Contemporary Logistics , 12th Edition Solution Manual

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PART IINTRODUCTIONContemporary Logistics,12theditionis a student-oriented text that is designed for anintroductory course in logistics. Having said this, there are myriad ways to teach anintroductory 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 aclassroom-based course with 250 students. Similarly, an introductory logistics coursedelivered online will differ in style from classroom-based instruction.An important characteristic of logistics is that it is a real-world discipline with increasingorganizational and interorganizational visibility. Therefore, if feasible, the use of guestspeakers and field trips to a warehousing facility or freight transportation terminal areespecially recommended. With respect to guest speakers, students can learn a great dealwhen they meet and discuss logistics with managers who work with its challenges andopportunities on a daily basis. Guest speakers can include logistics or supply chainmanagers, government officials, and third-party personnel. Each can provide a unique andvaluable perspective.Field trips can also be quite valuable; they can turn a “good” student experience into a truly“memorable” one. Having said this,the location of the university likely impacts thepotential viability of field trips. We, the authors, are fortunate enough to be located inmetropolitan areas that offer a plethora of opportunities for field trips. As such, our studentshave been able to visit water ports, airports, railroad container yards, motor carrierterminals, cross-dock facilities, warehouses, and distribution centers. Field trips have thecapability to turn abstract material into something with which students can more readilyidentify.With respect to assigning chapters for a semester-length course, the instructor might try tocover one chapter and one case per week. However, for a quarter-length course, theinstructor might assign three chapters and three cases every two weeks. Other courselengths, such as five- or six-week sessions, the instructor should assign no more than threechapters and two cases per week.The remainder of thisInstructor’sSolutions Manual is organized in the following manner:For each chapter, Part II presents answers to the end-of-chapter questions, and Part IIIprovides suggested answers for the end-of-chapter case.Through the years, the end-of-chapter cases have generated a great deal of feedback fromprevious adopters. We’ll spend several paragraphs discussing case-related issues.It’simportant to recognize that the cases vary in length, level of difficulty, and type ofproblem addressed, and some students may struggle with them.Instructors should develop their own techniques for using the cases; many can serve asthe basis for detailed and lengthy classroom discussions. Many of the cases can be used

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for examination purposes, althoughit’s important to note thatsome questions have morethan one correct answer.Previous adopters of our text have asked about an ideal length for written answers to thevarious case questions. We hesitate to offer such guidance, in part, because the ideallength depends on a variety of factors. For example, if the written answers are a type ofextra credit that students can earn, then shorter answers are likely preferable to longerones. Alternatively, if the cases are used for examination purposes, then longer answersmight be preferable to shorter ones.Cases must be carefully read because key facts may be hidden. Instructors should clearlyindicate how much additional data, not in the text of the original case, could beincorporated into each case analysis and its answers. For example, a student who hasworked in a warehouse may attempt to reference her or his own experiences in relatedsituations.Any comments, queries, and suggestions that you have concerning this Instructor’sSolutions Manual can be addressed to:Professor Paul R. MurphyBoler School of BusinessJohn Carroll UniversityUniversity Heights, OH 44118216.397.4532 (office telephone)drmurphy@jcu.edu

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1PART IIANSWERS TO END-OF-CHAPTER QUESTIONSCHAPTER 1:AN OVERVIEW OFLOGISTICS1-1. Did it surprise you that logistics has such an important economic impact? Why orwhy not?The answer to this question likely depends on thestudent’s prior exposure to logistics. Atypical student in an undergraduate, introductory logistics course likely has had limitedexposure to and knowledge about logistics and thus mightbe unaware as to logistics’economic impact. As such, a student might be pleasantly surprised to learn that logisticsis important fora country’seconomic 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 ableto take possession of a product and can be influenced by the relevant payment terms.Form utilityrefers 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 theyare needed by customers while place utility refers to having products available wherethey 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 differentsensitivities to time. For example, a three-day-late delivery of bananas likely has moreserious consequences than a three-day-late delivery of a box of pencils. As for placeutility, logistics facilitates the movement of products from points of lesser value to pointsof 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 whatit saysit’sgoing todo;” efficiency focuses on how well (or poorly) company resources are used to achievewhat a company promises it can do. There are a multitude of examples that wouldillustrate an effective, but inefficient, logistics system. For example, some companiesroutinely use premium and expedited methods of transportationwhich increasetransportation coststo meet customer delivery requirements. As such, the logisticssystem could be considered effective (meeting delivery deadlines) but perhaps notefficient (increased transportation costs).

