Introduction to Supply Chain Management - Final Exam - Rutgers

Warehouse Network

-A warehouse network is simply the number of, and the relationship between, the warehouses that a company has in their organizational structure -The fundamental question to be answered in establishing a warehouse network are: 1: How many warehouses does the company need? 2: Where should the be located? Trade-offs that will determine how many warehouses the company needs and where they should be located are; (1) The level of customer service the company wants to provide and (2) the amount of inventory the company is willing to invest in.

MODES OF TRANSPORTATION Rail Carriers:

-Compete for transportation WHEN THE DISTANCE IS LONG and the SHIPMENTS ARE HEAVY OR BULKY. -RAIL IS SLOW AND INFLEXIBLE but it has the most capability. -Rail carriers have begun purchasing motor carriers and now offer point-to-point pickup and delivery service. -RAIL COMPANIES USE EACH OTHER"S RAIL CARS. Keeping track of rail cars and getting them where needed can be problematic. -Railroad infrastructure and aging equipment are also problems for the railroads. -Paired with trucks for door-to-door delivery. (RAIL: Carries very heavy shipments including heavy building materials, construction equipment, coal, etc.)

THIRD PARTY LOGISTICS SERVICES 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 & Payment

MODES OF TRANSPORTATION Pipeline Carriers:

-LOWEST per unit cost for transportation -LIMITED in the variety of commodities they can carry. -Most RELIABLE form of transportation -Little MAINTENANCE needed once the pipeline is running. -Materials are transported in a LIQUID or GASEOUS state. (PIPELINE: Carries materials in a liquid or gaseous state including: petroleum, natural gas, drinking water, gasoline).

MODES OF TRANSPORTATION Motor Carriers (Trucks):

-Most flexible mode of transportation. -Carries >80% of U.S. Freight -Competes with Rail and Air for short-to-medium hauls. *Short Haul = 0-200 miles of the driver's home terminal* *Long Haul = Over 200 miles from the driver's home terminal. (TRUCK: Carries nearly anything from packaged household goods to building materials, to liquid petroleum etc.)

Logistics is Necessary to:

-Move goods and materials from suppliers to buyers -Move goods and materials between sites (internal and external) -Move finished goods to the customer

REVERSE LOGISTICS (Continued)

-Reverse logistics cost 4-5 times as much as forward logistics and requires on average 12 times as many processing steps. -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.*

TERMS OF SALE 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.

MODES OF TRANSPORTATION

1. Motor Carriers (Trucking) 2. Rail Carriers 3. Air Carriers 4. Water Carriers 5. Pipeline Carriers INTERMODAL - Combinations of other modes of transportation

Warehouse

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

OTHER TRANSPORTATION INTERMEDIARIES LOAD or TRANSPORTATION BROKER

Brings shippers and carriers together.

Warehousing

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

TRANSPORTATION COMPANY CLASSIFICATIONS Private Carriers:

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.

TERMS OF SALE

The delivery and payment terms agreed between a buyer and a seller.

LOGISTICS MANAGEMENT SOFTWARE APPLICATIONS WAREHOUSE MANAGEMENT SYSTEMS (WMS)

Track and control the flow of goods from receiving dock to outbound shipment. New technologies, such as RFID tags, facilitate tracking.

LOGISTICS MANAGEMENT SOFTWARE APPLICATIONS TRANSPORTATION MANAGEMENT SYSTEMS (TMS)

Used to select the best mix of transportation services and pricing.

Poor reverse logistics can hurt a company

-Problems include: *Inability of INFORMATION SYSTEMS to handle returns. *Lack of WORKER TRAINING in reverse logistics procedures. *Little or no IDENTIFICATION on returned packages. *Need for adequate INSPECTION and TESTING of returns. *Danger of placing returned products BACK INTO SALES stocks. -Can affect the entire supply chain financially. -Can have a large impact on how a consumer views a product or brand, potentially impacting future sales. -Retail returns = 6% to 10% of sales.

TERMS OF SALE 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.

The three main reasons CROSS-DOCKING is implemented is to:

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: Combine smaller product loads into one method of transport to save on transportation costs. 3) BREAK-BULK: Break down large product loads into smaller loads for transportation for an easier delivery process to the customer.

OBJECTIVES OF TRANSPORTATION

1. To maximize the value to the company through price negotiations. 2. To make sure service is provided effectively. 3.To satisfy customer's needs.

