Part I Introduction
4.2 Agile Logistics
Cross-Dock Design
There are two important parameters in cross-dock design: size and shape. The first decision is the number of doors. Generally, doors are devoted to one of the two fol- lowing types of trailers [20]:
G Incoming (receiving), from which freight must be unloaded
G Outgoing (shipping), in which freight must be loaded
Typically, once the number of destinations of a cross dock is known, the number of outgoing doors needed is easily determined. The number of doors required for each destination depends on its freight flow. Destinations with a higher flow may need more than one door. The number of shipping doors thus equals the number of destinations the cross dock serves multiplied by their needed doors.
To determine the number of receiving doors needed, more issues must be addressed. In some retail cross docks, extra operations such as packaging, pricing, or labeling need the same number of doors in each side of the cross dock, with receiving doors devoted to one side and shipping doors to the other. For distribu- tors’ cross docks, which generally do no value-added processing and are just a place to consolidate freights, the number of receiving doors can be estimated by Little’s law: unloading mean time multiplied by trailer throughput [21]. Unloading is relatively easier than loading. “A good rule of thumb is that it takes twice as much work to load a trailer as it does to unload it” [20]. To achieve a smooth flow without bottlenecks, there could be either twice as many outgoing doors as incom- ing doors or more assigned workers to load each trailer.
The next important factor is cross-dock shape. According to Bartholdi and Gue [21], most cross docks are I shaped like a long rectangle, but there are also cross docks in other shapes such as an L (as in Yellow Transportation, Chicago Ridge, IL), a U (as in Consolidated Freightways, Portland, OR), a T (American Freightways, Atlanta, GA), an H (Central Freight, Dallas, TX), and an E. Bartholdi and Gue also showed that design has an important impact on cross-dock costs. I shapes were best for cross docks with fewer than 150 doors, T shapes for cross docks with 150250 doors, and H shapes for more than 250 doors.
The shape of a cross dock also depends on many issues such as the shape of the land on which the cross dock will be placed, the patterns of freight flows, and the material-handling systems within the facility [20].
In addition to the shape of cross dock, the location of cross dock and how it is related to its connections have a considerable effect on its success.
The European Agile Forum (2000) defined agility as follows: “Agility is the ability of an enterprise to change and reconfigure the internal and external parts of the enterprise—strategies, organization, technologies, people, partners, suppliers, distributors, and even customers in response to change unpredictable events and uncertainty in the business environment.”
Flexibility is the pivot characteristic of an agile organization [23]. In fact, agile philosophy is the extension of a flexible manufacturing system (FMS) in broader business frameworks. FMSs are systems in which scheduling, routing, controlling, and so on are mostly done by computers in order to achieve high levels of flexibil- ity in response to market changes.
4.2.1 Agile versus Lean
Agility is different from leanness, and these two concepts should not be confused.
Lean means containing little or even no fat, but agile means nimble. As mentioned before, lean focuses on eliminating waste. In fact, “it deals with doing more with less” [22], whereas agile is the ability to adapt to market changes and to keep track.
According to Naylor et al. [24], agility means “using market knowledge and a virtual corporation to exploit profitable opportunities in a volatile marketplace.”
They defined leanness as “developing a value stream to eliminate all kinds of wastes, including time, and to enable a level schedule.”
Mason-Jones et al. [25] differentiated leanness and agility by means of two important concepts: market qualifier and market winner. To enter a competitive market, it is important and also necessary to understand what baselines—market qualifiers—this market has. The criterion for being a winner in this market is called themarket winner. As you can see in Table 4.1, lean philosophy is most promising when the market winner is cost, but agile is appropriate when service level is the market winner.
Lean and agile have many different attributes. Agile is stronger when a market is volatile, dealing with a high variety of products with short life cycles. To apply lean, a market should be predictable and have a smaller variety of products with long life cycles. Table 4.2 compares agile and lean with their distinguishing attri- butes [25].
Table 4.1 Market Qualifier and Market Winner for Agile and Lean Supply [25]
Market Qualifiers Market Winners
Lean Supply Quality Cost
Lead time Service level
Agile Supply Quality Service level
Cost Lead time
In another comparison, Christopher [23] compares lean and agile from the points of view of volume and variety (Figure 4.4). According to him, agility works well in less-predictable environments with unstable demand and high variety. Needless to say, it is vital to be fast (or agile) in such environment in response to demand. An example of this environment is the fashion industry. The volume of fashion goods is low, but the variability is high. Lean is best in predictable environments with high volume and low diversity. Routine goods such as groceries and household stuff are good examples of merchandise when the lean philosophy is preferred.
