, i
THE
The HANDBOOK OF
Handbook of
Logistics &&
Distribution
Management
MAnAgEMEnt
4th
5thEDItION
EDITION
EDItED
Alan Rushton, by Croucher,
Phil
AlAN RushtON,
PeterPhIl CROuChER,
Baker
PEtER bAkER
,ii
Publisher’s note
Every possible effort has been made to ensure that the information contained in this book is accurate at the time of
going to press, and the publishers and authors cannot accept responsibility for any errors or omissions, however
caused. No responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result
of the material in this publication can be accepted by the editor, the publishers or any of the authors.
First published in Great Britain and the United States in 1989 by Kogan Page Limited
Second edition 2000
Third edition 2006
Fourth edition 2010
Fifth edition 2014
Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under
the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any
form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic repro-
duction in accordance with the terms and licences issued by the CLA. Enquiries concerning reproduction outside
these terms should be sent to the publishers at the undermentioned addresses:
2nd Floor, 45 Gee Street 1518 Walnut Street, Suite 1100 4737/23 Ansari Road
London EC1V 3RS Philadelphia PA 19102 Daryaganj
United Kingdom USA New Delhi 110002
www.koganpage.com India
© Alan Rushton, Phil Croucher, Peter Baker, 2006, 2010, 2014
© Alan Rushton, John Oxley and Phil Croucher, 2000
© Alan Rushton and John Oxley, 1989
The right of Alan Rushton, Phil Croucher, Peter Baker to be identified as the authors of this work has been asserted
by them in accordance with the Copyright, Designs and Patents Act 1988.
ISBN 978 0 7494 6627 5
E-ISBN 978 0 7494 6628 2
British Library Cataloguing-in-Publication Data
A CIP record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Rushton, Alan.
The handbook of logistics and distribution management : understanding the supply chain / Alan Rushton, Phil
Croucher, Peter Baker.
pages cm
Revised edition of The handbook of logistics & distribution management, 4th ed., published in 2010.
ISBN 978-0-7494-6627-5 – ISBN 978-0-7494-6628-2 (ebook) 1. Physical distribution of goods–Management–
Handbooks, manuals, etc. 2. Business logistics. I. Croucher, Phil, 1954- II. Baker, Peter, 1950- III. Title.
HF5415.7.R87 2014
658.7–dc23 2013033897
Typeset by Graphicraft Limited, Hong Kong
Printed and bound in India by Replika Press Pvt Ltd
, Introduction 32
The importance of customer service 32
The components of customer service 34
Two conceptual models of service quality 37
Developing a customer service policy 39
Levels of customer service 46
Measuring customer service 47
The customer service explosion 50
Summary 51
Channels of distribution 52
Introduction 52
Physical distribution channel types and structures 53
Channel selection 57
Outsourcing channels 61
Summary 65
Key issues and challenges for logistics and the supply chain
Introduction 66
The external environment 68
Manufacturing and supply 71
Logistics and distribution 74
iii Retailing
The consumer
Summary
Planning for logistics
Planning
81
83
86
87
for logistics 89
Introduction 89
Pressures for change 89
Strategic planning overview 91
Logistics design strategy 94
Product characteristics 96
The product life cycle 99
Packaging 100
Unit loads 101
Summary 101
Logistics processes 103
Introduction 103
Con t e n t s
The importance of logistics processes 103
Logistics process types and categories 105
Approach 108
Tools and techniques 110
Summary 116
Supply chain segmentation 117
Introduction 117
Product segmentation 117
Demand and supply segmentation 119
Marketing segmentation 121
Combined segmentation frameworks 122
Implementation 123
Summary 124
Logistics network planning 125
Introduction 125
The role of distribution centres and warehouses 126
Cost relationships 128
A planned approach or methodology 136
Initial analysis and option definition 138
Logistics modelling: logistics options analysis 143
Evaluate results: matching logistics strategy to business strategy
Practical considerations for site search 148
Summary 150
L o
management and organization 151
Introduction 151
Relationships with other corporate functions 151
Logistics organizational structures 153
Organizational integration 155
The role of the logistics or distribution manager 158
Payment schemes 160
The selection of temporary staff and assets 164
Summary 167
