M&L 3380 - Logistics Management

Defining supply chain management

"the management of relationships in the network of organizations, from end customers through original suppliers, using key cross-functional business processes to create value for customers and other stakeholders."

Motivations for Outsourcing Logistics

Companies generally do not view logistics execution as a core activity. Outsourcing logistics execution enables them to focus on their core activities. 3PLs, by specializing in logistics execution, can benefit from economies of scale and focus. As a result, they can perform logistics activities better than their clients.

Product Proliferation

Companies have greatly increased the number of product offerings within categories to try and secure niche customers SKU (stock keeping unit) proliferation greatly increases the challenges of inventory management Oftentimes, logistics professionals are not consulted about the impact of increasing the number of SKUs

Partnership Drivers

Compelling reasons to partner Expected benefits from expanding a relationship Improvement in asset/cost efficiencies Improved customer service Enhanced marketing advantage Profit growth/stability The stronger the drivers, the more chance of a successful partnership

Importance of Facility Location

Cost considerations Customer service expectations Location of customer or supply market

Drivers of Inventory Growth

Customer pressure for service SKU proliferation Scrambled merchandising Growth and variability of demand Length and variability of lead time Lack of information Number of warehousing locations Diffused inventory management responsibility

Requirements for Humanitarian Logistics

Delivery of a wide variety of supplies, when and where they are needed Multiple modes and unconventional modes utilized Rapid delivery from sometimes undefined origin locations Storing, staging and moving products in an uncertain environment Coordination across a variety of agencies Possible military interaction May also involve movement of people

major sources of uncertainty:

Demand: We don't expect Sales = Forecast Performance Cycle: We don't expect logistical execution at a constant rate

Humanitarian Logistics Challenges

Dependence on voluntary contributions Many stakeholders involved High levels of uncertainty (demand, supply, information, political, security, etc.) Unsolicited donations Degraded or nonexistent infrastructure Lack of logistics assets/companies Delivery constraints due to military or government

Fixed Order Interval Model

Determine a fixed order cycle. Depending on demand, the quantity ordered varies, but not the interval between orders. Requires forecasting of demand for next order cycle.

Fixed Order Point, Fixed Order Quantity Model

Determine an inventory level, at which to reorder the EOQ. Depending on demand, the interval between orders varies, but not the quantity ordered.

Transportation Regulations

Environmental Safety Economic

Partnership Facilitators

Environmental factors which increase the likelihood of partnership success Facilitators possible in all relationships: Corporate compatibility Compatible management philosophy and techniques A strong perspective of mutuality Symmetry between the two parties Shared competitors Physical proximity Potential for exclusivity Prior relationship experience Shared end users

Pre-Transactional Elements

Establish a written customer service policy -Should be based on the customer's perspective Communicate/give the policy statement to customers Formally establish the policy

Uses of the Partnership Model

Evaluate a potential new partnership Analyze a portfolio of relationships Diagnose relationships Increase specific performance aspects of relationships Structured approach to relationship management

Partnership Outcomes

Factors which reflect the performance of the partnership Global performance outcomes Enhancement of profits Leveling the flow of profits over time Process outcomes Improved service Reduced costs Competitive Advantage Positioning Share Knowledge

Impediments to an Effective Customer Service Strategy

Failing to segment markets in terms of service offered Misuse of customer service by salespeople Failing to measure the cost-effectiveness of service levels Inability to determine competitive service levels Inadequate customer service research

Possession Utility(the transaction)

Finance

Reasons why logistics has gained importance in the slides:

Increasing Competitive Pressures Shift in Channel Power Globalization Development of IT Systems & the Increasing Importance of Information Increased Product Proliferation Increased Number of Delivery Points

Systems Approach

Indicates that a company's objectives can be realized by recognizing the mutual interdependence of the major functional areas of the firm, such as marketing, production, finance, and logistics.

