LOGISTICS CHAIN OPTIMIZATION

QUICK RESPONSE AND ITS SIMILARITY WITH JUST IN TIME

A further development of the JIT approach is that of quick response (QR). The aim is to link the manufacturer more closely to the actual demand at the retail level

VENDOR MANAGED INVENTORY (Main feature)

A means of optimizing Supply Chain performance in which the manufacturer is responsible for maintaining the retailer's inventory levels. The retailer has access to the manufacturer 's inventory data and is responsible for generating purchase orders.

ZONE PICKING

A method of order picking that involves dividing stock-keeping units (SKUs) into a series of different zones with each warehouse employee trained to pick within an assigned zone. An order is moved from zone to zone to have items added.

CLUSTER PICKING (MAIN BENEFITS)

A methodology of picking into multiple order containers at one time. There are two main piece picking systems that benefit from the use it: -Pick to cart operations, in which, a cart would be loaded with multiple totes or shippers and the picker will make one pass through the pick zone and sort to the pick containers, therefor unproductive travel is avoided. -Vertical lift modules (VLM) or carousel operations utilizing the independent zone picking technique, the picker would setup the pick container batch, this would initiate the mechanized pick modules, and the items would be sorted to the proper pick container. This technique is used to optimize the VLM & carousel pods by limiting the number of machine cycles.

INTEGRATED LOGISTICS

A recognition that the interrelationships between the elements of logistics must be considered within a global perspective. The integrated system must be considered and not just an individual element.

TRADE OFF

A technique of reducing costs in one logistics field or activity, taking into account that this decision is increasing costs in other logistics element , if you acknowledge that this trade off maximizes the total return or effectiveness of the logistics system, under given circumstances

PERIODIC REVIEW SYSTEM

Also kwown as fixed interval, it works on the premise that the stock level of the product is examined at regular intervals and, depending on the quantity in stock, a replenishment order is placed. The order size is selected to bring the stock to a predetermined level. Thus, that order size will vary each time a new order is placed. Both T (reorder cycle time) and L (lead time) are constant values while Q (quantity ordered) varies.

Relation between primary and secondary transport

An effficient transport strategy for a company is to arrange full truck loads in primary transport from a central distribution centre to the regional centres and from there delivery vehicles in secondary distribution will be organized to deliver to the final customers.

RELATION BETWEEN RETURNS AND REVENUE IN A COMPANY

Companies that ensure timely delivery and processing of returns position themselves to save more or earn more from the returned product. From refurbishing, repackaging, and reselling to parts reclamation and recycling, returned products are often important sources of incomes for the company.

FIXED POINT REORDER SYSTEM

For this system it is the time when the order is placed that varies. A specific stock level is determined, at which point a replenishment order will be placed. The same quantity of the product is reordered when that stock level is reached.

STATIONARY PERIODS IN THE SUPPLY CHAIN

In the supply chain structure, there are periods when the material or product is stationary. They are periods usually for storage or to allow some changes to the product to take place (eg. manufacturing, assembly, packing, break-bulk,...)

DISCRETE PICKING

In this order picking system a single worker walks to pick all the items necessary to fulfill a single customer order. A picker is moving throughout the warehouse picking the various parts of an order before coming back to a depot to return the fully picked order. The picker then gets the next order and repeats the process.

ISSUES AFFECTING EOQ

It does not take into account the fact that unit delivery cost vary with the quantity ordered. This can be a significant "trade-off" (inventory versus transport costs) that should be considered even more than (inventory versus reorder costs)

BENEFITS OF A CENTRALIZED WAREHOUSE

It ensures an effective way to manage its inventory, and therefore a tight control on them. It also helps to save costs in staff and with a better monitoring of the service provided in addition to lower operating costs. On the opposite, you are in serious risk of not fulfilling orders in time and make customers unhappy because of being late in the delivery of orders.

CROSSDOCKING (WAREHOUSE FUNCTION)

It is a process where products are moved directly from goods into the dispatch bays. This replaced the need to place the product into store and any subsequent picking operation. This process needs the full support of suppliers as to how they present the product (clear labelling, on time delivery...).