Multichannel fulfilment 168
Introduction 168
Issues 169
Food retailing 170
Non-food retailing 172
Summary 175
Manufacturing logistics 176
Introduction 176
Typology of operations 177
Just-in-time 180
Manufacturing resource planning (MRPII) 183
Material requirements planning (MRP) 183
The MRP system 184
Flexible fulfilment (postponement) 187
The effects on distribution activities 188
Future developments 189
Summary 190
Procurement and inventory decisions 191
List of figures viii
Basic inventory planning and management 193
Introduction 193
The need to hold stocks 194
Types of stockholding/inventory 195
Stockholding policy implications for other logistics functions
Inventory costs 199
Reasons for rising inventory costs 200
List of tables xv
Inventory replenishment systems 201
The reorder point and safety stock 203
The bullwhip effect 205
The economic order quantity 206
Demand forecasting 210
Summary 216
Preface xvi
Inventory
the supply chain 217
Introduction 217
Problems with traditional approaches to inventory planning
Different inventory requirements and the ‘decoupling point’
The lead-time gap 220
Abbreviations xxi
Inventory and time 221
Analysing time and inventory 223
Inventory planning for manufacturing 224
Inventory planning for retailing 227
Summary 233
P r o
and supply 234
Introduction 234
The procurement cycle 235
The scope of procurement 236
Setting the procurement objectives 236
Managing the suppliers 243
Expediting 246
Part 1 Concepts of logistics and distribution 1
Procurement performance measures 247
Collaborative planning, forecasting and replenishment 247
Factory gate pricing 248
E-procurement 248
Corruption 250
Summary 251
W a r
and storage 253
Principles of warehousing 255
01 Introduction to logistics and distribution 3
Introduction 255
The role of warehouses 256
Strategic issues affecting warehousing 258
Warehouse operations 259
Costs 263
Packaging and unit loads 263
Summary 265
Introduction 3; Scope and definition 4; Historical perspective 7;
Storage and handling systems (palletized) 266
Introduction 266
Pallet movement 266
Pallet stacking 268
Palletized storage 272
Palletized storage – comparison of systems 286
Importance of logistics and distribution 9; Logistics and supply chain
Summary 288
Storage and handling systems (non-palletized) 290
Introduction 290
Small item storage systems 291
Truck attachments 295
Long loads 296
structure 14; Summary 15
Cranes 299
Conveyors 299
Automated guided vehicles 300
Hanging garment systems 301
Summary 302
Order
and packing 303
Introduction 303
Order picking concepts 303
02 Integrated logistics and the supply chain 16
Order picking equipment 305
Sortation 313
Picking area layout 315
Slotting 316
Pick routes 316
Information in order picking 317
E-fulfilment 320
Introduction 16; The total logistics concept 16; Planning for logistics 19;
Picking productivity 320
Replenishment 321
Packing 322
Summary 324
Receiving
dispatch 325
The financial impact of logistics 22; Globalization and integration 24;
Introduction 325
Receiving processes 325
Dispatch processes 326
Cross-docking 327
Returned goods 329
Receiving and dispatch equipment 329
Integrated systems 25; Competitive advantage through logistics 27;
Layouts 332
Summary 335
Warehouse design 336
Introduction 336
Design procedure 336
Summary 352
Warehouse management and information 353
Logistics and supply chain management 28; Summary 30
Introduction 353
Operational management 353
Performance monitoring 355
Information technology 358
Data capture and transmission 360
Radio data communication 362
Truck management 363
Summary 363
Freight transport 365
03 Customer service and logistics 32
I n t
logistics:
choice 367
Introduction 367
Relative importance
of freight transport 368
Introduction 32; The importance of customer service 32;
Method of selection 370
Operational factors 371
Transport mode characteristics 375
Consignment factors 379
Cost and service requirements 380
Aspects of international trade 381
Summary 387
The components of customer service 34; Two conceptual models
Maritime transport 389
Introduction 389
Structure of the industry 389
Common shipping terms 391
Surcharges 393
Documentation 395
of service quality 37; Developing a customer service policy 39;
Vessel classification 396
Common ship types and their cargoes 398
Ports and cargo handling 401
Other factors 402
Summary 404
Air transport 405
Levels of customer service 46; Measuring customer service 47;
