14-5: Logistics in Supply Chain Management

objective of inventory management

Minimize sum of inventory costs while maintaining an adequate supply of goods to satisfy customers

broad applications of RFID

- has streamlined the inventory process and made inventory management easier - the growth of omni-channel marketing and the need for orgs to be more accurate than ever with inventory has led to rapid adoption

tech advances create new challenges for manufacturers:

- how to maintain high level of customer service when customers never enter a store or meet with a salesperson - how to deal with returns of a product that does not exist in a physical form

reorder point equation

(order lead time x usage rate) + safety stock

bonded storage

- A warehousing arrangement in which imported or taxable products are not released until the products owners pay US customs duties, taxes or other fees - enable firms to defer tax payments on such items until delivered to customers

Just-in-time (JIT) inventory

- An inventory management approach in which supplies arrive just when needed for production or resale - efficient inventory management is crucial - companies that use JIT can maintain low inventory levels and purchase products and materials in small quantities only when needed - requires high level of coordination bw producers and suppliers, but eliminates waste and decreases inventory costs - popular approach among well-known firms - when used in a SC, suppliers may move operations close to their major customers in order to provide goods as quickly as possible

Example of a firm wanting to establish international distribution by considering a large logistics firm for its vast network of global partners

- Expeditors International has 16,000 associates in 331 locations throughout the world - provides tailored solutions and integrated info systems to perform SCM functions at locations around the globe

Third-party logistics (3PL) firms

- Firms that have special expertise in core physical distribution activities such as warehousing, transportation, inventory management, and information technology and can often perform these activities more efficiently - recently, 3PL firms have become increasingly sophisticate din their offerings - outsourcing logistics to 3PL orgs can decrease market channel costs, improve info flow and analysis and boost service and customer satisfaction for all SC partners

Transportation

- The movement of products from where they are made to intermediaries and end users - transportation costs in US reached $907 billion, 62.6% of total logistics activities' costs - bc product availability and timely deliveries depend on transportation functions, transport decisions directly affect customer service - a firm may choose to build its distribution/marketing strategy around a unique transportation system if that system can ensure on-time deliveries and give the firm a competitive edge - companies may build their own transportation fleets or outsource the transportation function to a common or contract carrier

how have the internet and tech advances revolutionized logistics?

- allowing many manufacturers to carry out actions and services entirely online by passing shipping and warehousing considerations and transforming logistics by facilitating just-in-time delivery, precise inventory visibility, and instant shipment-tracking capabilities - emerging techs will further advance logistics - enables companies to avoid expensive mistakes, decrease costs, and generate more revenue - info tech enhances transparency of SC, allowing all marketing channel members to track movement of goods throughout the SC and improve their customer service

choosing transportaiton modes

- base don combo of cost, speed, dependability, load flexibility, accessibility, and frequency that is appropriate for their products and generates the desired level of customer service - marketers compare alternative transportation modes to determine whether the benefits from a more expensive mode are worth higher costs - a firm wanting to establish international distribution may consider a large logistics firm for its vast network of gloal parners

ordre entry

- begins with customers/salespeople place purchase orders via a customer service counter, phone, regular main, email, or online - electronic ordering is most common - in some companies, salespeople receive and enter orders personally and also handle complaints, prepare progress reports, and forward sales order info

when to order:

- calculate reorder point

why is planning an efficient logistics system crucial?

- can decrease costs and increase customer satisfaction - for distribution decisions, keep in mind that speed of delivery, flexibility, and quality of service are just as important to customers as price - even when demand is unpredictable, suppliers must be able to respond quickly to inventory needs - in these cases, logistics costs may be a minor consideration when compared with service, dependability, and timeline

railroads

- carry heavy, bulky freight that must be shipped long distances - commonly haul minerals, sand, lumber, chemicals, and farm products as well as automobiles and low value manufacturing goods - especially efficient for transportation fuel carloads which can be shipped at rates < smaller quantities bc they require less handling - many companies locate factories/warehouses near rail lines for convenient loading/unloading

waterways

- cheapest method - shipping heavy, low-value, nonperishable goods - offer considerable capacity - powered by tugboats, barges that travel along intra-costal canals, inland rivers, and navigation systems that haul 1000s of containers - vast majority of international cargo is transported this way - many markets are inaccessible by water, and shipping must be supplemented by rail/truck - droughts and floods may create difficulties for users of inland waterway transport

private warehouses

- company-operated facilities for storing and shipping their own products - a firm usually leases/purchases a private warehouse when its warehousing needs in a given geo market are substantial and stable enough to warrant a long-term commitment to a fixed facility - appropriate for firms that require special handling and storage and that want control of warehouse designs and operations - retailers find it economical to integrate private warehousing with purchasing and distribution for their retail outlets - when sales volumes are stable, ownership/control of private warehouse may be most convenient and offer cost benefits - many private warehouses are being eliminated by direct links bw producers and customers, reduced cycle time, and outsourcing to 3PL firms with warehousing services

containerization

- consideration of many items into a single, large container that is sealed at its point of origin and opened a its destination - containers are usually 8ft x 8ft and 10-40 ft long - uniform size: they can be stacked/shipped by train, barge, or ship - once containers reach their destinations, wheel assemblies can be added to make them suitable for ground transportation by truck - bc individual items are not handled in transit, containerization greatly increases efficiency and security in shipping

disadvantage of pipelines

- contents are subject to as much as 1% shrinkage, usually from evaporation ,which can result in profit losses - have been a concert to environmentaists

proportional cost of each logistics function as a % of total distribution costs:

