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APICS Operations Management Body of Knowledge Framework, Third Edition

3.7 Logistics

In an industrial context, logistics is the art and science of obtaining, producing, and distributing materials and products in the proper place and with the proper quantities. In a military context, logistics also includes the movement of personnel, as well as the design and development, acquisition, storage, movement, distribution, maintenance, evacuation, and disposition of materiel.

3.7.1 Design 0ptions

The design process consists of translating a set of functional requirements into an operational product, process, or service. Options to consider include the design of the distribution network, the product itself, and the production or distribution facility, as well as the related concepts of design for manufacture and assembly and design for the environment. Several of these design options can affect the logistics of the system, including product size, package configuration, product variety, and product perishability.

Direct shipment network. In a direct shipment network, suppliers establish a system of shipping directly from the supplier to the customer without any intermediate parties in the distribution system.

Direct shipment with milk runs. A milk run is a regular route to pick up mixed loads from several suppliers. A combined or consolidated delivery from multiple suppliers often is a part of milk runs. For example, instead of five different suppliers sending a separate truckload each week to meet the weekly needs of the customer, one truck visits each of the suppliers daily before delivering to the customer's plant. Direct shipment using a milk run consolidates multiple vendors' deliveries into one direct shipment to the customer, enabling the customer to process one full truckload instead of multiple less-than-full shipments.

Shipment via central distribution center. A central distribution center consolidates shipments to promote efficiency and provide strong Customer Relations. The central distribution center may carry a set level of safety stock for the items it stocks. When the distribution center carries stock, it consolidates shipments of multiple commodities from multiple vendors to support the customer.

Cross-docking. In order to reduce inventory levels, safety stock requirements, and distribution cycle times, a central distribution center may employ cross-docking. Cross-docking is a system for packing products on incoming shipments to ease sorting at intermediate warehouses or on outgoing shipments, based on their final destinations. The items are carried from the incoming vehicle docking point to the outgoing vehicle docking point without being stored in inventory at the warehouse or distribution center. Cross-docking is a preplanned activity used to reduce inventory levels while improving customer response time.

Tailored network. A tailored network is part of the larger distribution network. The tailored network is designed in conjunction with the needs of the customer to provide the right quantity of products, in the right condition, to the right location and at a time dictated by the customer. A tailored network often involves some variation of any of the above models.

3.7.2 Qualitative techniques

Qualitative techniques are used when quantifiable data are not available or when measurements for different criteria relevant to the logistics decisions are used. A typical question with multiple criteria would be the ideal location of a plant or a warehouse. A common approach is evaluating each criterion based on a common point scale and combining criteria using weighted factors that indicate the 
importance of each criterion.

3.7.3 Quantitative techniques

Quantitative techniques enable the direct consideration of cost in evaluating logistics system designs. Trade-offs often involve costs related to transportation, inventory investment, and acquiring and managing facilities. Quantitative techniques are useful in solving such logistic problems as designing routes and scheduling vehicles.

Transportation models. A transportation model finds the optimal allocation of sources of supply—typically plants—to meet the demand at destinations in the network—typically warehouses. For each combination of source and destination, a per-unit cost (or profit) can be determined. Solutions are evaluated by taking the sum-product of volume multiplied by the cost or profit.

Network optimization. A logistics network is the interconnection of the facilities, transportation assets, and nodes that enable the efficient distribution of products between suppliers, manufacturing facilities, distribution centers, warehouses, and customers. Optimization is the process of achieving the best possible solution to a problem in terms of a specified objective. Optimizing the logistics network is the process of achieving the most efficient network to move materials and products from the supplier through the manufacturing process to the end user.

Vehicle routing. Vehicle routing is a subset of the logistics network optimization process. The goal of the routing process is to reach optimal efficiency of all vehicle assets within the network. Vehicle routing uses computer models that contain all customer and supplier nodes within the network and output routes and assignments that minimize the total distance traveled. The routing model may produce vehicle scheduling to optimize vehicle use and provide service continuity to customers.

3.7.4 Shipment planning

The goal of shipment planning is to maximize freight loads while minimizing freight costs. Shipment planning integrates movement demands with vehicle resources.

Load planning. Load planning is the process of determining what should be in a load and how the load should be organized to maximize weight and minimize volume.
Load planning also includes the concepts of building mixed-commodity pallets for
shipment and load sequencing based on multiple delivery stops.

Transportation planning. Transportation planning is used to coordinate the transportation assets of the company with the demand for shipments or with third-party logistics providers.

Route planning. Route planning is necessary to ensure efficient use of transportation resources while meeting the needs of the customer. Routes must be coordinated with customers when the shipper guarantees a specific delivery time. The goal of route planning is to minimize transportation costs through load distance analysis while striking a balance between truck capacity and multiple stops created by less-than-full-load deliveries.

3.7.5 Capacity

In logistics and distribution, capacity of the network includes the carrying ability of the transportation choices. The number of trucks in the system—both available and required—and the ability of the distribution system to load these trucks and deliver on time to the customer are constraints on the system. Distribution networks must balance capacity and customer demands to remain efficient and effective.