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Contemporary Logistics , 12th Edition Solution Manual

Master complex problems with Contemporary Logistics , 12th Edition Solution Manual, your go-to guide for step-by-step solutions.

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    PART I INTRODUCTION Contemporary Logistics , 12 th edit ion is a student-oriented text that is designed for an introductory course in logistics. Having said this, there are myriad ways to teach an introductory logistics course and the appropriate pedagogy may reflect a variety of factors. A classroom-based course with 30 students might be taught far differently from a classroom-based course with 250 students. Similarly, an introductory logistics course delivered online will differ in style from classroom-based instruction. An important characteristic of logistics is that it is a real-world discipline with increasing organizational and interorganizational visibility. Therefore, if feasible, the use of guest speakers and field trips to a warehousing facility or freight transportation terminal are especially recommended. With respect to guest speakers, students can learn a great deal when they meet and discuss logistics with managers who work with its challenges and opportunities on a daily basis. Guest speakers can include logistics or supply chain managers, government officials, and third-party personnel. Each can provide a unique and valuable perspective. Field trips can also be quite valuable; t hey can turn a “good” student experience into a truly “memorable” one. Having said this, the location of the university likely impacts the potential viability of field trips. We, the authors, are fortunate enough to be located in metropolitan areas that offer a plethora of opportunities for field trips. As such, our students have been able to visit water ports, airports, railroad container yards, motor carrier terminals, cross-dock facilities, warehouses, and distribution centers. Field trips have the capability to turn abstract material into something with which students can more readily identify. With respect to assigning chapters for a semester-length course, the instructor might try to cover one chapter and one case per week. However, for a quarter-length course, the instructor might assign three chapters and three cases every two weeks. Other course lengths, such as five- or six-week sessions, the instructor should assign no more than three chapters and two cases per week. The remainder of this Instructor’s Solutions Manual is organized in the following manner: For each chapter, Part II presents answers to the end-of-chapter questions, and Part III provides suggested answers for the end-of-chapter case. Through the years, the end-of-chapter cases have generated a great deal of feedback from previous adopters. W e’ll spend several paragraphs discussing case -related issues. It’s important to recognize that the cases vary in length, level of difficulty, and type of problem addressed, and some students may struggle with them. Instructors should develop their own techniques for using the cases; many can serve as the basis for detailed and lengthy classroom discussions. Many of the cases can be used

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    for examination purposes, although it’s important to note that some questions have more than one correct answer. Previous adopters of our text have asked about an ideal length for written answers to the various case questions. We hesitate to offer such guidance, in part, because the ideal length depends on a variety of factors. For example, if the written answers are a type of extra credit that students can earn, then shorter answers are likely preferable to longer ones. Alternatively, if the cases are used for examination purposes, then longer answers might be preferable to shorter ones. Cases must be carefully read because key facts may be hidden. Instructors should clearly indicate how much additional data, not in the text of the original case, could be incorporated into each case analysis and its answers. For example, a student who has worked in a warehouse may attempt to reference her or his own experiences in related situations. Any comments, queries, and suggestions that you have concerning this I nstructor’s Solutions Manual can be addressed to: Professor Paul R. Murphy Boler School of Business John Carroll University University Heights, OH 44118 216.397.4532 (office telephone) drmurphy@jcu.edu

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    1 PART II ANSWERS TO END - OF - CHAPTER QUESTIONS CHAPTER 1: AN OVERVIEW OF LOGISTICS 1-1. Did it surprise you that logistics has such an important economic impact? Why or why not? The answer to this question likely depends on the student’s prior exposure to logistics. A typical student in an undergraduate, introductory logistics course likely has had limited exposure to and knowledge about logistics and thus might be unaware as to logistics’ economic impact. As such, a student might be pleasantly surprised to learn that logistics is important for a country’s economic growth and development. 1-2. Distinguish between possession, form, time, and place utility. Possession utility refers to the value or usefulness that comes from a customer being able to take possession of a product and can be influenced by the relevant payment terms. Form utility refers to a product’s being in a form that (1) can be used by the customer and (2) is of value to the customer. Time utility refers to having products available when they are needed by customers while place utility refers to having products available where they are needed by customers. 1-3. How does logistics contribute to time and place utility? Logistics contributes to time utility by recognizing that different products have different sensitivities to time. For example, a three-day-late delivery of bananas likely has more serious consequences than a three-day-late delivery of a box of pencils. As for place utility, logistics facilitates the movement of products from points of lesser value to points of greater value. 1-4. How can a particular logistics system be effective but not efficient? Effectiveness can be thought of as “how well a company does what it says it’s going to do;” efficiency focuses on how well (or poorly) company resources are used to achi eve what a company promises it can do. There are a multitude of examples that would illustrate an effective, but inefficient, logistics system. For example, some companies routinely use premium and expedited methods of transportation — which increase transportation costs — to meet customer delivery requirements. As such, the logistics system could be considered effective (meeting delivery deadlines) but perhaps not efficient (increased transportation costs).

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    2 1-5. Explain the significance of the fact that the purpose of logistics is to meet customer requirements. One reason for this significance is that meeting customer requirements means that companies must know — rather than assume — customer needs and wants. This knowledge is facilitated by communication between companies and their customers. Even today, some companies are hesitant to communicate with customers. In addition, meeting customer requirements means that a one-size-fits-all approach to logistics will result in some customers being overserved and others being underserved. As a result, companies should consider a tailored logistics approach, where groups of customers who have similar logistical needs and wants are provided with the appropriate logistical services. 1-6. Explain how an understanding of logistics management could be relevant to your favorite charitable organization. There are any number of examples that can be used. The textbook mentions the Food Bank of New York City; from a logistical perspective, the Food Bank of New York City is responsible for collecting, sorting, repacking, and distributing food from its 90,000 square-foot warehouse. 1-7. How has a reduction in economic regulation contributed to the increased importance of logistics? Reductions in economic regulation in the United States allowed individual carriers flexibility in pricing and service, and this flexibility was important to logistics for several reasons. First, it provided companies with the capability to implement the tailored logistics approach in the sense that companies could specify different logistics service levels and prices could be adjusted accordingly. Second, the increased pricing flexibility allowed large buyers of transportation services to reduce their transportation costs by leveraging large amounts of freight with a limited number of carriers. 1-8. Discuss the logistical implications associated with the increased emphasis on the convenience associated with a family’s shopping experience. This convenience is manifested in various ways to include extended store hours, home delivery of purchased items, and ready-to-eat/ready-to-cook foods. From a logistics perspective, extended store hours force retailers to address issues such as the optimal delivery times for replenishment trucks and when to replenish merchandise. A logistical challenge with home delivery is the coordination of delivery times with the purchaser’s ability to receive the item(s). Finally, ready-to-eat-ready-to-cook foods have different packaging requirements, and food processors continue to experiment with packaging alternatives that will extend the shelf life of ready-to-cook foods.