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21-5. Explain the significance of the fact that the purpose of logistics is to meet customerrequirements.One reason for this significance is that meeting customer requirements means thatcompanies must knowrather than assumecustomer needs and wants. This knowledgeis facilitated by communication between companies and their customers. Even today,some companies are hesitant to communicate with customers. In addition, meetingcustomer requirements means that a one-size-fits-all approach to logistics will result insome customers being overserved and others being underserved. As a result, companiesshould consider a tailored logistics approach, where groups of customers who havesimilar logistical needs and wants are provided with the appropriate logistical services.1-6. Explain how an understanding of logistics management could be relevant to yourfavorite charitable organization.There are any number of examples that can be used. The textbook mentions the FoodBank of New York City; from a logistical perspective, the Food Bank of New York Cityis responsible for collecting, sorting, repacking, and distributing food from its 90,000square-foot warehouse.1-7. How has a reduction in economic regulation contributed to the increased importanceof logistics?Reductions in economic regulation in the United States allowed individual carriersflexibility in pricing and service, and this flexibility was important to logistics for severalreasons. First, it provided companies with the capability to implement the tailoredlogistics approach in the sense that companies could specify different logistics servicelevels and prices could be adjusted accordingly. Second, the increased pricing flexibilityallowed large buyers of transportation services to reduce their transportation costs byleveraging large amounts of freight with a limited number of carriers.1-8. Discuss the logistical implications associated with the increased emphasis on theconvenience associated with a family’s shopping experience.This convenience is manifested in various ways to include extended store hours, homedelivery of purchased items, and ready-to-eat/ready-to-cook foods. From a logisticsperspective, extended store hours force retailers to address issues such as the optimaldelivery times for replenishment trucks and when to replenish merchandise. A logisticalchallenge with home delivery is the coordination of delivery times with the purchaser’sability to receive the item(s). Finally, ready-to-eat-ready-to-cook foods have differentpackaging requirements, and food processors continue to experiment with packagingalternatives that will extend the shelf life of ready-to-cook foods.

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31-9. What are some ways in which technology has impacted logistics management?Technological advances have influenced channel design by allowing companies to offeran alternate distribution channel (or alternate distribution channels) to already existingchannels. Technological advances can also improve the productivity of the order pickingprocess, which traditionally involved paper pick tickets. Today, by contrast, order pickingcan utilize radio frequency devices, voice-directed picking, and robotic picking.Shipment tracking provides another example of how technological advances haveimpacted logistics management. Global positioning systems can provide real-timelocation information about a shipment, as well as provide information about a vehicle’stemperature, 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 emerginglogistics trends. Big-box retailers have also been trendsetters with respect toenvironmental and social issues in logistics.As an example, one of Best Buy’ssustainability 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 applicableto logistics management?The systems approach to problem solvingsuggests that a company’s objectives can berealized by recognizing the mutual interdependence of its major functional areas, such asmarketing, production, finance, and logistics. As such, decisions made by one functionalarea can have important implications for the other functional areas. With respect tologistics, the systems approach suggests that one should recognize the mutualinterdependence of the various activities that constitute the logistics function. Thus, atransportation decision may impact inventory, warehousing, and packaging, amongothers.1-12. Distinguish between materials management and physical distribution.Materials management refers to the movement and storage of materials into a firm whilephysical distribution refers to the storage of finished product and movement to thecustomer.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 inmoving and storing products should be considered as a whole (i.e., their total cost) andnot 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 andothers to decrease. The key to the total cost approach is that all relevant cost items areconsidered simultaneously when making a decision. The objective is to find the approachwith the lowest total cost that supports the organization’s customer service requirements.

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41-14. Define what is meant by a cost trade-off. Do you believe that this concept isworkable? Why or why not?A cost trade-off acknowledges that changing patterns or activities of distribution willresult 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’sopinion about the workability of thisconcept. Although nearly any answer is acceptable, those students who believe that costtrade-offs are unworkable might have difficulty with many of the concepts presentedthroughout 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 affectlogistics, such as materials handling and packaging equipment. Another potential area offinance and logistics interface is with respect to inventory; finance tends to viewinventory from a dollar perspective while logistics tends to be more concerned with thenumber of units of inventory. This dichotomy is highlighted by the concept ofobsolescence, which reduces the monetary value of inventory by a certain amount perperiod of timeeven though the actual quantity of inventory may be unchanged.1-16. Discuss the postponement concept as it relates to the production and logisticsinterface.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 casepacking and case labeling, that were traditionally performed at a production plant are nowperformed in warehousing facilities. As a result, warehousing facilities are adding newtypes of equipment and being configured differently to allow specific value-addedactivities to take place.1-17. Define what is meant by a landed cost and explain its relevance for pricingdecisions.Landed cost refers to the price of a product at its source plus transportation costs to itsdestination.On the one hand, a selling price that is based on a product’s landed costallows the seller to offer “free” delivery of the product to prospective customers, becausethe transportation costs associated with delivery are captured in the landed cost. On theother hand, a selling price that is based on a product’s landed cost could result in asubstantial increase in a product’s selling price, and a higher selling price tends todecrease buyer demand for most products.

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51-18. Discuss several possible interfaces between marketing and logistics in terms ofproduct decisions.One interface involves the marked increase in product offerings; marketers like thisincrease because it allows for more customer choice, but these additional choices createlogistical challenges in terms of identification, storage, and tracking. Another interfaceconcerns the amount of a particular item (SKU) to hold. Marketers prefer to carry higherquantities for particular items because this reduces the likelihood of stockouts; however,from a logistics perspective, higher quantities of inventory necessitate additional storagespace and increase inventory carrying costs.Students can also discuss product design and sustainable products.1-19. Briefly discuss the ownership, negotiations, financing, promotion, and logisticschannels.The ownership channel covers movement of the title to the goods; the goods themselvesmight not be physically present or even exist. The negotiations channel is the one inwhich buy and sell agreements are reached and can include telephone, email, andelectronic data interchange, among others. The financing channel handles payment forgoods and the company’s credit, while thepromotions channel is concerned withpromoting a new or an existing product. Finally, the logistics channel handles thephysical 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 acompany’s logistics department. Any5 of the 12 activities are acceptable for students todiscuss.

