Professional Documents
Culture Documents
THE NETWORK OF
LOGISTICS DECISIONS
Diane Riopel
Andre Langevin
James F. Campbell
1. Introduction
Effective logistics management requires good decision making in a
wide variety of areas. Because the scope of logistics is so broad across
both the functional areas of an organization and the temporal span of
control, and because of the inherent inter-relationships between logistics
decisions, logistics decision-makers must contend with a daunting array
of issues and concerns. In this chapter we seek to provide a coherent
framework for business logistics decision-making by identifying logistics
decisions and highlighting the relevant linkages between them. Our fo-
cus is on the precedence relationships among logistics decisions, and on
how each decision influences, and is influenced by, other decisions. We
also identify the key information required for making various logistics
decisions.
2 LOGISTICS SYSTEMS: DESIGN AND OPTIMIZATION
2. Logistics decision
As indicated in the previous section, the activities of logistics can be
divided and classified in several different ways. Many of the differences
in the various classifications occur with the activities that span the in-
terfaces between the different functional parts of an organization, such
as those activities spanning logistics and production, marketing and/or
finance. Although authors have adopted different approaches in defining
the basic logistics activities, and have developed different frameworks for
Table 1.1. List of textbooks
2004 Chopra, S. and Meindl, P. Supply chain management Strategy, planning, and oper-
2nd edition ation
1983 Colin, J., Mathe, H. and Tixier, D. La logistique au service de l'entreprise
1997 Copacino, W.C. Supply chain management: The basics and beyond
2003 Coyle, J.J., Bardi, E.J., Langley Jr., C.J. The management of business logistics: A supply chain
7th edition perspective
1998 Dornier, P.-P., Ernst, R., Fender, M. and Kouvelis, P. Global operations and logistics: Text and cases
1997 Eymery, P. La logistique de l'entreprise
1992 Fawcett, P., Mcleish, R. and Ogden, I. Logistics management
2000 Fernandez-Ranada, M., Gurrola-Gal, F.X. and Lopez- 3C: A proven alternative to MRPII for optimizing supply
Tello, E. chain performance
2001 Fleischmann, M. Quantitative models for reverse logistics
1992 Francis, R.L., McGinnis, L.F. Jr. and White, J.A. Facility layout and location: An analytical approach
2nd edition
2001 Fredendall, L.D. and Hill, E. Basics of supply chain management
1998 Gattorna, J., editor Strategic supply chain alignment: Best practice in supply
chain management
1990 Gattorna, J., Trost, G. and Kerr, A., editors The Gower handbook of logistics and distribution man-
agement
2003 Giard, V. Gestion de la production et des flux
2001 Gourdin, K.N. Global logistics management: A competitive advantage
for the new millennium
1993 Graves, S.C., Rinnooy Kan, A.H.G. and Zipkin, P.H. Handbook in Operations Research and Management Sci-
ence. Volume 4 — Logistics of production and inventory
1999 Handheld, R.B. and Nichols, E.L. Jr. Introduction to supply chain management
1973 Heskett, J.L., Glaskowsky, N.A. and Ivie, R.M. Business logistics
2nd edition
1987 Hutchinson, N.E. An integrated approach to logistics management
Table 1.1 (continued)
1999 Johnson, J.C., Wood, D.F., Wardlow, D.L. and Murphy, Contemporary logistics
7th edition P.R. Jr.