Increasing Role of IT & Information

Information & visibility within and across organizations improves cost performance and operational efficiency One challenge is that companies are now drowning in data, but the challenge is to turn this data into useful information A second challenge is that sharing information between firms in the SC requires trust that the partner will not act opportunistically with such information

Post-Transactional Elements

Installation, Warranty, Alterations, & Repairs In many industry after-sales support is absolutely critical for maintain customer loyalty Product Tracing Customer Claims, Complaints, and Returns Temporary Product Replacement Many manufacturers of heavy equipment will provide temporary replacements when equipment breaks down under warranty

Lot quantity costs and inventory carrying costs are "Blank" related

Inversely

Place Utility(where)

Logistics

Time Utility(when)

Logistics

Reasons for Not Using 3PLs

Logistics is a core competency. Cost reductions would not be achieved. Logistics too important to outsource. Service level commitments would not be achieved. Corporate philosophy against outsourcing. We can do better than 3PL. Loss of control. Difficult to integrate IT systems with 3PLs systems. Security of shipments concerns. Lack of trust and inability to form meaningful relationship. Lack of global capabilities. Tried, but decided not to continue.

Reasons for Holding Inventory

Maintaining Customer Service Requirements Leverage Economies of Scale for Production Take Advantage of Purchase Discounts Take Advantage of Transportation Discounts Act as a Buffer for Demand Variability and Lead Time Variability Hedge Against Risk

Factors Influencing facility lacation

Natural resources Market for goods Labor Taxes and Incentives Transportation considerations Proximity to Industry Clusters Trade patterns Quality of life considerations Locating in other countries

Perfect Order

No-fault performance from the time of order receipt through customer delivery Defined differently by different customers/customer segments Requirements: quality throughout process clear communications within firm and with customer willingness to stand behind the promise

Free trade zone

Nondomestic merchandise may be stored, exhibited, processed, or used in manufacturing operations without being subjected to duties and quotas until the goods or their products enter the customs territory of the zone country

Production Department in Relation with Logistics

One of the most common interfaces between this department and logistic involves the length of production runs. "Blank" people favoring productions runs of individual products because this allows the relevant fixed costs to be spread over more units, thus resulting in a lower production cost per unit.

Increasing Competitive Pressures

Place/Customer Service is the hardest component for competitors to replicate of the marketing mix components Logistics competency is one way that a company can outcompete others in its industry by providing outstanding customer service Logistics competency provides one way for smaller firms to differentiate themselves from larger competitors with an absolute cost advantage stemming from scales economies Superior service creates a "lock-in" whereby it is harder for the buyer to find a substitute for the supplier

Types of Economic Utility

Possession Form Time Place

Ps of marketing

Price Decisions Place Decisions Product Decisions Promotional Decisions

Form Utility (what)

Production/ Operations

Expectations for 3PLs

Recognize retail trends through data mining and bring potential ways to mitigate any cost impacts of these trends. Help us get ahead of the curve. Bring us the cutting-edge knowledge in your focus areas from across the globe. Demonstrate an understanding of our culture and our priorities versus the other customers you are serving. Bring me more than just savings ideas. Show me how you can help drive top-line growth.

Reasons why logistics has gained importance in the book:

Reduction in Economic Regulation Changes in Consumer Behavior Technological Advances Growing Power of Retailers Globalization of Trade

Order Management

Refers to management of the various activities associated with the order cycle

Increasing Number of Delivery Points

Retail outlets are beginning to expand their product offerings, making the logistics process even more complicated for manufacturers and distributors The challenge is that whereas before the distribution process may have consisted of shipping full truckload quantities from a plant warehouse to a retailer's DC, now the manufacturer must be able to handle smaller orders

EOQ=

SQRRT(2DB/IC) D= annual demand B= administrative cost per order of placing the order C=carrying cost of the inventory I= dollar value of the inventory

Transactional Elements

Stockout Level (measure of product availability) Provide information on order status, inventory status, expected shipping date, and backorder status Elements of the order cycle (generation, entry, fulfillment, shipment) Expedited Shipments and Transshipments System accuracy (order quantities, products, and billing) Order Convenience

Globalization

Supply chains becoming increasingly longer due to sourcing materials from throughout the world With the move towards lean operations, inventory levels have been consistently reduced

Procurement Objectives

Supporting organizational goals and objectives Managing the purchasing process effectively and efficiently Managing the supply base Developing strong relationships with other functional groups Supporting operational requirement