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6PART IIICASE SOLUTIONSCASE1.1KIDDIELAND AND THE SUPER GYMQuestion 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 vehicleand insurance requirements of each state. An advantage is that deliveries would be underthe control of each store. A disadvantage may be labor costs, especially if two workersare needed to make the delivery. Also, once at the site, the store’s employees might beasked to assist in the assembly of the gym.Question 2:List and discuss the advantages and disadvantages of having local truckingcompanies deliver the Super Gym from the retail stores to the customers.There are probably no disadvantages to using a local trucking company to make thedelivery. However, a decision abouthow to handle the trucking firm’s chargeswouldhave to be made.Question 3:List and discuss the advantages and disadvantages of stocking Super Gymsat the distribution centers and then having the truck that makes deliveries from thedistribution center to the retail stores also make deliveries of Super Gyms to individualcustomers.One problem focuses on the size of equipmentlarge tractortrailer combinations are notsuited to making home deliveries. The actual costs to KiddieLand of using trucks thisway might be very high. There might be some savings in inventory costs by stocking thegyms at the distribution center rather than at each retail store.Question 4:List and discuss the advantages and disadvantages of charging customers forhome delivery if they are unable to carry home the Super Gym.Perhaps the one advantage to charging for home delivery is that KiddieLand recoups theassociated costs. However, because charged home delivery will add to the customer’stotal purchase price, there could be a reduction in demand or this could generate customerdissatisfaction.Question 5:Which alternative would you prefer? Why?The student can choose any alternative. However, the text of the case seems to prefer theuse of a local trucking company and charging the customer for home delivery.

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7Question 6:Draft a brief statement (catalog copy) to be inserted in the firm’s springsummer brochure that clearly explains to potential customers the policy that isrecommended in Question 5.The brochure is intended for use in all stores, so whatever copy is prepared must bewidely applicable. A sentence might read: “The Super Gym comes unassembled and ispacked 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 furthermention of them. How would you follow up on his query?Anyone in the group could answer that SUVs have more carrying capacity than autos andmany also have trailer hitches. SUVs are sufficiently popularparticularly in the UnitedStatessuch that many buyers of the Super Gym equipment would either have a SUV orbe able to borrow one.

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1PART IIANSWERS TO END-OF-CHAPTER QUESTIONSCHAPTER 2: LOGISTICS AND INFORMATION TECHNOLOGY2-1. 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 visibilityacross 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 improveplanning and reduce variability in the supply chain; better coordination of manufacturing,marketing, and distribution through enterprise resource planning systems; andstreamlined order processing and reduced lead times enabled by coordinated logisticsinformation systems.2-2. List the six general types of information systems, and give one logistics applicationfor each one that you’ve named.One general type is office automation systems, and a logistics application could bespreadsheets that calculate optimal order quantities. A second is communication systems;one logistics application involves global positioning systems. Transaction processingsystems 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 informationsystems; a logistics application involves logistics information systems. A fifth generaltype of information system is decision support systems, with warehouse managementsystems being a logistics-related application. The sixth, and final, general type ofinformation system is the enterprise system, represented by logistics modules ofenterprise resource planning systems.2-3. Do you view the spreadsheet as the most relevant general software package forlogisticians? Why or why not?The text indicates that spreadsheets are indeed the most relevant general softwarepackage for logisticians. Today’s spreadsheetshave developed to the point that they areable to solve for basic logistics optimization models. These spreadsheet-basedoptimization models provide a method for logisticians to conduct a variety of what-ifanalysis in support of their decision making.

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22-4. How can communication systems facilitate logistics management in the aftermath ofsituations such as terrorist attacks and natural disasters?One example involves the substitution of information for inventory. The total shutdownof the U.S. aviation system following the terrorist attacks of September 11, 2001 causedmany air shipments to be diverted to trucksthus adding to delivery times. Airfreightcompanies such as FedEx used their communication systems to inform customers thattheir shipments were being diverted and when the shipments would be arriving.2-5. What are some of the advances in telecommunications technology that have occurredsince this book was first published? How do these advances help logistics managers?Advances in telecommunications technology since the first edition of this book includefax machines, personal computers / tablets, cell phones / smart phones, and wirelesscommunication. One example of wireless communication involves global positioningsystems (GPS), and GPS systems can help logisticians to increase productivity, reduceoperating costs, and improve customer relations. Tablets, such as an iPad, can be used toimprove the productivity of warehouse workers, improve pick accuracy, reducepaperwork, and increase asset utilization.2-6. Discuss how global positioning systems have become quite valuable intransportation management.Global positioning systems (GPS) have become quite valuable in transportationmanagement because of high fuel costs and the relentless pressure to improve efficiencyand productivity. Indeed, transportation companies that have implemented GPS havereported an increase in worker productivity, reduced operating costs, and improvedcustomer relations. One study found that GPS implementation allows transportationcompanies to recapture nearly one hour perday of their drivers’ time, which translatesinto 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 processingtime, inventory carrying costs, personnel costs, information float, shipping errors,returned goods, lead times, order cycle times, and ordering costs. In addition, EDI maylead 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 ofstandard formats, and incompatibility of computer hardware and software.

