SCM 410 FINAL EXAM
Fourth-Party Logistics (4PL) Provider
"A supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution." Ex: Vector making themselves irreplaceable to GM
Rail
- "Natural monopolies" - Requires large investments (equipment, terminal, tracks) - Requires capacity (fewer permit large-scale moves) Carrier options: - Linehaul: service between major markets and customers within those markets - Shortline: services the local and regional links between customers and the national network. Smaller markets and facilitate the interline process - Strengths: speed, freight protection, flexibility - Limitations: accessibility, inconsistent service, damage
4PLs Differ from 3PLs
- 4PL is a separate entity that is established as a joint venture or long-term contract between a client and more partners - 4PL acts as a single interface between the client and multiple 3PL service provider firms - All aspects of a client's supply chain are managed by the 4PL
Logistics Activities: Order Fulfilment
- Activities involved in filling and shipping a customer's order. Directly affects order lead time which is time it takes from when the customer places orders to when customers receive order. - Four basic activities that affect lead time: order transmittal, order processing, order preparation, and order delivery
Quality Utility
- Added economic value associated with delivering the proper quantity of an item to where it is demanded (when and how much)
Uncertainty and Safety Stocks
- All organizations are faced with uncertainty. The net result of uncertainty is usually the same: companies accumulate safety stock to buffer against stock-outs - Low priced goods need safety stock because highly substitutable - High priced goods don't waste money for safety stocks, people will wait
Logistics Activities: Customer Service
- Amount of interaction that will influence customer's decision to make purchase or the amount of service an organization offers to its customers. - Two important parts which is logistical side that is concerned with getting correct product to customers in the right time - Second is the ability to promise the customer at the time of their order when the order will be delivered to them.
(CHAPTER 4) Third Party Logistics (3PL's)
- An external supplier that performs or manages the performance of all or part of a company's logistics - Contract logistics and outsourcing are sometimes used in place of third-party logistics
(CHAPTER EIGHT) CRM Definition and Process
- Art and science of strategically positioning customers to improve the profitability of the company and enhance its relationships with its customer base - Influence how the customer is ordering (4 Steps) 1. Segment the Customer Base by Profitability 2. Identify the Package for Each Customer Segment 3. Develop and Execute the Best Practices 4. Measure Performance and Continuously Improve
Transportation Management Systems (TMS)
- Assist transportation buyers and managers with pre-shipment decisions - Routing & Scheduling: uses mathematical methods and optimization routines to evaluate possible combinations in which routes could run and chooses the most economical - Load Planning: Builds a database of package dimensions, loading instructions, and equipment capability - within seconds optimizes container utilization
Advantages of 3PLs
- Buyer can concentrate on its core business processes. - Flexibility - seasonality (outsource for a couple of months), geography, test new markets. - Gain management expertise and dedicated resources. - Cost reduction (total logistics costs and activity costs).
