Supply Chain Chapter 9:Logistics:warehousing, transportation, reverse logistics

warehouse network: hybrid approach

"hub and spoke" when there is a centralized warehouse (hub) which holds more of the inventory linked to a series of smaller geographically dispersed warehouses (spokes) which hold only a small amount of inventory to support their local area in the immediate time frame

intermodal transportation

("piggy back" service) sometimes referred to as the sixth mode of transportation, but it is really the use of multiple modes of transportation to execute a single transport shipment. Growing substantially because it is fairly cost effective and efficient

disadvantages of a 3PL

-control- a company will not have direct control over operations -dependency- outsourcing logistics creates dependency on 3PL -pricing-company is locked into pricing model specified in contract

advantages of a 3PL

-cost- eliminates the need for a company to invest in warehouse space, technology, and staff to execute process -logistics expertise- knowledgeable of best industry practices -efficiency- 3PLs can leverage relationships and volume discounts resulting in a lower overhead and fastest possible service

other transportation intermediaries

-freight forwarder -load or transportation broker -shipper's association -intermodal marketing company

advantages of hybrid warehouse network approach

-operating costs are lower- spoke warehouses are smaller than in a purely decentralized model - inventory is also lower- all safety stock is held centrally - customer service is generally better (than in a purely centralized network)

other info about 3PLs

-providers charge a fee for their services -typically generate a 10%-20% savings in logistics costs -favored by small businesses -used to a significant degree for international logistics

logistics management software applications

-warehouse management systems -transportation management systems -global trade management systems

types of warehouses

1. consolidation 2. break-bulk 3. cross-docking

transportation company classifications

1. contract carriers 2. private carriers 3. common carriers 4. exempt carriers

LEAN warehousing concepts

1. cross-docking- eliminates need to store inventory and reduce transportation 2. reduced lot sizes and shipping quantities- company can increase velocity in warehouse and get shipments out faster 3. increased automation- companies are using automated systems to improve efficiencies and throughput times in the warehouse 4. green warehousing- one of the more sustainable goals for a green warehouse is to make it a net zero energy user

the 3 main warehouse network location strategies

1. market positioned strategy 2. product positioned strategy 3. intermediately positioned strategy

returns

an item may be defective, damaged, seasonal, fail to meet expectations, or be excess inventory

advantages of FTL

best way to transport shipments, ideal for high risk or delicate fright shipments, faster than LTL

reverse logistics is all about

damage control and making the process as customer friendly as possible

freight: terms of sale

delivery and payment terms agreed between buyer and seller

warehouse

facility used to store purchases, work in process (WIP), and finished goods inventory

air

fastest and most expensive mode of transportation, cannot carry extremely heavy or bulky cargo (ideally items with a cost to weight ratio)

two ways goods are transported in the air

half of goods are transported by freight only airlines and other half is put in passenger planes with luggage

inbound logistics (necessity of logistics)

move goods and materials from suppliers to buyers

hub warehouse feeds...

the spoke warehouses with inventory as necessary on a regular basis

warehousing provides

time, place and utility; the availability necessary to give materials true value

transportation management systems (TMS)

used to select the best mix of transportation services and pricing

what type of materials are transported by air?

very light, high valued goods that need to travel long distances quickly. ex) jewelry, fine wine, pharmaceuticals, racehorses

break-bulk warehouse

warehouse operation that divides full truckloads of items from a single source or manufacturer into smaller, more appropriate quantities for use or further distribution

market positioned strategy (warehouse network location strategy)

warehouses are set up close to customers to maximize distribution services and improve delivery

specifics of general freight carriers

- can be LTL or FTL carriers - carry majority of goods shipped - does not require any specialized equipment

advantages of a public warehouse

- no capital investment or property taxes - flexibility (short/long term, for seasonal products, can add storage capacity) - lower costs and reduced risks - access to special features and services

trade-offs that will determine how many warehouses the company needs and where they should be located

1. the level of customer service company wants to provide- the greater the level, the more warehouses may be needed 2. amount of inventory company is willing to invest in- the more warehouses needed, the greater amount of inventory company needs to invest in

modes of transportation

1. truck 2. rail 3. pipeline 4. air 5. water

private warehouse

a storage facility that is owned by the company that owns the goods being stored in the facility (buying a house for inventory)

deregulation encourages...

competition and allows prices to adjust as demand and negotiations dictate

true value of transportation

get the right product, to the right place, at the right time by ensuring the product is moved as efficiently as possible from origin to destination

Pipeline

most reliable form of transportation, lowest per unit cost for transportation, limited variety of commodities, little maintenance needed once running