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    3 1-9. What are some ways in which technology has impacted logistics management? Technological advances have influenced channel design by allowing companies to offer an alternate distribution channel (or alternate distribution channels) to already existing channels. Technological advances can also improve the productivity of the order picking process, which traditionally involved paper pick tickets. Today, by contrast, order picking can utilize radio frequency devices, voice-directed picking, and robotic picking. Shipment tracking provides another example of how technological advances have impacted logistics management. Global positioning systems can provide real-time location information about a shipment, as well as provide information about a vehic le’s temperature, humidity, and vibrations. 1-10. Explain how big-box retailers are logistical trendsetters. The logistics practices of big-box retailers are often viewed as barometers for emerging logistics trends. Big-box retailers have also been trendsetters with respect to environmental and social issues in logistics. As an example, one of Best Buy’s sustainability goals for 2020 is to recycle one billion pounds of consumer goods. 1-11. What is the systems approach to problem solving? How is this concept applicable to logistics management? The systems approach to problem solving suggests that a company’s objectives can be realized by recognizing the mutual interdependence of its major functional areas, such as marketing, production, finance, and logistics. As such, decisions made by one functional area can have important implications for the other functional areas. With respect to logistics, the systems approach suggests that one should recognize the mutual interdependence of the various activities that constitute the logistics function. Thus, a transportation decision may impact inventory, warehousing, and packaging, among others. 1-12. Distinguish between materials management and physical distribution. Materials management refers to the movement and storage of materials into a firm while physical distribution refers to the storage of finished product and movement to the customer. 1-13. Explain what is meant by the total cost approach to logistics. The total cost approach to logistics is built on the premise that all relevant activities in moving and storing products should be considered as a whole (i.e., their total cost) and not individually. Use of the total cost approach requires an understanding of cost trade- offs. In other words, changes to one logistics activity cause some costs to increase and others to decrease. The key to the total cost approach is that all relevant cost items are considered simultaneously when making a decision. The objective is to find the approach with the lowest total cost that supports the organization’s customer service requirements.

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    4 1-14. Define what is meant by a cost trade-off. Do you believe that this concept is workable? Why or why not? A cost trade-off acknowledges that changing patterns or activities of distribution will result in some costs increasing and other costs decreasing. The net effect, however, should be an overall cost decrease for providing a given level of customer service. The remainder of this question asks for the student ’s opinion about the workability of this concept. Although nearly any answer is acceptable, those students who believe that cost trade-offs are unworkable might have difficulty with many of the concepts presented throughout the text. 1-15. What are several areas in which finance and logistics might interface? The finance department is often in charge of capital budgeting decisions that would affect logistics, such as materials handling and packaging equipment. Another potential area of finance and logistics interface is with respect to inventory; finance tends to view inventory from a dollar perspective while logistics tends to be more concerned with the number of units of inventory. This dichotomy is highlighted by the concept of obsolescence, which reduces the monetary value of inventory by a certain amount per period of time — even though the actual quantity of inventory may be unchanged. 1-16. Discuss the postponement concept as it relates to the production and logistics interface. Postponement refers to the delay of value-added activities such as assembly, production, and packaging until the latest possible time. Some value-added activities, such as case packing and case labeling, that were traditionally performed at a production plant are now performed in warehousing facilities. As a result, warehousing facilities are adding new types of equipment and being configured differently to allow specific value-added activities to take place. 1-17. Define what is meant by a landed cost and explain its relevance for pricing decisions. Landed cost refers to the price of a product at its source plus transportation costs to its destination. On the one hand, a selling price that is based on a product’s landed cost allows the seller to offer “free” delivery of the product to prospective customers, because the transportation costs associated with delivery are captured in the landed cost. On the other hand, a selling price that is based on a product’s landed cost could result in a substantial increase in a product’s selling price, and a higher selling price tends to decrease buyer demand for most products.

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    5 1-18. Discuss several possible interfaces between marketing and logistics in terms of product decisions. One interface involves the marked increase in product offerings; marketers like this increase because it allows for more customer choice, but these additional choices create logistical challenges in terms of identification, storage, and tracking. Another interface concerns the amount of a particular item (SKU) to hold. Marketers prefer to carry higher quantities for particular items because this reduces the likelihood of stockouts; however, from a logistics perspective, higher quantities of inventory necessitate additional storage space and increase inventory carrying costs. Students can also discuss product design and sustainable products. 1-19. Briefly discuss the ownership, negotiations, financing, promotion, and logistics channels. The ownership channel covers movement of the title to the goods; the goods themselves might not be physically present or even exist. The negotiations channel is the one in which buy and sell agreements are reached and can include telephone, email, and electronic data interchange, among others. The financing channel handles payment for goods and the company’s credit, while the promotions channel is concerned with promoting a new or an existing product. Finally, the logistics channel handles the physical flow of the product. 1-20. Discuss five activities that might be part of a company’s logistics department. The chapter presents, and briefly describes, 12 separate activities that might be part of a company’s logistics department. Any 5 of the 12 activities are acceptable for students to discuss.