Air
- Combination carriers: passengers as well as freight - Air cargo carriers: only freight - Competitive, high variable cost and low fixed cost Carrier Options: - Combination: move freight and passengers with cargo loaded in belly of the aircraft - Air cargo: move freight packages and letters/envelops. Can be separated on basis of their service capabilities: - Integrated carriers: provide door-to-door service, offer scheduled pickup and delivery window times, expedited service via hub-and- spoke (domestic next and 2nd day) - Nonintegrated carriers: provide on-demand, air only service from airport to airport. Movements to and from airports are handled by other 3PL provider or customer - Strengths: speed(fastest), freight protection, flexibility - Limitations: accessibility, high cost, low capacity
Seasonal Stocks
- Companies that are faced with seasonality factors are generally challenged when determining how much inventory to accumulate (e.g., agriculture) - Can occur in the supply of raw materials in the demand for finished products
Channel of Distribution
- Consists of one or more organizations or individuals that participate in the flow of goods, services, information, and finances from point of production to the final consumption - May also represent the physical structures and intermediaries through which supply chain flows travel
Performance Categories: Cost
- Cost is a measure of efficiency - Aggregate efficiency: focus on the total spending versus the goal or budget - Item-Level KPIs: focus on costs per unit of measure - Accessibility can have a huge impact on cost
Logistics Activities: Storage
- Deals with two separate but closely related activities - Inventory management: knowing how much to order and when to order - Warehousing: knowing where to place warehouses, how many, and of what size. Deals with overall operations
EOQ and TAC Components
- Demand - Ordering cost - Unit value - ICC
Bullwhip Effect
- Demand variability increases as one moves up the SC whereby small changes in consumer demand creates large variations in upstream orders - Increase of prices to meet demand, creates too much product, reduce the price, losing profits - Avoiding SCO and willingness to share information causes bullwhip
Logistics Activities: Packaging
- Dependent on mode of transportation used. Different packing is needed for different types of modes. Main focus is on sustainability
Process Measure Categories: Time
- Distribution: it is important to monitor the required process time, from initial receipt until the release to the transportation provider - Transportation: on-time delivery is ratio of shipments delivered per contract specifications to the total shipments delivered (95%)
Water
- Domestic (private): carriers compete with rails for longer-distance movement of containerized material - High variable cost. Cost is spread over large volumes of freight that is transported during lengthy lifespans of most ships Carrier options: - Private carriers: mostly domestic - Liner Carrier: various ships, standard service, fixed route (like a cab) - Charter carrier: customer specific route, tailored service (like Uber) - Voyage charter: carrier agrees to carry cargo from the origin to the final destination - Time Charter: carrier supplies crew ad has no expenses - Bareboat/demise charter: transfers control of the vessel to the character, who is responsible for all costs and crew - Strengths: high capacity, low cost, international capabilities - Limitations: slow, accessibility
Relationship Differences
- Duration - Obligations - Expectations - Interaction/Communication - Cooperation - Planning - Goals
Time Utility
- Economic value added to a good/service by having it at a demand point at a specific time when it is needed (not only where but also when needed)
Supply Chain Management
- Encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and all logistics management activities - Coordination and collaboration with channel partners (suppliers, intermediaries, 3PLs, and customers) - Integrates supply and demand management within and across companies Primary responsibility for linking major business functions and business processes with and across companies into a cohesive and high-performing business model - Includes all logistics management activities as well as manufacturing operations driving coordination of processes and activities with and across marketing, sales, product design, finance and IT
External and Internal KPI
- External: objective is to meet with customer expectations (measures from customers perception) - Internal: organizations must balance customer expectations with operation expenses (companies perspective)
(CHAPTER SEVEN A & B) Demand Management
- Focused efforts to estimate and manage customers demand, with the intention of using this information to shape operating decisions - Further ability of supply chain members to collaborate on activities that are associated with flows - Typically manufacturers determine what will be available for sale
Heavy inbound/outbound
- Heavy inbound (mtrl mgmt): inbound requires detailed scheduling, coordination, and planning to make sure the parts arrive when needed (aerospace) - Heavy outbound (physical dst): Requires specialized transportation, package, and storage for industrial and consumer goods (chemical)
Pipeline
- High fixed, low variable cost. Minimal labor needed, most cost is related to building right of way - Strengths: in-transit storage, efficiency, low cost - Limitations: slow, limited network
Logistics Activities: Materials Handling
- Important to warehouse design, efficient warehouse operations and equipment. Must balance movement, time, quantity, and space. Materials handling must be compatible with movements in DC