U.S. transportation industry remains

mostly deregulated

technology and trends in transportation

platooning, driverless trucks, drones

storage (primary function of a warehouse)

the safe and secure retention of parts of products for future use or shipment

advantages of a contract warehouse

- services: client can obtain specialized services tailor made to suit needs - cost: can be bundled in contract and negotiated at a lower cost - control: contract warehousing offers a degree of control at a reasonable price

most common forms of intermodal transportation

rail and motor carrier, rail and water carriers, roll on/roll off ships

specifics of a private warehouse

- can be operated as a separate division within a company - can be co-located on site with manufacturing or off site

specifics of a contract warehouse

- contract can be for an entire building or for a defined position within a building - usually requires a client to commit to services for years rather than months - company providing the space handles the employees, equipment, and maintenance

advantages of a private warehouse

- control- offers greater flexibility in designing warehouse and gives users significant control over operations - visibility- inventory, material flow, handling, supervisors, and associated costs - cost- operating cost can be 15%-25% lower if company achieves at least 75% utilization

disadvantages of a private warehouse

- high start up cost- capital to build or buy warehouse, long, risky investment, cost of hiring and training employees, purchase of material and handling equipment - fixed location- not easy to move to another location if the market changes - fixed size and costs- when volume is low, company still assumes the fixed costs

poor reverse logistics can hurt a company (problems)

- inability of info systems -lack of worker training -little or no identification on returns -need for adequate inspection of returns -danger of placing returned products back into sales stock

decisions driving warehouse management

- number of warehouse facilities in the network - site selection - layout of the warehouse - methods of receiving, storing, retrieving, and distributing products and materials

disadvantages of a public warehouse

- potential for incompatible computer systems - specialized services may not be needed or required - space may not be available when/where needed

types of warehouse ownership

- public warehouses - contract warehouses - private warehouses

secondary functions of a warehouse

- quality inspections (incoming and outgoing) - repacking (for specific customer orders) - assembly operation

advantages of cross-docking warehouse

- transportation cost savings (8 FTL shipments are less expensive per unit than 16 LTL shipments) -operational efficiency (material does not have to be stored at warehouse) - inventory efficiency (since there is no storage in warehouse total inventory in supply chain can be reduced)

fundamental questions to be asked in establishing a warehouse network

1. how many warehouses are needed? 2. where should they be located?

objectives of transportation

1. maximize the value to the company through price negotiations 2. to make sure service is provided efficiently 3. to satisfy customers needs

main reasons cross docking is implemented

1. provide a central site for products to be sorted and combined for delivery to multiple destinations in the most productive and fastest method possible 2. consolidate- save on transportation costs 3. break-bulk- easier delivery process for customers

primary function of a warehouse

1. receiving 2. storage 3. picking 4. packing 5. shipping

the five R's of reverse logistics

1. returns 2. recalls 3. repairs 4. repackaging 5. recycling

repackaging

95% of returned products are due to dissatisfaction, they are typically repackaged and returned to inventory for restock or resale

Third party logistics

A 3PL company is an outsourced provider that manages all, or a significant part of an organization's logistics requirements for a fee

public warehouse

a business that provides storage and related warehouse functions to companies on a short or long term bases, generally on a month to month basis for a fee. (hotel for inventory)

private warehouses are generally established by companies that have...

a large volume or highly valuable goods or the need for some type of specialized storage or handling

value of service pricing (deregulation negotiation price)

a pricing strategy which sets price based on the value perceived by the customer ("priced at what the market will bear"

general freight carriers

a trucking company which handles a wide variety of commodities in standard trailers, freight is generally palletized

contract warehouse

a variation of a public warehouse that handles the shipping, receiving, and storage of goods on a contract basis for a fee. (renting an apartment for inventory)

issue with rails

aging infrastructure and equipment

reverse logistics is often viewed as

an "unwanted" supply chain activity (many companies outsource this activity to a 3PL), a cost of doing business, a quality or regulatory compliance issue

Fourth party logistics (4PL)

an interface between the client company and multiple logistics service provider. A company will select a lead logistics partner (4PL) that is in charge of managing all of the 3PLs activities within the company

load or transportation broker (transportation intermediary)

brings shippers and carriers together

types of commodities rails carry

building materials, construction equipment, coal, gravel, sand, lumber, etc.