1998 Kasilingam, R.G. Logistics and transportation: Design and planning
1978 Kearney, A.T. Measuring productivity in physical distribution
1998 Lambert, D.M., Stock, J.R. and Ellram, L.M. Fundamentals of logistics management
1976 Lambillotte, D. La fonction logistique dans Tentreprise
1995 Langford, J.W. Logistics: Principles and applications o
2003 Lawrence, F.B., Jennings, D.F. and Reynolds, B.E. eDistribution
2005 Lawrence, F.B., Jennings, D.F. and Reynolds, B.E. ERP in distribution
1993 Leenders, M.R. and Fearon, H.E. Purchasing and materials management
10th edition
Co
1999 Lowson, B., King, R. and Hunter, A. Quick response: Managing the supply chain to meet con-
sumer demand
2000 Lynch, C.F. Logistics Outsourcing: A management guide 13
2002 Monczka, R., Trent, R. and Handheld, R. Puchasing and supply chain management 1
2004 Murphy Jr., P.R. and Wood, D.F. Contemporay logistics
8th edition
1973 Muther, R. Systematic layout planning
2nd edition
2001 Pimor, Y. Logistique: Techniques et mise en oeuvre
1993 Pons, J. and Chevalier, P. La logistique integree
2000 Ptak, C.A. and Schragenheim, E. ERP: Tools, techniques, and applications for integrating
2nd edition the supply chain
2002 ReVelle, J.B., editor Manufacturing handbook of best practices: An innova-
tion, productivity, and quality focus
1994 Robeson, J.F., Copacino, W.C. and Howe, R.E., editors The logistics handbook
2003 Seifert, D. Collaborative planning, forecasting, and replenishment:
How to create a supply chain advantage
I
3
Table LI (continued)
presenting and organizing the various logistics activities, they all address
the same fundamental logistics decisions. These logistics decisions range
from long-term strategic decisions involving customer service levels and
network design, to short-term tactical or operational decisions, such as
daily routing of vehicles. This section delineates the different logistics
decisions required in each activity, and indicates linkages between these
decisions. Our focus is specifically on the logistics decisions, rather than
the logistics activities, and we attempt to indicate clearly the inter-
dependence of decisions, as well as the additional information required
as input for these decisions.
Logistics decisions may be divided or grouped in several dimensions
based on various criteria. The common grouping into strategic, tacti-
cal and operational levels (as in Ballou, 2004) may be based on one or
more of the following criteria associated with the decisions: the time
frame, the resource requirements, or the level of managerial responsi-
bility. These criteria are generally inter-related — for example, strategic
decisions usually are made at high level in the organization and address
long-term issues with significant resource implications, and these are
made at a high level in the organization While in reality the range of
decisions may be better viewed as a continuum on all dimensions (time
frame, resource requirements, and managerial responsibility), for ease of
exposition and presentation these decisions are usually separated into
distinct categories.
The core of our framework for this presentation is a three-part decision
hierarchy consisting of a Strategic Planning level, a Network level and an
Operations level. Table 1.2 lists the decision categories within each level
of the hierarchy. (Alternate classification systems and hierarchies are
possible, but the underlying decisions and inter-relationships between
individual decisions would not change.)
The remainder of this section is divided into subsections for the Strate-
gic Planning level decisions, Network Design level decisions, and Oper-
ations level decisions. Within each of the subsections we detail the indi-
vidual decisions, and for each of these decisions we indicate the inputs
needed in the form of any previous decisions, and the other information
required. For example, the carrier selection decision ("Which transporta-
tion carrier(s) should be used?") requires a previous decision on the
types of carriers to be used (for example, public vs. private trucks) and
additional information on available carriers, and on the organization's
performance objectives. Each organization will not need to make every
decision that we discuss; some organizations may contract or outsource
large portions of their logistics activities, or the nature of the products
and business may preclude certain decisions. Thus, our subsequent dis-
1 The Network of Logistics Decisions
cussions are not focussed on one particular firm or industry, but are
meant to provide general coverage of logistics decision-making. To help
identify the discussion for each decision, we use an italic font for the
decision name throughout this section.
All the decisions described in this section, along with their immediate
predecessors and the additional information required are summarized in
a table in the Appendix to assist the reader. To keep the table man-
ageable, the additional information listed for each decision is only that
information not included as input for a previous decision. It should be
understood that each decision may depend on a cumulative collection of
previous decisions and associated additional information.
existing logistics system are relevant for (nearly) every logistics decision,
we will not discuss them in each subsection.
A subsequent decision related to defining customer service is setting
the customer service objectives. This involves developing performance
standards using the previously defined customer service elements and
metrics, as well as the previously mentioned additional information.
