SUPPLY CHAIN CHAPTER 9

Logistics is:

"...that part of 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." Includes: Warehousing Transportation Reverse Logistics

Motor Less-Than-Truckload(LTL)

(LTL) carriers move small shipments, when you don't have enough to fill a truck. Stop at depots and transfer locations to match load to the final location.

Motor General freight carriers

- carry the majority of goods shipped. Includes common carriers.

Repackaging / Kitting

- for specific customer orders. Literature / Promotional Materials Special packaging such as blister packs

Multiple Warehouses

1)Complicates Inventory Management 2)Duplication in warehouse costs and inventory 3)Lower transportation costs 4)Faster delivery to customers 5)Warehouse can specialize and customize services. 6)Supports growth and expansion

Strategies to consider when determining how many warehouses & where to locate them include:

1)Level of customer service the company provides 2)Amount of inventory the company will maintain 3)Cost of logistics built into the financial model

Warehouse Network Strategy

1)Market Positioned Strategy: Close to customers to maximize distribution services and improve delivery. 2)Product Positioned Strategy: Close to supply source to collect goods and consolidate before shipping products out to customers. 3)Intermediately Positioned Strategy: Midway between supply source and customers, when distribution requirements are high and product comes from various locations

Single Warehouse

1)Simplified Inventory Management 2)Warehouse costs and inventory level will be lower 3)Transportation costs higher 4)Delays in delivery to some customers 5)Warehouse cannot specialize service. 6)Can limit growth potential

Five R's of Reverse Logistics

1. Returns - Customers return products for a number of reasons. An item may be defective, damaged, seasonal, fail to meet expectations, or be excess inventory. 2. Recalls - Recalls are more complex because they typically involve a product defect or potential hazard and may be subject to government regulations, liability concerns or reporting requirements. 3. Repairs - Manufacturers may identify the failure and repair, refurbish or remanufacture the product to like-new condition and resell, or harvest various components for re-use. 4. Repackaging - Most returned products are because customers are dissatisfied with them not because there are defective. These products are typically repackaged and returned to inventory for resale. 5. Recycling - When products reach the ends of their useful lives companies find safe, cost-effective and environmentally friendly ways to dispose of them. Recycling is often mandated by government regulations. By salvaging, reclaiming and re-using components, companies can reduce costs and minimize waste.

Packing

: Putting product into an appropriate container for safe secure and efficient transport. Marking and labeling the container with a Bill of Lading and other information that may be required.

Third Party Logistics (3PL)

A Third Party Logistics (3PL) company is an outsourced provider that manages all, or a significant part, of an organization's logistics requirements for a fee. 3PL providers charge a fee for their services. They typically generate savings in logistics costs due to expertise and size Favored by small businesses Used to a significant degree for international logistics

Types of Ownership: Public Warehouse

A business that provides storage and related warehouse functions to companies for a fee on a short or long-term basis. <Outsourcing> Use their own equipment and staff to operate the facility. Fees are a combination of a standard storage (space) fee plus transaction and services fees. Advantages: No capital investment or property taxes Flexibility: Time, space, service Pay for what need Access to special features and services: Temperature-controlled storage Special Services Inventory Management Expertise Disadvantages: Dependent on outside company Computer system interfaces Space may not be available when / where needed Requires supplier management in addition to warehouse management

Warehouse:

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

Types of Ownership: Private Warehouse

A storage facility that is owned and operated by the company that owns the goods being stored in the facility. Generally established by companies that have a large volume, highly valuable goods or the need for specialized storage or handling. Advantages: Control: Offers control in designing the warehouse to specifications, significant control over operations. Visibility: inventory, material flow, handling, supervision, and costs. Cost: Tax advantages, Operating cost can be lower. Income: Can rent out extra space, provide services for others Disadvantages: Start-up Cost: Capital to build or buy a warehouse. Cost of hiring and training employees. Purchase of material handling equipment. Fixed Location: Not easy to move to another location if the market changes. Fixed Size and Costs: When volume is low, the company still assumes the fixed costs. Management: Requires specialized knowledge

Types of Ownership: Contract Warehouse

A variation of public warehousing that handles the warehouse functions on a fixed contract basis The contract can be for an entire building or for a defined portion of a building. Usually requires a client to commit to a long term agreement (years vs. months) Advantages: Cost: longer term agreement results in lower pricing Space: Committed for the period Service: A more strategic relationship enhances service level and stability in the operations Disadvantages: Flexibility: Committed for a longer period Cost: Pay for space whether you are using or not, locked into rates

Warehouse Network

A warehouse network is the warehouses that a company has in their organizational structure and how they are utilized to managed the company's distribution strategy. The fundamental questions to be answered in establishing a warehouse network are: How many warehouses? Where should they be located? What is the purpose of each?