advantages of LTL

can be cost effective, more available carrier options, ideal for small businesses

green reverse logistics program

can have a positive impact through recycling, reusing materials and products, or refurbishing unused products. Can reduce impact on landfills and deal with dangerous contaminations (drugs ending up in water supply)

warehouse network optimization

companies need to find the balance that will work for their product and market, so they use consulting companies to offer help in this area that use optimization software programs to try to minimize amount of transportation on both ends

freight forwarder (transportation intermediary)

consolidates LTL shipments into FTL shipments, take smaller shipments from multiple companies and consolidate them into larger shipments

other info about reverse logistics

cost 4-5 times as much as forward logistics, requires on average 12 times as many processing steps

disadvantages of FTL

costs more than LTL

regulation con's

discourages competition, doers not allow prices to adjust based on demand or by negotiation

intermediately positioned strategy is used when

distribution requirements are high and product comes from various supply locations (a study may be needed to determine optimal number of warehouses and locations)

risk of return of unsold goods

downstream members in chain might exploit situation by ordering more stock than required and returning large volumes

disadvantage of a contract warehouse

duration- client company is expected to enter into a contract for a specific period of time, generally 3 years

net rate pricing (deregulation negotiation price)

established discounts and accessorial charges are rolled into one all inclusive price, price is tailored to the individual customer's needs

return of unsold goods can act as an incentive...

for downstream members to carry more stock, because of risk obsolescence is borne by upstream partners

warehousing

function that allows a company to receive, store, breakdown, repackage, and distribute items to a manufacturing location, or finished products to a customer

true value of warehousing

having the right product in the right place at the right time

combination pricing (deregulation negotiation price) is common in...

highly volatile markets and changing competitive situations

return of unsold goods

in some industries, goods are distributed to downstream members in chain with understanding that goods may be returned for credit if not sold (newspapers, magazines, pharmaceuticals)

disadvantages of LTL

increased risk of theft/damage, increased shipping times and delays

water

inexpensive, very slow and inflexible, primarily used for heavy, bulky, low value materials (coal, grain, sand, petroleum), competes with rail and pipeline for some cargo shipments

water transportation includes

inland waterways, coastal and intracoastal, and deep-sea cargo shipments

Reverse Logistics (also known as returns management)

involves the process of moving a product from the point of customer receipt back to the point of origin to recapture value or ensure proper disposal (backwards flow of goods from customers in supply chain)

advantages of single warehouse network

less complicated, operational costs and inventory will be lower, no duplication of equipment/staff/managers, network will be centralized-having the best in one place, can more actively focus on needs of the customer

types of commodities specialized carriers carry

liquids, petroleum, households goods, building materials

location of break-bulk warehouse

located closer to customer base so that smaller LTL shipments travel shorter distances while larger FTL shipments from the single source travel longer before arriving at warehouse

location of consolidation warehouse

located closer to supply base so that smaller LTL shipments travel shorter distances and can be consolidated into larger FTL shipments traveling longer distances to customer

methods of receiving, storing, retrieving and distributing products and materials in a warehouse

manual, semi automated, fully automated

repairs

manufactures may identify the failure and repair, refurbish, or remanufacture the product to like-new condition, return it to stock, or harvest various components for re-use

how and what type of materials are transported by pipelines

materials are transported in a liquid or gaseous state; petroleum, natural gas, drinking water, gasoline

recalls

more complex than returns because they involve a product defect or potential hazard that may be subject to government regulations, liability concerns, or reporting requirements

disadvantages of multiple warehouse network

more complicated, higher operating and inventory costs, duplication of equipment/staff/managers, network decentralized- will have to spread out its best people/equipment/inventory systems across a large network

truck

most flexible mode of transportation, carries more than 80% of U.S. freight because of interaction with other modes of transportation, carries nearly anything, impacted by truck driver shortage and hours or service rules

outbound logistics (necessity of logistics)

move finished goods to the customer

material handling (necessity of logistics)

move goods and materials between sites (internal and external)

shipper's association (transportation intermediary)

nonprofit cooperatives which arrange for member's shipping

warehouse network

number of, and the relationship between, the warehouses that a company has in their organizational structure

shipping (primary function of a warehouse)

outgoing shipment of parts, components, and products. Includes packaging, marking, weighing, and loading for shipment, DOES NOT INCLUDE transportation

public warehouse (employees, equipment and fees)

own their own equipment and hire their own staff to manage facility, fees are typically a combo of monthly fees plus a pallet in fee and pallet out fee

logistics

part of the supply chain management that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption in order to meet customer requirements.