Other fundamental strategic level decisions concern the degree of ver-
tical integration and outsourcing within the supply chain. Decisions on
vertical integration include the nature of the integration, the direction
(forward towards customers and/or backward towards suppliers), and
the extent of integration (for example, which activities, parts or compo-
nents should be included). Decisions related to outsourcing determine
which functions should be outsourced (for example, transportation, dis-
tribution, warehousing, order processing, or fulfillment) and the extent
and nature of outsourcing agreements. These decisions may rely on the
previously defined customer service objectives, the availability of finan-
cial, human, material and equipment resources (including production
and distribution capabilities), and the additional information needed for
the definition of customer service.
There are a variety of additional strategic level decisions that affect
logistics, such as determining the organization's overall economic ob-
jectives and strategy, determining the range of products and services
offered, determining the geographic scope (regional, national, multi-
national or global) of production, distribution, and marketing, and de-
termining the marketing and information management objectives and
strategy (including electronic commerce). However, because the scope
of these strategic decisions extends considerably well beyond logistics,
they are not included here.
themselves, as well as on the item values and historical sales data. The
methods for controlling inventories (quantitative methods such as EOQ,
kanban, etc.) depend in turn on the relative importance of items, as well
as on their nature and the nature of the demand. The desired inventory
levels are driven by desired customer service levels, the magnitude of fu-
ture demand, and the supplier selection, along with the characteristics of
the production process and the delays in replenishing stocks. Finally, the
safety stock decision depends on the previous decision regarding desired
inventory levels, and on the item value and delays in replenishment.
3
I
o
-a
I
Stock location (42)
Material handling
fleet mix (38)
Category Decision Number Number Number Number Max Path Max Path
Out In Downstream Upstream Downstream Upstream
Strategic 1 1 0 43 0 20 0
Planning 2 10 1 42 1 19 1
3 2 1 40 2 18 2
Physical 4 2 2 39 3 17 3
Fac. Network 5 8 1 37 4 16 4
C&I 6 3 3 34 4 16 4
Network 7 3 2 33 6 15 5
Forecasting 8 2 0 25 0 13 0
Inventory 9 4 2 29 7 14 6
Management 10 2 1 16 11 9 8
11 0 1 0 12 0 9
12 4- 3 24 12 12 8
13 (3 1 0 13 0 9_
Production 14 2 0 21 0 U 0~
15 2 • 3 20 6 10 5
16 3 2 22 13 11 9
17 3 3 19 16 9 10_
Procurement 18 1 2 30 5 15 5
and Supply 19 1 1 29 6 14 6
Management 20 4 3 28 10 13 7
21 2 2 17 14 9 10
22 0 1 0 11 0 8_
Transportation 23 3 3 19 14 10 10
24 3 2 6 18 5 11
25 0 1 0 19 0 12
26 1 3 4 20 4 12
22 LOGISTICS SYSTEMS: DESIGN AND OPTIMIZATION
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1 The Network of Logistics Decisions 23
Strategic \ 2/ / \ ^
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Packaging i' 1 \
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1 The Network of Logistics Decisions 27
Network categories) and the other two Operations level categories in this
group. The last five decision categories (Transportation, Product Pack-
aging, Material Handling, Warehousing, and Order processing) have less
downstream influence (only to the other four decision categories in this
group), but strong linkages upstream to all other decision categories.
4. Conclusion
This chapter presents the network of logistics decisions by focussing on
the precedence relationships in logistics decision-making. The intricacy
of the linkages demonstrates how thoroughly the decisions are interre-
lated and highlights the complexity of managing logistics activities. The
framework provided here, in the form of a network, tables, and figures,
is aimed at helping logistics managers understand and analyze the re-
lationships between the various decisions, which could lead to making
better decisions. The Appendix also provides additional information re-
quired by each decision, and this should be valuable for planning and
optimization of the logistics chain.
