Chapter 9

receiving

Receiving involves unloading goods from a carrier, updating inventory records, and quality inspection, if required.

Some warehouses also perform a production function:

This may include such activities as light assembly of products, like store displays. It might involve customizing products for customers, such as mixing different products into a shipment for customers that do not need large quantities of any one product. It also can include refurbishing returned goods.

push strategy

a supply chain strategy in which a company builds goods based on a sales forecast, puts those goods into storage, and waits for a customer to order the product

pull strategy

a supply chain strategy in which customer orders drive manufacturing and distribution operations

hybrid (push-pull) strategy

a supply chain strategy in which the initial stages of the supply chain operate on a push system, but completion of the product is based on a pull system -that is, as it would in a push strategy, a company mighty forecast sales, build an inventory of components based on the forecast, and hold those components in inventory until a customer order is received. Then, as in a pull strategy, the company would finalize the product based on the customer order. Lego, for example, builds its minifigures but delays their decoration, which can be in many different forms, until an order is received

supply chain management =

companies have greater control over the customer value they provide = higher revenue for the company

third-party logistics (3PLs)

companies that perform some or all of the logistics activities for other companies

things that are sourced/procured during the purchasing process

component parts, raw materials, services, finished goods

pull strategy process

customer orders, plan production, order materials, make product, ship product

types of inventories

cyclical, pipeline, anticipative, seasonal, obsolete

disintermediation

elimination of intermediaries, such as distribution centers, in the delivery of products from a producer to a consumer

days of supply (days of coverage)

estimates how many days the firm's current inventory will last. It is calculated by dividing the inventory on hand by the average daily usage or sales. -this calculation can be used to estimate days of supply for both finished goods and raw or packaging materials

hybrid (push-pull) strategy process

forecast sales, plan production,

upstream flow of finances

from end customer back to producer

storage

holding inventories until they are needed -Proper storage procedures are important to marketing: The product must be warehoused properly to ensure there is no damage. For example, fresh fruit must be refrigerated promptly after it has been received from a supplier. In addition, the goods must be easily found by stock pickers when a customer orders the product.

levy

impose (a tax, fee, or fine) -impose, charge, exact, demand, raise, collect, gather

purchasing costs

Purchasing costs include the costs to place and process orders materials and finished goods. The more often a company places orders for an item, the higher the annual purchasing costs.

obsolete inventory

inventory that can no longer be sold -The product may have expired, been redesigned, or over-ordered, or is at the end of the product life cycle.

what happens to obsolete inventory

it's either disposed of or sold at an extreme discount, both of which can actually cost a company money

the impact of logistics on price

logistics affects price through efficient purchasing, inventory warehousing, and transportation processes that help keep costs down for the consumer

paramount

more important than anything else; supreme

put-away

moving goods to their temporary or semipermanent storage location and updating inventory records.

intermodal transport

multiple types of transportation for the same shipment -Thus, companies can load products into containers that are carried part of the way by rail and part of the way by truck.

product allocation

picking available goods to fill customer orders -Distribution centers can be set up to pick full pallets of goods, full cases of goods, or individual goods. The ability of a DC to allocate goods down to small orders enables customers to buy in quantities that make sense for their business. Walgreens, for example, would not want to order a full pallet of ruby red lipstick that would take years to sell. The DC's allocation function enables Walgreens to order only the quantities it needs.

picking

retrieving packaging and raw materials from storage and moving them to manufacturing to fulfill needs for those materials in production. For finished goods, picking involves retrieving items from storage and preparing them for shipment to fulfill a customer order

companies that employ a pull or push-pull strategy typically establish logistics operations based on

service quality, innovation, and flexibility

which of the following is NOT part of the supply chain? shareholders, consultants, distribution centers, manufacturing, customers

shareholders

re-shoring

sourcing goods and services domestically that were once purchased internationally (the reversal of offshore outsourcing, i.e. the transfer of business operations back to its country of origin) -It is up to the purchasing manager to find the best suppliers, wherever they are located, and to understand the trade-offs involved in global sourcing.

near-shoring

sourcing materials and finished products from countries that are close to, but not in, an organization's own country. Organizations doing near-shoring select suppliers that are closer than previous suppliers.

