Management of
Business Logistics
Dr. LE THI DIEM CHAU
Dr. TRAN QUYNH LE
Dr. Nguyen Tien Dung
Assoc. Prof. Dr. Le Ngoc Quynh Lam
Industrial Systems Engineering Department
Mechanical Engineering Faculty
Ho Chi Minh City University of Technology (HCMUT)–VNUHCM
CHAPTER 2: Dimensions of Logistics
Tran Quynh Le – [Link]@[Link] 2
Learning Objectives
• Understand the role and importance of logistics in private and public organizations.
• Discuss the impact of logistics on the economy and how effective logistics management
contributes to the vitality of the economy.
• Understand the value-added roles of logistics on both the macro and micro level.
• Explain logistics systems from several perspectives
• Understand the relationship between logistics and the other important functional areas
in a company, including manufacturing, marketing, and finance.
• Discuss the important management activities in the logistics function
• Analyze logistics systems from several different perspectives to meet different
objectives.
• Determine the total costs and understand the cost trade-offs in a logistics system from a
static and dynamic perspective.
Tran Quynh Le – [Link]@[Link] 3
Dimensions of Logistics: Introduction
• Logistics has come a long way since the 1960s.
• The big challenge is to manage the whole logistics system in
such a way that order fulfillment meets or exceeds customer
expectations.
• Focus of this chapter is upon the individual firm’s logistics
system but also recognizing that no logistics system operates in
a vacuum.
Tran Quynh Le – [Link]@[Link] 4
Chapter 2
Figure 2-1
Contemporary Supply Chain Pipeline
Management of Business Logistics, 7th Ed.
Tran Quynh Le – [Link]@[Link] 5
Chapter 2
Logistics in the Economy: A Macro Perspective
Figure 2-2: Logistics Costs as a Percentage of GDP in USA
Tran Quynh Le – [Link]@[Link]
AT Kearney (2021), "Change of Plans," CSCMP's Annual State of Logistics Report, 2021. 6
Logistics in the Economy: A Macro Perspective
• As indicated in Figure 2-2, logistics costs as a percentage of GDP have
declined from 16 percent in 1980, to under 10 percent in 1999.
• Early to mid-1970s saw the figure closer to 20 percent.
• This reflects a serious improvement in the efficiency of logistics systems.
Tran Quynh Le – [Link]@[Link] 7
Chapter 2
Logistics in the Economy: A Macro Perspective
Logistics Costs as a Percentage of GDP for Select Countries/Regions in 2020
AT Kearney (2021), "Change of Plans," CSCMP's Annual State of Logistics Report, 2021.
Tran Quynh Le – [Link]@[Link] 8
Chapter 2
Logistics in the Economy: A Macro Perspective
Logistics Costs as a Percentage of GDP for Select Countries/Regions in 2020
Tran Quynh Le – [Link]@[Link] 9
Logistics in the Economy: A Macro Perspective
Figure: U.S. Logistics Costs --- 1999 Figure: U.S. Logistics Costs --- 2015
AT Kearney (2021), "Change of Plans," CSCMP's Annual State of Logistics Report, 2021
Tran Quynh Le – [Link]@[Link] 10
Logistics in the Economy: A Macro Perspective
Figure: U.S. Logistics Costs --- 1999 Figure: U.S. Logistics Costs --- 2015
Logistics Costs by Function
Source: Adapted from Armstrong & Associates Inc.
Tran Quynh Le – [Link]@[Link] 11
Logistics in the Economy: A Macro Perspective
Figure 2-4: Inventory Sales Ratio
• As indicated in Figure 2-4, the Federal Reserve measure of inventory to sales ratios
from 1991 to 1999 clearly indicate that companies are getting better at managing
inventory.
• Companies have been supporting larger amounts of sales with decreasing amounts of
inventory.
Tran Quynh Le – [Link]@[Link] 12
Chapter 2
Logistics in the Economy: A Macro Perspective
• The two largest cost categories in logistics systems are transportation and
inventory.
• While we will look at this in Chapter 9, motor carriers’ share of total freight
expenditures is $450 billion versus $99 billion for all other carriers.
• The most frequent trade-off in logistics is between transportation and inventory
cost.
Tran Quynh Le – [Link]@[Link] 13
What is Logistics?