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32-8. 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 decisionmaking, 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 handheldscanner.2-9. Why are some companies hesitant to adopt RFID technology?A major drawback to RFID adoption involves the costs of installing the related hardwareand software, which can range from $100,000 for smaller companies to $20 million forlarger companies. Another drawback to RFID adoption involves privacy concerns, suchas the inappropriate use of the technology. Yet another drawback is that data accuracycan be lower items with high moisture content, such as fruits and vegetables.2-10. Discuss the importance of timely and accurate information to a logisticsinformation system.Timely information can involve several dimensions. For example, “timely” can refer tothe up-to-date status of information, which can be influenced by a company’s collectionand analyses procedures. Although such information should ideally involve internal andexternal sources, internal sources of logistics information are not always as plentiful aswould be desired. “Timely” can also refer to how quickly a manager receives therequested information; this is influenced by a company’s retrieval and disseminationprocedures. Faster and more powerful technology has helped to reduce retrieval anddissemination times.Accurate information may reflect the effectiveness and efficiency of a company’slogistics information system. This means that a logistics information system needs toconsider the nature and quality of the relevant data. For example, although the Internetcan be a very cheap source of external information, the validity of some Internetinformation is questionable.2-11. What benefits are associated with transportation management and warehousemanagement systems?Organizations that have implemented transportation management systems have reporteddecreased empty vehicle miles, reduced fuel consumption, and reduced transportationexpenditures. Potential benefits to warehouse management systems include dramaticreductions in data entry errors as well as dramatic reductions in the travel distances fororder picking. Other benefits to warehouse management systems include reducedoperating expenses, fewer stockouts, increased inventory accuracy, and improved serviceto customers.

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42-12. 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 ofdata in order to extract correlations and rules; it uses sophisticated quantitative techniquesto find “hidden” patterns in large volumes of data.Data mining has allowed Walmart todiscover that when hurricanes are projected to hit the state of Florida, there is a dramaticincrease in demand for beer and Kellogg’s Pop-Tarts®. As a result, Walmart makes surethat additional stocks of these products are available when hurricanes are projected to hitFlorida.2-13. Discuss advantages and disadvantages of enterprise resource planning systems.ERP systems are attractive because they offer the potential for lower costs and bothincreased productivity and customer satisfaction. In theory, ERP systems provide anopportunity for all functional areas within a firm to access and analyze a commondatabase. This should allow for enterprise-wide coordination of relevant businessprocesses. One of the most frequently mentioned shortcomings involves the costs ofinstallation, and companies often fail to consider relevant costs such as upgradedhardware and employee training. Moreover, ERP systems implementation can be quitetime-consuming; actual implementation times may be two to four times longer thanvendor estimates. A third shortcoming of ERP systems is that they initially lacked strongapplication-specific logistical capabilities such as transportation or warehousemanagement systems.2-14. Refer back to the logistical activities listed in Chapter 1; pick two that youreinterested in and research how they have been influenced by the Internet. Are yousurprised 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 andin-store retailing?For one, the orders associated with online shopping tend to be more plentiful and in muchsmaller quantities that those associated with in-store retailing. As such, online retailingrequires an order management system capable of handling high volumes of orders.Because of smaller order quantities, online shopping is characterized by open-case, ratherthan full-case picking; open-case picking is facilitated by materials handling equipmentsuch as totes and push carts. In addition, the smaller order quantities occasioned by onlineretailing tend to favor transport companies with extensive delivery networks andexpertise in parcel shipments.

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52-16.Why is a “one size fits all” logistics strategy not likely to facilitate effective orefficient online shopping?Rather than “one size fits all,” avariety of logistics strategies might need to be applied toonline shopping and it’s important to recognize the potential trade-offs with thesestrategies. For example, one way of addressing the last-mile issue of customerunavailability would be to install some type of receptacle for the product at thecustomer’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 valuableitems (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 aviable option for many companies that could not afford to purchase, install, and maintainapplication-specific software. Other advantages include faster and less costly installation,a smaller information technology staff, and regular upgrades and updates from thesoftware provider. One drawback is that the regular upgrades and updates can be toofrequent and numerous, and customers struggle to keep up with them. There are alsolimited opportunities for customization. Because the Internet is the primary transactionmedium, security issues such as data protection can be a concern also.2-18. Discuss the benefits and drawbacks to electronic procurement.Four types of benefitstransactional, compliance, management information, and priceare associated with electronic procurement. As an example, transactional benefitsmeasure the transactional benefits, such as a reduced invoice-to-payment time, that comefrom e-procurement. One concern with e-procurement involves the security ofinformation that is being transmitted; there is a risk that sensitive or proprietaryinformation could end up in the wrong hands. Another concern is that e-procurement canbe 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 logisticsmanagement?The Internet of things (IoT) refers to the sensors and data-communication technology thatis built into physical objects that enables them to be tracked and controlled over theInternet. The IoT can provide valuable information and business insights that can be usedby logistics managers to reduce costs and improve service. For example, an IoT-compatible forklift could alert a warehouse manager to potential mechanical or safetyissues prior to them occurring. The forklift could also provide enhanced visibility aboutinventory in the warehouse.