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.

TYPES OF WAREHOUSE OWNERSHIP: PUBLIC

A business that provides storage and related warehouse functions to companies on a short or long-term basis, generally from month-to-month. -Own their own equipment and hire their own staff to manage the facility. -Fees are typically a combination of a monthly storage fee plus a pallet-in fee and a pallet-out fee. (Note: fees will vary based on what is being stored and/or a variety of other factors such as: Size and weight of the pallets, if they can be stacked, how fragile the product is, value of goods and hazards associated with the goods). {There may also be some document and account management fees}

TRANSPORTATION PRICING Value of Service Pricing:

A pricing strategy which sets prices based on the value perceived by the customer, i.e, "Priced at what the market will bear".

TRANSPORTATION COMPANY CLASSIFICATIONS: Common Carriers:

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

TRANSPORTATION COMPANY CLASSIFICATIONS Contract Carriers:

CONTRACT CARRIERS: Person or company who transports freight under contract to one or a limited number of shippers.

THIRD PARTY LOGISTICS - DISADVANTAGES

CONTROL: -A company will not have direct control over the logistics operation. DEPENDENCY: -Outsourcing logistics creates a dependency on the 3PL. PRICING: -The company is locked into the pricing model specified in the contract.

TYPES OF WAREHOUSE OWNERSHIP: PRIVATE: (Disadvantages)

HIGH START-UP COST: Capital to build or buy a warehouse. Long, risky investment, 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.

WAREHOUSE NETWORK: HYBRID APPROACH

HYBRID APPROACH - Companies may choose to do some type of a hybrid approach to balance costs and inventory against customer service. CONTINUE LATER

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

OTHER TRANSPORTATION INTERMEDIARIES INTERMODAL MARKETING COMPANY

Purchase blocks of rail capacity and sell it to shippers.

TRANSPORTATION PRICING Cost of Service Pricing:

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

TECHNOLOGY AND TRENDS IN TRANSPORTATION

-Driver Monitoring -Traffic Coordination -Safety Technology -Platooning -New Concept Trucking -Vertically Folding Shipping Containers -Driverless Trucks -Drone Delivery

MODES OF TRANSPORTATION Water Carriers:

-INEXPENSIVE. -VERY SLOW and INFLEXIBLE. -COMPETES with RAIL and PIPELINE. -Includes inland waterway, coastal and inter-coastal, and deep-sea cargo shipments. -Primarily used for very heavy, very bulky, and very low-value materials (e.g., Coal, Grain). -Paired with trucks for door-to-door delivery. (TRUCKS: Carries heavy, bulky, low value materials like coal, grain and sand. Nonetheless, because transport by water i so cheap, almost any item may be shipped by water including: Automobiles, Petroleum, Containerized Cargo, Produce, etc.)

OTHER TRANSPORTATION INTERMEDIARIES FREIGHT FORWARDER:

Consolidates LTL shipments into FTL shipments.

Other Functions of a Warehouse:

QUALITY INSPECTIONS: Incoming and outgoing. REPACKAGING: For specific customer orders. ASSEMBLY OPERATION: Warehouse operation that puts products together with other items/components before shipping them out to the final customer. (EXAMPLES: Literature, Spare Parts, Advertising Materials)

LEAN WAREHOUSING

Warehouse and distribution centers are continuing to develop their LEAN capabilities. CROSS DOCKING - A LEAN concept because it eliminates the need to store inventory, and reduces some transportation, which are both wastes. REDUCED LOT SIZES and SHIPPING QUANTITIES - By reducing lot sizes and shipping quantities, a company can increase velocity in the warehouse, and get shipments out faster. Faster throughput is a LEAN concept. INCREASED AUTOMATION - Companies are using automated systems like pick to light, voice picking, conveyor systems, automated guided vehicles (AGV's), and robotics to improve efficiency and throughput times in the warehouse. GREEN WAREHOUSING - One of the more sustainable goals for a green warehouse is to make it a net zero energy user.

MODES OF TRANSPORTATION Air Carriers:

-Expensive relative to other modes of transportation. -Generally the FASTEST MODE OF TRANSPORTATION. -Transports about 5% of U.S. freight. -CANNOT CARRY EXTREMELY HEAVY OR BULKY CARGO. -MOSTLY FOR LIGHT, HIGH VALUE GOODS, OVER LONG DISTANCES, QUICKLY. -Half of the goods transported by air are carried by freight-only airlines, e.g., FedEx. Other half in passenger planes with luggage. -Paired with trucks for door-to-door delivery. (AIR: Carries items with a high cost to weight ratio. Very light, high-value goods that need to travel long distances quickly including jewelry, fine wines, pharmaceuticals, racehorses, etc.)