• Popular logistics terms:
• Logistics Management
• Business Logistics Management
• Integrated Logistics Management
• Materials Management
• Physical Distribution Management
• Marketing Logistics
• Industrial Logistics
• Distribution
Tran Quynh Le – [Link]@[Link] 14
Chapter 2
What is Logistics?:21st Century View of Logistics
• Business Logistics – supply chain process that plans, implements,
and controls the efficient, effective flow of goods, services, and
related information from the point of origin to the point of use or
consumption in order to meet customer requirements.
• Military Logistics – design and integration of all aspects of support
for the operational capacity of the military forces, and their
equipment to ensure readiness, reliability, and efficiency.
Tran Quynh Le – [Link]@[Link] 15
Chapter 2
What is Logistics?:21st Century View of Logistics
• Event Logistics – network of activities, facilities, and personnel
required to organize, schedule, and deploy the resources for an
event to take place and to efficiently withdraw after the event.
• Service Logistics – acquisition, scheduling, and management of
the facilities/assets, personnel, and materials to support and
sustain a service operation or business.
Tran Quynh Le – [Link]@[Link] 16
Chapter 2
What is Logistics?: Value-Added Role of Logistics
Most commonly referred to in terms of economic utilities:
• Form utility (what)- Hữu dụng về hình thức
• Place utility (where) -Hữu dụng về nơi chốn
• Time utility (when)- Hữu dụng về thời gian
• Possession utility (why)- Hữu dụng về tài sản sở hữu
Also referred to as the seven Rs --- Right product, Right quantity, Right condition,
Right place, Right time, Right customer, and Right cost.
Tran Quynh Le – [Link]@[Link] 17
Chapter 2
Figure 2-5 Fundamental Utility Creation in the
Economy
Tran Quynh Le – [Link]@[Link] 18
Chapter 2
Logistics in the Firm: The Micro Dimension
• Logistics Interfaces with Operations/Manufacturing
✓ Transportation: material, finish good
✓ Inventory: material, finish good
• Logistics Interfaces with Marketing
✓ Order Fulfillment
✓ Inventory management
✓ Communication
• Logistics Interfaces with Other Areas
✓ Finance: information of transportation cost, inventory=>efficient financial
management.
✓ Event Management: arranging transportation and shipping of event materials,
equipment, and promotional items to the event venue.
Tran Quynh Le – [Link]@[Link] 19
Chapter 2
Logistics in the Firm: Logistics Interfaces with
Operations Manufacturing
Length of production runs
• Balance economies of long production runs against increased costs of high
inventories.
Seasonal demand
• Acceptance of seasonal inventory to balance lead production times.
Tran Quynh Le – [Link]@[Link] 20
Chapter 2
Logistics in the Firm: Logistics Interfaces with
Operations/Manufacturing
Supply-side interfaces
• Stocking adequate supplies to ensure uninterrupted production now a
logistics function.
Protective packaging
• Principal purpose is to protect the product from damage.
Foreign & third-party alternatives
• Some logistics functions are being outsourced.
Tran Quynh Le – [Link]@[Link] 21
Chapter 2
Logistics in the Firm: The Micro Dimension
Logistics Interfaces with Marketing: The Marketing Mix – Four Ps
• Price
• Product
• Promotion
• Place
Tran Quynh Le – [Link]@[Link] 22
Chapter 2
Logistics in the Firm: Price
Carrier pricing
• Generally, since the larger the shipment, the cheaper the transportation
rate, shipment sizes should be tailored to the carrier’s vehicle capacity
where possible.
Matching schedules
• Quantity discounts should be tied to carrier quantity discounts.
Volume relationships
• Volumes sold will affect inventory requirements.
Tran Quynh Le – [Link]@[Link] 23
Chapter 2
Logistics in the Firm: Product
Consumer packaging
• Generally, since the size, shape, weight and other physical characteristics
of the product impact on its storage, transportation and handling, the
logistics managers should be included in any decisions regarding these
product traits.
• A minor correction in any of the above could conceivably cost (or save)
millions of dollars in logistical costs.
• Logistics costs are not necessarily paramount, but they need to be
considered in the decision-making process.