three basic functions of warehousing activities

storage, movement, and production

the challenge of inventory management is to manage inventories in a way that balances ______ and ______ in a cost-effective manner

supply and demand

supply chain management

the actions the firm takes to coordinate the various flows within a supply chain

obsolescence

the condition of being no longer useful

downstream

the flow of products and services involved in getting the products to customers

there's a difference between the push and pull terms depending on if

they are used in a promotion or a supply chain context

challenge of inventory management

to manage inventories in a way that balances supply and demand in a cost-effective manner

by leveraging the resources and skills of its various component firms, a supply chain provides the end customer with

value

third-party logistics tasks include

warehousing, transportation, information technology, customs clearance, customer service, and return and repair of products

distribution

when a company ships its goods from a warehouse to its stores or customers

product assortment

when a distribution center mixes goods from multiple suppliers into outgoing orders so that each order includes a variety of goods -The product-assortment function enables companies to put into the same truck orders for a variety of products going to the same location.

degree of customization

A pull or hybrid strategy would be a good choice for a company that competes on either: (a) its ability to deliver customized products or (b) a high level of customer service built on manufacturing and distribution flexibility. Dell computers is an example of delivering customized products on a hybrid strategy.

stability of demand

If a firm can't predict demand for its product, it can't create an accurate sales forecast that would allow it to enjoy the benefits of a pure push strategy. Demand uncertainty often occurs when products are in the introductory and growth stages of the product life cycle. During these stages, a firm may want to stick with the maximum flexibility a pull strategy allows. Or the firm may choose a hybrid strategy that commits to inventory of raw and packaging materials without committing to a large amount of finished goods inventory.

accessibility (of transport)

a carrier's ability to provide service from the source of the shipment (a factory, for example) to its destination (a store or even an individual customer)

sustainability

a commitment to a lifestyle that meets the needs of the present without compromising the ability of future generations to meet their own needs

Enterprise Resource Planning (ERP) systems

data management systems that integrate information across all the departments of an organization

the impact of logistics on place

delivering products and services to the correct location, and in a timely manner. Satisfying customers through logistics activities is a prerequisite for maintaining and increasing market shar

the seven r's of logistics

delivering the right product, to the right place, to the right customer, at the right time, in the right quantity, in the right condition, and at the right price

a supply chain consists of...

flows of products and services, financial resources, and information among the companies in the chain

hybrid (push-pull) strategy process

forecast sales, plan production, order materials, customer orders, make product, ship product

push strategy process

forecast sales, plan production, order materials, make product, put in storage, customer orders, ship product

downstream flow of products and related services

from producer to end customer

product sortation

gathering goods with similar characteristics in one area of the DC. The purpose is to facilitate proper inventory controls and effectively provide customer service -For example, a company Page 299that sells sunscreen, which is regulated by the United States Food and Drug Administration (FDA), must keep expired products off store shelves. Product sortation enables companies to maintain control over their inventory and avoid accidentally shipping goods that are no longer fit for sale.

distribution channels (marketing channels)

intermediaries-wholesalers, distributors, and retailers-through which the flow of products travels (products pass through these on their way downstream)

cyclical inventory

inventory a firm carries to meet average demand -The amount of cyclical inventory depends on whether the firm produces or buys the stock (the supply of goods on hand). If the firm produces the stock, the cyclical inventory is likely to equal the quantity a firm determines is most economical to produce at one time. If the firm purchases the stock, the cyclical inventory will be determined by various inputs: quantity discounts, economical transportation quantities, and storage space. Also, inventory carrying costs and the time it takes to replenish stock influence both produced and purchased cyclical inventories.

if companies stock too much inventory, they pay more in

inventory carrying costs than they need to. this money could have otherwise gone towards new product development or advertising

pipeline inventory

inventory that is in transit between suppliers and customers -It is unavailable for sale or use in production. The iPhone 6 is an example of a product that when first introduced had pipeline inventory that could only be promised to consumers at a later date, due to demand higher than existing inventories.

anticipative stock

inventory that is produced or purchased when a company expects some event that will negatively affect stock availability -For example, companies expecting a port slowdown might order extra inventory, knowing that some of it would be delayed in transit.

