Twelfth Edition

Global Edition

Contemporary Logistics
Paul R. Murphy, Jr.

A. Michael Knemeyer
 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

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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
10 Contents

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

Chapter 7 DEMAND MANAGEMENT, ORDER MANAGEMENT,

AND CUSTOMER SERVICE 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
 Contents 11

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

Chapter 9 FACILITY LOCATION 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
12 Contents

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
 Contents 13

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
14 Contents

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-Operating Common Carriers 274
Export Management Companies 274
Export Packers 275
  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