4.2.2 Quick Response
McMichael et al. [26] define quick response (QR) as “a customer-driven business strategy of cooperative planning by supply-chain partners to ensure that the right goods are in the right place at the right time, using IT and flexible manufacturing to eliminate inefficiencies from the entire supply chain.”
As a strategy in the retail sector, QR uses a number of tactics to improve inven- tory management and efficiency as well as speed inventory flow [4]. The funda- mental idea of QR is that to exploit the advantages of markets that are time based, it is necessary to develop systems that are responsive and fast [3]. Reducing inventory levels and lead times and increasing the accuracy of forecasting are the
Table.4.2 Comparison of Lean and Agile by Their Distinguishing Attributes [25]
Distinguishing Attributes Lean Supply Agile Supply
Typical products Commodities Fashion goods
Marketplace demand Predictable Volatile
Product variety Low High
Product life cycle Long Short
Customer drivers Cost Availability
Profit margin Low High
Dominant costs Physical costs Marketability costs
Stock-out penalties Long-term contractual Immediate and volatile
Purchasing policy Buy goods Assign capacity
Information enrichment Highly desirable Obligatory
Forecasting mechanism Algorithmic Consultative
Hi
Lo Agile
Lean Lo
Variability
Volume Hi
Figure 4.4 Comparison of lean and agile based on variety and volume [23].
main purposes of QR [27]. This strategy is suitable for highly engineered products and can be used by firms that produce large amounts of variable products [28].
For Christopher, “The logic behind QR is that demand must be captured in as close to real time as possible and as close to the final consumer as possible” [3], which is the most reliable information for the next logistics responses and deci- sions. Whole decisions are made directly based on this information.
One of the most important things that made QR possible is the development of information technology. In fact, QR keeps information instead of inventory. QR uses information technologies such as electronic data interchange (EDI), bar cod- ing, electronic point of sale (EPOS), and laser scanners to quickly track customer sales. This information will be really helpful for manufacturers who are in charge of production scheduling and delivery. If there is a good response time by using a cross dock instead of a warehouse, then implementing QR can lead to inventory reduction.
Implementation of QR can benefit both suppliers and retailers. Giunipero et al.
[29] cite cost reduction, reduced stock inventory, stock-turnover increases, and cus- tomer-service improvement as retailers benefits. Predictable production cycles, fre- quent orders, reduced costs, and closer relationships with retailers are supplier benefits. QR advantages are most significant in environments where a high level of service is targeted. Applying QR has a high fixed cost (because of the required information technologies), the increment of cost is low when service level improves. Figure 4.5 depicts this concept [3].
As shown, in lower levels of service, cost of implementing QR is high as a result of high-level information technology. However, by improving service level, the increment of QR cost is lower than keeping inventory. When the strategy of a market is to keep extra inventory in order to have a better service level, the amount of stored inventory must be higher, so its cost increases exponentially. After a cer- tain level of service, QR cost is much lower than keeping inventory. It shows that, as a strategy of agile philosophy, QR concentrates on service level more than any other parameter. Whenever service level is an important key factor in a market, QR is an appropriate strategy.
Fashion and apparel industries have widely used QR. This strategy is appropriate in these fields because in these industries high service levels are demanded and inventory holding is not a suitable solution because of storage costs. Consider a hypothetical chain of fashion stores. Each of several thousand stores in the chain tracks consumer preferences daily using its point-of-sale data, which indicate
Cost
Service level
Inventory QR
Figure 4.5 QR versus traditional inventory-based systems [3].
orders. Based on the information gathered, orders will be sent by satellite links to suppliers around the world. These orders will be consolidated in one place, and ultimately goods are flown back to the chain’s distribution center. The consolida- tion center may even be on another continent, with shipments done by planes or ships. At the distribution center, the goods are price marked and restored for imme- diate delivery to the retail stores. All of this process will take place in 46 weeks, a time period that cannot be achieved in conventional systems.
Efficient Consumer Response
Development of the QR strategy in the fashion industry encouraged the develop- ment of the efficient consumer response (ECR) strategy, which has the same con- cepts as QR in the grocery industry [27]. The Europe Executive Board expresses the ECR as “working together to fulfill consumer wishes better, faster, and at less cost.” ECR emphasizes cooperation between distributors and manufacturers, and its goal is to create a customer-driven system with high levels of consumer satisfaction and low levels of costs [30].
The main purpose of ECR is to provide efficient replenishment that is achieved by reducing stock holdings, making stock ranges more practical by indicating the dimensions of goods, improving space allocation, and introducing new products effectively [31].