two metrics that help companies evaluate inventory management

inventory turns and days of supply

from a promotion POV, the promotion pull strategy

involves heavy spending for advertising and promotion, to create a demand that pulls products through the distribution channels

purchasing

involves the sourcing and procurement of raw materials, component parts, finished goods, and services

intermodal

involving two or more different modes of transportation in conveying goods

Companies that employ a pull or hybrid strategy typically establish logistics operations based on service quality, innovation, and flexibility. Such companies benefit from:

-Suppliers that produce and deliver quickly. Purchasing managers try to find suppliers that can offer short lead times so that customers can get their products quickly. -Transportation that ensures on-time delivery. -Use of advanced technology to increase the responsiveness and flexibility of logistics operations. For example, enterprise resource planning (ERP) systems are data management systems that integrate information across all the departments of an organization. ERP systems can communicate with the IT systems of other companies through electronic data interchange (EDI). EDI enables an almost-instantaneous transfer of information from one company's computer to another, enabling firms to react quickly to customer demand.

water transport disadvantage

it's slow!!!!! -For international shipments, water transport is slower than air. For domestic shipments, water transport (by barges on rivers, for example) is slower than both air and surface modes. Water transport must be considered of prime importance for international shipments, but is of much less importance for domestic ones.

main reason airfreight is used sparingly

its cost -it's by far the most expensive way to move goods. Another issue is accessibility; with very few exceptions the last mile will need to be covered by truck. Airfreight makes sense only for goods that are so expensive that they can bear the high cost of transportation, or for those that "absolutely, positively have to be there overnight" (FedEx's former ad slogan).

shipping

loading picked items onto transportation vehicles, updating inventory records, and preparing the necessary documents to transport the items

water transport's advantages

low cost and high capacity

main logistics functions

managing inventories, purchasing, materials management, warehousing, and distribution (including transportation)

companies regularly are members of multiple supply chains or networks that can share...

many of the same suppliers, manufacturers, service providers, and customers

the impact of logistics on promotion

marketing promotions are expected to result in increased sales volume. logistics managers must be part of promotions planning, to ensure that sufficient materials, inventory, storage, and transportation are available to handle the increased sales volume

the four p's of marketing (the marketing mix)

place, price, product, promotion

To manage inventory effectively, firms try to balance product availability with the costs of carrying inventory. To determine the level of inventory to keep in stock, a firm must track three types of costs:

purchasing costs, inventory-carrying costs, and out-of-stock costs (stockout)

damages, inconsistent service and lack of accessibility are all disadvantages of

rail transportation

six transportation modes:

rail, motor, air, water, pipeline, and cyberspace -Knowledge of these modes, including their advantages and disadvantages, is essential to building a transportation network that can most efficiently and effectively add value for customers. Reducing costs or speeding up delivery of products can provide a competitive advantage over other companies.

product accumulation

receiving goods from various suppliers, storing the goods until they're ordered by a customer or other company-owned facility, and consolidating orders to achieve transportation economies of scale -To reduce transportation costs, the DC collects orders from customers until enough goods are ordered to fill vehicles.

movement functions of a warehouse

receiving, put-away, picking, and shipping

from a promotion POV, the promotion push strategy

relies on the sales force and promotion tactics to push products to wholesalers or retailers, who then push those products to consumers

onshoring

sourcing materials and finished products from suppliers in an organization's own country

main advantage of airfreight

speed -For certain types of goods and shipments, air is the only viable option. For example, for flowers to arrive fresh in New York City from South America, they must be flown in; no other mode will do.

logistics

that part of supply chain management that plans, implements, and controls the flow of goods, services, and information between the point of origin and the final customer

inventory carrying costs

the costs required to make or buy a product, including risk of obsolescence, taxes, insurance, and warehousing space used to store the goods

upstream

the flow of financial resources that move from the customer to the companies that were part of the supply chain

seasonal stock

the goods a firm sells only at certain times of the year or during certain seasons -Manufacturers often must start production of seasonal goods early so they can meet demand. Seasonal stock also includes products that are sold year-round but have a much higher level of sales at certain times. Mattel toys, for example, sell all year, but Mattel experiences most of its sales in December. Mattel therefore builds more toys during the third quarter to satisfy seasonal demand at the end of the year.