The importance of logistics is increasing with the expanding geo-
graphic scope of global supply chains. As decision-makers become more
dispersed and communications more difficult — both due to the phys-
ical distance and the cultural distance, the ability to understand the
repercussions of a decision on others may be the key to a successful im-
plementation of global logistics strategies. In the same vein, being able
to react quickly to market changes and to design agile supply chains
requires a profound knowledge of the relationships between logistics de-
cisions. This article is a step to acquiring such knowledge.
Future research may address how the logistics decision framework
in this chapter can be used to provide better information for logistic
decision-making. One key is the development of procedures and mech-
anisms to ensure that the appropriate information is available where it
is needed in an accurate and timely fashion. While information technol-
ogy may offer some solutions, often the organizational issues and changes
are more challenging. Another topic for future research is to refine this
framework with case studies in a particular organization or industry
sector.
Appendix to
00
Decisions Previous decisions Additional information
Strategic Planning Level
1. Definition of customer service • Organizational mission and strategy
• Customer expectations
• Competitive environment
• Financial resource availability
t-1
• Existing logistics system o
2. Customer service objectives 1. Definition of customer service
3, Degree of vertical integration and out- 2. Customer service objectives • Resource availability (capital, person-
sourcing nel, facilities and equipment) 3
Physical Facility (PF) Network
4. PF network strategy 2. Customer service objectives • Existing suppliers 8
3. Degree of vertical integration and out- • Existing customers
sourcing • Potential suppliers
• Potential customers and markets ii
5. PF network design, including 4. PF network strategy • Capability and availability of labor and
- types of facility support services b
- number of each type of facility • Availability of appropriate facilities and
- size of facility sites
- facility location • Availability of transportation i
- activities and services from each facility • Government incentives
- utilization of new or existing facilities • Community attitudes
- links between facilities • Standards and regulations
• Utilities
• Taxes
I
3
o
Decisions Previous decisions Additional information
Communication and Information (C&I) Network
6. C&I network strategy 2. Customer service objectives • Existing C&I systems of the organiza-
3. Degree of vertical integration and out- tion
sourcing • Existing suppliers
4. PF network strategy • Existing customers
• Potential suppliers
• Potential customers
Inventory Management
7. C&I network design, including 5. PF network design • Capability and availability of labor and
- network architecture and capacities 6. C&I network strategy support services
- hardware selection • Availability of appropriate facilities and
- software selection sites
- vendor selection • Government incentives
- extent of information technology used • Community attitudes
• Standards and regulations
Demand Forcasting
8. Forecasts of demand magnitude, tim- • Historical sales data
ing and locations • Environmental and economic data
• Marketing strategies
9. Inventory management strategy 2. Customer service objectives • Nature of products
7. C&I network design • Nature of demand
10. Relative importance of inventory 20. Suppliers • Item value
• Historical sales data
11. Control methods 10. Relative importance of inventory • Nature of products
• Nature of demand
12. Desired inventory level 2. Customer service objectives • Production equipment/personnel char-
8. Forecasts of demand magnitude, tim- acteristics
ing and locations • Replenishment delay
20. Suppliers
CO
Decisions Previous decisions Additional information
o
13. Safety stock 12. Desired inventory level • Item value
• Replenishment delay
Production
14. Product routing • Product characteristics
• Production equipment/personnel char-
acteristics
15. Facilities layout 2. Customer service objectives • Production equipment/personnel char-
5. PF network design acteristics O
14. Product routing
16. Master production schedule 5. PF network design • Current inventory levels
12. Desired inventory level
17. Production scheduling 14. Product routing
to
15. Facilities layout
16. Master production schedule
Procurement and Supply Management
18. Procurement type 2. Customer service objectives • Cost to make and cost to buy 1
5. PF network design • Resource availability (capital, person- Co
nel, facilities and equipment)
• Availability of products
• Nature and magnitude of risks
19. Specifications of goods procured 18. Procurement type • Product design specifications
• Production equipment/personnel char-