Demand Management

The creation across the supply chain and its markets of a coordinated flow of demand A key component in this management is sales forcasting

Shift in Channel Power

The development of "category killer" stores such as Walmart, Best Buy, and Home Depot has resulted in a shift of channel power from manufacturers to retailers

Systems approach implications:

The goals and objectives of the major]r functional areas should be compatible with the company's goal and objectives(one logistics system does not fit all companies because goals and objectives vary from one firm to another) Decisions made by one functional area should consider the potential implications on other functional areas. (example SKUs)

Finance Department in Relation with Logistics

This department is often instrumental in approving capital budgeting decisions that affect logistics, such as the acquisitions of materials handling equipment and packaging equipment.

Marketing Department in Relation with Logistics

This department places a heavy emphasis on customer satisfaction, and logistics strategies can facilitate customer satisfaction through reducing the cost of products, which can translate into lower prices as well as bringing a broader variety of choices to -where the customer wishes to buy or use the product.

Why Partner?

To gain the advantages of vertical integration while still maintaining organizational independence To take advantage of "best in class" expertise To achieve service improvements To gain operational efficiencies To respond to competition

TL

Truckload shipments greater than 10000LBs; fill the truck trailer

List of Things I Have Learned Using the Partnership Model

You must be willing to look at things differently. Most companies have a lot more in common than they think. Visibility is key to building trust. Mistakes happen, the problem is not learning from them. A well structured plan that is closely monitored is key for ensuring results.

Marketing Channels

a set of institutions necessary to transfer the title to goods and to move goods from the point of production to the point of consumption and, as such, which consists of all the institutions and all the marketing activities in the marketing process

Partnership

a tailored business relationship based on mutual trust, openness, shared risk and shared rewards that results in business performance greater than would be achieved by two firms working together in the absence of partnership.

common carrier

agreed to serve the general public

vendor managed inventory

allows manufacturers to have access to a distributors or retailers sales and inventory data, and this access is accomplished electronically by electronic data interchange or the Internet. based on point of sale data, which reduces reliance on demand forecasting

Cause and Effect Forecasting

assumes that one or more factors are related to demand and that the relationship between cause and effect can be used to estimate future demand

Diversity

concerned with procurement activities associated with minority or women-owned organizations

promotional channels

concerned with promoting a new or an existing product, and can be related to the financing channel because monetary allowances are often part of the promotion effort.

Social Responsibility Procurement

consists of five dimensions: diversity, the environment, human rights, philanthropy, and safety.

contract carrier

contract specifies the compensation to be received, the service to be provided, and the type of equipment to be used, among others.

ownership channels

covers movement of the title of the goods, and the goods themslves might not physically present or even exist

Economic Order Quantity

deals with calculating the proper order size with respect to two costs: the costs of carrying the inventory and the costs of ordering the inventory

Increasing the number of warehouses increases inventory cost but.....

decreases transportation costs and (often) decreases the cost of lost sales

Reorder point

equals average daily demand times the length of the replenishment cycle

lean manufacturing

focuses on elimination of waste and the increase of speed and flow

Philanthropy

focuses on employee volunteer effects and philanthropic contributions

exempt carriers

for-hire carriers that have been exempted from economic regulation through provisions in various pieces of legislation

Financing Channels

handles payments for goods or more importantly, it handles the company's credit.

Environmental

includes considerations such as waste reduction and the design of products for reuse or recycling

decreases transportation costs and (often) decreases the cost of lost sales but....

increases transportation costs

GSCF

involves all business functions Logistics considerations such as on-time pickup and delivery could arise within the order fulfillment process as well as being monitored by the customer service management process Logistics function can contribute to customer relationship management and supplier relationship management processes in terms of outbound or inbound material flow being part of a product and service agreement with a key customer or supplier

Judgement Forecasting

involves using judgement or intuition and is preferred in situations where there is limited or no historical data

Total Cost Approach

is built on the premise that all relevant activities in moving and storing products should be considered as a whole, not individually requires an understanding of cost trades offs; in other words, changes to one logistics activity cause som-e costs to increase and others to decrease.

