MGT 301 Exam 1

Reasons for warehousing

-Demand / supply / lead time uncertainty -Manufacturing economies: production smoothing -Transportation economies: volume discounts -Customer service support

understand basic challenges a warehouse manager faces

-Design: How should the warehouse be arranged? (How much space do I need) -Handling: How should product be put away? (How is it retrieved?) -Labor: How is labor motivated to accomplish that?

Define logistics value proposition

-Logistical value proposition consists of a commitment to key customer expectations and requirements a a minimum cost- The two elements of this value proposition are SERVICE and COST MINIMIZATION-->Firms must make appropriate tradeoffs between service and cost for each of their key customers

Transportation operating service characteristics (speed, availability, etc)

1) speed-the elapsed movement time from origin to destination 2) availabilty-ability of a mode to service any given pair of locations 3) dependability-the potential variance from expected delivery schedule 4) capability-the ability to handle any load size or configuration 5) frequency-the quantity of scheduled movements a mode can handle

Define the types of inventory

1. Cycle (average)- varies w/ lot/order size; planned to be used at a set time 2. Safety stock- surplus to protect against uncertainties (demand, lead time, supply) 3. Anticipation- surplus to absorb uneven rates of demand/supply; seasonal 4. Pipeline (transit)- moving from point to point in the SC; open orders or scheduled receipts 5. Obsolete- out of date or not recent demand

Omni channel

An omni-channel retail strategy is an approach to sales and marketing that provides customers with a fully-integrated shopping experience by uniting user experiences like mobile-browsing or delivery -primary response to counter AmazonPrime 2day free shipping -customers want seamless experience -challenges is understanding the different cost components and what the tradeoffs are

APC

Annual Purchase Cost= (RC)

Omni-channel logistics

Being able to deliver products to all the channels. buy online pick up at store. transportation to support all that process Omni-channel logistics strategy seeks to synchronize inventory, logistics and distribution functions across all sales channels to meet consumer demand For example, it makes more sense to ship a customer a product from their local retail store than from a distribution center hundreds of miles away.

Risk pooling

Centralization: two warehouse distribution system vs. centralized centralization: useful for companie w/ 1. lower product demand 2. limited product mix 3. insourced or inexpensive transportation 4. relatively stable product demand (low seasonality) 5. located close to: -target market -suppliers -raw materials increased demand variability , lower demand variance and likelihood of stock outs leads to less safety stock held, higher costs and time required for transportation

Demurrage

Charges: may indicate poor delivery scheduling on the part of the buying organization. a charge payable to the owner of a chartered ship in respect of failure to load or discharge the ship within the time agreed.

collaboration in supply chains

Companies work closely together to deliver more value to consumers. They coordinate through information to improve service and lower cost.

You use the statistical reorder point method to calculate safety stock and your re-order point. What will happen to the re-order point (ROP) if you want the chance of a stock-out to increase (i.e. - a lower service level) and what drives this change?

D. The ROP will decrease driven by a decrease in the Z score

Economies of scale and distance (Taper principle)

Economy of scale: the cost per unit weight decreases as the size shipment increases. Cost decreases because the fixed cost of the carrier is allocated over a larger weight of shipment- Economy of distance: the cost per unit weight decreases as distance increases (often called the tapering principle). Longer distances allow fixed cost of the carrier to be spread over more miles, lowering the per mile charge. Goal is to maximize the size of the load and distance shipped while still meeting service expectations.

bell curve (normal distribution)

In safety stock we want the bell curve to move to the right in order to lower risk between running out of safety stock and the reorder point

Why is it so important to carefully manage inventory? Where is inventory in the SC?

Inventory control is important in maintaining the right balance of stock in your warehouses. Inventory is included in operations.

manual v. automated material handling equipment

Manuel/non-automated: -storage and order picking equipment -racks, shelving, and modular storage Automated systems: -Automated storage and retrieval systems (AS/RS) e.g., high rises -Information directed systems e.g., pick-to-voice, pick-to-light

compare/contrast the old SCM paradigm vs. new SCM paradigm

Old paradigm is vertically integrated companies new paradigm is horizontally integrated companies.

