD Version 1.0, 2027 Eaition Section A: Logistics Fundamentals,
it 4-5: Flows of Goods/Services, Information, and Finances
Information Flow
ta
Funds Flow
Suppliers’ || Consosdation ][ Manufacturersand || Distabution
warehouses || warehouses || their warehouses centers || Wnolesaters|| Retaters
60
ae Retuins 5.
Gi
G
S
Retums _
Each supply chain or logistics network will include just the echelons that
are likely to add value for the selected business model, omitting the rest,
Note that there can also be flows between participants in the same echelon,
such as a distribution center sending another distribution center inventory.
Information flows
‘As shown at the top of Exhibit 1-5, one principle of logistics is that the
flow of information should occur in both directions between supply chain
partners as freely as possible. This should include automated information
transfers such as data on actual sales in near real time as well as regular
meetings to discuss things like planned promotion activities. Deliberate,
planned communication is an absolutely critical component of modern
logistics. For example, Fred Smith, CEO of Fed Ex, has stated that
“information about the package is as important as the package itself.”
Funds flows
‘As goods and services are sent forward along the network, recipients pay for
them and for related costs such as transportation. As the definition of
‘©2026 Anics:
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19 (CLTD Version 4.0, 2047 Edition Module 1: Logistics and Supply Chain Overview
echelons stated, each echelon expects to make a profit. Therefore each
echelon adds to the ultimate cost of the good or service. Exhibit 1-6 shows
how the echelons contribute to total product or service costs in a traditional
retail supply chain, The gap between the logistics cost and the total cost
shows that each echelon builds in a price that accounts for other costs and
their profit margin,
Exhibit 4-6: Cumulative Increase in Logistics Costs and Thus Total Product Costs
Logatis cost
— Tostcest
ther costs
gs
Unit Cost (percent of total)
8 8
Logistics costs
a
I:
a
BI
{0}
gHP oa) GH:
fale Pe bs ai :
a 5:5 82 faa fei a2
ap itp de Gi, fy ge i
ee sgh g] EEE Ga? Gq 2
ge £382 22 S22 28: 33 3
Source: Adapted from The Handbook of Logistics and Distribution Managment, Rushton, Croucher, and Baker.
One way to look at this graphic is to see that at each stage of a supply chain,
the inventory increases in value. Each echelon adds value by processing
goods further, sorting/consolidating, or getting the goods closer to the
‘customer than they were before. Studying a network in this way (to the
degree possible, given information that partners share) can reveal areas
‘where logistics is consuming more of the total cost and where it is more
"© 2016 APICS 420 (LTD Version 1.0, 2047 Eation
Allright reserved re 100 penne ese ot ‘Section A: Logisties Fundamentals
efficient. Logistics professionals might not control more than a portion of
this process, but they could use information like this for benchmarking
purposes and therefore look for areas where easy improvements might be
‘made, such as less costly transportation or less dwell time in a warehouse.
Product/service flows
‘The next set of flows is the primary product/service flows; these occupy
the majority of Exhibit 1-5. The flows up to the point of manufacturing are
the physical supply flows. The rest of the process involves physical
distribution flows, Physical supply is sometimes called a process value
chain. Value is created when information on actual customer requirements
and demand is accurately and efficiently translated into the right portfolio.
of goods and services. From a logistics perspective, this may involve
purchasing, inbound transportation planning, and supplier relationship
management. Distribution is sometimes called a value delivery network;
the principle is to design a distribution network that can meet customers’
actual service preferences for placement (both time and place), price, and
product, Logistics might be called on to provide input to product design;
design the logistics network; select transportation modes, carriers, and
routes; and provide order management and customer service
management,
A principle of logistics is that these inbound and outbound flows need to
be integrated. For example, in one case, the same transportation cartier
was used for both physical supply and physical distribution
transportation. Because of a lack of communication between physical
supply and physical distribution, the transportation company was
dropping off component parts in the morning, returning empty, and then
arriving empty in the afternoon and picking up finished goods for
transport, After some replanning, the transportation company dropped off
components and picked up finished goods in the same trip, eliminating
two instances of deadheading (empty backhaul). Seeing the big picture is
only one principle to be learned here, Using that big-picture perspective to
apply common sense improvements is another important principle. Using
a sophisticated optimization model is not the only way to discover ways to
improve logistics.
Beneath the main part of the graphic in Exhibit 1-5 are the flows that occur
in a direct-to-customer business model (or an omni-channel model). These
flows could go from any echelon directly to the customer, including from
retail stores. However, this isa simplification, and Exhibit 1-7 shows how
this physical fulfillment model has many permutations. Other methods of
fulfillment can likewise be accomplished in more than one way.
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121 CCLTD Version 4.0, 2017 Eation ‘Module 4: Logistics and Supply Chain Overview
Exhibit 4-7: Directto-Consumer Permutations
Customer o o 3
contact
examples Insourced Outsourced
callcenter call center ~
Supplier or |{ Fulfillment — Distibution Parcol
Imanufacturer|| model center type carrier
rege Suce
a
Dietary
cuemwcea Tg
Drop-shipped = eeNeE
are
Retail Delivery.
oni Reta SH pores cate
aoe
owvaugh Samet
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