Tran Quynh Le – [Link]@[Link] 24
Chapter 2
Logistics in the Firm: Promotion
Push versus pull
• The most important factor is that the logistics division is aware of any
changes in demand patterns so that it can plan for any consequences.
• Pull strategies tend to be more erratic.
• Push strategies tend to more predictable.
Channel competition
• The more popular a product, the easier it is to persuade channel
members to promote your product.
Tran Quynh Le – [Link]@[Link] 25
Chapter 2
Logistics in the Firm: Place
Wholesalers
• Generally, since wholesalers are combining purchases for multiple
retailers, the shipment sizes tend to be larger and the number of
transactions that have to be processed are fewer, with the result that
logistics costs are smaller.
Retailers
• With the exception of very large retailers who act more like
wholesalers, smaller sales are the norm. These generally cost more for
transportation and order processing.
Tran Quynh Le – [Link]@[Link] 26
Chapter 2
Logistics Interfaces with Other Areas
Manufacturing and marketing are probably the two most important internal,
functional interfaces with logistics.
Other important interfaces now include finance and accounting.
• Logistics can have a major impact on return on assets and return on
investment.
• Logistics costs reported by cost systems measure supply chain trade-
offs and performance.
Tran Quynh Le – [Link]@[Link] 27
Chapter 2
Logistics Activities
• Transportation
• Production planning
• Storage
• Purchasing
• Packaging
• Customer service
• Materials handling
• Site location
• Order fulfillment
• Other activities
• Forecasting
Tran Quynh Le – [Link]@[Link] 28
Chapter 2
On the Line: Toyota Distribution
• Moves more than 8 million parts and accessories every month.
• Computer modeling re-designed the 30 year old distribution network.
• Software looked first at Lexus Division and then at the entire network.
• Resulted in two DCs, one in California, another in Kentucky, feeding
nine smaller DCs located around the country.
• The new network both improved customer service and lowered costs.
Tran Quynh Le – [Link]@[Link] 29
Chapter 2
Approaches to Analyzing Logistics Systems: Materials
Management v. Physical Distribution
Frequently the movement and storage of raw materials is far different
from the movement and storage of finished goods.
Four different classifications of logistics systems
• Balanced system - e.g., consumer products
• Heavy inbound - e.g., aircraft, construction
• Heavy outbound - e.g., chemicals
• Reverse systems - e.g., returnable products
Tran Quynh Le – [Link]@[Link] 30
Chapter 2
Approaches to Analyzing Logistics Systems
1. Cost Centers
• Treating logistics activities as cost centers makes it easier to study cost
trade-offs between the centers. (see Tables 2-2 and 2-3)
2. Nodes versus Links
• Nodes are spatial points (warehouses, plants, etc.);
• Links are the transportation network (rail, motor, air, pipe and water).
(see Figure 2-6)
3. Logistics Channel
• The network of intermediaries involved in the logistics system. (see
Figures 2-7, 2-8, and 2-9)
Tran Quynh Le – [Link]@[Link] 31
Chapter 2
Table 2-2 Analysis of Total Logistics Cost with a Change to
Higher Cost Mode of Transport
Cost Centers Rail Motor
Transportation $ 3.00 $ 4.20
Inventory 5.00 3.75
Packaging 4.50 3.20
Warehousing 1.50 .75
Cost of Lost Sales 2.00 1.00
Total Cost $ 15.00 $ 13.00
Tran Quynh Le – [Link]@[Link] 32
Chapter 2
Table 2-3 Analysis of Total Logistics Cost with a
Change to More Warehouses
System 1 System 2
Cost Centers
Three Warehouses Five Warehouses
Transportation $ 850,000 $ 500,000
Inventory 1,500,000 2,000,000
Warehousing 600,000 1,000,000
Cost of Lost Sales 350,000 100,000
Total Cost $ 3,300,000 $ 3,600,000
Tran Quynh Le – [Link]@[Link] 33
Chapter 2
Figure 2-6 Nodes and Links in a Logistics
System
Tran Quynh Le – [Link]@[Link] 34
Chapter 2
Figure 2-7
A Simple Logistics Channel
Tran Quynh Le – [Link]@[Link] 35
Chapter 2
Figure 2-8
A Multi-Echelon Logistics Channel
Tran Quynh Le – [Link]@[Link] 36
Chapter 2
Figure 2-9: A Complex Logistics Channel
Tran Quynh Le – [Link]@[Link] 37
Chapter 2
Logistics and Systems Analysis
Cost Perspective
• Keep in mind that the most efficient systems are not always comprised of
each system component operating at its lowest possible cost.