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62-20. What are some of the macro-level information technology challenges that managersface?The text identifies three macro-level information technology challenges, the first ofwhich is that information technology is a tool that can help managers to addressorganizational problems and not a panacea for them. Security is a second macro-levelconcern, and it’s important that websites be as secure as possible from computer virusesor computer hackers. A third information technology challenge involves human resourceissues; employee resistance has been identified as a major cause of informationtechnology implementation failure.

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7PART IVCASE SOLUTIONSCASE2-1TO INVEST OR NOT INVEST? THAT IS THE QUESTIONQuestion 1:Should the team take into account any other costs or benefits fromimplementing the WMS? If so, what are they?The team is currently focused on issues surrounding the costs of the WMS, the potentialbenefits of the WMS, and implementation risks. Beyond these issues, students should beable to identify a variety of additional considerations that could be helpful whenexamining WMS implementation. For example, it could be helpful to dig deeper into thefunctionality that would be provided by the system and how this functionality is animprovement over the existing situation. The long-term flexibility and expandability ofthe WMS is another area that could be considered. As the company grows, can the WMSadapt to a changing environment in terms of volume, locations using the system, ordiversity of products? Another potential consideration would be an analysis of the trackrecord of the potential WMS provider. For example, is the provider committed tofocusing on logistics solutions? Looking beyond the initial purchase decision to considerlong-term maintenance of the WMS could be beneficial. It might also be helpful to gainuser insights related to the WMS. The voice of the warehouse employee should bebrought into the discussion to ensure no issues are missed.Question 2:Should the team take into account any other costs or benefits fromimplementing the TMS? If so, what are they?Initial responses to the TMS question may be similar to the ones provided to thepreceding WMS question. Instructors should push for additional insights intotransportation-specific functionality as opposed to warehousing-specific functionality.For example, whether the TMS is flexible enough to provide access to multimodaltransportation planning and execution could be considered. Can the system integrate withexternal trading partners? In addition, given the dynamic nature of regulatory rulesrelated to product movement, the capability of the TMS to adapt to changes in in theglobal shipping environment might be considered. As was the case with the WMS, thevoice of the transportation planners and providers using the system should be broughtinto consideration.Question 3:What are the advantages and disadvantages of implementing bothtechnologies simultaneously?Although these two technologies have traditionally been implemented separately bydifferent groups, the potential integration could lead to improved coordination andplanning across these two critical logistics activities. Because each technology supports apart of the order cycle, coordinating implementation could offer advantages in terms ofenhanced delivery performance, reduced coordination costs, and consistency of data.

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8Potential disadvantages include increased complexity of implementation, difficulties infinding solutions that integrate well across the two areas and, ensuring both sets of usersare happy with a combined solution.Question 4:If both technologies are adopted, what changes, if any, should occur in therelationships between Pallotta’s firm and his suppliers of components? His transportationproviders? Discuss.It is important for students to understand that the decision to implement a WMS or aTMS should involve clear communication with other members of one’s supply chain. Asthe company undertakes these implementations, it will be critical to clearly setexpectations with affected suppliers and transportation providers. How will the ways thecompanies interact be affected by the projects? What is the plan for implementation, andhow might suppliers and transportation providers support any issues duringimplementation that could hurt customer relationships? In addition, providing regularupdates on the status of the implementation can reduce any potential negative effects ontheir 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 suggestthe firm does in this situation. Students typically have varying opinions on what is best todo. 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 thesimplicity of implementing separately and focus on financial benefit by suggesting thefirm start with the TMS and then proceed with WMS implementation. Another set ofstudents will focus on the advantages of coordinating the implementations and point outthat while the risks and benefits aren’t as clear, the intangible benefits of coordinatingwould 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-makingprocess. The discussion provides an opportunity for instructors to discuss the need forboth financial and nonfinancial considerations of these types of decisions.

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1PART IIANSWERS TO END-OF-CHAPTER QUESTIONSCHAPTER 3: STRATEGIC AND FINANCIAL LOGISTICS3-1. Discuss the differences between corporate level, business unit level, and functionallevel strategies.Corporate-level strategy is focused on determining the goals for the company, the typesof businesses in which the company should compete, and the way the company will bemanaged. Strategy at a business unit level is primarily focused on the products andservices provided to customers and on finding ways to develop and maintain asustainable competitive advantage with these customers. The functional level strategiesare related to business activities that support the achievement of the higher-level goals setby 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 itto become a low-cost producer in an industry for a given level of quality. Adifferentiation strategy entails an organization developing a product or service that offersunique attributes that customers value and perceive to be distinct from competitorofferings. A focus strategy concentrates an organization’s effort on a narrowly definedmarket 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 toits customers during a given period of time. Expenses (costs) provide a dollar value forthe 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 andlong-term assets. Liabilities are the financial obligations a company owes to anotherparty. Liabilities also come in two temporal forms: current liabilities and long-termliabilities.Owners’ equity is the difference between what a company owns and what itowes at any particular time.

