Twelfth Edition

Global Edition

Contemporary LogistiCs

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Twelfth Edition

Global Edition

Contemporary LogistiCs

Paul R. Murphy, Jr.

A. Michael Knemeyer

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Authorized adaptation from the United States edition, entitled Contemporary Logistics, 12th Edition, ISBN 978-0-13-451925-8 by Paul R. Murphy, Jr. and A. Michael Knemeyer, published by Pearson Education © 2018.

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5

BRIEF CONTENTS Preface 17

PART 1 Overview of Logistics 19 Chapter 1 An Overview of Logistics 20 Chapter 2 Logistics and Information Technology 40 Chapter 3 Strategic and Financial Logistics 59 Chapter 4 Organizational and Managerial Issues in Logistics 74

PART 2 Supply Chain Management 95 Chapter 5 The Supply Chain Management Concept 96 Chapter 6 Procurement 114

PART 3 Elements of Logistics Systems 129 Chapter 7 Demand Management, Order Management,

and Customer Service 130 Chapter 8 Inventory Management 148 Chapter 9 Facility Location 167 Chapter 10 Warehousing Management 186 Chapter 11 Packaging and Materials Handling 203 Chapter 12 Transportation 222 Chapter 13 Transportation Management 242 Chapter 14 International Logistics 263 Glossary 290 Name Index 299 Subject Index 303

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CONTENTS

Preface 17

Part I Overview of Logistics 19

Chapter 1 AN OVERVIEW OF LOGISTICS 20 Economic Impacts of Logistics 20

Logistics: What It Is 21

The Increased Importance of Logistics 23

A Reduction in Economic Regulation 23

Changes in Consumer Behavior 24

Technological Advances 25

Advances in Retailing 26

Globalization of Trade 26

The Systems and Total Cost Approaches to Logistics 26

Logistical Relationships within the Firm 28

Finance 28

Production 29

Marketing 29

Marketing Channels 31

Activities in the Logistical Channel 33

Customer Service 34

Demand Forecasting 34

Facility Location Decisions 34

International Logistics 34

Inventory Management 34

Materials Handling 34

Order Management 34

Packaging 34

Procurement 35

Reverse Logistics 35

Transportation Management 35

Warehousing Management 35

Logistics and Supply Chain Careers 35 Summary  36  •  Key Terms  36  •  Questions for Discussion and  Review  36  •  Suggested Readings  37

▶ CASE 1.1 KiddieLand and the Super Gym 37

8 Contents

Chapter 2 LOGISTICS AND INFORMATION TECHNOLOGY 40 General Types of Information Management Systems 41

Office Automation Systems 42

Communication Systems 43

Transaction Processing Systems (TPS) 44

Management Information Systems (MIS) and Executive ­Information Systems­(EIS) 46

Decision Support Systems (DSS) 47

Enterprise Systems 49

The Internet’s Influence on Logistics 50

Online Retailing 50

Cloud Computing 52

Electronic Procurement 52

Internet of Things 53

Information Technology Challenges 54 Summary  55  •  Key Terms  55  •  Questions for Discussion and   Review  55  •  Suggested Readings  55

▶ CASE 2.1 To Invest or not to Invest? That is the question 56

Chapter 3 STRATEGIC AND FINANCIAL LOGISTICS 59 Connecting Strategy to Financial Performance 60

Basic Financial Terminology 62

Income Statement 62

Balance Sheet 63

Statement of Cash Flows 64

Reporting Requirements 64

Strategic Profit Model 65

Logistics Connections to Net Profit Margin 67

Logistics Connections to Asset Turnover 67

Balanced Scorecard 67

Logistics Activity Measures 68

Transportation Measures 68

Warehousing Measures 69

Inventory Measures 69

Design and Implementation of Measures 69 Summary  70  •  Key Terms  70  •  Questions for Discussion and  Review  70  •  Suggested Readings  71

▶ CASE 3.1 Brant Freezer Company 71

Contents 9

Chapter 4 ORGANIZATIONAL AND MANAGERIAL ISSUES IN ­LOGISTICS­ 74 Organizing Logistics within the Firm 74

Organizational Structure for Logistics 75

Organizational Design for Logistics 76

Managerial Issues in Logistics 77

Productivity 78

Quality 80

Risk 82

Sustainability 87

Complexity 89 Summary  90  •  Key Terms  90  •  Questions for Discussion and   Review  90  •  Suggested Readings  91

▶ CASE 4.1 Red Spot Markets Company 91

Part II Supply Chain Management 95

Chapter 5 THE SUPPLY CHAIN MANAGEMENT CONCEPT 96 Evolution of Supply Chain Management 96