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    6 PART III CASE SOLUTIONS CASE 1. 1 KIDDIELAND AND THE SUPER GYM Question 1: List and discuss the advantages and disadvantages of purchasing a two- wheel trailer for each store to use for delivering the Super Gyms. Because the stores are in a number of states, one would have to check the motor vehicle and insurance requirements of each state. An advantage is that deliveries would be under the control of each store. A disadvantage may be labor costs, especially if two workers are needed to make the delivery. Also, once at the site, the store’s employees might be asked to assist in the assembly of the gym. Question 2 : List and discuss the advantages and disadvantages of having local trucking companies deliver the Super Gym from the retail stores to the customers. There are probably no disadvantages to using a local trucking company to make the delivery. However, a decision about how to handle the trucking firm’s charges would have to be made. Question 3 : List and discuss the advantages and disadvantages of stocking Super Gyms at the distribution centers and then having the truck that makes deliveries from the distribution center to the retail stores also make deliveries of Super Gyms to individual customers. One problem focuses on the size of equipment — large tractor – trailer combinations are not suited to making home deliveries. The actual costs to KiddieLand of using trucks this way might be very high. There might be some savings in inventory costs by stocking the gyms at the distribution center rather than at each retail store. Question 4 : List and discuss the advantages and disadvantages of charging customers for home delivery if they are unable to carry home the Super Gym. Perhaps the one advantage to charging for home delivery is that KiddieLand recoups the associated costs. However, because charged home delivery will add to the customer’s total purchase price, there could be a reduction in demand or this could generate customer dissatisfaction. Question 5 : Which alternative would you prefer? Why? The student can choose any alternative. However, the text of the case seems to prefer the use of a local trucking company and charging the customer for home delivery.

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    7 Question 6 : Draft a brief statement (catalog copy) to be inserted in the firm’s spring – summer brochure that clearly explains to potential customers the policy that is recommended in Question 5. The brochure is intended for use in all stores, so whatever copy is prepared must be widely applicable. A sentence might read: “The Super Gym comes unassemb led and is packed in three boxes: One weighs ____ pounds and is ____ inches by ____ inches by ____ inches; the second weighs ____ pounds and is ____ inches by ____ inches by ____ inches; and the third weighs ____ pounds and is ____ inches by ____ inches by ____ inches. Assembly requires the following tools: ____; ____; ____; and ____.” Question 7 : At the first meeting, A.J. asked about SUVs, but there was no further mention of them. How would you follow up on his query? Anyone in the group could answer that SUVs have more carrying capacity than autos and many also have trailer hitches. SUVs are sufficiently popular — particularly in the United States — such that many buyers of the Super Gym equipment would either have a SUV or be able to borrow one.

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    1 PART II ANSWERS TO END - OF - CHAPTER QUESTIONS CHAPTER 2 : LOGISTICS AND INFORMATION TECHNOLOGY 2-1. In what ways can information be helpful in logistics and supply chain management? There are a number of ways in which information can be helpful in logistics and supply- chain management. These include, but are not limited to, greater knowledge and visibility across the supply chain, which makes it possible to replace inventory with information; greater awareness of customer demand via point-of-sale data, which can help improve planning and reduce variability in the supply chain; better coordination of manufacturing, marketing, and distribution through enterprise resource planning systems; and streamlined order processing and reduced lead times enabled by coordinated logistics information systems. 2-2. List the six general types of information systems, and give one logistics application for each one that you’ve named. One general type is office automation systems, and a logistics application could be spreadsheets that calculate optimal order quantities. A second is communication systems; one logistics application involves global positioning systems. Transaction processing systems are a third general type, with point-of-sale systems being a logistics application. Management and executive information systems are a fourth general type of information systems; a logistics application involves logistics information systems. A fifth general type of information system is decision support systems, with warehouse management systems being a logistics-related application. The sixth, and final, general type of information system is the enterprise system, represented by logistics modules of enterprise resource planning systems. 2-3. Do you view the spreadsheet as the most relevant general software package for logisticians? Why or why not? The text indicates that spreadsheets are indeed the most relevant general software package for logisticians. Today’s spreadsheets have developed to the point that they are able to solve for basic logistics optimization models. These spreadsheet-based optimization models provide a method for logisticians to conduct a variety of what-if analysis in support of their decision making.

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    2 2-4. How can communication systems facilitate logistics management in the aftermath of situations such as terrorist attacks and natural disasters? One example involves the substitution of information for inventory. The total shutdown of the U.S. aviation system following the terrorist attacks of September 11, 2001 caused many air shipments to be diverted to trucks — thus adding to delivery times. Airfreight companies such as FedEx used their communication systems to inform customers that their shipments were being diverted and when the shipments would be arriving. 2-5. What are some of the advances in telecommunications technology that have occurred since this book was first published? How do these advances help logistics managers? Advances in telecommunications technology since the first edition of this book include fax machines, personal computers / tablets, cell phones / smart phones, and wireless communication. One example of wireless communication involves global positioning systems (GPS), and GPS systems can help logisticians to increase productivity, reduce operating costs, and improve customer relations. Tablets, such as an iPad, can be used to improve the productivity of warehouse workers, improve pick accuracy, reduce paperwork, and increase asset utilization. 2-6. Discuss how global positioning systems have become quite valuable in transportation management. Global positioning systems (GPS) have become quite valuable in transportation management because of high fuel costs and the relentless pressure to improve efficiency and productivity. Indeed, transportation companies that have implemented GPS have reported an increase in worker productivity, reduced operating costs, and improved customer relations. One study found that GPS implementation allows transportation companies to recapture nearly one hour per day of their drivers’ time, which translates into labor savings of approximately $5,500 per employee. 2-7. Discuss the benefits and drawbacks of EDI. Potential benefits to EDI include reductions in document preparation and processing time, inventory carrying costs, personnel costs, information float, shipping errors, returned goods, lead times, order cycle times, and ordering costs. In addition, EDI may lead to increases in cash flow, billing accuracy, productivity, and customer satisfaction. Potential drawbacks include a lack of awareness of its benefits, high setup costs, lack of standard formats, and incompatibility of computer hardware and software.