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23-5. What are the three key components of the statement of cash flows?The statement of cash flows contains information from the income statement and balancesheet, but is formatted to highlight the sources and uses of cash in an organization’soperations, and in investing and financing activities. Accounts payable, accountsreceivable, revenue growth, gross margin, salesgeneral and administration, capitalexpenditures, 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 toexamine the effect of logistics decisions?Briefly, the Strategic Profit Model can be drilled down to Net Profit MarginxAssetTurnover = Return on Assets. Return on assets indicates what percentage of every dollarinvested in the business is ultimately returned to the organization as profit. Net profitmargin measures the proportion of each sales dollar that is kept as profit, and assetturnover measures the efficiency of the capital employed to generate sales. The StrategicProfit Model has the advantage of assisting logistics managers in the evaluation of cashflows and asset utilization decisions. Suppose, for example, that a logistics manager isable to eliminate some unnecessary inventory. This would reduce the value of currentassets as well as total asset value. As a result, sales divided by total assetsassetturnoverwould 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, costsof goods sold, and total expenses. A primary influence of logistics activities on saleswould be through the improvement of customer service. Logistics can impact costs ofgoods sold through procurement activities or through any logistics-related efficiencyimprovement that enables labor to be more productive. Expenses can include logistics-related activities such as transportation, warehousing, and inventory. A logistics decisionto reduce the number of less-than-truckload shipments through a consolidation strategywould 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, aretailer’sdecision to move to a system of vendor-managed inventory, where a supplier ofa product maintains control and ownership of an inventory item, can result in asignificant reduction of the amount of inventory on an organization’s balance sheet.Asfor accounts receivable, a decision to invest in an EDI system that would increase invoiceaccuracy should enable customer payments to be received in a more timely fashion.

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33-9. Discuss 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 asupplier of a product maintains control and ownership over an inventory item can resultin 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 timeand 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 ortwo-way connection?While the corporate level strategy ultimately sets the goals for the logistics strategy, thefunctional expertise that exists in the organization will necessarily influence the corporatestrategy formulation. The strategic issues at this level are related to business activitiesthat support the achievement of the higher-level goals set by the business unit andcorporation. This hierarch of strategy entails the functional units of an organizationproviding input into the other levels of strategy formulation. This input could take theform of information on the resources and capabilities available to the organization. Afterthe corporate level and business unit strategies are developed, the functional units musttranslate 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 ofwarehouses, the selection of appropriate transportation modes, the deployment ofinventory, and investments in technology that support logistics activities. In addition tobeing influenced by the goals of the corporate and business unit strategies, logisticsstrategy is directly influenced by strategic decisions in the functional areas of marketingand manufacturing. The ability of the logistics function to ultimately influence the overallfinancial success of an organization is based on the ability of logistics managers todevelop and implement strategies that are aligned with the overall corporate strategy. Anappreciation for this interconnectedness and need for alignment of strategies is importantfor every logistics manager.3-11 What are the three primary areas where the Sarbanes-Oxley Act (SOX) hasimplications for logistics managers?Three primary areas where SOX has implications for logistics managers are internalcontrols, off balance sheet obligations, and timely reporting of material events. In termsof internal control, timely and accurate accounting of inventory is expected. With respectto off balance sheet obligations, compliance with SOX can involve providingtransparency to external relationships with suppliers to manage inventory and/orpurchasing agreements. Finally, timely reporting of material events involves the need toprovide visibility of late supplier deliveries and/or the inability of suppliers to provide theproducts or services that are expected to drive revenue for the organization.

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43-12. Most managers believe that although it is possible to connect logistics decisions tocosts, the connection to revenue enhancement is difficult to impossible. Provide anexample of how logistics could improve sales.A decision to provide overnight delivery of service to e-commerce customers might havea positive influence on customer retention and sales.3-13. What are some common logistics measures in transportation, warehousing, andinventory 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 oninvestment (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 activitiesinclude return on investment (investments in warehousing facilities or equipment),warehouse order processing costs,andwarehouse labor productivity.Inventory Management:Inventory management measures tend to relate to the inventory service levels tocustomers as well as controlling inventory investment across an organization’s logisticssystem.Some common performance measures include obsolete inventory, inventorycarrying cost, inventory turnover, and information availability.3-14.Do you think corporate cultures are relevant for designing a logistics measurementsystem?Why or why not?A recurring theme in the logistics research is that an organization’s logistics capabilitiesneed to be directly connected to objective firm performance measures.In addition, thisresearch stream asserts that logistics managers must continue to find ways to effectivelycommunicate how these logistics capabilities provide value and ultimatelysupportcorporatestrategy and success in financial terms.The ability of the logistics function toultimately influence the overall financial success of an organization is based on theability of logistics managers to develop and implement strategies that are aligned with theoverall corporate strategy.Thisentails working directly with other functional areas suchas marketing andmanufacturing.This working relationship is directly influenced by thecorporateculture that exists with a firm and thus holds the potential to help or hinderthesealignment efforts.