acteristics §
20. Suppliers 5. PF network design • Suppliers performance and capabilities
9. Inventory management strategy • Procurement policies
19. Specifications of goods procured • Transportation options
21. Order intervals and quantities 16. Master production schedule • Discount opportunities
20. Suppliers
22. Quality control 20. Suppliers • Characteristics of products to procure
1
3
o
Decisions Previous decisions Additional information
Transportation
23. Transportation modes 2. Customer service objectives • Transportation options
5. PF network design • Standards and regulations
16. Master production schedule • Product characteristics
24. Types of carriers 17. Production scheduling • Historical sales data
23. Transportation modes • Carrier options
• Standards and regulations
• Product characteristics
25. Carriers 24. Types of carriers • Carriers' performance and capabilities
26. Degree of consolidation 5. PF network design • Customer locations
21. Order intervals and quantities • Product characteristics
24. Types of carriers
27. Transportation fleet mix 8. Forecasts of demand magnitude, tim- • Product characteristics
ing and locations • Transport fleet options
24. Types of carriers
26. Degree of consolidation
28. Assignment of customers to vehicles 27. Transportation fleet mix • Customer locations
35. Packaging design • Customer demands
• Product characteristics
• Access to receiving/shipping docks
29. Vehicle routing and scheduling 5. PF network design • Customer locations
28. Assignment of customers to vehicles • Customer demands
• Time windows
30. Vehicle load plans 29. Vehicle routing and scheduling
CO
CO
Decisions Previous decisions Additional information
to
Product Packaging
31. Level of protection needed 12. Desired inventory level • Product value
23. Transportation modes • Environmental conditions
37. Types of material handling equip- • Standards and regulations
ment • Product characteristics
• Duration of storage
32. Information to be provided with the • Product characteristics t-i
product • Customer needs O
• Standards and regulations
33. Information media 32. Information to be provided with the • Options for communicating information
product 3
34. Type of packaging 31. Level of protection needed • Product characteristics
Co
32. Information to be provided with the • Packaging material options
product • Reusing/recycling options 3
35. Packaging design 34. Type of packaging • Product characteristics
• Customer needs 1
Material Handling
36. Unit loads 9. Inventory management strategy • Characteristics of objects to handle
17. Production scheduling • Customer needs
21. Order intervals and quantities • Production equipment/personnel char-
35. Packaging design acteristics
37. Types of material handling equip- 15. Facilities layout • Material handling options
ment 36. Unit loads
41. Warehouse layout
47. Order picking procedures
38. Material handling fleet mix 37. Types of material handling equip- • Production equipment/personnel char-
ment acteristics
• Material handling equipment perfor- 1
mance and capabilities 3
o
Decisions Previous decisions Additional information
39 Material handling fleet control 9. Inventory management strategy
17. Production scheduling
38. Material handling fleet mix
47. Order picking procedures
Warehousing
40 .Warehousing mission and functions 2. Customer service objectives • Product characteristics
• Nature of demand
41. Warehouse layout 9. Inventory management strategy • Safety of employees
12. Desired inventory level
35. Packaging design
37. Types of material handling equip-
ment
40. Warehousing mission and functions
42. Stock location 2. Customer service objectives • Product characteristics
10. Relative importance of inventory
41. Warehouse layout
43. Receiving/shipping dock design 23. Transportation modes • Characteristics of received and shipped
35. Packaging design goods
36. Unit loads • Amount of product to handle at dock
38. Material handling fleet mix • Safety of employees
40. Warehousing mission and functions
44. Safety systems 40. Warehousing mission and functions • Product characteristics
41. Warehouse layout
43. Receiving/shipping dock design
Order Processing
45. Order entry procedures 6. C&I network strategy • Customer demands
7. C&I network design • Range of products
• Capability and availability of labor and
support services CO
CO
CO
Decisions Previous decisions Additional information
46. Order transmission means 45. Order entry procedures
47. Order picking procedures 6. C&I network strategy • Customer demands
35. Packaging design • Range of products
36. Unit loads
38. Material handling fleet mix
42. Stock location
48. Order follow-up procedures 5. PF network design • Customer demands
7. C&I network design o
3
1
a
1 The Network of Logistics Decisions 35
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1 The Network of Logistics Decisions 37