Third Party Logistics - Advantages

Advantages of Using a 3PL: Cost: Eliminates the need for a company to invest in warehouse space, technology, and staff to execute the logistics process. Logistics Expertise: Knowledgeable of industry best practices and the latest developments in technology. Efficiency: 3PL's can leverage relationships and volume discounts, which result in lower overhead and the fastest possible service.

Private Warehouse Advantages:

Advantages: Control: Offers control in designing the warehouse to specifications, significant control over operations. Visibility: inventory, material flow, handling, supervision, and costs. Cost: Tax advantages, Operating cost can be lower. Income: Can rent out extra space, provide services for others

Contract Warehouse Advantages:

Advantages: Cost: longer term agreement results in lower pricing Space: Committed for the period Service: A more strategic relationship enhances service level and stability in the operations

Cross-Docking Warehouse Advantages:

Advantages: Operational Efficiency: Warehouse operations are more efficient as the material does not have to be stored at the warehouse, moving directly from receiving to shipping. Inventory Efficiency: As there is no storage at the warehouses, total inventory in the supply chain can be reduced. Provides ability to both break bulk and consolidate as needed

Public Warehouse Advantages:

Advantages: No capital investment or property taxes Flexibility: Time, space, service Pay for what need Access to special features and services: Temperature-controlled storage Special Services Inventory Management Expertise

Market Positioned Strategy:

Close to customers to maximize distribution services and improve delivery.

Product Positioned Strategy:

Close to supply source to collect goods and consolidate before shipping products out to customers.

Transportation Company Classifications

Contract Carriers Person or company who transports freight under contract to one or a limited number of shippers Private Carriers person or company that transports its own cargo as a part of a business that produces, uses, sells or buys the cargo that is being hauled. Common Carriers Person or company who transports freight for a fee that can be hired by anyone to transport goods. Exempt Carriers Person or company specializing in services or transporting commodities exempt from regulation by the Interstate Commerce Act.

Third Party Logistics Disadvantages of Using a 3PL:

Control: A company will not have direct control over the logistics operation. Dependency: Outsourcing logistics creates a dependency on the 3PL. Change: Once locked in to a 3PL it is difficult to change 3PL suppliers

Public Warehouse Disadvantages:

Disadvantages: Dependent on outside company Computer system interfaces Space may not be available when / where needed Requires supplier management in addition to warehouse management

Contract Warehouse Disadvantages:

Disadvantages: Flexibility: Committed for a longer period Cost: Pay for space whether you are using or not, locked into rates

Private Warehouse Disadvantages:

Disadvantages: Start-up Cost: Capital to build or buy a warehouse. Cost of hiring and training employees. Purchase of material handling equipment. Fixed Location: Not easy to move to another location if the market changes. Fixed Size and Costs: When volume is low, the company still assumes the fixed costs. Management: Requires specialized knowledge

Fourth Party Logistics (4PL)

Fourth-party logistics (4PL) is an interface between the client company and multiple logistics service providers. A company will select a lead logistics partner (referred to as a 4PL) that is then charged with managing the activities of all the other 3PL's being used by the company.

Transportation Regulation

Granger laws (1870s) - regulated the Railroads Interstate Commerce Act of 1887 - created the Interstate Commerce Commission (ICC). Transportation Act of 1920 - changes to Interstate Commerce Act Motor Carrier Act of 1935 - brought motor carriers under Interstate Commerce Commission control. Transportation Act of 1940 - established Interstate Commerce Commission control over domestic water transportation. Federal Aviation Act of 1958 - created air traffic and safety regulations and the national airport system. Department of Transportation Act of 1966 - coordination of all transportation-related matters.

Typical services offered by 3PL's include:

Inbound Transportation Outbound Transportation Warehousing Pick and Pack Freight Forwarding Customs Brokerage Customs Clearance Order Taking Billing and Invoicing Inventory Auditing Freight Bill Auditing and Payment

Modes of Transportation - Air

Inflexible, Fast, highest cost on a per unit basis Mostly for light, high value goods, over long distances, quickly. Used for international shipment across oceans and when it is need to transport a long distance very quickly Cannot carry extremely heavy or bulky cargo. Half of the goods transported by air are carried by freight-only airlines such as FedEx. The other half is in passenger planes with luggage Regulated on what can be carried (batteries)

Modes of Transportation - Pipeline

Inflexible, Fast, lowest cost on a per unit basis Limited in the variety of commodities they can carry. Must be liquid or gas. Most reliable form of transportation Little maintenance needed once the pipeline is running. Low cost once the capital investment is made Can only transport where the pipeline goes. Must closely manage the changeover of product in the pipe.