- customer service/order entry = 6% - administration = 3% - transportation = 45% - warehousing = 22% - inventory carrying = 24%

inventory management

- developing/maintaining adequate assortments of products to meet customers' needs - key component of any effective logistics system - inventory decisions have a major impact on logistics costs and the level of customer service provided - when too few products are carried in inventory, stock outs/shortages of products - when a firm maintains too many products in inventory, cost increases, as do risks of product obsolescence, pilferage, and damage

field public warehouses

- established by public warehouses at the owner's inventory location - warehouse becomes custodian of products and issues a receipt that can be collateral for a loan

disadvantages to private warehouses

- face fixed costs: insurance, taxes, maintenance, and debt expense - limit firm's flexibility if they wish to move inventories to different location

air transportation

- fastest - most expensive - often use for perishable goods, high-value/low-bulk items, and for products that require quick delivery over long distances - some transport combos of passengers, freight, and mail - can decrease warehousing and packaging costs and losses from theft and damage - small minority of total cargo carried, but is important in any increasingly time-sensitive business environment - success of many businesses now based on availability of over night air delivery service: UPS, FedEx, etc

megacarriers

- freight transportation firms that provide several modes of shipment - prior to development of megacarriers, transportation companies only used 1 mode of transportation - to compete with megacarriers, air carriers have increased ground transportation services - as range of transportation alternatives expand, carriers also put greater emphasis on customer service in order to gain a competitive advantage

types of RFID readers:

- handheld readers - door portals - overhead readers

logistics

- involving physical distribution, relates to planning, implementing and controlling the efficient flow and storage of products - logistics system must meet needs of both supply chain and customers - distribution activities may be performed by a producer, wholesaler, or retailer, or they may be outsourced

physical distribution

- is an important part of logistics and includes activities used to move products from producers to customers and other end users

distribution centers

- large, centralized warehouses that focus on moving rather than storing goods - specially designed for rapid flow of products and are usually 1-story buildings with access to transportation networks: major highways/railway lines - many are automated with computer-directed robots, forklifts, and hoists that collect/move products to loading docks - distribution over large geo areas can be complicated, and having strategically located distribution centers can help a company meet consumer demand - most are privately owned - serve customers in regional markets and function as consolidation points for a company's branch warehouses

pipeline

- most automated transport mode - usually belongs to the shipper and carry pulverized coal, grain, or wood chips - move products slowly but continually at relatively low cost - dependable and minimize problems of product damage and theft

Electronic Data Interchange (EDI)

- most companies use this - a computerized means of integrating order processing with production, inventory, accounting, and transportation - within the SC, EDI functions as an IS that links marketing channel members and outsourcing firms together - boosts accuracy, decrease paperwork for all members of the SC, and allows them to share info on invoices, orders, payments, and inquiries, and scheduling - many companies encourage suppliers to adopt EDI to decrease distribution costs and cycle times

unit loading

- one or more boxes are placed on a pallet or skid - these units can then be loaded efficiently by mechanical means: forklifts, trucks, or conveyer systems

order handling

- one order is entered, it's transmitted to a warehouse to verify product availability and, if necessary, to the credit department to set terms and prices and to check the customers' credit rating - if credit approved, warehouse personnel assemble order - mostly done by automated machines - if request not in stock, a production order is sent to the factory, or the customer is offered a substitute

physical distribution activities include:

- order processing - inventory management - materials handling - warehousing - transportation

freight forwarder

- org that consolidate shipments from several firms into efficient lot sizes - small sizes (<500 lbs.) are much more expensive to ship than full carloads/truckloads o and may make shipping cost-prohibitive for smaller firms - help firms by consolidating small loads from various orgs to allow them to qualify collectively for lower rates - profits come from the margin bw the higher rates firms would have to pay and the lower carload rates for freight forwarders pay for full load reduce delivery time and likelihood of shipment damage - have insight to determine most efficient carriers and routes and are useful for shipping goods to foreign markets - shipping firms offer freight-forward services as do dedicated freight forwarders - some companies may prefer to outsource their shipping to freight-forwarders bc the forwarders provide door-to-door service