According to Casper (1994), ECR includes the following strategies:
G EDI usage between suppliers and manufacturers, manufacturers and distributors, and dis- tributors and customers
G Use of more accurate bar coding system and better exploitation of point-of-sale data
G Mutual close relationship between manufacturers, distributors, suppliers, and customers
G Continuous inventory replenishment
G Improved product management and development
ECR concepts and its implementation benefits have been known since the early 1990s [31,32], but it is not as widespread as expected. Although many firms in the grocery sector are using ECR-related concepts, most of them are not applying the total ECR concept, either not considering certain elements or only partly imple- menting them [33].
Barriers of implementing ECR are mostly organizational [30]. Haben [34]
argues that these organizational obstacles could be both cultural and functional. He believes that traditional top-down organizations in which every function is operated separately, and measurement systems which assess efficiency of parts individually without attention to whole system, are the major impediments of ECR implementa- tion and building trust between different parts.
4.2.3 Vendor-Managed Inventory
Vendor-managed inventory (VMI), also called co-managed inventory (CMI), is an agreement in which monitoring, planning, and managing inventory is done by the
supplier in exchange with real-time information. In fact in VMI, retailer provides vendor with real time point of sale data and instead vendor takes the responsibility of monitoring, holding and managing inventory for retailer.
VMI was first implemented in the 1980s by WalMart and Procter & Gamble [35]; after that, many other companies from different industries used it. VMI’s most important features are short replenishment lead times and frequent and punc- tual deliveries that optimize production and transport scheduling [36].
In traditional systems, customers place orders on their suppliers. Although this seems logical, significant inadequacies magnified the need for efficient systems.
Conventional systems are mostly based on forecasting because suppliers have no advance warning of orders; as a result, a supplier must carry unnecessary safety stocks. However, the supplier often encounters unforeseen orders, which leads to frequent changes of their production and distribution schedules [3]. Thus, custo- mer’s real-time information substitutes for orders; instead, the supplier takes the responsibility for monitoring and managing the customer’s inventory.
VMI system has benefits for both supplier and customer. Benefits for customers are higher product availability and service level and diminished stock-out risk, while inventory levels and monitoring and managing costs are reduced significantly [35,37].
As suppliers have access to demand and inventory data, planning and scheduling of production, distribution, and replenishment can be done better [38], and ulti- mately the potential for stock outs is significantly reduced. VMI can also lead to the appropriate use of production capacity [35] and a reduction in the bullwhip effect [39,40].
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5 Logistics Parties
Seyed-Alireza Seyed-Alagheband
Department of Industrial Engineering, Amirkabir University of Technology, Tehran, Iran
Logistics outsourcing has attracted the attention of lots of industrialists in recent years. As a result, having long-term relationships with logistics parties seems to find its undeniable place in today’s growing extent of outsourcing affairs. Third- party logistics (3PL), in particular, has received substantial attention from logistics experts, leading to a great deal of research in this area. Furthermore, improved ver- sions of logistics parties, especially fourth parties, are growing with high speed.
Because of its importance, this chapter is dedicated to the introduction and general implications of logistics parties.
Logistics is basically the concept of how to deal with the movement and storage of materials or products that results in the highest consumer satisfaction [1]. The modern form of logistics concept dates back to the second half of the twentieth century. During the past several years, this field has obtained greater importance and has been theoretically and practically extended.
The logistics evolution requires that decision makers have a comprehensive and updated vision on the concept. The decision environment has become extensively complex with factors such as new management strategies and business models, global markets and sourcing, information technology (IT), new trends of customer satisfaction, and new transport-service options.
In most developed economies, the costs of logistics management are steadily growing, indicating an increasing proportion of the gross national product. Logistics costs have become an important part of the value of products, and logistics manage- ment is regarded as an important role in the international competitive market [2].
Logistics outsourcing is one of the issues that a firm has to consider about the efficiency and benefit outsourcing brings to the company. The decision to out- source logistics activities brings about the use of other companies to handle logis- tics affairs such as transportation and warehousing.
Logistics outsourcing is not a new trend. In the 1950s and 1960s, transportation and warehousing were commonly outsourced. This outsourcing was a pure com- modity purchase, and logistics as an activity was rarely a part of a company’s busi- ness strategy. By the 1970s, as companies began to emphasize cost reduction and improved productivity, they started to look for multicompetency providers for out- sourcing. The long-term relationship became more common, and service providers
Logistics Operations and Management. DOI: 10.1016/B978-0-12-385202-1.00005-0
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