REPAIR PROCESS (REVERSE LOGISTICS)

It is a regular feature in service-based products under a warranty period, and almost all consumer durables need repairs on a regular basis.

SPECULATIVE STOCK

It is a stock with a high degree of risk. It offers the possibility of substantial returns to compensate for its higher risk profile. This kind of stocks are favored by speculators and investors because of their high-reward, high-risk characteristics.

THE REORDER POINT

It is a technique to determine when to order because a specific level of stock has been achieved. Here we have considered several variables such as the average and maximum lead time from suppliers, the average and maximum demand from customers and the safety stock level.

JUST IN TIME RESPONSIBILITIES AND THEIR RELATION WITH INVENTORY COSTS

It is an inventory management system based on placing and receiving orders when it is necessary for manufacturing. It can quickly reveal areas that need improvement, improve efficiency and productivity, free up additional workspace and free up more working capital. For it work, you need to have reliable suppliers who provide consistent-quality products, preferably with warehouses close enough to your location to make speedy deliveries. Therefore these companies will have higher inventory costs because of their commitment to assist on manufacturer´s needs.

STEM DISTANCE AND ITS RELATION WITH THE NUMBER OF DCs

It is the distance to and from a delivery zone: from the Distribution Centre outwards to the first 'drop' point and return from the final 'drop' point back to the DC.

WORKING STOCK

It is the inventory available for the normal demand during a given period. The items here arrive in the right quantity to respond to the corresponding demand . It is also called "cycle stock"

HOLDING FUNCTION (WAREHOUSE FUNCTION)

It is the main function of a warehouse for the finished products ready for delivery. So, the area allocations for materials at different points of time is necessary to retrieve those materials as and when required for ensuing delivery to end customers or retailers. Thus, this function has to be properly scheduled looking at variables such as product categories, product mix, product characteristics, shipment arrival time, deadlines, etc.

RISK COSTS (INVENTORY CARRYING COSTS)

It occurs through pilferage, deterioration of stock, damage and stock obsolescence.

WAREHOUSE MANAGEMENT SYSTEM (MAIN QUALITIES)

It will maximize your business processes and should have: -Maximum functionality. -Ease of use. -Complete transaction management, it will let you manage everything. -Flexibility, to be able to scale with a company's growth and adapt to meet future requirements. -Useful, easy-to-read Metrics -Compatible with ERP Integration -Value for ROI (Return On Investment)

ECONOMIC ORDER QUANTITY (EOQ)

It's the traditional method of calculating the appropriate quantity to order, an attempt to estimate the best order quantity by balancing the conflicting costs of holding stock and of placing replenishment orders.

PERFORMANCE OF A WAREHOUSE

Its judged by productivity and cost performance, to achieve polemic goals of customer satisfaction and lower cost of operation. Warehouses can be redesigned using simulation models for maximum space utilization and increased material flow by automotion to achieve productivity gains and cost reduction.

Percentage of Total Logistics Costs that Inventory Carrying Costs usually take

It´s between 20 and 30% (25% safe bet) of the value of the inventory

Recycling and disposal process in Reverse Logistics

It´s the activity where a company recovers and processes parts or components from products that can reused for any other industrial purpose to obtain a profit out of it. When the the product or component cannot be used for any other industrial purpose it needs to be handled in a way that doesnt damage environment.

ROLE OF LOGISTICS IN THE SUPPLY CHAIN

Logistics is the key to the success of the SC, as it bridges the different links into the Supply Chain. Logistics adds value to the supply chain processes if inventory is strategically positioned all along the SC to serve customers efficiently. The largest contributor to logistics cost is transportation: the movement of raw materials to a processing plant, parts to a manufacturer , and finished goods to wholesalers, retailers and customers.

CONTINUOUS REPLENISHMENT PROGRAM (BRIEF DEFINITION)

Method of replenishing products in real time as needed only for the sold amount. The main goal is to develop free-flowing order fulfilment and delivery systems, so that pipeline inventories can be substantially reduced. Such systems use up-to-the-minute point-of-sale information (via electronic point-of-sale - EPOS - systems) to identify real-time demand and to pull product through directly from the supplier, through the DC and on to the retail outlet.