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    3 2-8. Discuss the relationship between automatic identification technologies and point-of- sale systems. Automatic identification systems are an essential component in point-of-sale (POS) systems; the idea behind POS systems is to provide data and enhance managerial decision making, and automatic identification technologies can be very helpful in so doing. Operationally, POS systems involve scanning Universal Product Code (UPC) labels, either by passing the product over an optical scanner or recording it with a handheld scanner. 2-9. Why are some companies hesitant to adopt RFID technology? A major drawback to RFID adoption involves the costs of installing the related hardware and software, which can range from $100,000 for smaller companies to $20 million for larger companies. Another drawback to RFID adoption involves privacy concerns, such as the inappropriate use of the technology. Yet another drawback is that data accuracy can be lower items with high moisture content, such as fruits and vegetables. 2-10. Discuss the importance of timely and accurate information to a logistics information system. Timely information can involve several dimensions. For example, “timely” can refer to the up-to- date status of information, which can be influenced by a company’s collection and analyses procedures. Although such information should ideally involve internal and external sources, internal sources of logistics information are not always as plentiful as would be desired. “Timely” can also refer to how quickly a manager receives the requested information; this is influenced by a company’s retrieval and dissemina tion procedures. Faster and more powerful technology has helped to reduce retrieval and dissemination times. Accurate information may reflect the effectiveness and efficiency of a company’s logistics information system. This means that a logistics information system needs to consider the nature and quality of the relevant data. For example, although the Internet can be a very cheap source of external information, the validity of some Internet information is questionable. 2-11. What benefits are associated with transportation management and warehouse management systems? Organizations that have implemented transportation management systems have reported decreased empty vehicle miles, reduced fuel consumption, and reduced transportation expenditures. Potential benefits to warehouse management systems include dramatic reductions in data entry errors as well as dramatic reductions in the travel distances for order picking. Other benefits to warehouse management systems include reduced operating expenses, fewer stockouts, increased inventory accuracy, and improved service to customers.

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    4 2-12. What is data mining? How might it be used in logistics? Data mining can be defined as the application of mathematical tools to large bodies of data in order to extract correlations and rules; it uses sophisticated quantitative techniques to find “hidden” patterns in large volumes of data. Data mining has allowed Walmart to discover that when hurricanes are projected to hit the state of Florida, there is a dramatic increase in demand for beer and Kellogg’s Pop -Tarts ® . As a result, Walmart makes sure that additional stocks of these products are available when hurricanes are projected to hit Florida. 2-13. Discuss advantages and disadvantages of enterprise resource planning systems. ERP systems are attractive because they offer the potential for lower costs and both increased productivity and customer satisfaction. In theory, ERP systems provide an opportunity for all functional areas within a firm to access and analyze a common database. This should allow for enterprise-wide coordination of relevant business processes. One of the most frequently mentioned shortcomings involves the costs of installation, and companies often fail to consider relevant costs such as upgraded hardware and employee training. Moreover, ERP systems implementation can be quite time-consuming; actual implementation times may be two to four times longer than vendor estimates. A third shortcoming of ERP systems is that they initially lacked strong application-specific logistical capabilities such as transportation or warehouse management systems. 2-14. Refer back to the logistical activities listed in Chapter 1; pick two that you ’ re interested in and research how they have been influenced by the Internet. Are you surprised by your findings? Why or why not? Many acceptable answers are possible for this question. 2-15. From a logistical perspective, what are some of the differences between online and in-store retailing? For one, the orders associated with online shopping tend to be more plentiful and in much smaller quantities that those associated with in-store retailing. As such, online retailing requires an order management system capable of handling high volumes of orders. Because of smaller order quantities, online shopping is characterized by open-case, rather than full-case picking; open-case picking is facilitated by materials handling equipment such as totes and push carts. In addition, the smaller order quantities occasioned by online retailing tend to favor transport companies with extensive delivery networks and expertise in parcel shipments.

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    5 2-16. Why is a “one size fits all” logistics strategy not likely to facilitate effective or efficient online shopping? Rather than “one size fits all,” a variety of logistics strategies might need to be applied to online shopping and it’s important to recognize the potential trade -offs with these strategies. For example, one way of addressing the last-mile issue of customer unavailability would be to install some type of receptacle for the product at the customer’s residence. However, these receptacles might not be feasible for large items (e.g., refrigerators), perishable items (e.g., certain types of food), or extremely valuable items (e.g., jewelry). 2-17. Discuss the advantages and disadvantages of cloud computing. Its pay-per-use formula allows customers to avoid high capital costs and thus becomes a viable option for many companies that could not afford to purchase, install, and maintain application-specific software. Other advantages include faster and less costly installation, a smaller information technology staff, and regular upgrades and updates from the software provider. One drawback is that the regular upgrades and updates can be too frequent and numerous, and customers struggle to keep up with them. There are also limited opportunities for customization. Because the Internet is the primary transaction medium, security issues such as data protection can be a concern also. 2-18. Discuss the benefits and drawbacks to electronic procurement. Four types of benefits — transactional, compliance, management information, and price — are associated with electronic procurement. As an example, transactional benefits measure the transactional benefits, such as a reduced invoice-to-payment time, that come from e-procurement. One concern with e-procurement involves the security of information that is being transmitted; there is a risk that sensitive or proprietary information could end up in the wrong hands. Another concern is that e-procurement can be impersonal in the sense that human interaction is replaced by computer transactions. 2-19. What is the Internet of things (IoT)? How can it potentially affect logistics management? The Internet of things (IoT) refers to the sensors and data-communication technology that is built into physical objects that enables them to be tracked and controlled over the Internet. The IoT can provide valuable information and business insights that can be used by logistics managers to reduce costs and improve service. For example, an IoT- compatible forklift could alert a warehouse manager to potential mechanical or safety issues prior to them occurring. The forklift could also provide enhanced visibility about inventory in the warehouse.

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    6 2-20. What are some of the macro-level information technology challenges that managers face? The text identifies three macro-level information technology challenges, the first of which is that information technology is a tool that can help managers to address organizational problems and not a panacea for them. Security is a second macro-level concern , and it’s important that websites be as secure as possible from computer viruses or computer hackers. A third information technology challenge involves human resource issues; employee resistance has been identified as a major cause of information technology implementation failure.