Introduction 405
Structure of the industry 405
Air cargo handling 407
Types of air freighter 409
Documentation 410
Air hubs and spokes 411
The customer service explosion 50; Summary 51
Air freight pricing 411
Air cargo security 414
Summary 416
Rail and intermodal transport 417
Introduction 417
Intermodal equipment 418
Intermodal vehicles 426
Intermodal infrastructure 428
Mode shift grant schemes 429
Rail transport 429
04 Channels of distribution 52
Summary 432
Road
transport: vehicle selection 433
Introduction 433
Main vehicle types 434
Types of operation 435
Introduction 52; Physical distribution channel types and structures 53;
Load types and characteristics 443
Main types of vehicle body 446
The wider implications of vehicle selection 452
Vehicle acquisition 453
Summary 455
Road
Channel selection 57; Outsourcing channels 61; Summary 65
t r a
vehicle costing 456
Introduction 456
Reasons for road freight transport vehicle costing 456
Key aspects of road transport costing 458
Vehicle standing costs 460
Vehicle running costs 464
Overhead costs 466
Costing the total transport operation 467
Whole life costing 468
05 Key issues and challenges for logistics and the supply chain 66
Vehicle cost comparisons 471
Zero-based budgets 472
Summary 473
Road
transport:
and resourcing 474
Introduction 66; The external environment 68; Manufacturing
Introduction 474
Need for planning 475
Fleet management 476
Main types of road freight transport 478
Transport resources: requirements and optimization 480
Vehicle routeing and scheduling issues 482
and supply 71; Logistics and distribution 74; Retailing 81;
Manual methods of vehicle routeing and scheduling 488
Computer routeing and scheduling 495
Other road-freight transport information systems applications
Summary 501
Operational management 503
Cost
The consumer 83; Summary 86
p e r
monitoring 505
Introduction 505
Why monitor? 506
Different approaches to cost and performance monitoring
What to measure against? 513
A logistics operational planning and control system 516
Good practice 517
Influencing factors 521
Detailed metrics and KPIs 522
The presentation of metrics 525
Summary 527
Benchmarking 529
Introduction 529
Why should an organization engage in benchmarking? 530
How to conduct a benchmarking exercise 530
Formal benchmarking systems 536
Benchmarking distribution operations 538
Summary 547
Information and communication technology in the supply chain
Introduction 548
Basic communication 548
Supply chain planning 551
Warehousing 553
Inventory 553
Transport 554
Other applications 556
Trading using the internet – e-commerce 557
Summary 559
O u t
services and decision criteria 560
Introduction 560
Outsourcing operations 560
Different service types 571
Value added services 577
Drivers and drawbacks of outsourcing 580
What are the critical factors of choice? 586
Summary 588
Outsourcing: the selection process 589
Introduction 589
Approach 589
Detailed steps 591
Summary 610
Outsourcing management 611
Introduction 611
The need for management 612
Managing the relationship 612
Implementation planning 616
Monitoring an outsourced logistics operation 618
Summary 622
Security
safety
distribution 624
Introduction 624
International security measures 625
Strategic security measures 626
Tactical security measures 627
Safety in the distribution centre and warehouse 634
Summary 637
Logistics
the environment 638
Introduction 638
The European Union and environmental legislation 639
Logistics and environmental best practice 644
Alternative fuels 654
Summary 658
H u m
logistics 659
Introduction 659
Key differences 660
Performance measurement 663
Key terms 665
Pre-positioning of resources 666
Assessment and planning 667
The cluster approach 668
Distribution 669
Summary 670
Further reading 671
References 672
Index 675
THE
The HANDBOOK OF
Handbook of
Logistics &&
Distribution
Management
MAnAgEMEnt
4th
5thEDItION
EDITION
EDItED
Alan Rushton, by Croucher,
Phil
AlAN RushtON,
PeterPhIl CROuChER,
Baker
PEtER bAkER
,ii
Publisher’s note
Every possible effort has been made to ensure that the information contained in this book is accurate at the time of
going to press, and the publishers and authors cannot accept responsibility for any errors or omissions, however
caused. No responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result
of the material in this publication can be accepted by the editor, the publishers or any of the authors.