Safety

is concerned with the safe transportation of purchasing products, as well as the safe operation of relevant facilities

Time Series Forecasting

is that future demand is solely dependent on past demand

CSCMP's definition of Logistics

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

Human Rights

issues include child labor laws as well as sweatshop labor

LTL

less than a truck load shipments range from 150 to 10000 LBs; they are often too big to be handled manually, yet they do not fill an entire truck

SCOR

model is focused on the logistics, operations, and procurement functions Logistics has some involvement in both sourcing and making Logistics can be involved in delivering and returning Logistics is also a key area of consideration within "BLANKS" planning and enabling processes

facility closing

occurs when a company decides to discontinue operations at a current site because the operations may no longer be needed or can be absorbed by other facilities

facility relocation

occurs when a firm decides that it can no longer continue operations in its present facility and must move operations to another facility to better serve suppliers or customers

Form Utility

refers to a product's being in a form than can be used by the customer and is of value to the customer.

Time Utility

refers to having products available when they are needed by customers(closely related to place utility)

Place Utility

refers to having products available where they are needed by customers; products are moved from points of lesser value to points of greater value.

Pipeline stock

refers to inventory that is an route between various fixed facilities in a logistics system such as a plant, warehouse, or store

speculative stock

refers to inventory that is held for several reasons, including seasonal demand, projected price increases, and potential shortages of product.

Safety stock

refers to inventory that is held in addition to cycle stock to guard against uncertainty in demand or lead time

Cycle, or base, stock

refers to inventory that is needed to satisfy normal demand during the course of an order cycle

Customer profitability analysis

refers to the allocation of revenues and costs to customer segments or individual customers to calculate the profitability of the segments or customers. (all customers are not the same and some customers are more valuable that others to an organization)

Sustainable procurement

refers to the integration of social and environmental considerations into all stages of the purchasing process with the goal of minimizing the impact of procurement activities on human health and the environment

inventory turnover

refers to the number of times that inventory is sold in a one year period and can be calculated by dividing the cost of goods sold by the average inventory, where average inventory is the sum of beginning and ending inventor divided by two

Order Cycle

refers to the time from when a customer places an order to when the order is received

order delivery

refers to the time from when a transportation carrier picks up the shipment until it is received by the customer

order transmittal

refers to the time from when the customer places an order until the seller receives the order

order processing

refers to the time from when the seller receives an order until an appropriate locations is authorized to fill the order advances in technology have allowed most firms to computerize many aspects of their order processing systems

intermodal transportation

refers to transportation when using a container or other equipment that can be transferred from the vehicle of one mode to the vehicle of another mode without the contents being reloaded or disturbed

Just in time

seeks to minimize inventory by reducing production location at the exact time that they are needed

customer service

the ability of logistics management to satisfy users in terms of time, dependability, communication, and convenience

sorting function

the discrepancy between the assortment of goods and services generated by the producer and the assortment demanded by the consumer

negotiations channels

the one in which buy and sell agreements are reached

order fill rate

the percentage of orders than can be completely and immediately filled from existing stock

ABC Analysis

the process of dividing SKUs into three classes, according to their dollar usage, so that managers can focus on items that have the highest dollar value 80% of a company sales come from 20% of their products

Economic Utility

the value or usefulness of a product in fulfilling customer needs and wants

Possession Utility

the value or usefulness that comes from a customer being able to take possession of a product. can be influenced by the payment terms associated with a product.

Center of Gravity Approach

this can be used for locating a single facility so that the distance to existing facilities is minimized.

order picking and assembly

this includes all activities from when an appropriate location is authorized to fill the order until goods are located aboard an outbound carrier

Inventory Management

this is a key component in logistics and supply chain management because inventory decisions are often a starting point, or driver, for other business activities, such as warehousing, transportation, and materials handling.

Make to Order

when finished goods are produced after receiving a customer order

Make to Stock

when finished goods are produced prior to receiving a customer order

Investment recovery

which identifies opportunities to recover revenues or reduce costs associated with scrap, surplus, obsolete, and waste materials, is often the responsibility of the procurement manager.

Customer service is crucial for a company's success because...

while the other components may attract one-time buyers, customer service is crucial for a company to keep customers can be utilized as an important competitive weapon to secure customers