Role of Information
- Information is the lifeline of business, allows us to make informed decisions - Provides insight and visibility into supply chain activities
Information Requirements
- Information must be: accessible, relevant, accurate, timely, and transferable
Direct-to-Consumer Fulfillment Models
- Integrated: one distribution network to service both retail and online - Dedicated: operates two separate distribution networks - Outsourced: outsource online fulfillment to 3PL and maintaining internal control - Drop-shipped: delivers products directly to retailers stores - Store: order placed online then sent to nearest retail store for pick up - Flow-through: online order is placed, but customer has to wait for product to arrive from DC
Locational Determinants
- Labor climate - Quality of life - Company preferences - Supplier networks - Proximity to markets/ customers - Transportation and infrastructure - Taxes/ developmental incentives
Logistics and Marketing Channels
- Logistics Channel: means by which products flow physically from where they are available to where they are needed (physical movement) - Marketing channel: means by which necessary transactional elements are managed (purchasing of materials)
Disadvantages of 3PLs
- Loss of internal control - Possible increase of costs - Inability to develop trusting relationship - Service-level commitments not realized
Product Handling Process
- Major focus is (short distance) movement and storage of product 1. Receiving: transferring items into facility from transport work 2. Put-away: moving goods into storage locations 3. Order picking: selecting goods for customer order 4. Replenishment: moving product from storage to picking slots 5. Shipping: loading goods for delivery to the customer
Ordering Approach/Models
- Managing inventory involved two principal questions: (1) how much to order? (2) when to order? -Fixed Order Quantity (certainty): Involves ordering a fixed amount of product each time reordering takes place (freq. referred to as the two-bin model) - Fixed Order Quantity (Uncertainty): Org. must reformulate the reorder point to allow for safety stock (= average daily demand during the lead time plus safety stock) - Fixed Order Interval Approach: Technique involves ordering inventory at a fixed interval; generally, the amount ordered depends on how much inventory is in stock at time of review
(CHAPTER FIVE) Performance Terms
- Measure: easily defined with no calculations and with simple extensions (Ex: inches) - Metric: needs definition, involves calculation or a combination of measurements, and often a ratio (Ex: inventory turnover) - Index: combines two or more SC performance metrics into a single value (Ex: weighted scorecard)
(CHAPTER TEN & THREE) Modes of Transportation: Motor
- Most used - Strengths: accessible, fast/versatile, customer service - Limitations: limited capacity, high cost
(CHAPTER TWELVE) Logistics Networks and Redesign
- Network is relatively fixed (Ex: invest in warehouse) in the short run but variable in the long run (don't invest again, diff. stuff) - Changing customer service requirements - Shifting locations of customer and/or supply markets - Changes in corporate ownership / organizational change - Competitive capabilities
Logistics Activities: Transportation
- Often the largest variable logistics cost - Focuses on physical movement of goods and the networks used to do so - Marketing effects transportation
Anticipatory Stocks
- Organizations might accumulate inventory to hedge against the risks associated with an unusual event that will negatively impact its source of supply - More of a random event, effects the source of supply
Interfaces: Marketing
- Price: Companies selling products often provide a discount schedule for larger purchase quantities. If relating to transportation rates (i.e., weight), then the customer and shipper may reduce total transportation costs - Product: the physical attributes of products (size, shape, weight, packaging) is often determined by marketing, but affects the logistics system - Promotion: An organization making a promotional effort to stimulate sales should inform logistics managers so that sufficient quantities of inventory will be available for distribution. - Place: the distribution channel selection and thus involves both transactional as well as physical distribution channel decisions. - Customer Service: Many companies have recognized customer service as an important logistics-marketing interface activity.
Motor: Carrier Options
- Private Fleets: Freight is owned by company - For-Hire Fleets: Freight is moved by a 3PL company: -TL -LTL -Small Package Carrier: handle shipment up to 150lbs
(CHAPTER THIRTEEN) Procurement and Strategic Sourcing
- Processes associated with acquiring those goods/services required to manufacture the product (direct) or to operate the company (indirect) - Takes procurement process further by focusing on SC impacts of procurement and purchasing decisions, and works cross-functionally to achieve overall goals Most unique aspects: - Consolidation and leveraging purchasing power - Emphasis is on greater value - Meaningful supplier relationships - Attention is directed toward improving processes - Cross-functional teamwork
Interfaces: Manufacturing
- Production runs: A classic logistics-manufacturing interface relates to the length of the production run. - Supply Side: Logistics and manufacturing interface on the supply side because logistics is responsible for materials management activities that support production. - Packaging: an activity at the interface of logistics and manufacturing, in which the majority of companies treat this as a logistics responsibility.