PRIMARY TRANSPORT

One of most important categories of transport costs, sometimes called trunking or line haul. This element is generally undertaken using road freight transport, but of course for some bulk products other modes of transport are used.

SERVICE COSTS (INVENTORY CARRYING COSTS)

Stock management and insurance cost (the cost of servicing the inventory - not to be confused with customer service which generates different costs.

Fixed Interval Reorder Point

The inventory is replenished with a fixed schedule (every two weeks, at the beginning of the month...) where inventory is reviewed and a new order is placed. The amount ordered will be different each time and it needs to bring the stock level to a specific point.

DELIVERY TRANSPORT

The process of fulfilling orders from the regional or local DC to the customer. This can be carried out by a company using its own fleet of vehicles or by a third-party carrier.

INVENTORY REPLENISHMENT SYSTEMS

The purpose of them is to keep inventory flowing through the supply chain by maintaining efficient order and line item filling rates. This process helps prevent the cost of an overstocked inventory. They try to set up the right balance between having high levels of stock to fulfill demand and low levels of stock to reduce inventory holding costs.

WHY INVENTORY HOLDING COSTS REMAIN STABLE WHEN NUMBER OF DCs INCREASE

There are more material flow and turnaround so costs of inventory do not increase. There are less risks and less insurances because of the higher flow of goods. Materials are less time stored.

NON VALUE ADDED ACTIVITITES IN THE SUPPLY CHAIN, HOW CAN YOU IDENTIFY THEM?

These activities need to be identified and minimize to make the supply chain effective because they are negative for the company´s resources and reduce the system performance. They are normally related to the inadequate use of the resources or the lack of them. These resources may be the money, manpower , machines or space-time. For example, the waiting for being processed during a long time because of the machine capacity or a improper process layout could be an example of this activity in the manufacturing process. This the work-in-progress inventory hold-up which should be identified as soon as possible.

ORDER PICKING (EFFECTS ON WAREHOUSING COSTS)

This is an essential and key warehouse operation in terms of costs. When you receive an order from a customer, items need to be retrieved from the warehouse in the correct quantity and in time to get the customer satisfaction and to achieve high levels of order accuracy. You will increase costs if this operation is not well performed so it is essential a good choice of the type of order picking system you are going to implement in yor warehouse operations

BREAK-BULK (WAREHOUSE FUNCTION)

This is an operation which receives orders from manufacturers and ships them to individual customers. The warehouse which is specialized in doing this function sorts individual orders and dispatch them for local delivery, saving freight costs for the manufacturer.

SAFETY STOCK

This is the stock that is used to face the unforeseen temporary fluctuations in demand. It is sometimes known as 'buffer' stock, as it creates a buffer to take account of that unpredictability. In order to avoid stockouts, some level of safety stock must be held.

REMANUFACTURING PROCESS (REVERSE LOGISTICS)

This proccess ocurrs when during the usage of the product or machine, it undergoes wear and tear. Worn-out parts are replaced with new ones, and the performance of the product is upgraded to the level of a new one.

REFURBISHING PROCESS (REVERSE LOGISTICS)

This system usually operates through the company's services centers. The physical collection of defective products is perfomed through a dealer network. These products are sent to the nearest service center for this process. The refurbishment process is applied over products whose warranty period is over but need any adjustment to keep on working.

SUPPLY CHAIN vs LOGISTICS, What´s the widest concept?

While LOGISTICS is essentially a planning orientation and framework that seeks to create a single plan for the flow of products and information through a business, SUPPLY CHAIN is a wider concept because builds upon this framework and seeks to achieve linkage and coordination between the processes of other entities in the pipeline, i.e. suppliers and customers, and the organisation itself. In other words, LOGISTICS = MATERIALS MANAGEMENT + DISTRIBUTION. SUPPLY CHAIN= SUPPLIERS + LOGISTICS + CUSTOMERS