TYPES OF WAREHOUSE OWNERSHIP: PUBLIC (Advantages)

-No capital investment or property taxes -Flexibility: +Can be short or long term contract+ +For seasonal products+ +Add storage capacity even on short notice -Lower costs and reduced risk -Access to special features and services: +Temperature-controlled storage +Customer Service, Inventory Ordering, etc. +Office space for customer's sales, accounting, etc.

TYPES OF WAREHOUSE OWNERSHIP: PUBLIC (Disadvantages)

-Potential for incompatible computer systems -Specialized services may not be what is required/needed -Space may not be available when/where needed

TRANSPORTATION PRICING Combination Pricing:

-Price is set at a value between cost-of-service minimum and value-of-service maximum. -Most carriers use some form of combination pricing. -Common in highly volatile markets and changing competitive situations.

Primary Functions of a Warehouse: (5 Functions)

1. RECEIVING: Physical receipt of material, identification, inspection for conformance with the purchase order (quantity and damage), put-away, and preparation of receiving reports. 2. STORAGE: The safe and secure retention of parts or products for future use or shipment. 3. PICKING: Withdrawing components from stock to make assemblies or finished goods, or to ship to a customer. 4. PACKING: Placing one or more items of an order into an appropriate container for safe shipping, and marking and labeling the container with customer shipping destination data, and other information that may be required. 5. SHIPPING: Outgoing shipment of parts, components, and products. Includes packaging, marking, weighing, and loading for shipment.

TRANSPORTATION REGULATION

1870-1970 -GRANGER LAWS (1870s) - Regulated the Railroads. -INTERSTATE COMMERCE ACT of 1887 - Created the Interstate Commerce Commission (ICC). << MOST IMPORTANT ACT >> -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. (Study Note: Don't worry about the dates)

TRANSPORTATION DEREGULATION

1970 to Today 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. (Study Note: Don't worry about the dates.)

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 a 10-20% savings in logistics costs. -Favored by small businesses. -Used to a significant degree for international logistics.

TYPES OF WAREHOUSE OWNERSHIP: PRIVATE

A storage facility that is owned by the company that owns the goods being stored in the facility. -Generally established by companies that have a large volume or highly valuable goods, or the need for some type of specialized storage or handling. -Can be operated as a separate division within a company. -Can be co-located on-site with manufacturing, or off-site.

TYPES OF WAREHOUSE OWNERSHIP CONTRACT

A variation of public warehousing that handles the shipping, receiving, and storage of goods on a CONTRACT BASIS -The contract can be for an entire building, or for a defined portion within a building -Usually requires a client to commit to services for years rather than months -The fee structure may be fixed cost, cost-plus, or a combination of both. -The company providing the space handles the employees, equipment, and maintenance.

TYPES OF WAREHOUSE OWNERSHIP: PRIVATE (Advantages)

CONTROL: Offers greater flexibility in designing the warehouse and gives users significant control over operations. VISIBILITY: Inventory, material flow, handling, supervision, and associated costs. COST: Operating cost can be 15%-25% lower if the company achieves at least 75% utilization.

THIRD PARTY LOGISTICS - ADVANTAGES

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.

Green Reverse Logistics Programs

Can have a positive impact on the environment though activities such as recycling, reusing materials and products, or refurbishing unused products. -(Example: Unused pharmaceutical product returned to the pharmacy rather than "flushing it down the toilet" which ultimately causes the drug to end up in the water supply).

TYPES OF WAREHOUSE OWNERSHIP: CONTRACT (Disadvantages)

DURATION: The client company is expected to enter into a contract for a specific period of time; generally three years. (NOTE: Many of the advantages and disadvantages of public warehouse also apply to contract warehousing).

TRANSPORTATION COMPANY CLASSIFICATIONS Exempt Carriers:

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

TRANSPORTATION PRICING Net-Rate Pricing:

Established discounts and accessorial charges are rolled into one all-inclusive price. Pricing is tailored to the individual customer's needs.

MODES OF TRANSPORTATION Motor Carriers (Trucks) FULL-TRUCKLOAD (FTL)

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 (sercurity, faster delivery).