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    7 PART IV CASE SOLUTIONS CASE 2 - 1 TO INVEST OR NOT INVEST? THAT IS THE QUESTION Question 1 : Should the team take into account any other costs or benefits from implementing the WMS? If so, what are they? The team is currently focused on issues surrounding the costs of the WMS, the potential benefits of the WMS, and implementation risks. Beyond these issues, students should be able to identify a variety of additional considerations that could be helpful when examining WMS implementation. For example, it could be helpful to dig deeper into the functionality that would be provided by the system and how this functionality is an improvement over the existing situation. The long-term flexibility and expandability of the WMS is another area that could be considered. As the company grows, can the WMS adapt to a changing environment in terms of volume, locations using the system, or diversity of products? Another potential consideration would be an analysis of the track record of the potential WMS provider. For example, is the provider committed to focusing on logistics solutions? Looking beyond the initial purchase decision to consider long-term maintenance of the WMS could be beneficial. It might also be helpful to gain user insights related to the WMS. The voice of the warehouse employee should be brought into the discussion to ensure no issues are missed. Question 2 : Should the team take into account any other costs or benefits from implementing the TMS? If so, what are they? Initial responses to the TMS question may be similar to the ones provided to the preceding WMS question. Instructors should push for additional insights into transportation-specific functionality as opposed to warehousing-specific functionality. For example, whether the TMS is flexible enough to provide access to multimodal transportation planning and execution could be considered. Can the system integrate with external trading partners? In addition, given the dynamic nature of regulatory rules related to product movement, the capability of the TMS to adapt to changes in in the global shipping environment might be considered. As was the case with the WMS, the voice of the transportation planners and providers using the system should be brought into consideration. Question 3 : What are the advantages and disadvantages of implementing both technologies simultaneously? Although these two technologies have traditionally been implemented separately by different groups, the potential integration could lead to improved coordination and planning across these two critical logistics activities. Because each technology supports a part of the order cycle, coordinating implementation could offer advantages in terms of enhanced delivery performance, reduced coordination costs, and consistency of data.

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    8 Potential disadvantages include increased complexity of implementation, difficulties in finding solutions that integrate well across the two areas and, ensuring both sets of users are happy with a combined solution. Question 4 : If both technologies are adopted, what changes, if any, should occur in the relationships between Pallotta’s firm and his suppliers of components? His transportation providers? Discuss. It is important for students to understand that the decision to implement a WMS or a TMS should involve clear communication with other members of one’s supply chain. As the company undertakes these implementations, it will be critical to clearly set expectations with affected suppliers and transportation providers. How will the ways the companies interact be affected by the projects? What is the plan for implementation, and how might suppliers and transportation providers support any issues during implementation that could hurt customer relationships? In addition, providing regular updates on the status of the implementation can reduce any potential negative effects on their relationships with these parties as the implementation occurs. Question 5 : What would you recommend the team decide to do? Why? Instructors may want to start with a general vote as to what the students would suggest the firm does in this situation. Students typically have varying opinions on what is best to do. Some will focus on the idea of starting where the firm is currently feeling the pressure (WMS) and then move on to the TMS implementation. Others will focus on the simplicity of implementing separately and focus on financial benefit by suggesting the firm start with the TMS and then proceed with WMS implementation. Another set of students will focus on the advantages of coordinating the implementations and point out that while the risks and benefits aren’t as clear, the intangible benefits of coordinating would be the best solution. These students will refer back to the discussion of Question 3. Instructors should push the students to provide clarity around their decision-making process. The discussion provides an opportunity for instructors to discuss the need for both financial and nonfinancial considerations of these types of decisions.

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    1 PART II ANSWERS TO END - OF - CHAPTER QUESTIONS CHAPTER 3: STRATEGIC AND FINANCIAL LOGISTICS 3-1. Discuss the differences between corporate level, business unit level, and functional level strategies. Corporate-level strategy is focused on determining the goals for the company, the types of businesses in which the company should compete, and the way the company will be managed. Strategy at a business unit level is primarily focused on the products and services provided to customers and on finding ways to develop and maintain a sustainable competitive advantage with these customers. The functional level strategies are related to business activities that support the achievement of the higher-level goals set by the business unit and corporation. 3-2. Discuss the cost leadership, differentiation advantage, and focus strategies. A cost leadership strategy requires an organization to pursue activities that will enable it to become a low-cost producer in an industry for a given level of quality. A differentiation strategy entails an organization developing a product or service that offers unique attributes that customers value and perceive to be distinct from competitor offerings. A focus strategy concentrates an organization’s effort on a narrowly defined market to achieve either a cost leadership or differentiation strategy. 3-3. What are the two key components of an income statement? Revenues and expenses are the two key components of an income statement. Revenues (sales) provide a dollar value of all the products and services an organization provides to its customers during a given period of time. Expenses (costs) provide a dollar value for the costs incurred in generating services during a given period of time. 3-4. What are the three key components of a balance sheet? Assets, liabilities, and owners’ equity are the three key components of the balance sheet. Assets are what a company owns and come in two temporal forms: current assets and long-term assets. Liabilities are the financial obligations a company owes to another party. Liabilities also come in two temporal forms: current liabilities and long-term liabilities. Owners’ equity is the difference between what a company owns and what it owes at any particular time.

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    2 3-5. What are the three key components of the statement of cash flows? The statement of cash flows contains information from the income statement and balance sheet, but is formatted to highlight the sources and uses of cash in an organization’s operations, and in investing and financing activities. Accounts payable, accounts receivable, revenue growth, gross margin, sales — general and administration, capital expenditures, and inventory are all areas that affect cash flows within an organization. 3-6. What are the key components of the Strategic Profit Model? How can it be used to examine the effect of logistics decisions? Briefly, the Strategic Profit Model can be drilled down to Net Profit Margin x Asset Turnover = Return on Assets. Return on assets indicates what percentage of every dollar invested in the business is ultimately returned to the organization as profit. Net profit margin measures the proportion of each sales dollar that is kept as profit, and asset turnover measures the efficiency of the capital employed to generate sales. The Strategic Profit Model has the advantage of assisting logistics managers in the evaluation of cash flows and asset utilization decisions. Suppose, for example, that a logistics manager is able to eliminate some unnecessary inventory. This would reduce the value of current assets as well as total asset value. As a result, sales divided by total assets — asset turnover — would be higher, as would the organization’s return on assets. 3-7. Discuss how logistics decisions affect net profit margin in an organization. The most relevant net profit margin considerations for logistics managers are sales, costs of goods sold, and total expenses. A primary influence of logistics activities on sales would be through the improvement of customer service. Logistics can impact costs of goods sold through procurement activities or through any logistics-related efficiency improvement that enables labor to be more productive. Expenses can include logistics- related activities such as transportation, warehousing, and inventory. A logistics decision to reduce the number of less-than-truckload shipments through a consolidation strategy would show up in the transportation costs category that is part of variable expenses. 3-8. Discuss how logistics decisions affect asset turnover in an organization. Two examples involve inventory and accounts receivable. With respect to inventory, a retailer’s decision to move to a system of vendor-managed inventory, where a supplier of a product maintains control and ownership of an inventory item, can result in a significant reduction of the amount of inventory on an organization’s balance sheet. As for accounts receivable, a decision to invest in an EDI system that would increase invoice accuracy should enable customer payments to be received in a more timely fashion.