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53-15. How do you measure gross margin return on inventory (GMROI)?Gross margin return on inventory is a common metric that is used by retailers anddistributors to examine inventory performance based on margin and inventory turn.GMROI can be measured as (Gross Profit in Dollars/Sales in Dollars)x(Sales inDollars/Average Inventory at Cost).3-16. Describehow 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 inproducing a product or delivering a service. A significant part of this expense category isthe cost of materials that are used to make a product. As such, logistics can influencethese costs through procurement activities (e.g., purchasing at volume discounts, reverseauctions) or through any logistics-related efficiency improvements that enable labor to bemore productive (e.g., enhanced materials handling processes on a production line).3-17. Discuss the common types of information included in traditional logisticsmeasurement systems.Logistics measurement systems have been traditionally designed to include informationon five types of performance: asset management, cost, customer service, productivity,and logistics quality. Several measures are designed and implemented in each of thesecategories to manage logistics activities such as transportation, warehousing, andinventory management. Research suggests that leading-edge organizations are highlyfocused on performance measurement across these five areas and this serves as aplatform on which competitive position, value-adding capabilities, and supply chainintegration 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 addressparticular goals or capabilities in the areas of customers, internal business processes,learning and growth, and financial. This holistic approach is needed in order to forcemanagement to look beyond the traditional financial measures when conducting astrategic analysis.3-19. What are the steps for developing an effective logistics scorecard?To develop an effective logistics scorecard, management first defines the organization’svision and goals. Next, logistics strategies are designed to ensure achievement of thisvision 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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63-20. Identify some of the key considerations for a logistics manager who is designingand implementing a logistics measurement system in his or her organization.Some of the key things to consider when applying performance measures to logisticsactivities include:1.Determination of the key measures should be tailored to the individualorganization and level of decision making.2.Data collection and analysis are a major part of a performancemeasurement system in logistics. This complexity is increased in globalsettings.3.Behavioral issues should be considered when establishing andimplementing a system of logistics measures. Top management supportcan help tremendously in this area.4.Frequent communication and constant updating of the measures is anecessary condition for ensuring they are supporting the stated goals of theorganization.

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7PART IIICASE SOLUTIONSCASE 3-1 BRANT FREEZER COMPANYQuestion 1:When comparing performance during the first five months of 2017 withperformance in 2016, which warehouse shows the most improvement?St. Louis is the only one showing any improvement, using cost per unit shipped as theperformance criterion. The cost for the first five months of 2016 was $9.97 and for thefirst five months of 2017, it fell to $9.07.Question 2:When comparing performance during the first five months of 2017 withperformance in 2016, which warehouse shows the poorest change in performance?The worst change is the company’s own warehouse (located in Fargo), where costs perunit shipped increased 31%. Among the public warehouses used, Denver was the worst interms of cost per unit handled. It is also the most expensive public warehouse that Brantuses.Question 3:When comparisons are made among all eight warehouses, which one do youthink 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 byChicago.Question 4:J. Q. is aggressive and is going to recommend that his father cancel thecontract with one of the warehouses and give that business to a competing warehouse inthe same city. J. Q. feels that when word of this gets around, the other warehouses theyuse will “shape up.” Which of the seven shouldJ. Q. recommend be dropped? Why?Denver has the lowest volume and highest unit costs among all the public warehousesused. In addition, it had been closed by a strike which must have inconvenienced theBrant Company. It may be that the warehouse workers’ unions are strong in the Denverarea. J. Q. should probably check out rates and productivity measures of other Denverwarehouses 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 thefirm is likely to spend for warehousing at each of the eight warehouses for the last sixmonths of 2017. Do his work for him.There is not enough information to do a very precise forecast. J. Q. assumes that theproportion of costs occurring during the first five months of 2016 should be the sameproportion in 2017.

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8(1)(2)(3)(4)WarehouseLocation%2016CostsOccurring inFirstFiveMonthsActualCosts forFirstFiveMonthsof2017($)ProjectedTotalCosts in2017($)ProjectedCosts inLastSixMonths of2017($)Atlanta22.8840,228175,822116,204Boston44.0029,41666,88532,085Chicago53.43141,222264,312105,556Denver35.0014,90042,57123,714Fargo54.009,60517,7877,012Los Angeles72.2093,280129,19730,781Portland49.3042,61686,44237,559St. Louis44.8019,19142,83720,265The projected costs in2017(column 3) are calculated by dividing the actual costs for thefirst five months of2017(column 2) by the percent of2016costs that occurred in the firstfive months (column 1). For example, Atlanta’s actual2017costs of $40,228 divided by2016’s 22.88% yields projected2017costs of approximately $175,822.The projected costs in the last six months of2017(column 4) are calculated bysubtracting the actual costs for the first five months of2017(column 2) from2017’sprojected total costs (column 3). This gives us the projected costs for the last sevenmonths of2017. However, we are only interested in the last six months of2017, so thisnumber is multiplied by 6/7, or .857. Continuing with Atlanta,2017’s projected totalcosts 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 comparingthe2016figures with the2017figures shown in the table,the amount budgeted for each warehouse in2017was greater than actual2016costs.How much of the increase is caused by increased volume of business (units shipped) andhow much by inflation?There are several ways to approach this question. One involves calculating the volumedifference and inflation difference for each warehouse, as follows:Volume difference =2016unit costsx(2017units shipped2016units shipped)Inflation difference =2017units shippedx(2017unit costs2016unit costs)For example, Atlanta’s volume and inflation differences are:Volume difference: $8.99x(18,00017,431) = $8.99x569 = $5,115Inflation difference: 18,000x($9.97-$8.99) = 18,000x$.98 = $17,640