FOURTH PARTY LOGISTICS (4PL)

Fourth-party logistics (4PL) is an interface between the client and the 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. -Ideally, all aspects of the client company's supply chain handled by 3PL's would be managed by the 4PL organization.

MODES OF TRANSPORTATION Motor Carriers (Trucks) GENERAL FREIGHT CARRIERS

GENERAL FREIGHT CARRIERS: -Carry the majority of goods shipped. Includes common carriers.

Return of Unsold Goods

In some industries, goods are distributed to downstream members in the supply chain with the understanding that the goods may be returned for credit if they are not sold e.g., newspapers, magazines, even pharmaceuticals. -This acts as an incentive for downstream members to carry more stock, because the risk of obsolescence is borne by the upstream supply chain partner. -This acts as an incentive for downstream members to carry more stock, because the risk of obsolescence is borne by the upstream supply chain partner.

MODES OF TRANSPORTATION Intermodal Transportation:

Intermodal is 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 -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*

MODES OF TRANSPORTATION Motor Carriers (Trucks) LESS-THAN-TRUCKLOAD (LTL)

LESS-THAN-TRUCKLOAD: -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 locations.

WAREHOUSE NETWORK: MULTIPLE WAREHOUSES

MULTIPLE WAREHOUSES (Versus single warehouse) POSITIVES: - Potentially faster delivery to customers from a decentralized network that is geographically dispersed throughout the market, assuming adequate inventory in each warehouse. NEGATIVES: -More complicated -Operating costs and inventory will be higher as each warehouse costs money to staff and operate. Duplication of equipment, warehouse staff, and managers. -Network will be decentralized and the company will have to spread its best people, equipment and inventory systems across a larger network.

OTHER TRANSPORTATION INTERMEDIARIES SHIPPERS' ASSOCIATION

Nonprofit cooperatives which arrange for members' shipping

Types of Warehouses

OWNERSHIP TYPES: -Public Warehouses -Contract Warehouses -Private Warehouses FUNCTION TYPES: -Consolidation -Break Bulk -Cross-Docking

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). The U.S. transportation industry remains mostly deregulated.

LOGISTICS MANAGEMENT SOFTWARE APPLICATIONS GLOBAL TRADE MANAGEMENT SYSTEMS (GTM)

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

REVERSE LOGISTICS (also known as Returns Management)

Reverse logistics 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.

TYPES OF WAREHOUSE OWNERSHIP: CONTRACT (Advantages)

SERVICES: Client can obtain specialized services tailor-made to suit their needs. COST: Can be bundled in the contract and negotiated at a lower cost. CONTROL: Contract warehousing offers a degree of control at a reasonable price. (NOTE: Many of the advantages and disadvantages of public warehouse also apply to contract warehousing).

WAREHOUSE NETWORK: SINGLE WAREHOUSE

SINGLE WAREHOUSE (versus multiple warehouses) POSITIVES: -Less complicated -Operating costs and inventory will be lower -No duplication of equipment, warehouse staff and managers -Network will be centralized and the company will have its best people, equipment and inventory systems concentrated in one place. -Warehouse can be more actively focus on the needs of its customers. NEGATIVES: -However, the centralized network may take longer to deliver product to some customers who are remote from the central location.

MODES OF TRANSPORTATION Motor Carriers (Trucks) SPECIALIZED CARRIERS

SPECIALIZED CARRIERS: -Transport commodities like liquids, petroleum, household goods, building materials, and other types of specialized items.

Decisions that are driving warehouse management include:

Site selection, the number of warehouse facilities in the network, the layout of the warehouse(s), and the methods of receiving, storing, retrieving, and distributing products and materials.

TRANSPORTATION

The function of planning, scheduling, and controlling activities related to the mode, carrier, and movement of inventories into and out of an organization. (Get the right product, to the right place, at the right time by ensuring the product is moved as efficiently as possible from point-of-origin to point-of-destination).

TYPES OF WAREHOUSE FUNCTIONS: CROSS-DOCKING

The logistics practice of unloading materials from an incoming truck or rail-car and loading these materials directly onto outbound trucks or rail-cars, with little or no storage in between to reduce inventory investment and storage space requirement.

TYPES OF WAREHOUSE FUNCTIONS: BREAK-BULK

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

TYPES OF WAREHOUSE FUNCTIONS: CONSOLIDATION

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.