Contemporary Logistics , 12th Edition Solution Manual
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PART I
INTRODUCTION
Contemporary Logistics, 12th edition 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; they 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. We’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
INTRODUCTION
Contemporary Logistics, 12th edition 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; they 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. We’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
PART I
INTRODUCTION
Contemporary Logistics, 12th edition 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; they 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. We’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
INTRODUCTION
Contemporary Logistics, 12th edition 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; they 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. We’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
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 Instructor’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
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 Instructor’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
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 achieve
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).
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 achieve
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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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.
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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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 vehicle’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.
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 vehicle’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.
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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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.
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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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.
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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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 unassembled 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.
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 unassembled 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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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.
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.
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 dissemination
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.
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 dissemination
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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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.
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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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.
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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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.
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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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.
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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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.
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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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.
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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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.
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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3-9. 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 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.
3-9. 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 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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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),
warehouse order processing costs, and warehouse labor productivity.
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 recurring theme in the logistics research is that an organization’s logistics capabilities
need to be directly connected to objective 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 functional areas such
as marketing and manufacturing. This working relationship is directly influenced by the
corporate culture that exists with a firm and thus holds the potential to help or hinder
these alignment efforts.
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),
warehouse order processing costs, and warehouse labor productivity.
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 recurring theme in the logistics research is that an organization’s logistics capabilities
need to be directly connected to objective 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 functional areas such
as marketing and manufacturing. This working relationship is directly influenced by the
corporate culture that exists with a firm and thus holds the potential to help or hinder
these alignment efforts.
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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.
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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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.
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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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.
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 $9.07.
Question 2: When comparing performance during the first five months of 2017 with
performance in 2016, which warehouse shows the poorest change in performance?
The worst change is the company’s own warehouse (located in Fargo), where costs per
unit shipped increased 31%. Among the public warehouses used, Denver was the worst in
terms of cost per unit handled. It is also the most expensive public warehouse that Brant
uses.
Question 3: When comparisons are made among all eight warehouses, which one do you
think does the best job for the Brant Company? What criteria did you use? Why?
Using the cost per unit handled criterion, St. Louis does the best job, closely followed by
Chicago.
Question 4: J. Q. is aggressive and is going to recommend that his father cancel the
contract with one of the warehouses and give that business to a competing warehouse in
the same city. J. Q. feels that when word of this gets around, the other warehouses they
use will “shape up.” Which of the seven should J. Q. recommend be dropped? Why?
Denver has the lowest volume and highest unit costs among all the public warehouses
used. In addition, it had been closed by a strike which must have inconvenienced the
Brant Company. It may be that the warehouse workers’ unions are strong in the Denver
area. J. Q. should probably check out rates and productivity measures of other Denver
warehouses before deciding to drop its current warehouse there.
Question 5: The year 2017 is nearly half over. J. Q. is told to determine how much the
firm is likely to spend for warehousing at each of the eight warehouses for the last six
months of 2017. Do his work for him.
There is not enough information to do a very precise forecast. J. Q. assumes that the
proportion of costs occurring during the first five months of 2016 should be the same
proportion in 2017.
Loading page 25...
8
(1) (2) (3) (4)
Warehouse
Location
% 2016 Costs
Occurring in First
Five Months
Actual Costs for
First Five Months
of 2017 ($)
Projected Total
Costs in 2017
($)
Projected Costs in
Last Six Months of
2017 ($)
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
The projected costs in 2017 (column 3) are calculated by dividing the actual costs for the
first five months of 2017 (column 2) by the percent of 2016 costs that occurred in the first
five months (column 1). For example, Atlanta’s actual 2017 costs of $40,228 divided by
2016’s 22.88% yields projected 2017 costs of approximately $175,822.
The projected costs in the last six months of 2017 (column 4) are calculated by
subtracting the actual costs for the first five months of 2017 (column 2) from 2017’s
projected total costs (column 3). This gives us the projected costs for the last seven
months of 2017. However, we are only interested in the last six months of 2017, so this
number is multiplied by 6/7, or .857. 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 budgeted 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 = $17,640
(1) (2) (3) (4)
Warehouse
Location
% 2016 Costs
Occurring in First
Five Months
Actual Costs for
First Five Months
of 2017 ($)
Projected Total
Costs in 2017
($)
Projected Costs in
Last Six Months of
2017 ($)
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
The projected costs in 2017 (column 3) are calculated by dividing the actual costs for the
first five months of 2017 (column 2) by the percent of 2016 costs that occurred in the first
five months (column 1). For example, Atlanta’s actual 2017 costs of $40,228 divided by
2016’s 22.88% yields projected 2017 costs of approximately $175,822.
The projected costs in the last six months of 2017 (column 4) are calculated by
subtracting the actual costs for the first five months of 2017 (column 2) from 2017’s
projected total costs (column 3). This gives us the projected costs for the last seven
months of 2017. However, we are only interested in the last six months of 2017, so this
number is multiplied by 6/7, or .857. 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 budgeted 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
Loading page 26...
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:
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:
Loading page 27...
10Sales =
$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
$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
Loading page 28...
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.
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.
Loading page 29...
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.
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.
Loading page 30...
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.
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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