First published in Great Britain and the United States in 1989 by Kogan Page Limited
Second edition 2000
Third edition 2006
Fourth edition 2010
Fifth edition 2014
Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under
the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any
form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic repro-
duction in accordance with the terms and licences issued by the CLA. Enquiries concerning reproduction outside
these terms should be sent to the publishers at the undermentioned addresses:
2nd Floor, 45 Gee Street 1518 Walnut Street, Suite 1100 4737/23 Ansari Road
London EC1V 3RS Philadelphia PA 19102 Daryaganj
United Kingdom USA New Delhi 110002
www.koganpage.com India
© Alan Rushton, Phil Croucher, Peter Baker, 2006, 2010, 2014
© Alan Rushton, John Oxley and Phil Croucher, 2000
© Alan Rushton and John Oxley, 1989
The right of Alan Rushton, Phil Croucher, Peter Baker to be identified as the authors of this work has been asserted
by them in accordance with the Copyright, Designs and Patents Act 1988.
ISBN 978 0 7494 6627 5
E-ISBN 978 0 7494 6628 2
British Library Cataloguing-in-Publication Data
A CIP record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Rushton, Alan.
The handbook of logistics and distribution management : understanding the supply chain / Alan Rushton, Phil
Croucher, Peter Baker.
pages cm
Revised edition of The handbook of logistics & distribution management, 4th ed., published in 2010.
ISBN 978-0-7494-6627-5 – ISBN 978-0-7494-6628-2 (ebook) 1. Physical distribution of goods–Management–
Handbooks, manuals, etc. 2. Business logistics. I. Croucher, Phil, 1954- II. Baker, Peter, 1950- III. Title.
HF5415.7.R87 2014
658.7–dc23 2013033897
Typeset by Graphicraft Limited, Hong Kong
Printed and bound in India by Replika Press Pvt Ltd
, Introduction 32
The importance of customer service 32
The components of customer service 34
Two conceptual models of service quality 37
Developing a customer service policy 39
Levels of customer service 46
Measuring customer service 47
The customer service explosion 50
Summary 51
Channels of distribution 52
Introduction 52
Physical distribution channel types and structures 53
Channel selection 57
Outsourcing channels 61
Summary 65
Key issues and challenges for logistics and the supply chain
Introduction 66
The external environment 68
Manufacturing and supply 71
Logistics and distribution 74
iii Retailing
The consumer
Summary
Planning for logistics
Planning
81
83
86
87
for logistics 89
Introduction 89
Pressures for change 89
Strategic planning overview 91
Logistics design strategy 94
Product characteristics 96
The product life cycle 99
Packaging 100
Unit loads 101
Summary 101
Logistics processes 103
Introduction 103
Con t e n t s
The importance of logistics processes 103
Logistics process types and categories 105
Approach 108
Tools and techniques 110
Summary 116
Supply chain segmentation 117
Introduction 117
Product segmentation 117
Demand and supply segmentation 119
Marketing segmentation 121
Combined segmentation frameworks 122
Implementation 123
Summary 124
Logistics network planning 125
Introduction 125
The role of distribution centres and warehouses 126
Cost relationships 128
A planned approach or methodology 136
Initial analysis and option definition 138
Logistics modelling: logistics options analysis 143
Evaluate results: matching logistics strategy to business strategy
Practical considerations for site search 148
Summary 150
L o
management and organization 151
Introduction 151
Relationships with other corporate functions 151
Logistics organizational structures 153
Organizational integration 155
The role of the logistics or distribution manager 158
Payment schemes 160
The selection of temporary staff and assets 164
Summary 167
Multichannel fulfilment 168
Introduction 168
Issues 169
Food retailing 170
Non-food retailing 172
Summary 175
Manufacturing logistics 176
Introduction 176
Typology of operations 177
Just-in-time 180