Modes of Transportation - Water

Inflexible, Slow, low cost on a per unit basis Very similar to rail. Mainly used when the distance is long, across water and the shipments are heavy, bulky or low per unit price. Can only go where there is navigational waterways and the ports are located. Can be Limited by water depth Includes inland waterway, coastal and intercostal, and deep-sea cargo shipments.

Modes of Transportation - Rail

Inflexible, Slow, lower cost then motor on a per unit basis Inflexible, Slow, lower cost then motor on a per unit basis Rail carriers work closely with trucking companies and have begun purchasing motor carriers to offer point-to-point service. Railroad infrastructure and aging equipment are challenges.

Intermodal Transportation

Intermodal is the use of multiple modes of transportation to execute a single transport shipment. Intermodal is growing substantially because it is fairly cost-efficient and cost-effective. The most common forms of intermodal transportation involve: Rail and Motor Carriers Rail and Water Carriers Roll-on/Roll-off Ships

Transportation Key Tradeoff:

Key Tradeoff: Speed, Flexibility and Cost

Intermediately Positioned Strategy:

Midway between supply source and customers, when distribution requirements are high and product comes from various locations

Modes of Transportation - Motor

Most flexible, Faster then Rail and Water, most costly on a per unit basis Carries > 80% of U.S. Freight. Responsible for the "final mile" (delivery to the customer) General freight carriers - carry the majority of goods shipped. Includes common carriers. Specialized carriers - transport commodities like liquids, petroleum, household goods, building materials, and other types of specialized items. Less-Than-Truckload (LTL) carriers move small shipments, when you don't have enough to fill a truck. Stop at depots and transfer locations to match load to the final location. Full-Truckload (FTL) carriers are used when you have enough to fill the truck, or you don't want other suppliers cargo on your truck (security, faster delivery)

5 Modes of Transportation

Motor Rail Air Pipeline Water

Logistics is necessary to move goods from source to location needed

Move goods and materials from suppliers to buyers Move work-in-process materials within a firm Move finished goods from factory to company warehouse Move finished goods to the customer Return or recycle goods Store these items along the way in supply chains.

Final Assembly Operation

Often called "Postponement" Operation that puts subassemblies together to complete the final product.

Types of Warehouses

Ownership : Public Warehouses Contract Warehouses Private Warehouses Functional: Consolidation Break-Bulk Cross-Docking

Exempt Carriers

Person or company specializing in services or transporting commodities exempt from regulation by the Interstate Commerce Act.

Common Carriers

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

Contract Carriers

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

Receiving:

Physical receipt of material, identification, inspection for conformance with the Bill of Lading (model, quantity, check for damage), update computer system records, put-away, and filing of receiving paperwork.

Shipping:

Preparing products for outgoing shipment. Staging and loading on the correct transportation vehicle. Includes palletizing, weight distribution, and properly loading for shipment.

Transportation Regulation -vs- Deregulation

Pro - Regulation tends to assure adequate transportation service throughout the country. Protects consumers from monopoly pricing, safety, and liability. Con - Regulation discourages competition and does not allow prices to adjust based on demand or by negotiation. Deregulation encourages competition and allows prices to adjust as demand and negotiations dictate. U.S. transportation industry remains mostly deregulated

Intermodal Transportation

Rail and Motor Carriers Offer point-to-point pickup and delivery service known as Trailer-on-Flatcar (TOFC) Rail and Water Carriers Offer point-to-point pickup and delivery service known as Container-on-Flatcar (COFC) Roll-On/Roll-Off Ship specifically designed to allow trucks to be driven directly on and off the ship without the use of cranes. Provides flexibility and speed

Transportation Deregulation

Railroad Revitalization and Regulatory Reform Act (1976) Railroads could change rates without ICC approval Air freight deregulated in 1977 Motor carriers deregulated in 1980 Promote competitive, safe and efficient motor transportation Shipping Act of 1984 Allowed ocean carriers to pool shipments, assign ports, publish rates, and enter into contracts with shippers ICC Termination Act of 1995 ICC was eliminated Ocean Shipping Reform Act of 1998 Requirement for ocean carriers to file rates ended