materials handling

- physical handling of tangible goods, supplies, and resources - important factor for warehouse operations and in transportation firm points of production to points of consumption - efficient procedures and techniques minimize inventory management costs, decrease number of times a good is handled, improve customer service, and increase customer satisfaction - systems for packaging, labeling, loading, and movement must be coordinated to minimize costs and max customer satisfaction - product characteristics often determine handling - internal packaging is an important consideration in materials handling

containerization and intermodal transportation

- piggyback - birdyback - fishyback

trucks

- provides the most flexible schedules/routes of all major transport modes in US bc they can go anywhere - bc of this flexibility, can move from factory/warehouse to customer - often used in conjunction with other forms of transport that cannot provide door-to-door deliveries - more expensive and more vulnerable to bad weather than trains - subject to size and weight restrictions - sometimes criticized for high levels of loss and damage to freight and for delays caused by rehandling of small shipments

2 general categories of warehouses

- public - private

basic transportation modes

- railroads - trucks - waterways - airways - pipelines - many use combos

public warehouses

- storage space and related logistics facilities that can be leased by companies - sometimes provide distribution services, receiving, unloading, inspecting, filling orders, financing, displaying products, and coordinating shipments - especially useful to firms that have seasonal production or demand, low-volume storage needs, and inventories that must be maintained in many locations - useful for firms that are testing/entering new markets or require additional storage space - serve as collection points during product recall programs - offer variable costs bc users rent space and purchase warehouse services only as needed - furnish security for products that are used as collateral for loans, a service provided at either the warehouse or it e of owner's inventory

trade-offs

- strategic decisions to combine/recombine resources for greatest cost-effectiveness - goal is not always to find lower cost, but to find right balance of costs - higher costs in one area may be necessary for lower costs in another - when distribution managers regard the system as a network of integrated functions, trade-offs become useful tools in implementing a unified cost-effective distribution strategy

coordinating transportation

- take advantage of the benefits offered by various transportation modes and compensate for shortcomings, marketers often combine and coordinate 2 or more modes

total-cost approach to logistics:

- takes into account all different functions - enables managers to view logistics as a system and shifts the emphasis from lowering the costs of individual activities to minimize overall costs

warehousing

- the design and operation of facilities for strong and moving goods - provides time utility by enabling firms to compensate for dissimilar production and consumption rates - when a mass production creates a greater stock of goods than can be sold immediately, companies warehouse the surplus until customers are ready to buy it - helps to stabilize prices and facilitate the availability of seasonal items - choosing warehouse facilities is important bc these facilities allow a company to decrease transportation and inventory costs and improve service to customers - the wrong type of warehouse can lead to inefficient logistics and added costs

Order Processing

- the receipt and transmission of sales order information - management sometimes overlooks the importance of this activity - efficient ordre processing facilitates product flow - computerized order processing provides a platform for info management, allowing all SC members to increase their productivity - when carried out quickly and accurately, order processing contributes to customer satisfaction, decrease costs and cycle time, and increase profits

cycle time

- the time needed to complete a process - firms should look to decrease cycle time while maintaining/decreasing costs and maintaining/improving customer service

intermodal transportation

- two or more transportation modes used in combination - easier than ever bc of developments within the transportation industry - combines flexibility of thickening with low cost/speed of other forms of transportation - as transportation costs increase and firms seek to find the most efficient methods possible, intermodal shipping has gained popularity

2 common methods in materials handling

- unit loading - containerization

Radio Frequency Identification (RFID)

- using tags and readers that use radio waves to identify and track tagged materials - has greatly improved shipment tracking and reduced cycle times - used in inventory control, equipment tracking, personal tracking, asset tracking and manufacturing - can be used in preventing distribution of counterfeit drugs and medical devices as well as diverted product - hundreds of RFID tags can be read at 1 time, which represents an advantage over barcodes - the increase in sharing data among SC and the many FRID tags will continue to support the growth of this tech

order delivery

- when order has been assembled and packaged for shipment, the warehouse schedules delivery with an appropriate carrier - if customer pays for rush service, overnight delivery by overnight carriers is used - customer is sent an invoice, inventory records are adjusted, and order is delivered

2 major issues when trying to minimize inventory costs while maintaining an adequate supply of goods to satisfy customers

- when to order - how much to order

3 main tasks of order processing

1. Order Entry 2. Order Handling 3. Order Delivery

safety stock

The amount of extra inventory a firm keeps to guard against stockouts resulting from above-average usage rates and/or longer-than-expected lead times

reorder point

The inventory level that signals the need to place a new order

Magaya

a logistics software company that provides software for managing inventory in warehouses, highlights the importance of effective inventory management

Birdyback

air carriers

manual processing

suffices for small-volume orders and can be more flexible situations

order lead time

the average time lapse between placing the order and receiving it

outsourcing

the contracting of physical distribution tasks to third parties

usage rate

the rate at which a product's inventory is used or sold during a specific time period

piggyback

using truck trailers and railway flatcars

fishyback

using water carriers