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    3 3-9. D iscuss some ways that inventory can be reduced on a firm’s balance sheet. A decision by a retailer to move to a system of vendor-managed inventory where a supplier of a product maintains control and ownership over an inventory item can result in a significant reduction of the amount of inventory on an organization’s balance sheet . Similarly, the use of premium transportation may also enable a firm to reduce lead time and ultimately reduce pipeline inventory that would show up on the balance sheet. 3-10. How does logistics strategy connect to overall corporate strategy? Is it a one-way or two-way connection? While the corporate level strategy ultimately sets the goals for the logistics strategy, the functional expertise that exists in the organization will necessarily influence the corporate strategy formulation. The strategic issues at this level are related to business activities that support the achievement of the higher-level goals set by the business unit and corporation. This hierarch of strategy entails the functional units of an organization providing input into the other levels of strategy formulation. This input could take the form of information on the resources and capabilities available to the organization. After the corporate level and business unit strategies are developed, the functional units must translate these strategies into discrete action plans they must accomplish for the higher- level strategies to succeed. Logistics strategy decisions involve issues such as the number and location of warehouses, the selection of appropriate transportation modes, the deployment of inventory, and investments in technology that support logistics activities. In addition to being influenced by the goals of the corporate and business unit strategies, logistics strategy is directly influenced by strategic decisions in the functional areas of marketing and manufacturing. The ability of the logistics function to ultimately influence the overall financial success of an organization is based on the ability of logistics managers to develop and implement strategies that are aligned with the overall corporate strategy. An appreciation for this interconnectedness and need for alignment of strategies is important for every logistics manager. 3-11 What are the three primary areas where the Sarbanes-Oxley Act (SOX) has implications for logistics managers? Three primary areas where SOX has implications for logistics managers are internal controls, off balance sheet obligations, and timely reporting of material events. In terms of internal control, timely and accurate accounting of inventory is expected. With respect to off balance sheet obligations, compliance with SOX can involve providing transparency to external relationships with suppliers to manage inventory and/or purchasing agreements. Finally, timely reporting of material events involves the need to provide visibility of late supplier deliveries and/or the inability of suppliers to provide the products or services that are expected to drive revenue for the organization.

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    4 3-12. Most managers believe that although it is possible to connect logistics decisions to costs, the connection to revenue enhancement is difficult to impossible. Provide an example of how logistics could improve sales. A decision to provide overnight delivery of service to e-commerce customers might have a positive influence on customer retention and sales. 3-13. What are some common logistics measures in transportation, warehousing, and inventory management? Transportation: The major transportation measures focus on such things as labor, cost, equipment, energy , and transit time. Measurements in this area include items such as return on investment (investments in transportation equipment), outbound freight costs, transportation labor productivity, on - time deliveries , and in - transit damage frequency. Warehousing: The primary warehousing measures include such things as labor, cost, time, utilization, and administration. Some common measurements focused on warehouse activities include return on investment (investments in warehousing facilities or equipment), wa rehouse order processing costs , and warehouse labor pro ductivity . Inventory Management: Inventory management measures tend to relate to the inventory service levels to customers as well as controlling inventory investment across an organization’s logistics system. Some common performance measures include obsolete inventory, inventory carrying cost, inventory turnover, and information availability. 3 - 14. Do you think corporate cultures are relevant for designing a logistics measurement system? Why or why not? A re curring theme in the logistics research is that an organization’s logistics capabilities need to be directly connected to object ive firm performance measures. In addition, this research stream asserts that logistics managers must continue to find ways to effectively communicate how these logistics capabilities provide value and ultimately support corporate strategy and success in financial terms . The ability of the logistics function to ultimately influence the overall financial success of an organization is based on the ability of logistics managers to develop and implement strategies that are aligned with the overall corporate strategy . This entails working directly with other function al areas such as marketing and manufacturing. This working relationship is directly influenced by the corporat e culture that exists with a firm and thus holds the pot ential to help or hinder these alignment efforts.

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    5 3-15. How do you measure gross margin return on inventory (GMROI)? Gross margin return on inventory is a common metric that is used by retailers and distributors to examine inventory performance based on margin and inventory turn. GMROI can be measured as (Gross Profit in Dollars/Sales in Dollars) x (Sales in Dollars/Average Inventory at Cost). 3-16. Describe how logistics decisions might affect an organization’s cost of goods sold. Cost of goods sold includes all the costs of materials and labor directly involved in producing a product or delivering a service. A significant part of this expense category is the cost of materials that are used to make a product. As such, logistics can influence these costs through procurement activities (e.g., purchasing at volume discounts, reverse auctions) or through any logistics-related efficiency improvements that enable labor to be more productive (e.g., enhanced materials handling processes on a production line). 3-17. Discuss the common types of information included in traditional logistics measurement systems. Logistics measurement systems have been traditionally designed to include information on five types of performance: asset management, cost, customer service, productivity, and logistics quality. Several measures are designed and implemented in each of these categories to manage logistics activities such as transportation, warehousing, and inventory management. Research suggests that leading-edge organizations are highly focused on performance measurement across these five areas and this serves as a platform on which competitive position, value-adding capabilities, and supply chain integration can grow. 3-18. What are the major parts of a balanced scorecard? Why are these parts needed? The Balanced Scorecard (BSC) is made up of performance measures that address particular goals or capabilities in the areas of customers, internal business processes, learning and growth, and financial. This holistic approach is needed in order to force management to look beyond the traditional financial measures when conducting a strategic analysis. 3-19. What are the steps for developing an effective logistics scorecard? To develop an effective logistics scorecard, management first defines the organization’s vision and goals. Next, logistics strategies are designed to ensure achievement of this vision and goals. These strategies are then translated into specific tactical performance- enhancing activities, and, finally, appropriate measures are established for each activity.