materials management

the inbound movement and storage of materials in preparation for those materials to enter and flow through the manufacturing process

supply chain

the linked set of companies that perform or support the delivery of a company's products or services to customers

the customer service factor of dependability describes

when firms have deliveries consistent in lead time, when the product will arrive safely, and when orders are complete

two main distribution channels:

wholesalers and retailers

purchasing is an important function for several reasons:

-Materials purchased for manufacturing typically account for 40 to 60 percent of product costs. Any savings a company can make in purchasing costs can add significantly to its profits. -Purchasing is a major factor in the quality of both goods and services. Selecting suppliers that can provide high-quality goods and services enables companies to compete with, or even surpass, the quality of other companies. -By involving appropriate suppliers early in the product-design process, purchasing can help improve product design and time-to-market for new products. -Sourcing materials and products from reliable suppliers ensures that the flow of goods in a firm's supply chain meets demand, leading to superior customer service.

Distribution centers differs from warehouses in that they also perform four additional activities that support company and marketing objectives. These four activities are:

product accumulation, product sortation, product allocation, product assortment

a ______ ______ is a legal obligation to buy a certain amount of product at a certain price from a supplier which must be delivered at a specific date

purchase order

it is a job of the ______ manager to monitor supplier performance and determine ways to measure if a supplier is performing in a manner beneficial to the company

purchasing

the costs that a company must track in order to determine the correct level of inventory to keep in stock

purchasing costs, costs incurred by stockouts, and inventory carrying costs

supply chain strategies

push, pull, hybrid (push-pull)

Companies pursuing the economies of scale that come with a push strategy will have to set up logistics operations that can handle large volumes of product. Specifically, they will benefit from:

-Modes of transportation, such as container ships and railroads, that can inexpensively handle large amounts of product. -Large warehouses equipped to efficiently store, retrieve, and load goods onto vehicles at a fast pace. Companies looking for efficiency will have fewer, but larger, facilities to take advantage of economies of scale. For example, Williams-Sonoma has a distribution center in Mississippi that is over 2 million square feet in size. From there, Williams-Sonoma ships products to various UPS warehouses across the country for final delivery to customers.

factors that contribute to which supply chain strategy is appropriate for a particular company

-stability of demand -degree of cost competitiveness -degree of customization -the speed at which customers need the product

logisticians have jobs like

-supervising trucking and warehousing personnel -determining how much inventory should be stored in warehouses and distribution centers -analyzing how much product to ship from distribution centers to stores, and when -arranging for materials and products to be bought and moved from suppliers to customers

supply chain objectives should be based on a firm's marketing objectives. examples include:

-types and locations of markets to be served -market share and customer service desired -speed with which new products should be developed -cost reduction and profitability goals

disadvantages of a supply chain pull strategy

1. A pull strategy doesn't often allow firms to take advantage of economies of scale. Because the company orders only what it needs to meet immediate production requirements, it typically orders small quantities. Such orders eliminate the possibility of quantity discounts. 2. To effectively implement a supply-chain pull strategy, a firm needs flexible production and distribution facilities. Production must be able to change rapidly to produce different products. Likewise, the distribution system must be able to deliver the product quickly once it's made. Such flexibility is hard to achieve, which explains why few companies practice a pure pull strategy.

disadvantages of a supply-chain push strategy

1. If sales forecasts are not accurate, the company will have too much of a product no one wants or not enough of a product consumers do want. 2. Production facilities set up to manufacture one good over a period of time will respond slowly to changing demand patterns. For example, if gasoline prices suddenly increase and demand for SUVs slows, it is extremely expensive and time-consuming to retool an automotive plant to produce a small, fuel-efficient car instead of an SUV. 3. Inventory carrying costs are expensive. They typically can be 25-30 percent of the cost to produce and deliver the goods. This expense can cut into the cost savings achieved through economies of scale in manufacturing, purchasing, and transportation. The ability to accurately forecast customer sales therefore becomes a priority for companies utilizing a push strategy.

advantages of a hybrid strategy

1. It combines the economies of scale of the push strategy with the flexibility of the pull strategy. 2. It produces more accurate sales forecasts, because firms tend to be more accurate at an aggregate level than at a specific product level. For example, Lego can more accurately forecast the number of minifigures it will sell in a given period much earlier than it can the number of each type of figure decoration it will sell.

disadvantages of a hybrid strategy

1. It may not be as cost competitive as a push system, since the firm cannot take advantage of manufacturing and transportation economies of scale. 2. The firm will still incur costs to store components in inventory. 3. As in a pure pull system, the company will need to develop a distribution system that can deliver products quickly to avoid customer service complaints.