Manufacturing resource planning (MRPII) 183
Material requirements planning (MRP) 183
The MRP system 184
Flexible fulfilment (postponement) 187
The effects on distribution activities 188
Future developments 189
Summary 190
Procurement and inventory decisions 191
List of figures viii
Basic inventory planning and management 193
Introduction 193
The need to hold stocks 194
Types of stockholding/inventory 195
Stockholding policy implications for other logistics functions
Inventory costs 199
Reasons for rising inventory costs 200
List of tables xv
Inventory replenishment systems 201
The reorder point and safety stock 203
The bullwhip effect 205
The economic order quantity 206
Demand forecasting 210
Summary 216
Preface xvi
Inventory
the supply chain 217
Introduction 217
Problems with traditional approaches to inventory planning
Different inventory requirements and the ‘decoupling point’
The lead-time gap 220
Abbreviations xxi
Inventory and time 221
Analysing time and inventory 223
Inventory planning for manufacturing 224
Inventory planning for retailing 227
Summary 233
P r o
and supply 234
Introduction 234
The procurement cycle 235
The scope of procurement 236
Setting the procurement objectives 236
Managing the suppliers 243
Expediting 246
Part 1 Concepts of logistics and distribution 1
Procurement performance measures 247
Collaborative planning, forecasting and replenishment 247
Factory gate pricing 248
E-procurement 248
Corruption 250
Summary 251
W a r
and storage 253
Principles of warehousing 255
01 Introduction to logistics and distribution 3
Introduction 255
The role of warehouses 256
Strategic issues affecting warehousing 258
Warehouse operations 259
Costs 263
Packaging and unit loads 263
Summary 265
Introduction 3; Scope and definition 4; Historical perspective 7;
Storage and handling systems (palletized) 266
Introduction 266
Pallet movement 266
Pallet stacking 268
Palletized storage 272
Palletized storage – comparison of systems 286
Importance of logistics and distribution 9; Logistics and supply chain
Summary 288
Storage and handling systems (non-palletized) 290
Introduction 290
Small item storage systems 291
Truck attachments 295
Long loads 296
structure 14; Summary 15
Cranes 299
Conveyors 299
Automated guided vehicles 300
Hanging garment systems 301
Summary 302
Order
and packing 303
Introduction 303
Order picking concepts 303
02 Integrated logistics and the supply chain 16
Order picking equipment 305
Sortation 313
Picking area layout 315
Slotting 316
Pick routes 316
Information in order picking 317
E-fulfilment 320
Introduction 16; The total logistics concept 16; Planning for logistics 19;
Picking productivity 320
Replenishment 321
Packing 322
Summary 324
Receiving
dispatch 325
The financial impact of logistics 22; Globalization and integration 24;
Introduction 325
Receiving processes 325
Dispatch processes 326
Cross-docking 327
Returned goods 329
Receiving and dispatch equipment 329
Integrated systems 25; Competitive advantage through logistics 27;
Layouts 332
Summary 335
Warehouse design 336
Introduction 336
Design procedure 336
Summary 352
Warehouse management and information 353
Logistics and supply chain management 28; Summary 30
Introduction 353
Operational management 353
Performance monitoring 355
Information technology 358
Data capture and transmission 360
Radio data communication 362
Truck management 363
Summary 363
Freight transport 365
03 Customer service and logistics 32
I n t
logistics:
choice 367
Introduction 367
Relative importance
of freight transport 368
Introduction 32; The importance of customer service 32;
Method of selection 370
Operational factors 371
Transport mode characteristics 375
Consignment factors 379
Cost and service requirements 380
Aspects of international trade 381
Summary 387
The components of customer service 34; Two conceptual models
Maritime transport 389
Introduction 389
Structure of the industry 389
Common shipping terms 391
Surcharges 393
Documentation 395
of service quality 37; Developing a customer service policy 39;
