Logistics (Final Modules 1-3)

What are some of the costs of stock outs?

back orders: occurs when a seller has only a portion of the products ordered by the buyer lost sales: some customers will turn to alternative supply sources lost customers: customer permanently switches to another supplier

What makes up inventory carrying costs?

capital/opportunity cost, inventory service cost, storage space cost, inventory risk cost

What are all of the cost and service elements?

cost of service level inventory carrying cost quantity costs order processing and information costs transportation costs warehousing costs

In terms of logistics customer service: Benchmark according to ____

customer expectations (not just your competition or internal standards)

Define customer service as it relates to logistics

customer service is the output of the logistics function and is the place component of the marketing mix, used to keep customers, and used as a competitive weapon to secure customers

Explain the deliverable of order fulfillment: Transparency

customers expect transparency, technology allows to track shipments in real time, transparent service can help customers compensate when the unexpected happens, and it improves planning, execution, and evaluation

Investments in information technology should do what?

decrease the cost of lost sales

What is the planning based supply chain strategy?

forecasts generated independently throughout supply chain - position-by-position, forecasts drive production and distribution; little to no coordination push to customer (grocery and household consumer items; office supplies)

What is an intensive distribution strategy?

getting products in the hands of all customers across a broad market geography; high volume, low cost; efficiency and value ie: every day items like groceries, McDonalds, starbucks

What makes up transportation costs?

inbound and outbound transportation

What is exclusive distribution strategy?

intentionally reaching a limited number of customers to maintain prestige; low volume, high price; differentiation ie: luxury brands: Tesla, rolex

How does logistics create value?

movement - transportation storage - inventory levels, locations, warehousing principles processing - the flow of information and the visibility of shipments during movement and storage

What is a selective distribution strategy?

occupying a strategic position among a small number of customers or in a select region; a loyal following within a product niche or limited geography ie: climate specific gear

What makes up quantity costs?

production set up cost, cost of lost capacity, material handling, procurement cost

what are the seven rights of logistics?

right product right customer right time right condition right quantity right place right cost

Explain the deliverable of order fulfillment: Service recovery

service failure is inevitable, service recovery is vital, contingency planning helps recovery

What elements make up the Supply Chain Strategy?

supply strategy, operations strategy, and logistics strategy

What are possible reactions to stock outs?

switch price range, switch brands, go to a different store, etc

What is the GSCF (Global supply chain forum, research center at OSU made up of high profile companies: L brands, Bob Evans etc.) definition of supply chain management?

the integration of key business processes from end user through original suppliers that provides products, services, and information that add value for customers and other stakeholders

What makes up warehousing costs?

the number of warehouses and their locations

Define logistics

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

What is the Agile Supply Chain Strategy?

this is a "pull" system all the way back to the point of supply (and possibly inclusive of supply with "buy to order" approach); leanest of the lean models; were waiting to see consumer buy, then start production ie: aircrafts, construction

What is the biggest cost category of logistics?

transportation

What are Deliverables of Order Fulfillment?

1. Availability 2. Delivery 3. Transparency 4. Service Recovery 5. Operational Efficiency

What are the 3 steps to calculating stockout costs?

1. Evaluate customer response 2. Estimate consequence costs 3. Calculate the Expected Stock-out cost

What are the stages of the customer service audit?

1. External customer service audit (look at competitors) 2. internal customer service audit (how are we doing) 3. identifying opportunities and methods for improvement 4. establishing customer service levels

What are potential supply chain fulfillment strategies?

1. Planning based supply chains 2. Agile supply chains 3. Lean supply chains 4. Leagile supply chains

What is the process for establishing an appropriate logistics customer service strategy?

1. determine channel service levels based on knowledge of consumer reactions to stock-outs 2. examine cost/revenue tradeoffs 3. use ABC analysis for customers and products (grouping into categories based on importance; products and customers) 4. Conduct a customer service audit

Why is excellent logistics customer service important?