Primary Functions of a Warehouse

Receiving: Physical receipt of material, identification, inspection for conformance with the Bill of Lading (model, quantity, check for damage), update computer system records, put-away, and filing of receiving paperwork. Storage: The safe and secure retention of products per customer requirements. Picking: Withdrawing products from stock for use or shipment. Packing: Putting product into an appropriate container for safe secure and efficient transport. Marking and labeling the container with a Bill of Lading and other information that may be required. Shipping: Preparing products for outgoing shipment. Staging and loading on the correct transportation vehicle. Includes palletizing, weight distribution, and properly loading for shipment. Verifying Physical inventory existence

Reverse Logistics continued

Reverse logistics can cost 4 - 5 times as much as forward logistics and often requires 12 times as many processing steps. Often viewed as: An "unwanted" supply chain activity. Many companies outsource this activity to a partner It is pure cost of doing business, goal is to minimize the cost Often only done because of regulatory compliance requirement

Reverse Logistics (also known as Returns Management)

Reverse logistics involves the process of moving a product from the point of customer back to the point of origin to recapture value or ensure proper disposal. Backwards flow of goods from customers in the supply chain Reverse logistics is all about resolving customer issues at minimal costs "

Free on Board (F.O.B.) Destination

Seller arranges for transportation and adds charges to the sales invoice. Seller assumes the risk for in-transit loss or damage. Title does not pass to the buyer until delivery is completed.

Free on Board (F.O.B.) Origin

Seller states price at point of origin and agrees to load a carrier Buyer selects the carrier and pays for the transportation Title passes to the buyer when the shipment originates. Buyer assumes the risk for in-transit loss or damage

Decisions driving warehouse management include

Site selection Number of warehouse facilities in the network Layout of the warehouse(s) Methods of receiving, storing, retrieving, and distributing products and materials. Systems to use

Terms of Sale

Terms of Sale is the delivery and payment terms agreed between a buyer and a seller. It establishes the point where ownership is transferred and payment clock starts Free on Board (F.O.B.) Origin Seller states price at point of origin and agrees to load a carrier Buyer selects the carrier and pays for the transportation Title passes to the buyer when the shipment originates. Buyer assumes the risk for in-transit loss or damage Free on Board (F.O.B.) Destination Seller arranges for transportation and adds charges to the sales invoice. Seller assumes the risk for in-transit loss or damage. Title does not pass to the buyer until delivery is completed.

Types of Functions: Cross-Docking Warehouse

The logistics practice of unloading materials from an incoming truck or railcar and loading these materials directly onto outbound trucks or railcars, with little or no storage in between to reduce inventory investment and storage space requirements. Advantages: Operational Efficiency: Warehouse operations are more efficient as the material does not have to be stored at the warehouse, moving directly from receiving to shipping. Inventory Efficiency: As there is no storage at the warehouses, total inventory in the supply chain can be reduced. Provides ability to both break bulk and consolidate as needed

Storage

The safe and secure retention of products per customer requirements.

Warehousing

The true value of warehousing lies in having the right product in the right place at the right time. Warehousing helps provide time and place utility; the ability to locate materials close to where needed. The practice or process of storing goods in a warehouse. Includes receiving, storing, breakdown, repackaging, and preparing items for shipment.

Logistics provides:

Time & place utility- Products have little value to the customer until they are moved to the customer's point of consumption when needed

Transportation is necessary to:

Transportation is necessary to: Move goods from source to location needed Move work-in-process materials within a firm Return or recycle goods

Transportation

Transportation provides Time & Place utility - Products have little value to the customer until they are moved to the customer's point of consumption in the time needed.

Types of Functions: 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. Located closer to the customer base so that the smaller LTL shipments travel the shorter distance, while the larger FTL shipments from the single source travel the longer distance before arriving at the break-bulk

Types of Functions: Consolidation Warehouse

Warehouse operation that receives products from different plants or suppliers, sorts them, and then combines them with similar shipments from other plants or suppliers for further distribution. Located closer to the supply base so that smaller LTL shipments travel shorter distance and can be consolidated into larger FTL shipments traveling longer distance to the customer.

Picking:

Withdrawing products from stock for use or shipment.

Motor Full-Truckload (FTL)

carriers are used when you have enough to fill the truck, or you don't want other suppliers cargo on your truck (security, faster delivery)

Quality Inspections

incoming and outgoing testing.

Private Carriers

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

Transportation management is

the function of planning, scheduling, and controlling the activities related to the movement of product for a company. It includes deciding on mode, carrier and service level.

Motor Specialized carriers

transport commodities like liquids, petroleum, household goods, building materials, and other types of specialized items.