• The critical concern is to have the entire system operating at its lowest total
cost.
Tran Quynh Le – [Link]@[Link] 38
Chapter 2
Logistics and Systems Analysis
Level of Optimality
• There are often constraints working which result in sub-optimal outcomes.
• Additionally, logistics systems must work in harmony with marketing,
finance, production, etc.--- this may also result in sub-optimal logistics
performance.
• See Figure 2-10 on next slide.
Tran Quynh Le – [Link]@[Link] 39
Chapter 2
Figure 2-10 Levels of Optimality in Economic
Environments
Tran Quynh Le – [Link]@[Link] 40
Chapter 2
Techniques of Logistics System Analysis: Short-
Run/Static Analysis
This technique is illustrated in Table 2-4.
Comprised a matrix-like table which presents each of the logistics and other
relevant costs for two or more alternative logistics systems.
The major downside to the model is that it presents a solution which is not
necessarily the correct one at all possible volume levels.
Examine the data presented in Table 2-4.
Tran Quynh Le – [Link]@[Link] 41
Chapter 2
Table 2-4 Static Analysis of C & B Chemical Company
(50,000 pounds of output)
Tran Quynh Le – [Link]@[Link] 42
Chapter 2
Techniques of Logistics System Analysis: Long-
Run/Dynamic Analysis
This technique is illustrated in Figure 2-11.
Comprised a graph of the fixed and variable costs of at least two alternative
logistics systems.
The graph may have at least one indifference point, but may have multiple points
of indifference.
Examine the data presented in Figure 2-11.
Tran Quynh Le – [Link]@[Link] 43
Chapter 2
Figure 2-11
Dynamic Analysis
Tran Quynh Le – [Link]@[Link] 44
Chapter 2
Dynamic Analysis
System 1
Total Cost = Fixed Costs + Variable Cost/unit x number of units
y = $4200 + 0.0315x
System 2
Total Cost = Fixed Costs + Variable Cost/unit x number of units
y = $4800 + 0.0230x
Trade-off Point
System 1 Total Costs = System 2 Total Costs
$4200 + 0.0315x = $4800 + 0.0230x
0.0085x = $600
x = 70,588 pounds
Tran Quynh Le – [Link]@[Link] 45
Chapter 2
Logistics in the Firm: Factors Affecting the Cost and
Importance of Logistics
Competitive Relationships
• Inventory/order cycle length – see Figure 2-12.
• Inventory/lost sales effect – see Figure 2-13.
• Transportation/lost sales effect - see Figure 2-14.
Product Relationships
• Product dollar value/logistics costs – see Figure 2-15.
• Weight density/logistics costs – see Figure 2-16.
• Susceptibility to loss & damage/logistics costs – see Figure 2-17.
Spatial Relationships
• Examine Figure 2-18.
Tran Quynh Le – [Link]@[Link] 46
Chapter 2
Figure 2-12 The Relationship between Required Inventory
and Order Cycle Length from a Customer Perspective
Tran Quynh Le – [Link]@[Link] 47
Chapter 2
Figure 2-13 The General Relationship of the Cost of
Lost Sales to Inventory Cost
Tran Quynh Le – [Link]@[Link] 48
Chapter 2
Figure 2-14
The General Relationship of the Cost of Lost Sales to
Transportation Cost
Tran Quynh Le – [Link]@[Link] 49
Chapter 2
Figure 2-15
The General Relationship of Product Dollar Value to Various
Logistics Costs
Tran Quynh Le – [Link]@[Link] 50
Chapter 2
Figure 2-16 The General Relationship of Product
Weight Density to Logistics Costs
Tran Quynh Le – [Link]@[Link] 51
Chapter 2
Figure 2-17 The General Relationship of Product
Susceptibility to Loss and Damage to Logistics Costs
Tran Quynh Le – [Link]@[Link] 52
Chapter 2
Figure 2-18
Logistics and Spatial Relations
Tran Quynh Le – [Link]@[Link] 53
End of Chapter 2 Slides
Dimensions of Logistics