Supply Chain Management Process Frameworks 98

Enablers of SCM Implementation 99

Understanding the Implications of Increased Customer Power 100

Establishing Appropriate Relationship Structures 101

Leveraging Technology for Enhanced Visibility and Communication 103

Use of Supply Chain Facilitators 104

Barriers to SCM Implementation 106

Regulatory and Political Considerations 106

Lack of Top Management Commitment 106

Reluctance to Share, or Use, Relevant Information 106

Incompatible Information Systems 107

Incompatible Corporate Cultures 107

Globalization Challenges 108

Supply Chain Integration 108 Summary  109  •  Key Terms  109  •  Questions for Discussion  and  Review  110  •  Suggested Readings  110

▶ CASE 5.1 Johnson Toy Company 111

Chapter 6 PROCUREMENT 114 Procurement Objectives 115

Supplier Selection and Evaluation 116

Procurement Portfolio Approach 118

Supplier Development (Reverse Marketing) 119

Global Procurement (Sourcing) 119

Sustainable Procurement 121

Social Responsibility 121

Investment Recovery 122

Supply Chain Finance 123 Summary  123  •  Key Terms  124  •  Questions for Discussion and   Review  124  •  Suggested Readings  124

▶ CASE 6.1 Tempo Ltd. 125

Part III Elements of Logistics Systems 129

­ Chapter­7­DEMAND­MANAGEMENT,­ORDER­MANAGEMENT,­ AND CUSTOMER­SERVICE­ 130 Demand Management  130

Demand Forecasting Models 131

Demand Forecasting Issues 132

Order Management 132

Order Transmittal 133

Order Processing 133

Order Picking and Assembly 134

Order Delivery 136

Customer Service 137

Time 138

Dependability 138

Communication 138

Convenience 139

Managing Customer Service 139

Establishing Customer Service Objectives 139

Measuring Customer Service 141

Customer Profitability Analysis 142

Service Failure and Recovery 142 Summary  143  •  Key Terms  143  •  Questions for Discussion and  Review  144  •  Suggested Readings  144

▶ CASE 7.1 SuperAuto Spare Parts Services 145

10 Contents

Chapter 8 INVENTORY MANAGEMENT 148 Inventory Classifications 149

Inventory Costs 149

Inventory Carrying Costs 150

Ordering Costs 151

Trade-Off Between Carrying and Ordering Costs 151

Stockout Costs 152

Trade-Off Between Carrying and Stockout Costs 153

When to Order and How Much to Order 154

Economic Order Quantity 155

Conditions of Uncertainty 157

Inventory Flows 157

Inventory Management: Special Concerns 158

ABC Analysis of Inventory 158

Dead Inventory 159

Inventory Turnover 160

Complementary and Substitute Products 160

Contemporary Issues with Managing Inventory 161

Lean Manufacturing 161

Service Parts Logistics 163

Vendor-Managed Inventory 164 Summary  164  •  Key Terms  165  •  Questions for Discussion  and  Review  165  •  Suggested Readings  165

▶ CASE 8.1 Low Nail Company 166

­ Chapter­9­FACILITY­LOCATION­ 167 The Strategic Importance of Facility Location 168

Determining the Number of Facilities  169

General Factors Influencing Facility Location 170

Natural Resources 170

Population Characteristics—Market for Goods 172

Population Characteristics—Labor 172

Taxes and Incentives 174

Transportation Considerations 174

Proximity to Industry Clusters 176

Trade Patterns 176

Quality-of-Life Considerations 177

Locating in Other Countries 177

Contents 11

Specialized Location Characteristics 178

Free Trade Zones 178

Finding the Lowest-Cost Location Using Grid Systems 179

Grid Systems 179

Facility Relocation and Facility Closing 181 Summary 182 • Key Terms 182 • Questions for Discussion and Review 182 • Suggested Readings 183

▶ CASE 9.1 All-Indian Logistics Services 184

Chapter 10 WAREHOUSING MANAGEMENT 186 The Role of Warehousing in a Logistics System 186

Public, Private, Contract, and Multiclient Warehousing 188

Public Warehousing 188

Private Warehousing 190

Contract Warehousing 191

Multiclient Warehousing 191

Design Considerations in Warehousing 191

General Considerations 191

Trade-offs 192

Fixed versus Variable Slot Locations for Merchandise 192

Build Out (Horizontal) versus Build Up (Vertical) 193

Order-Picking versus Stock-Replenishing Functions 193

Two-Dock versus Single-Dock Layout 193

Conventional, Narrow, or Very Narrow Aisles 193

Degree of Warehouse Automation 194

Other Space Needs 194

Warehousing Operations 195

Warehousing Productivity Analysis 195

Safety Considerations 195

Hazardous Materials 198

Warehousing Security 198

Cleanliness and Sanitation Issues 199 Summary 200 • Key Terms 200 • Questions for Discussion and Review 200 • Suggested Readings 201