Effective materials management benefits the company in the following four ways:

1. Reduces procurement, transportation, and production costs through economies of scale. 2. Coordinates supply and demand for materials. Cyclical, safety, and anticipative stocks are held in warehouses until needed. 3. Supports manufacturing activities. Materials management ensures that stored or recently received materials get to the production floor when they are needed. 4. Supports marketing objectives by making sure that goods are available to ship to customers in an efficient and effective manner.

advantages of the supply chain pull strategy

1. This method eliminates the risks associated with producing unwanted products, because the good is not made until a customer order is received. 2. Firms can customize products specifically to customer requirements. 3. Inventory carrying costs are minimized. 4. The firm can respond rapidly to changing market conditions.

two advantages of a push supply-chain strategy

1. firms can achieve economies of scale. This means that purchasing can buy in larger lots which lowers purchase prices, transportation can move full vehicles which lowers the per-unit transportation costs, and manufacturing can make long production runs which are more efficient than short runs. The automotive industry, for example, relies on sales forecasts to plan production well in advance. A car maker can drive down costs by placing large orders of raw materials, such as steel and glass. For that reason, a company whose marketing strategy includes objectives related to cost competitiveness and good customer service is a good candidate for this strategy. 2. push strategies often positively affect customer service because the goods are already in stock, awaiting the customer's order.

To carry out the purchasing strategy of a company, purchasing managers perform a variety of activities:

1. select and qualify appropriate suppliers -A company selects suitable suppliers based on criteria established by the purchasing manager.17 The criteria will be those that fit the company's particular needs, such as cost or service capability. 2. negotiate contracts and place purchase orders -Purchasing managers negotiate with a supplier about contract terms and conditions. Based on the terms of the negotiations, the purchasing manager writes a purchase order, which is a legal obligation to buy from a supplier a certain amount of product, at a certain price, to be delivered at a specified date. 3. monitor supplier performance -Purchasing managers establish performance expectations for suppliers and develop ways to measure their performance. Expectations often relate to quality, on-time delivery, rapid response to problems, and accuracy of invoices. If performance does not meet expectations, purchasing managers may reduce the business awarded to the supplier, levy monetary fines, or refuse to do business with the supplier in the future. 4. develop suppliers -Sometimes suppliers need extra help in meeting the expectations of the buying company. Purchasing managers may visit the supplier's operations to better understand issues. They may organize supplier training by company experts or provide financial assistance to suppliers for needed equipment purchases.

degree of cost competitiveness

A push strategy will allow a firm to achieve cost savings through economies of scale in purchasing, manufacturing, and transportation. If cost reduction is part of a firm's strategy, then a push strategy is the obvious choice. Page 290Consumer packaged goods, such as Crest toothpaste, have a lot of competition, and many of the brands are low cost. Therefore Procter & Gamble would want to use a push strategy to ensure that Crest is cost competitive.

inventory-carrying costs

Inventory carrying costs are important to companies because they negatively impact profits...these include storage and handling expenses, the cost of tying up capital in inventory, service costs such as property taxes and insurance, and costs associated with damage to or obsolescence of the good while it is in storage. Inventory carrying costs differ somewhat between companies, so companies calculate their carrying costs based on their own actual cost for each individual part of the overall costs of a product. For ANY product, any amount of carrying costs that the company could save would improve the profit margin the company earns

the speed at which customers need the product

Lead time is the time it takes from placement of an order to delivery of the goods. If customers want a short lead time, the company will need to have products already made and ready to deliver. A push strategy is best for this scenario. "Big box" retailers such as Target and Kmart want their orders from manufacturers filled quickly. For the major types of products these retailers carry, manufacturers would use a push strategy.

movement activities are important to marketing:

They ensure that the right product is shipped, that it is shipped to the right place, in the right quantity, in the right condition, and in a timely manner.

true or false: cost effective transportation helps firms to create place and time utilities that are essential to keeping customers satisfied

TRUE

global sourcing

That approach gives companies access to the highest-quality materials, goods, and services at the lowest-possible price. A number of additional costs are involved in sourcing goods and services from other countries—transportation costs, inventory-carrying costs for goods in transit, and customs duties (tariffs), among other things. Inexpensive labor and materials and high-quality goods and services often offset these higher costs.