Vessel classification 396
Common ship types and their cargoes 398
Ports and cargo handling 401
Other factors 402
Summary 404
Air transport 405
Levels of customer service 46; Measuring customer service 47;
Introduction 405
Structure of the industry 405
Air cargo handling 407
Types of air freighter 409
Documentation 410
Air hubs and spokes 411
The customer service explosion 50; Summary 51
Air freight pricing 411
Air cargo security 414
Summary 416
Rail and intermodal transport 417
Introduction 417
Intermodal equipment 418
Intermodal vehicles 426
Intermodal infrastructure 428
Mode shift grant schemes 429
Rail transport 429
04 Channels of distribution 52
Summary 432
Road
transport: vehicle selection 433
Introduction 433
Main vehicle types 434
Types of operation 435
Introduction 52; Physical distribution channel types and structures 53;
Load types and characteristics 443
Main types of vehicle body 446
The wider implications of vehicle selection 452
Vehicle acquisition 453
Summary 455
Road
Channel selection 57; Outsourcing channels 61; Summary 65
t r a
vehicle costing 456
Introduction 456
Reasons for road freight transport vehicle costing 456
Key aspects of road transport costing 458
Vehicle standing costs 460
Vehicle running costs 464
Overhead costs 466
Costing the total transport operation 467
Whole life costing 468
05 Key issues and challenges for logistics and the supply chain 66
Vehicle cost comparisons 471
Zero-based budgets 472
Summary 473
Road
transport:
and resourcing 474
Introduction 66; The external environment 68; Manufacturing
Introduction 474
Need for planning 475
Fleet management 476
Main types of road freight transport 478
Transport resources: requirements and optimization 480
Vehicle routeing and scheduling issues 482
and supply 71; Logistics and distribution 74; Retailing 81;
Manual methods of vehicle routeing and scheduling 488
Computer routeing and scheduling 495
Other road-freight transport information systems applications
Summary 501
Operational management 503
Cost
The consumer 83; Summary 86
p e r
monitoring 505
Introduction 505
Why monitor? 506
Different approaches to cost and performance monitoring
What to measure against? 513
A logistics operational planning and control system 516
Good practice 517
Influencing factors 521
Detailed metrics and KPIs 522
The presentation of metrics 525
Summary 527
Benchmarking 529
Introduction 529
Why should an organization engage in benchmarking? 530
How to conduct a benchmarking exercise 530
Formal benchmarking systems 536
Benchmarking distribution operations 538
Summary 547
Information and communication technology in the supply chain
Introduction 548
Basic communication 548
Supply chain planning 551
Warehousing 553
Inventory 553
Transport 554
Other applications 556
Trading using the internet – e-commerce 557
Summary 559
O u t
services and decision criteria 560
Introduction 560
Outsourcing operations 560
Different service types 571
Value added services 577
Drivers and drawbacks of outsourcing 580
What are the critical factors of choice? 586
Summary 588
Outsourcing: the selection process 589
Introduction 589
Approach 589
Detailed steps 591
Summary 610
Outsourcing management 611
Introduction 611
The need for management 612
Managing the relationship 612
Implementation planning 616
Monitoring an outsourced logistics operation 618
Summary 622
Security
safety
distribution 624
Introduction 624
International security measures 625
Strategic security measures 626
Tactical security measures 627
Safety in the distribution centre and warehouse 634
Summary 637
Logistics
the environment 638
Introduction 638
The European Union and environmental legislation 639
Logistics and environmental best practice 644
Alternative fuels 654
Summary 658
H u m
logistics 659
Introduction 659
Key differences 660
Performance measurement 663
Key terms 665
Pre-positioning of resources 666
Assessment and planning 667
The cluster approach 668
Distribution 669
Summary 670
Further reading 671
References 672
Index 675