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    6 3-20. Identify some of the key considerations for a logistics manager who is designing and implementing a logistics measurement system in his or her organization. Some of the key things to consider when applying performance measures to logistics activities include: 1. Determination of the key measures should be tailored to the individual organization and level of decision making. 2. Data collection and analysis are a major part of a performance measurement system in logistics. This complexity is increased in global settings. 3. Behavioral issues should be considered when establishing and implementing a system of logistics measures. Top management support can help tremendously in this area. 4. Frequent communication and constant updating of the measures is a necessary condition for ensuring they are supporting the stated goals of the organization.

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    7 PART III CASE SOLUTIONS CASE 3 - 1 BRANT FREEZER COMPANY Question 1 : When comparing performance during the first five months of 2017 with performance in 2016, which warehouse shows the most improvement? St. Louis is the only one showing any improvement, using cost per unit shipped as the performance criterion. The cost for the first five months of 2016 was $9.97 and for the first five months of 2017, it fell to $9.07. Question 2 : When comparing performance during the first five months of 2017 with performance in 2016, which warehouse shows the poorest change in performance? The worst change is the company’s own warehouse (located in Fargo), where costs per unit shipped increased 31%. Among the public warehouses used, Denver was the worst in terms of cost per unit handled. It is also the most expensive public warehouse that Brant uses. Question 3 : When comparisons are made among all eight warehouses, which one do you think does the best job for the Brant Company? What criteria did you use? Why? Using the cost per unit handled criterion, St. Louis does the best job, closely followed by Chicago. Question 4 : J. Q. is aggressive and is going to recommend that his father cancel the contract with one of the warehouses and give that business to a competing warehouse in the same city. J. Q. feels that when word of this gets around, the other warehouses they use will “shape up.” Which of the seven should J. Q. recommend be dropped? Why? Denver has the lowest volume and highest unit costs among all the public warehouses used. In addition, it had been closed by a strike which must have inconvenienced the Brant Company. It may be that the warehouse workers’ unions are strong in the Denver area. J. Q. should probably check out rates and productivity measures of other Denver warehouses before deciding to drop its current warehouse there. Question 5 : The year 2017 is nearly half over. J. Q. is told to determine how much the firm is likely to spend for warehousing at each of the eight warehouses for the last six months of 2017. Do his work for him. There is not enough information to do a very precise forecast. J. Q. assumes that the proportion of costs occurring during the first five months of 2016 should be the same proportion in 2017.

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    8 (1) (2) (3) (4) Warehouse L ocation % 2016 C osts O ccurring in F irst F ive M onths Actual C os ts for F irst F ive M onths of 2017 ($) Projected T otal C osts in 2017 ($) Projected C osts in L ast S ix M onths of 2017 ($) Atlanta 22.88 40,228 175,822 116,204 Boston 44.00 29,416 66,885 32,085 Chicago 53.43 141,222 264,312 105,556 Denver 35.00 14,900 42,571 23,714 Fargo 54.00 9,605 17,787 7,012 Los Angeles 72.20 93,280 129,197 30,781 Portland 49.30 42,616 86,442 37,559 St. Louis 44.80 19,191 42,837 20,265 T he projected costs in 2017 (column 3) are calculated by dividing the actual costs f or the first five months of 2017 ( column 2) by the percent of 2016 costs that occurred in the first five months (column 1). Fo r example, Atlanta’s actual 2017 costs of $40,2 28 divided by 2016 ’s 22.88% yields projected 2017 costs of approximately $175,822. The projected cost s in the last six months of 2017 (column 4) are calculated by subtracting the actual costs f or the first five months of 2017 (column 2) from 2017 ’s projected total costs (column 3). This gives us the projected costs f or the last seven months of 2017 . However, we are only intereste d in the last six months of 2017 , so this number is multiplied by 6/7, or .85 7. Continuing with Atlanta, 2017 ’s projected total costs of $175,822 minus the first five months’ actual costs of $40,228 equals $135,394. Multiplying this by 6/7 yields projected six months’ costs of approximately $116,204. Question 6 : When comparing the 2016 figures with the 2017 figures shown in the table, the amount bud geted for each warehouse in 2017 was greater than actual 2016 costs. How much of the increase is caused by increased volume of business (units shipped) and how much by inflation? There are several ways to approach this question. One involves calculating the volume difference and inflation difference for each warehouse, as follows: Volume difference = 2016 unit costs x ( 2017 units shipped – 2016 units shipped) Inflation difference = 2017 units shipped x ( 2017 unit costs – 2016 unit costs) For example, Atlanta’s volume and inflation differences are: Volume difference: $8.99 x (18,000 – 17,431) = $8.99 x 569 = $5,115 Inflation difference: 18,000 x ($9.97 - $8.99) = 18,000 x $.98 = $17,640

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    9 Question 7 : Use the 2016 Income Statement and Balance Sheet to complete a Strategic Profit Model for J. Q. Sales = $4,003,450 COGS = $937,000 - Total Expenses = $2,486,167 Gross Margin = $3,066,450 Other Current Assets = $706,034 Accounts Receivable = $355,450 Inventory = $1,590,435 Current Assets = $2,651,919 Fixed Assets = $803,056 Sales = $4,003,450 Net Profit = $580,283 Sales = $4,003,450 Total Assets = $3,454,975 Net Profit Margin = 14.495% Asset Turnover = 1.159 ROA = 16.796% + + + - / / X Brant Freezer – Strategic Profit Model Question 8 : Holding all other information constant, what would be the effect on ROA for 2016 if warehousing costs declined 10% from 2016 levels? Given that warehousing costs were $735,982 for 2016, a 10% reduction would be approximately $73,598. Thus, total expenses would decrease to $2,412,569 ($2,486,167 – $73,598), with the following SPM:

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    10 Sales = $4,003,450 COGS = $937,000 - Total Expenses = $2,412,569 Gross Margin = $3,066,450 Other Current Assets = $706,034 Accounts Receivable = $355,450 Inventory = $1,590,435 Current Assets = $2,651,919 Fixed Assets = $803,056 Sales = $4,003,450 Net Profit = $580,283 Sales = $4,003,450 Total Assets = $3,454,975 Net Profit Margin = 16.333% Asset Turnover = 1.159 ROA = 18.926% + + + - / / X Brant Freezer – Strategic Profit Model with a 10% reduction in warehousing costs

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    1 PART II ANSWERS TO END - OF - CHAPTER QUESTIONS CHAPTER 4 : ORGANIZATIONAL AND MANGERIAL ISSUES IN LOGISTICS 4-1. Discuss several issues that influence the organization of logistics activities within a firm. The organization of logistics activities within a firm depends on a number of factors, including the number and location of customers, as well as an organization’s size. The number and location of customers might influence whether a firm adopts a centralized or decentralized logistics organization. An organization’s size might influence the organizing of logistics activities in the sense that there are limitations in the degree of specialization of managerial talent in small firms. 4-2. Compare and contrast the fragmented and unified logistics organizational structures. In a fragmented logistics structure, logistics activities are managed in multiple departments throughout an organization. In such a structure, it is possible for the various logistics activities to be managed in two, three, four, or more departments. Because effective and efficient logistics is predicated on a high degree of coordination among logistics activities, such coordination can become difficult when the logistics activities are spread throughout an organization. In a unified logistics structure, multiple logistics activities are combined into, and managed as, a single department. The unified structure can be further classified based on the number and type of activities assigned to the department. Regardless of how many or what type of logistics activities are managed, the unified logistics structure should be better positioned than the fragmented structure to achieve coordination across the various activities. 4-3. What are the differences between a centralized and a decentralized logistics department? A centralized logistics organization implies that the corporation maintains a single logistics department that administers the related activities for the entire company from the home office. A decentralized logistics organization means that logistics-related decisions are made separately at the divisional or product group level and often in different geographic regions. There are advantages to both approaches, with a primary advantage of centralization being its relative efficiency, whereas a primary advantage of decentralization is its customer responsiveness. Centralization allows an organization to take advantage of the cost savings that can arise from volume-creating opportunities. Many global firms need to decentralize operations because of geographic and time differences from the home office.

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    2 4-4. Describe the hierarchical and matrix organizational design. Hierarchical, or functional, organizational design has its foundations in the command- and-control military organization, where decision making and communication often follow a top-down flow. Each employee reports to one, and only one, supervisor. In a matrix design, one employee might have cross-functional responsibilities. For example, the manager of small appliances at one organization might report to logistics, marketing, and production executives, and the small appliance manager would have responsibility for the production, marketing, and logistics of small appliances. 4-5. From a logistics perspective, how is network organizational design manifested in terms of relevancy, responsiveness, and flexibility? Relevancy, which refers to satisfying current and emerging customer needs, can be facilitated by developing mutually beneficial relationships with key customers; at a minimum, these relationships should provide an understanding of customer needs and wants. Responsiveness reflects the degree to which an organization can accommodate unique or unplanned customer requests; responsiveness can be achieved when the appropriate decision makers are provided with both relevant information and the authority to address unique or unplanned requests. Flexibility, which can be defined as an organization’s capability to address unexpected operational situations, is predicated on avoiding early commitment to an irreversible course of action. One example of logistics flexibility would be the postponement of assembly, labeling, and so on until exact customer requirements are known. 4-6. Define what is meant by productivity and discuss the ways in which productivity can be improved. At a basic level, productivity can be defined as the amount of output divided by the amount of input. An understanding of this relationship leads to the recognition that there are but three ways to improve productivity: reduce the amount of input while holding output constant; increase the amount of output while holding input constant; or increase output while at the same time decreasing input. 4-7. In what ways can a unionized workforce be a challenge to improving productivity? Union work rules are often very specific in the sense that job descriptions spell out in exacting detail the responsibilities associated with a particular job. Although detailed specifications help create additional jobs, the relative lack of worker flexibility can potentially hinder productivity by increasing inputs (e.g., additional workers, hence additional labor costs) while also decreasing output.

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    3 4-8. Discuss how technological considerations can help in managing truck drivers and their productivity. Some firms photograph or videotape drivers as the drivers are making pickups at their loading docks. Alternatively, a tachograph is a recording instrument that is installed inside a truck and produces a continuous, timed record of the truck’s operations, its speed, and its engine speed. In addition, the interfaces involving wireless communications, global positioning systems, and graphical information systems offer tremendous technology-related opportunities to improve driver productivity. 4-9. What are some potential challenges to improving productivity by getting more output from existing assets? The book offers two suggestions for improving productivity by getting more output from existing assets. One recommendation is to use assets more during the course of a day, such as Southwest Airlines’ capability to fly more trip segments per day. One challenge with increased usage during the course of a day is that assets might need more frequent maintenance. A second suggestion is to extend an asset’s revenue -producing lifespan. One challenge associated with this extension is that an older asset might lack safety equipment that is standard on newer equipment. 4-10. Discuss the reasons why logisticians might be concerned with theft. Even though insurance will reimburse an organization for the market value of the stolen items, the time and costs (e.g., documentation) associated with theft tend not to be covered by insurance. A second logistical concern is that theft results in the planned flow of goods being interrupted, which can lead to stockouts in the distribution channel. Theft can also factor into the facility location decision in the sense that many organizations will avoid locating their facilities in areas characterized by high crime rates. It is also possible for the stolen products to reappear in the market at a lower price to compete with products that have moved through traditional channels. 4-11. How can logistics managers attempt to control pilferage? Control begins with the hiring process, and one of the best ways to manage pilferage is to avoid hiring people who are predisposed to steal, such as people with credit, alcohol, or drug problems. Some organizations utilize psychological tests as part of the hiring process in an effort to identify prospective employees who might pilfer. Organizations can better control pilferage if they have clearly articulated and enforced pilferage-related policies. Experts recommend that the best pilferage policy should be based on zero tolerance because problems inevitably arise for those companies that tolerate a “small amount” of pilferage.

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