ENGR 3210 Fundamentals of Logistics Engineering Class 41
Thoughts on Wednesday’s Discussion <ul><li>“Never thought about trying to determine how many forklifts were needed by thin...
Virtually all the courses you take use mathematical models to explain how things work <ul><li>The arc of a projectile </li...
The entire design problem of the Sonic Speakers Case should be looked at mathematically <ul><li>The space requirements </l...
Alternative designs should be then modeled economically <ul><li>All the physical requirements reduced to costs or revenues...
Trying to model the real world mathematically as a means to understand it and predict what it will look like is one thing ...
“Understanding Inventory – Stay Curious!” <ul><li>An annual publication available on the Internet which is a succinct snap...
The report is a byproduct of the business research of two companies <ul><li>Cass Transportation Systems, Inc. </li></ul><u...
The reports are an annual source for logistics costs and trends in the US <ul><li>How much are companies in the US spendin...
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...
Where did we spend the $970 billion? (Figure 10) <ul><li>Inventory Carrying Costs  $328 </li></ul><ul><li>Truck Transporta...
How do these costs compare with overall economic activity? <ul><li>Track the costs as a percent of Gross Domestic Product ...
Logistics costs component analysis - Transportation <ul><li>Transportation costs are about the same % of GDP since 1991 </...
The improvement has come about by reductions in Inventory <ul><li>Inventory costs have declined by 60% during the 21 years...
But lets look at the inventory improvement more closely <ul><li>Three classes of inventory </li></ul><ul><ul><li>Raw mater...
There are some changes in measurement techniques over the years which cause problems with analyzing this question <ul><li>...
Ohio State looked at selected companies grouped into 14 industries and 91 sectors <ul><li>Compared ratios of inventory to ...
What is going on? <ul><li>Companies have greater control over their internal processes allowing reductions in raw material...
They looked at the industries that did improve finished goods inventory <ul><li>Automotive parts, computers/electronics,in...
They looked at the industries that had increased or flat inventories of finished goods <ul><li>Apparel, textiles, chemical...
There may be some other things going on here too <ul><li>Transportation costs have not gone down for years </li></ul><ul><...
The Wal-Mart effect is “Retailer Power” <ul><li>There is also “Manufacturer Power”  </li></ul><ul><li>Dell uses it in deal...
A final trend observed in the report <ul><li>Companies continue to outsource their logistics requirements to third party l...
Even in 2001 this trend continued <ul><li>Overall logistics expenditures in the US declined by $33 billion to $970 billion...
Closure <ul><li>The design and operation of logistics systems is important and exciting work </li></ul><ul><li>It will cha...
Upcoming SlideShare
Loading in …5
×

Fundamentals Of Logistics Engineering

1,225 views

Published on

Published in: Business, Technology
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,225
On SlideShare
0
From Embeds
0
Number of Embeds
14
Actions
Shares
0
Downloads
66
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Fundamentals Of Logistics Engineering

  1. 1. ENGR 3210 Fundamentals of Logistics Engineering Class 41
  2. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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>

×