exempt carriers (transportation company classification)

person or company specializing in services or transporting commodities exempt from regulation by the interstate commerce act (ex. taxi or farm products)

common carriers (transportation company classification)

person or company that transports freight for a fee that can be hired by anyone to transport goods

private carriers (transportation company classification)

person or company that transports its own cargo as part of a business that produces, uses, sells, or buys the cargo that is being hauled

contract carriers (transportation company classification)

person or company who transports freight under contract to one or a limited number of shippers

receiving (primary function of a warehouse)

physical receipt of material, identification, inspection for conformance with the purchase order (quantity and damage), put-away, and preparation of receiving reports

packing (primary function of a warehouse)

placing one or more times of an order into an appropriate container for safe shipping and marketing and labeling the container with customer shipping destination data and any other required info

advantages of multiple warehouse network

potentially faster delivery to customers from decentralized network that is geographically dispersed throughout the market, assuming adequate inventory in each warehouse

combination pricing (deregulation negotiation price)

price is set a value between the cost of service minimum and value of service maximum, most carriers use some form of combination pricing

global trade management systems (GMS)

provides global visibility, standardization, and documentation to comply with international trade regulations

intermodal marketing company (transportation intermediary)

purchase blocks of rail capacity and sell it to shippers

Trailer on flatcar (TOFC) (intermodal transportation)

rail and motor carrier (truck) offer point to point pickup and delivery service

Container on Flatcar (COFC) (intermodal transportation)

rail and water carriers offer point to point pickup and delivery service

carrier

refers to the company that transports the goods

mode

refers to way in which goods are transported

FOB destination

seller places goods free on board to the buyer, and seller pays freight costs. Ownership of goods remains with seller until it reaches buyer, seller assumes in-transit risks

FOB origin (shipping point)

seller places goods free on board with the carrier, and buyer pays the freight costs. Ownership of goods passes to buyer when carrier accepts goods from seller, buyer assumes in transit risks

truck competes with rail and air for the short to medium hauls

short haul-0-200 miles from driver's home terminal medium haul-over 200 miles from driver's home terminal

disadvantages of single warehouse network

single warehouse (centralized network) may take longer to deliver product to some customers who are remote from central location

Rail

slow and inflexible, but has the most capability, competes for transportation when the distance is long and shipments are heavy or bulky

roll on/roll off ship (intermodal transportation)

specifically designed to allow trucks to be driven directly on and off a ship without the use of cranes, provides flexibility and speed

regulation pro's

tends to assure adequate transportation services throughout country, protects consumer's from monopoly pricing, safety, and liability

transportation

the function of planning, scheduling, and controlling activities related to the mode, carrier and movement of inventories into and out of an organization

cross-docking warehouse

the logistics practice of unloading materials from an incoming truck and loading these materials directly onto outbound trucks, with little to no storage in between, to reduce inventory investment and space requirements

cost of service pricing (deregulation negotiation price)

the setting of a price for a service based on the costs incurred in providing it

Less-Than-Truckload (LTL)

the transportation of relatively small freight, freight does not require entire space of truck

products have little value to the customer until...

they are moved to the customer's point of consumption, (delivered at the right time and location) (customer can be internal or external)

companies use the market positioned strategy when

they have many more customer than suppliers, and customers are spread out geographically around the market. If warehouses are closer to customers, company can minimize transportation costs

companies use the product positioned strategy when

they have many more suppliers than customers, if warehouses are closer to suppliers company can minimize transportation costs

warehouse management systems (WMS)

track and control the flow of goods from the receiving dock to outbound shipments, new tech such as RFID tags facilitate tracking

Full-Truckload (FTL)

transport of goods that fill up a full truck, or a partial load shipment occupying an entire truck

ICC Termination Act of 1995

transportation deregulation, interstate commerce commission (ICC) was eliminated

interstate commerce act of 1887

transportation regulation, created the interstate commerce commission (ICC)

specialized carriers

trucking company which handles the movement of cargo that requires specialized equipment for transportation because of its weight, size, or shape

assembly operation (secondary function of a warehouse)

warehouse operation that puts products together with other items/components before shipping them out to the final customer (ex. literature, spare parts, advertising materials)

consolidation warehouse

warehouse operation that receives products from different plants or different suppliers, stores them, and then combines them with similar shipments from other suppliers for further distribution

product positioned strategy (warehousing network location strategies)

warehouses are set up close to the supply sources to collect goods and consolidate before shipping products out to customers (reverse of market positioned strategy)

intermediately positioned strategy (warehousing network location strategy)

warehouses are set up somewhere midway between the supply sources and the customer to try to balance costs, inventory, and customer service

recycling

when products reach the end of their useful lives and must be scrapped, companies must find safe, cost effective and environmentally friendly ways to dispose of them (can reduce cost and minimize waste)

picking (primary function of a warehouse)

withdrawing components from stock to make assemblies of finished goods, or to ship to a customer