▶ CASE 10.1 Fresh Produce Cross-docking Facility 201

Chapter 11 PACKAGING AND MATERIALS HANDLING 203 Product Characteristics 203

Packaging Fundamentals 204

Functional Tradeoffs 205

Package Testing and Monitoring 206

12 Contents

Labeling 206

Issues in Packaging 208

Environmental Protection 208

Metric System 210

Identifying Packaging Inefficiencies 210

Packaging’s Influence on Transportation Considerations 211

Unit Loads in Materials Handling 213

The Unit Load Platform 214

Beyond the Unit Load 215

Materials Handling 215

Materials Handling Principles 218

Materials Handling Equipment 218 Summary  219  •  Key Terms  220  •  Questions for Discussion  and  Review  220  •  Suggested Readings  220

▶ CASE 11.1 The Adelaide Dairy Company 221

Chapter 12 TRANSPORTATION 222 Comaparing and Contrasting Transportation Infrastructure 223

Transportation Modes 224

Airfreight 224

Motor Carriers 225

Pipelines 227

Railroads 228

Water 228

Intermodal Transportation 229

Transportation Specialists 231

Transportation Regulation 233

Environmental Regulation 233

Safety Regulation 234

Economic Regulation 234

Legal Classification of Carriers 235 Summary  237  •  Key Terms  237  •  Questions for Discussion  and  Review  237  •  Suggested Readings  238

▶ CASE 12.1 HDT Truck Company 238

Chapter 13 TRANSPORTATION MANAGEMENT 242 Rate (Pricing) Considerations 243

Rate Determination 243

Rate and Service Negotiations 246

Modal and Carrier Selection 252

Documentation  253

Contents 13

Bill of Lading 253

Freight Bill 255

Freight Claims 255

Making and Receiving Shipments 256

Consolidating Small Shipments 256

Demurrage and Detention 258

Routing 258

Tracking and Expediting 259

Transportation Service Quality 259 Summary 260 • Key Terms 260 • Questions for Discussion and Review 261 • Suggested Readings 261

▶ CASE 13.1 Chippy Potato Chip Company 262

Chapter 14 INTERNATIONAL LOGISTICS 263 Macroenvironmental Influences on International Logistics 264

Political Factors 264

Economic Factors 266

Cultural Factors 267

International Documentation 269

Terms of Sale 269

Group 1: Terms That Apply to Any Mode of Transport 270

EXW (ExWorks) 270

FCA (Free Carrier) 270

CPT (Carriage Paid To) 270

CIP (Carriage and Insurance Paid To) 270

DAT (Delivered at Terminal) 270

DAP (Delivered at Place) 271

DDP (Delivered Duty Paid) 271

Group 2: Terms That Apply to Sea and Inland Waterway ­Transport Only­ 271

FAS (Free Alongside Ship) 271

FOB (Free on Board) 271

CFR (Cost and Freight) 271

CIF (Cost, Insurance, and Freight) 271

Methods of Payment 271

International Trade Specialists 273

International Freight Forwarders 273

Nonvessel-Operating­Common­Carriers­ 274

Export Management Companies 274

Export Packers 275

14 Contents

15

Transportation and Inventory Considerations in International Logistics 275

Ocean Shipping 276

Shipping Conferences and Alliances 277

International Airfreight 278

Surface Transport Considerations 278

International Trade Inventories 279

Logistics Performance Index 280 Summary 281 • Key Terms 282 • Questions for Discussion and Review 282 • Suggested Readings 282

▶ CASE 14.1 Nürnberg Augsburg Maschinenwerke (N.A.M) 283

Glossary 290 Name Index 299 Subject Index 303

Contents 15

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This edition of Contemporary Logistics reflects a business landscape that is characterized by-geopolitical tensions in various parts of the world, steadily increasing trade among countries and across continents, supply chain vulnerabilities caused by severe natural disasters, and an unabated pace of technological advancement. Although these and other events present both challenges and opportunities for logis- tics managers, the logistics discipline still remains fun, exciting, and dynamic—characteristics that are reflected in our revision.

WHAT’S NEW IN THIS EDITION?