How is warehousing changing today to support modern supply chains and why

Over time: \ 1.Traditional Stocking Warehouses: receiving, put-away, storage operations, picking, packing, shipping 2. Distribution Centers (dcs): scheduled cross-docking, special handling, kitting operations, returns handling, simple "postponed" manufacturing steps, other value added services 3. Fulfillment centers (fcs): dynamic cross docking, mixed mode fulfillment, multi channel including online fulfillment, distributed order management (dom), green operations (recycle, reuse, etc.)

define R, C, Q, S, k

R- annual requirements (or demand) of the item in unites per year C- purchase cost per unit Q- order quantity (units) S- order of planning oe order (setup cost) ($ per order) k- holding cost rate (%), where annual inventory carrying cost per unit=kc

calculate the statistical ROP when demand during lead time is uncertain and lead time is constant

ROP= D x LT x SS SS- accounts for uncertain demand + delivery lead time D- average daily demand in units LT- lead time from order placement to receipt goods

inventory pattern of inventory over time (the sawtooth diagram) used to depict average inventory

Saw-Tooth Inventory diagram is a diagram used to keep track of the inventory of a firm. It shows how the inventory level of a firm varies with time.

EOQ (order quantity)

Square root (2RS/kC)

You use the statistical reorder point method to calculate safety stock and your re-order point. What will happen to the re-order point (ROP) if the uncertainty of demand during lead time increases and you want the chance of a stock-out to remain the same?

The ROP will increase

what is the cash to cash cycle, how is it calculated, what are the benefits of improving it

The cash conversion cycle is important because it measures how long we need to finance inventory and receivables.Negative cash conversion cycles are healthy =days of inventory + days of AR - days of AP AR=accounts receivables AP=accounts payable

TAIC

Total Annual Inventory Cost= APC + AHC + AOC + AHC

Explain why transportation is necessary to a supply chain and the objectives of transportation

Transportation management keeps a company's whole supply chain running smoothly. With successful transportation, inventory can move in and out of a warehouse. This improves warehouse efficiency, reduces overall lead time and saves money on storage.

Define intermodal transportation, provide examples of intermodal, and explain the benefits of intermodal.

Use of two or more modes, or carriers, to transport goods (freight) from shipper to handler. Example: rail to truck to ship to truck Benefits: -Lower total transportation costs. -The elimination of third-party handling during transit. -Lower fuel expenses. -Reduced carbon footprint. -Real-time visibility. -Lower Cost Alternative to Truckload. -Sustainability. -Increased Level of Security. -Reduces Highway Congestion. -Reliable Capacity. -Optimizes the Efficiency of Truck and Rail. -Improves Safety. -Easy to Monitor. COFC- container on flat car; means that container is removed from its chassis and loaded on a rail car stacked up to two units high. This is common for all standard service trains TOFC- trailers on flat car; means that the container is left attached to the chassis and loaded on it sown rail car. This is more costly and common for expedited service trains

define vertical + horizontal integration- pros and cons of each- why today's trends are towards horizontal

Vertical- local firmed owned/controlled most SC, mass production, poor quality, short term focus, limited customer choice Horizontal- focus on specializations, trust based relationship w/ partners, all participants benefit, global high quality options, boundaries between firms are blurry, omni channel order fulfillment Today's trend- horizontal has better omni channel distribution, flexibility + responsiveness, automation, sustainability

Sourcing

to ensure the reliable supply of materials + services to hr firm @ the lowest total cost: 1. supplier management to supplier selection 2. supplier rewards programs to supplier evaluation 3. supplier integration to supply base optimization 4. sourcing strategy to supplier partnership to spend analysis 5. into sharing

Calculate inventory turnover

turnover ratio- how many times inventory "turns" in an accounting period cost of revenue / average inventory

Service benefits to warehousing; adding value to customers

value added changes made to product in warehouse: 1. co-packaging/kitting 2. changing product form (eg. paper cutting) 3.sequencing 4. drop shipping (orders shipped directly to customer 5. postponement (eg. brights) 6. labeling, bar coding 7. shrink wrapping 8. sorting 9. pick-pack

Dead-head

when you try to move any freight equipment empty If a load is not available for a truck to carry on its return trip to origin

Define the 5 modes of transportation, provide examples of the types of goods suitable for each mode of transportation, and explain the strengths and weaknesses of each mode.