Transportation management

Transportation creates place and time utilities that are essential to keeping customers satisfied. Cost-effective transportation can enable companies to market goods to greater distances while maintaining competitive pricing. Transportation management is particularly important for companies that compete globally—it enables them to build global supply chains and compete in new markets.

supply chain orientation

a firm that recognizes and responds to the impact supply chain flows have on its businesses // a management philosophy that guides the actions of company members toward the goal of actively managing the upstream and downstream flows of goods, services, finances, and information across the supply chain....a company that is willing to help coordinate supply chain activities that add value to the end-customer

purchase order

a legal obligation to buy from a supplier a certain amount of product, at a certain price, to be delivered at a specified date

sustainable sourcing

a process of purchasing goods and services that takes into account the long-term impact on people, profits, and planet

out-of-stock costs (stockout)

a situation in which a company does not have enough inventory available to fill an order -In such cases, a customer can either place a back order or cancel the order. A canceled order, of course, means lost revenue. But if the customer places a back order, the company incurs out-of-stock costs: Such costs typically are those associated with processing the back order, overtime production, and expedited shipping to deliver the product as soon as it is available.

closed-loop supply chain

a supply chain that maximizes value creation by recovering value from product or material returns -great practice of sustainability

distribution center (DC)

a type of warehouse used specifically to store and ship finished goods to customers

Materials management typically occurs in

a warehouse. To maximize the benefits of materials management, logistics personnel must effectively coordinate various warehouse functions.

inventory costs could include all of the following EXCEPT ____ costs stockout, advertising, purchasing, out-of-stock, inventory carrying

advertising

Distribution centers perform

all of the same storage and movement functions as warehouses

a speculation strategy is

another name for a push strategy...it's called this because the company speculates on the type and amount of products that the market will want

responsive supply chain

another term for a pull strategy

cyberspace (transportation)

anything that can be digitized can be sent through the Internet and delivered to businesses and homes. Software, documents, and media such as music, pictures, and film are examples of products that can be sent electronically. -Businesses such as Amazon, with its wide selection of digitized books that can be downloaded to a Kindle, are a good example of a company that can make transportation in cyberspace part of their supply chain strategy. Once a firm sets up the technology to transmit data over the Internet, the shipment costs very little and arrives at its destination almost instantaneously.

pipeline transport is

the long-distance transportation of a liquid or gas through a system of pipes (a pipeline) typically to a market area for consumption -is a very specialized mode of transportation that services only a few industries. Pipelines play an important role in providing fuel for industrial, personal, and utility use. Most businesses, however, will not be able to take advantage of pipelines due to the types of products that can be shipped through pipelines. Pipelines have a huge impact on national economies in North America, Europe, and the Middle East. This mode is very efficient and low cost, but it is slow and very limited in the products it can carry

The availability and reliability of transportation also affects

the number and location of suppliers, production facilities, and distribution centers. These, in turn, affect customer service capabilities, product and package design, and inventory-management strategies. Decisions regarding choice of transportation modes, choice of carriers, and in-house versus private carriage all affect how well a company can carry out its competitive and supply chain strategies.

inventory turns

the number of times a firm's entire inventory is sold and replaced -That is, it measures the number of times the inventory "turns over." It is calculated by dividing the cost of goods sold by the company's average inventory level. The higher the turn ratio, the faster the company is converting inventory into revenue. Also, the higher the turn ratio, the lower the chance that inventory will become obsolete. This calculation is usually performed annually for finished goods.

procurement

the process of finding and agreeing to terms, and acquiring goods, services, or works from an external source, often via a tendering or competitive bidding process

the impact of logistics on product

the product element is influenced by input from logistics managers about packaging needs for safe and efficient storage of goods and shipment of those goods to customers

Factors companies must consider in choosing transportation modes include:

transit times, mode accessibility, ability of the mode to handle necessary volumes (capacity), ability of the mode to consistently meet lead time requirements (reliability), cost (this is always a factor but it is more important for certain products than for others)