This edition reflects input from reviewers, adopters, and other interested parties in terms of structure, presentation, and content. Specific modifications include the following:

• This edition welcomes a new coauthor, A. Michael Knemeyer, currently Associate Professor of Logistics at the Fisher College of Business, The Ohio State University. Mike’s impressive blend of practical, academic, and consulting experience in logistics and supply chain management provides this edition with fresh insights and perspectives.

• This edition contains several new end-of-chapter cases, such as Cases 9.1 (“All-Indian Logistics Services”), 10.1 (“Fresh Produce Cross-docking Facility”), and 11.1 (“The Adelaide Dairy Company”). In addition, some content has been changed in Case 14.1 (“Nürnberg Augsburg Maschinenwerke (N.A.M.)”).

• Each chapter in this edition has been revised and incorporates new examples and references. For example, Chapter 1’s discussion of the globalization of trade reports the average growth rate of world trade between 1991 and 2011 (as opposed to between 1997 and 2007 in the tenth edition). As another example, Chapter 14’s discussion of Incoterms reflects the revisions associated with Incoterms 2010, which were effective at the beginning of 2011.

• New content has been added throughout this edition. For example, Chapter 1 now includes a discussion of the rapidly emerging topic of humanitarian logistics. In addition, the “Logistics Activity Measures” section in Chapter 3 contains an expanded discussion of warehousing and inven- tory management performance measurements. Chapter 6 has added a subsection, “Procurement Portfolio Approach,” that highlights Kraljic’s Portfolio Matrix.

• Tables and figures containing country and industry data have been either revised or updated. Examples include Table 1-1, “The Cost of the Business Logistics System in Relation to a Country’s Gross Domestic Product”; Figure 10-3, “2012 Liberty Mutual Workplace Safety Index Findings”; and Table 12-1, “Infrastructure Statistics in Several Countries.”

• The list of Key Terms at the end of each chapter has been modified, and each key term is defined in the Glossary. New Key Terms in this edition include humanitarian logistics, big data, Logistics Uncertainty Pyramid Model, near sourcing, and total cost of ownership, among others.

• The end-of-chapter Suggested Readings in the eleventh edition have been revised and over 60 percent of them have been published since 2009.

PREFACE

18 Preface

INSTRUCTOR SUPPLEMENTS

Supplements are available for adopting instructors to download at www.pearsonglobaleditions.com/ murphy. Registration is simple and gives the instructor immediate access to new titles and new edi- tions. Pearson’s dedicated technical support team is ready to help instructors with the media supple- ments that accompany this text. The instructor should visit support.pearson.com/getsupport for answers to frequently asked questions and for toll-free user support phone numbers. Supplements include the following:

• Instructor’s Manual • PowerPoint Slides

The current edition of Contemporary Logistics has been prepared by Paul Murphy and Mike Knemeyer, and they welcome your comments and suggestions at [email protected] (Paul) and [email protected] (Mike). Paul and Mike gratefully acknowledge the important contributions that the late Donald F. Wood, James C. Johnson, and Daniel L. Wardlow made to earlier editions.

GLObAL EDITION ACKNOWLEDGMENTS

Pearson would like to thank the following people for their work on the content of the Global Edition:

Contributors: Shao Hung Goh, Singapore University of Social Sciences V.G. Venkatesh, Waikato University Abraham Zhang, Auckland University of Technology

Reviewers: Niniet Arvitrida, Sepuluh Nopember Institute of Technology Yash Daultani, Atal Bihari Vajpayee-Indian Institute of Information Technology and Management, Gwalior Shao Hung Goh, Singapore University of Social Sciences Yong Lin, University of Greenwich Donato Masi, University of Warwick

19

P art 1 of Contemporary Logistics introduces the many dimensions of the complex and dynamic subject of logistics. Chapter 1 presents an overview of logistics and introduces you to what logistics is and why it is important. The chapter covers the economic impact of logistics and discusses how

logistics interacts with other functions, such as marketing, in an organization. Chapter 2 provides an overview of the general types of information management systems that are

applicable across each business function, and it provides examples of how these general types of information systems are specifically applied in logistics management. Chapter 2 also explores the Internet's influence on logistics and looks at some of the challenges associated with information technology.

Chapter 3 discusses the strategic financial outcomes influenced by logistics decisions. It uses the strategic profit model to highlight how logistics activities influence the key corporate financial measures of net income, capital employed, and return on capital employed.

Chapter 4 examines organizational and managerial issues in logistics. The chapter begins by looking at organizational structure and organizational design for logistics. Chapter 4 also discusses select managerial issues in logistics such as productivity, theft and pilferage, and the impact of terrorism on logistics systems.

OVERVIEW OF LOGISTICS PART I