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9Question 7:Use the 2016 Income Statement and Balance Sheet to complete a StrategicProfit Model for J. Q.Sales =$4,003,450COGS =$937,000-Total Expenses =$2,486,167Gross Margin =$3,066,450Other CurrentAssets = $706,034Accounts Receivable= $355,450Inventory =$1,590,435Current Assets =$2,651,919Fixed Assets =$803,056Sales =$4,003,450Net Profit =$580,283Sales =$4,003,450Total Assets =$3,454,975Net Profit Margin =14.495%Asset Turnover =1.159ROA =16.796%+++-//XBrant FreezerStrategic Profit ModelQuestion 8:Holding all other information constant, what would be the effect on ROA for2016 if warehousing costs declined 10% from 2016 levels?Given that warehousing costs were $735,982 for 2016, a 10% reduction would beapproximately $73,598. Thus, total expenses would decrease to $2,412,569 ($2,486,167$73,598), with the following SPM:

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

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1PART IIANSWERS TOEND-OF-CHAPTER QUESTIONSCHAPTER4:ORGANIZATIONAL AND MANGERIAL ISSUES IN LOGISTICS4-1. Discuss several issues that influence the organization of logistics activities within afirm.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.Thenumber and location of customers might influence whether a firm adopts a centralized ordecentralized logistics organization.An organization’s size might influence theorganizing of logistics activities in the sense that there are limitations in the degree ofspecialization 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 multipledepartments throughout an organization. In such a structure, it is possible for the variouslogistics activities to be managed in two, three, four, or more departments. Becauseeffective and efficient logistics is predicated on a high degree of coordination amonglogistics activities, such coordination can become difficult when the logistics activitiesare spread throughout an organization.In a unified logistics structure, multiple logistics activities are combined into, andmanaged as, a single department. The unified structure can be further classified based onthe number and type of activities assigned to the department. Regardless of how many orwhat type of logistics activities are managed, the unified logistics structure should bebetter positioned than the fragmented structure to achieve coordination across the variousactivities.4-3. What are the differences between a centralized and a decentralized logisticsdepartment?A centralized logistics organization implies that the corporation maintains a singlelogistics department that administers the related activities for the entire company from thehome office. A decentralized logistics organization means that logistics-related decisionsare made separately at the divisional or product group level and often in differentgeographic regions.There are advantages to both approaches, with a primary advantage of centralizationbeing its relative efficiency, whereas a primary advantage of decentralization is itscustomer responsiveness. Centralization allows an organization to take advantage of thecost savings that can arise from volume-creating opportunities. Many global firms needto decentralize operations because of geographic and time differences from the homeoffice.

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24-4. 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 oftenfollow a top-down flow. Each employee reports to one, and only one, supervisor. In amatrix 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 responsibilityfor the production, marketing, and logistics of small appliances.4-5. From a logistics perspective, how is network organizational design manifested interms of relevancy, responsiveness, and flexibility?Relevancy, which refers to satisfying current and emerging customer needs, can befacilitated by developing mutually beneficial relationships with key customers; at aminimum, these relationships should provide an understanding of customer needs andwants. Responsiveness reflects the degree to which an organization can accommodateunique or unplanned customer requests; responsiveness can be achieved when theappropriate decision makers are provided with both relevant information and theauthority to address unique or unplanned requests. Flexibility, which can be defined as anorganization’scapability to address unexpected operational situations, is predicated onavoiding early commitment to an irreversible course of action. One example of logisticsflexibility would be the postponement of assembly, labeling, and so on until exactcustomer requirements are known.4-6. Define what is meant by productivity and discuss the ways in which productivity canbe improved.At a basic level, productivity can be defined as the amount of output divided by theamount of input. An understanding of this relationship leads to the recognition that thereare but three ways to improve productivity: reduce the amount of input while holdingoutput constant; increase the amount of output while holding input constant; or increaseoutput 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 inexacting detail the responsibilities associated with a particular job. Although detailedspecifications help create additional jobs, the relative lack of worker flexibility canpotentially hinder productivity by increasing inputs (e.g., additional workers, henceadditional labor costs) while also decreasing output.

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34-8. Discuss how technological considerations can help in managing truck drivers andtheir productivity.Some firms photograph or videotape drivers as the drivers are making pickups at theirloading docks. Alternatively, a tachograph is a recording instrument that is installedinside a truck and produces a continuous, timed record of the truck’s operations, itsspeed, and its engine speed. In addition, the interfaces involving wirelesscommunications, global positioning systems, and graphical information systems offertremendous technology-related opportunities to improve driver productivity.4-9. What are some potential challenges to improving productivity by getting moreoutput from existing assets?The book offers two suggestions for improving productivity by getting more output fromexisting 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 challengewith increased usage during the course of a day is that assets might need more frequentmaintenance.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 safetyequipment 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 stolenitems, the time and costs (e.g., documentation) associated with theft tend not to becovered by insurance. A second logistical concern is that theft results in the planned flowof 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 manyorganizations will avoid locating their facilities in areas characterized by high crimerates. It is also possible for the stolen products to reappear in the market at a lower priceto 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 toavoid hiring people who are predisposed to steal, such as people with credit, alcohol, ordrug problems. Some organizations utilize psychological tests as part of the hiringprocess in an effort to identify prospective employees who might pilfer.Organizations can better control pilferage if they have clearly articulated and enforcedpilferage-related policies. Experts recommend that the best pilferage policy should bebased on zero tolerance because problems inevitably arise for those companies thattolerate a “small amount” of pilferage.
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