1. existing customers are cheaper (5x more expensive to acquire new customers than have repeated purchases) 2. existing customers are more loyal (leads to repurchase intentions and has been linked to market share) 3. Existing customers often buy more 4.Existing customers are a good source for referrals 5. lifetime value of customer

What are the five utilities?

1. possession - creating a desire for the product; marketing aspect, how do we get consumers to want our products? 2. Form - driven by production and operations; how do we develop the product in a form that the customer will want? 3. Time - driven by logistics 4. Place - also driven by logistics 5. quantity - also driven by logistics

List some percentages for what customers do when faced with a stock out

31% buy item at another store (manufacturer may not care but store will) 26% substitute different brand (store may not care but manufacturer of brand will) 19% substitute within same brand 15% delay purchase 9% do not buy item

Explain the deliverable of order fulfillment: Availability. What are key measures of Availability?

Availability - product availability is the most basic output of an order fulfillment system; availability costs money ie evaluate tradeoffs btwn inventory and stock out costs stock out frequency, fill rate, orders shipped complete

How do u calculate a customers lifetime value?

Average monthly spending with your company * life expectancy

What makes up cost of service level?

Customer service cost, cost of parts and service support, cost of returns handling

Explain the deliverable of order fulfillment: Delivery. What do customers care about when it comes to delivery?

Customers expect timely delivery. Delivery capability is cross functional, if anyone who touches an order drops the ball, delivery is negatively affected. customers care ab: speed (length of order cycle), consistency, flexibility

What is the Leagile (Lean + Agile) Supply Chain?

Functions like lean-push but rather pushing finished goods to distribution centers, WIP (works in progress) pushed to DCs for customization there; like lean-push, factory builds to distribution center replenishment but with works in progress not finished goods (ie: HP printers in Europe, send printer to DC and then when an order is placed add customization to printer at DC)

Increasing the number of warehouses does what to inventory costs, transportation costs, and sales?

Increasing the number of warehouses increases inventory cost but decreases transportation costs and decreases the cost of lost sales

What are the different types of distribution strategies?

Intensive distribution selective distribution exclusive distribution

What is the lean supply chain strategy?

Inventory position is determined at distribution center based of forecast; depleted stocks at distribution centers are replenished as they are consumed - this give is appearance of "pull" but the replenishing supply is still speculative (not actual orders); supplies to production are driven by forecast yet can be adjusted *Replenishment drives production but plan (ie forecast) drives supply *push/pull point is at the distribution center

What is the total cost concept?

It views the sum of logistics operations as a system, and seek to minimize the total cost of the system rather than the individual functions ie: if you do not spend a lot of money and have very slow transportation, this will hurt customer service and may not save you in the long run

What is the relationship btwn inventory investment and service level?

Normal distribution; to get higher and higher service level, you will need more and more inventory investment

What is the Pareto Principle?

Pareto principle states that 80% of sales comes from 20% of customers

What is the CSCMP (council of supply chain management professionals) definition of supply chain management?

Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies

Define Firm's logistics System

The network of organizations (companies) and activities engaged in managing the movement (transportation) and storage of products (warehousing and inventory) and services as well as the flow of information from the source to the customer

What is the formula to calculate stockout costs?

The sum of: backorder probability * cost per incident + lost sale probability * cost per incident + lost customer probability * cost per incident

What is the relationship between lot quantity costs and inventory carrying costs?

They are inversely related; if lot quantity costs increase, inventory carrying costs decrease, and vise versa

Explain the deliverable of order fulfillment:

Two step process to match service to needs: identify relevant cost-service tradeoffs, calculate costs and benefits of service offerings

Using faster modes of transportation does what to sales?

Using faster modes of transportation decreases the cost of lost sales

What is a customer order decoupling point?

a point where the inventory is positioned to allow the production process to operate independently of the customer order delivery process