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Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
Fundamentals Of Logistics Engineering
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Fundamentals Of Logistics Engineering

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  • 1. ENGR 3210 Fundamentals of Logistics Engineering Class 41
  • 2. Thoughts on Wednesday’s Discussion <ul><li>“Never thought about trying to determine how many forklifts were needed by thinking about speeds, distances and numbers of pallets to move” </li></ul><ul><li>For engineers seeking to design something, mathematical modeling should be the first thing you think about </li></ul>
  • 3. Virtually all the courses you take use mathematical models to explain how things work <ul><li>The arc of a projectile </li></ul><ul><li>The thickness needed to resist a force </li></ul><ul><li>The weight of an object </li></ul><ul><li>The temperature of a room </li></ul>
  • 4. The entire design problem of the Sonic Speakers Case should be looked at mathematically <ul><li>The space requirements </li></ul><ul><li>The space allocation </li></ul><ul><li>The doors needed for inbound and outbound traffic </li></ul><ul><li>The equipment required </li></ul>
  • 5. Alternative designs should be then modeled economically <ul><li>All the physical requirements reduced to costs or revenues </li></ul><ul><li>Costs and revenues have a time component to them (streams of costs or revenues) </li></ul><ul><li>These streams must be aggregated or normalized using the time value of money (interest) </li></ul><ul><li>Then we can compare the designs. </li></ul><ul><li>Typically the cheapest one is preferred </li></ul>
  • 6. Trying to model the real world mathematically as a means to understand it and predict what it will look like is one thing that differentiates Engineers from other people
  • 7. “Understanding Inventory – Stay Curious!” <ul><li>An annual publication available on the Internet which is a succinct snapshot of the prior year’s logistics activities </li></ul><ul><li>A “State of Logistics Report” </li></ul>
  • 8. The report is a byproduct of the business research of two companies <ul><li>Cass Transportation Systems, Inc. </li></ul><ul><ul><li>They help companies pay their freight bill more efficiently </li></ul></ul><ul><li>ProLogis </li></ul><ul><ul><li>They provide distribution warehousing for large companies </li></ul></ul><ul><li>Both need to know what the latest trends are in Logistics </li></ul>
  • 9. The reports are an annual source for logistics costs and trends in the US <ul><li>How much are companies in the US spending on logistics? </li></ul><ul><li>What are they spending on certain components of logistics costs? </li></ul><ul><li>How do those costs compare to overall economic activity? </li></ul><ul><li>What other trends can we identify in logistics practices in the US? </li></ul>
  • 10. How much did we spend on Logistics in the US <ul><li>$970 billion </li></ul><ul><ul><li>In real dollars we spent less than last year </li></ul></ul><ul><ul><li>$33 billion less </li></ul></ul><ul><li>Why less? </li></ul><ul><ul><li>The overall economy in the US is poor </li></ul></ul><ul><ul><li>People are buying less so there is less need to ship and store goods </li></ul></ul>
  • 11. Where did we spend the $970 billion? (Figure 10) <ul><li>Inventory Carrying Costs $328 </li></ul><ul><li>Truck Transportation $494 </li></ul><ul><li>Other Transportation $106 </li></ul><ul><li>Shipper and Admin Costs $ 42 </li></ul><ul><li>Transportation about 60% </li></ul><ul><li>Inventory about 40% </li></ul>
  • 12. How do these costs compare with overall economic activity? <ul><li>Track the costs as a percent of Gross Domestic Product – the measure of the US output of goods and services </li></ul><ul><li>Logistics Costs declined to 9.5% of GDP </li></ul><ul><li>Therefore have become more efficient </li></ul><ul><li>Figure 12 shows long term trends </li></ul><ul><li>What components of logistics costs are improving? </li></ul>
  • 13. Logistics costs component analysis - Transportation <ul><li>Transportation costs are about the same % of GDP since 1991 </li></ul><ul><li>Transport is not becoming more efficient </li></ul><ul><li>In fact the authors argue that it may become more expensive next year as clean air requirements for diesel engines go into effect </li></ul><ul><li>Trucking makes up 50% of US total logistics costs </li></ul>