1. Rail: pros- hauling heavy bulky goods, excels for long distance freight over land, cost effective for longer hauls of heavy bulky goods cons- slow 2. Truck: -nearly 1 million miles of highways in US -key benefits: speed of transit, ability to operate door to door -more efficient than rail for smaller shipments over short distances -dominate freight moves under 500 miles and from manufacturing to wholesale to retailers -many companies run their own private truck fleets as well (ie; walmart) 3. Water: -% of ton miles currently @ 16.3% -ranks between rail and truck in fixed costs -right of way (canals/rivers) maintained by Federal govt' -good for moving heavy bulky low value items a long distance -barge inland waterways, mainly bulky, also containers are cheap, slow, new navitagte waters -ocean huge growth in 20 years, container ship most commonly durable goods, largest can carry 21,000 TEUs tankers ho' 4. Pipeline: -have the highest fixed cost and lowest variable cost of all modes -unique transportation mode; can operate 24/7, very low emissions, no empty container or vehicle to return (repositioning) 5. Air: -accounts for only 1% of intercity ton miles -fastest of all modes -fixed cost is 2nd lowest but variable costs are extremely high -most products air shipped have high value, high priority or extremely perishability

Define the broad categories of inventory

1. Raw materials- unprocessed purchased inputs 2. Work in Progress (wip)- partially processed materials not yet ready for sale 3. Finished goods- products ready for shipment 4. Maintenance, repair, operating (mro)- materials used when producing

Challenges in freight today (example - driver shortages)

1. Reduced trucking capacity: factors tightening capacity -increased road congestion -reduction in driver supply (retirement, stricter regulations, tech) 2. Congestion: -increased road congestion -longer shipping times 3. Trucking capacity: -truck driver shortages -driver age -increased trucking costs -reduced hours of service -california clean air regulations 4. environmental concerns: -clear perception of rail being more fuel efficient

calculate the optimal price (c) and order quantity (Q) when price breaks exists. The quantity discount model (note- to do this you need to know how to calculate EOQ, TAIC)

1. calculate the EOQ for each price level until a feasible EOQ is found -start w/ the lowest price; if feasible then optimal -if the lowest price is not feasible then... compute the TAIC from the feasible EOQ and @ all price break points quantity w/ the lowest TAIC is optimal

economic benefits to warehousing

1. consolidation- inventory from multiple locations is received and combined for shipments to customers; transportation savings 2. breakbulk- large shipments are broken down for smaller deliveries to multiple customer destination; transportation savings 3. in transit mixing- product from multiple sources is mixed to form order shipped to multiple customers; consolidation w/ no storage keeps product moving, maximizes TL volume opportunities, minimizes storage costs, considered cross dock if not ever stores 4. cross docking

Reasons to hold inventory

1. ensure customers needs are met 2. avoidance of losses/missed sales 3. preventing high priced, last minute production, transportation costs 4. preparation for product seasonality 5. ability to take advantage of bulk prices 6. buy now to anticipate of a price increase 7. important to maintain well-balanced inventory

Reasons to avoid inventory

1. requires additional spaces -machines 2. opportunity cost of capital- expanding operations (locations, labor, etc.) 3. spoilage + shrinkage- food, medicine, etc. 4. obsolescence: old technology- pagers, landline, etc. 5. insurance, taxes, etc. 6. inventory can hide problems

Why is it necessary today to manage one's supply chain and list the potential benefits from effective supply chain management

1. superior supply chain performance yields superior financial performance 2. expertise @ scm (plan-source-make-deliver) provides a competitive edge

Determine the optimal order quantity using the quantity discount model. Annual Demand = 40,000 The order cost = $150 Annual holding rate = 20% Price varies depending on the order quantity per the following schedule:Orders between 1 to 1,000 units cost $13. Orders of 1001 to 70,000 cost $12Orders of 70,001 and greater cost $11 1. If the EOQ found on the TAIC curve with price = $11 is feasible, then you do not need to calculate the EOQ on the TAIC curve with price = $12 2. The EOQ found on the TAIC curve with price = $12 is feasible 3. The set of possible solutions is (price quantity combinations): 4. The optimal order quantity and price are: 5. The TAIC associated with the optimal order quantity and price is:

1. true 2. true 3. (c=12 & q=2236), (c=11 & q=70001) 4. (c=12 & q=70001) 5. $485,336

You purchase a part that has normally distributed demand during the order lead time period. Average demand during lead time is 60 units and the std. deviation of demand during order lead time is 5 units. What is the safety stock and statistical reorder point that results in a service level of 99% (assume z=2.33)?