  • 14. The improvement has come about by reductions in Inventory <ul><li>Inventory costs have declined by 60% during the 21 years of the study </li></ul><ul><li>“ faster and more reliable transportation allowed US businesses to invest in less inventory and consolidate it into fewer locations” </li></ul><ul><li>Further we now have better forecasting, systems and communications to manage inventory </li></ul>
  • 15. But lets look at the inventory improvement more closely <ul><li>Three classes of inventory </li></ul><ul><ul><li>Raw materials inventory </li></ul></ul><ul><ul><li>Work in process inventory </li></ul></ul><ul><ul><li>Finished goods inventory </li></ul></ul><ul><li>How are cost savings in inventory distributed among these three classifications? </li></ul>
  • 16. There are some changes in measurement techniques over the years which cause problems with analyzing this question <ul><li>The macroeconomic references used for the past 20 years no longer tell the story </li></ul><ul><li>The Department of Commerce adopt new methods and sources for measuring economic activity </li></ul><ul><li>So the author turned to some work at Ohio State for answers </li></ul>
  • 17. Ohio State looked at selected companies grouped into 14 industries and 91 sectors <ul><li>Compared ratios of inventory to cost of goods sold (equivalent to GDP at a macro level) </li></ul><ul><li>Where did the improvement in inventory management efficiency come from? </li></ul><ul><li>“ nearly all industries have reduced the ratio of raw material inventory to cost of goods sold and work in process inventory to cost of goods sold” </li></ul><ul><li>“ in 9 of 14 industries the ratio of inventory investment in finished goods to cost of goods sold has either increased or has not changed” </li></ul><ul><li>What is going on? </li></ul>
  • 18. What is going on? <ul><li>Companies have greater control over their internal processes allowing reductions in raw materials and work in process through lean manufacturing </li></ul><ul><li>Finished goods are another matter </li></ul><ul><li>The Dell Effect and the Wal-Mart effect are at work </li></ul>
  • 19. They looked at the industries that did improve finished goods inventory <ul><li>Automotive parts, computers/electronics,industrial durables, paper/packaging and pharmaceuticals </li></ul><ul><li>The Dell process of make to order is being adopted in these industries </li></ul><ul><li>The process enables a reduction in finished goods inventory </li></ul>
  • 20. They looked at the industries that had increased or flat inventories of finished goods <ul><li>Apparel, textiles, chemicals, electrical/mechanical equipment, food products, furniture/home furnishings medical products,consumer packaged goods, retail/wholesale trade (Products that consumers purchase) </li></ul><ul><li>Wal-Mart type stores which have great power over their suppliers can force these producers to keep a lot of this finished goods inventory on hand </li></ul><ul><li>Finished goods inventories increased </li></ul>
  • 21. There may be some other things going on here too <ul><li>Transportation costs have not gone down for years </li></ul><ul><li>But we are trying to reduce transport costs </li></ul><ul><li>One way to do this is to “buy down” (Cheaper, slower transport service providing larger shipments less frequently) </li></ul><ul><li>If we do this, what happens to inventory? </li></ul><ul><li>Perhaps in our search for lower transport costs is driving inventory costs up </li></ul>
  • 22. The Wal-Mart effect is “Retailer Power” <ul><li>There is also “Manufacturer Power” </li></ul><ul><li>Dell uses it in dealing with suppliers </li></ul><ul><li>Chrysler uses it with DuPont </li></ul><ul><ul><li>DuPont is not paid for paint until it is applied to the car </li></ul></ul><ul><ul><li>The paint, which sits in Chrysler’s manufacturing warehouse is essentially owned by Dupont </li></ul></ul>
  • 23. A final trend observed in the report <ul><li>Companies continue to outsource their logistics requirements to third party logistics providers </li></ul><ul><li>The responsibility for moving and storing raw materials and finished product is entrusted to some other party </li></ul>
  • 24. Even in 2001 this trend continued <ul><li>Overall logistics expenditures in the US declined by $33 billion to $970 billion </li></ul><ul><li>Of that $970 billion, about $61 billion was paid to 3PL’s </li></ul><ul><li>An increase of 7.4% in a year when the total went down </li></ul><ul><li>That followed a 24% growth recorded in 2000 </li></ul>
  • 25. Closure <ul><li>The design and operation of logistics systems is important and exciting work </li></ul><ul><li>It will challenge you with continual change and opportunity for continuous improvement </li></ul>

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