11.7 and 71.7 respectively

tiers of supply chain

tier 1- intermediate component manufacturing + wholesalers distributors tier 2- raw material suppliers + retailers

Transportation cost drivers (stowability, liability, etc)

Weight: -cost per pound; decreases as weight increases unit the carrier vehicle is full (relationship starts again for next load) -small loads should be consolidated into larger loads to maximize scale of economies Density: -cost per pound; decreases as weight increases unit the carrier vehicle is full (relationship starts again for next load) -smaller loads should be consolidated into larger loads to maximize scale of economies Stowability: -off package shapes or sizes can waster cubic capacity -item w/ rectangular shapes are easier to stow -nesting refers to ability of product to be placed in itself or collapsed for better stability Handling: -special equipment may be needed to load or packets will affect handle cost Liability: -carriers must pay for liability insurance or accept financial responsibility -shippers can reduce their risk by; improved packaging & loading (dunnage), reducing susceptibility to loss or damage Distance: -directly contributes to variable expenses (labor, fuel, etc.) -cost curve start above 0 because of fixed costs associated w/ pickup + delivery regardless of distance -however, rate of cost decrease as distance increase (this is the tapering principle)

Define FOB - free on board

Who pays the cost of transportation Goods are delivered to specific point with all charges prepaid Shipment term used to indicate whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping. "FOB shipping point" or "FOB origin" means the buyer is at risk and takes ownership of goods once the seller ships the product

define a supply chain + elements

a supply chain consists of the flow of products+services from: 1. Raw materials manufacturing to retailers 2. component + immediate manufacture to end customers 3. final product manufacturing to wholesalers + distributors

tradeoffs

a technique of reducing or forgoing one or more desirable outcomes in exchange for increasing or obtaining other...Involves a sacrifice to get a product or certain experience

AHC

annual holding cost= (Q/2)kc

AOC

annual ordering cost= (R/Q)S

Cross docking

combines inventory with multiple origins into a pre-specified assortments for a specific customer advantage: transportation opportunities

Planning

coordinating + integrating activating + firms across the SC to achieve maximum efficiency + effectiveness to drive customer value and shareholder returns: 1. forecasting to integration to risk management 2. aggregate planning to materials requirement plan 3. demand management to master production scheduling

Apply the square root rule to calculate the inventory impact of changing the number of warehouses.

economic cost: -relationship between inventory and uncertainty when adding/deleting locations -safety stock increase due to adding a warehouse is equal to: SS2= (square root of N2 / square root of N1) x SS1 SS2= aggregate SS of N2 warehouses N2= number of warehouses in new configuration N1= number of warehouses in old configuration SS1- aggregate SS for N1 warehouses IE; what's the result to safety stock if we go from one warehouse to two? SS2= (square 2 / square 1) x SS1 = 1.41 x SS1 -this means the projected increase in safety stock inventory resulting from adding a warehouse is 1.41 -meaning multiple 1.41 times the current safety stock -if safety stock was 100 unites w/ 1 warehouse; estimate 141 units w/ warehouses (41% increase)

What is supply chain management?

flow of goods and services and includes all processes that transform raw materials into final products. It involves the active streamlining of a business's supply-side activities to maximize customer value and gain a competitive advantage in the marketplace

ROP

formula W/ known constant demand- D x LT if safety stock is needed to accommodate demand uncertainty- D x LT x SS

warehouse consolidation as a service

less receiving. only deal with one shipment. Multiple suppliers ship to a warehouse and consolidate those shipments into one.

How does risk pooling change as we add more warehouses

less risk pooling and hold inventory. more uncertainty in demand and hold more inventory.

impacts of e-commerence

more services are being offered. A warehouse must: -handle high volume of orders (@ least 500,000 order lines per day) -large number of skus -accommodate real time interaction w/ host systems -have stronger emphasis on fulfillment -positioning in the warehouse -million+ square feet -3x employees vs. traditional facilities (even w/ technology) -mix of design, handling, labor

Returns

reverse logistics is for all operations related to the reuse of products + materials. Proper disposal, refurbishing, remanufacturing: 1. repair, reuse, exchange, recycle, disposal 2. reclaim material, reverse logistics

Logistics

the effective + efficient slow and storage of these good and services: 1. trucks, aircrafts, rail, ships, warehouses 2. transportation system to postponement to facility location 3. service response logistics to mass customization 4. logistics networks to onmi channel to warehouses

Operations

the effective + efficient transformation of these material and service into product: 1. quality to JIT/pull systems to six sigma to lean 2. capacity to efficiency to theory of constraints 3. process management