Characteristics of Measure, Metric, and Index
- Quantitative? - Easy to understand? - Encourages Appropriate Behavior? - Is it visible? - Defined and mutually understood? - Encompass inputs and outputs? - Measure what is important? - Is it multidimensional? - Cost-benefit analysis - Does it facilitate trust?
Demand Fluctuations
- Random Variation: cannot be anticipated. Caused by stuff cannot be controlled - Trend Variation: rise and fall, steady over a period of time - Seasonal Patterns: repeated every year, consistently - Business Cycles: driven by economy, spending patterns - Makes the demand non-constant - Can offset or further impact each other
Total Landed Cost
- Represents all the cost associated with making and delivering products to the point where they are needed
Possession Utility
- Satisfaction that comes from owning a product or enjoying a service. Satisfaction comes from the right use the product/service as intended. Created through marketing activities relating to the promotion and sale of products/services
Batching Economies/Cycle Stocks
- Scale Economies: can result in accumulation of inventory that will not be used or sold immediately. Three main sources: - Procurement: schedule of prices that reflect the quantity purchased (larger volumes result in lower price per unit) - Transportation: Carriers frequently offer rate discounts for shipping larger quantities - Production: long production runs results in lower unit costs but increase levels of cycle stock to be stored
Transportation-Based
- Serves as organization's private fleet and devotes a management team, drivers, and equipment to relationship - TL carrier: truck load, one load uses whole truck - LTL: less than truck load, smaller load shares with others
Performance Categories: Quality
- Service quality: doing things right the first time - Perfect Order Fulfillment - On-time delivery - Complete order - Accurate product selection - Damage-free - Accurate invoice
Free on Board (FOB)
- Terms of sale clarify the delivery and payment terms agreed upon by seller and buyer - FOB Origin: Title (ownership) charges at origin - shipping point or the seller's DC loading dock. Buyer generally pays the transportation carrier - FOB Destination: Title changes at destination - typically at the buyer's unloading dock. Seller pays carrier
Outcomes of Stockouts
- The buyer waits until the product is available - The buyer back-orders the products - The seller loses current revenue - The seller loses a buyer and future revenue
(CHAPTER NINE) Inventory Management
- The process of ensuring the availability of products through inventory administration" - Why orgs. usually have to carry inventory: - Batching economies or cycle stocks - Uncertainty and safety stocks - Time/in-transit and WIP stocks - Seasonal stocks
Customer Service Dimensions
- Time - Dependability - Communications - Convenience
Time/In-Transit and WIP Stocks
- Time associated with transportation and assembly of product (inventory cost is associated with goods in motion) - Longer time period = higher cost of inventory - FOB Origin: ownership is exchanged at origin (buyer owns it, pays trans) - FOB Destination: seller own it
Three Flows of Integrated SC
- Top flow: products and related services - Second flow: information flow - Third flow: financials (cash)
Port Storage Considerations
- Transit Sheds: located next to piers for temporary storage. Port usage fee includes a fixed number of free storage days, anything beyond is daily charge - Hold-on-Dock Storage: free until the vessel's next departure dating, allowing the shipper to consolidate goods and to save storage costs - In-Transit Storage Area: allows shipper to perform required operation on the cargo before embarkation (waiting for documents, packing, crating, or labeling)
Intermodal Transportation Freight
- Transload Freight: shipment is handled and transferred between the transportation equipment multiple times - Containerized Freight: Loaded in/on storage equipment at the origin and delivered to the destination via that equipment without additional handling
Place Utility
- Value added to goods by having them at the location when they are needed (e.g. retail)
Form Utility
- Value added to goods via manufacturing or assembly processes (results when raw materials or components are combined to make finished products)
Types of Collaboration
- Vertical Relationship: traditional linkages between organizations that make up the supply chain such as retailers, distributors, manufacturers, and raw parts/materials suppliers - Horizontal Relationship: Includes business agreements between firms that have "parallel" or cooperating positions in the logistics process - Full: dynamic combination of both V and H collaboration. Often, dramatic efficiency gains occur
(CHAPTER ELEVEN) Strategic Distribution Planning
- a series of interrelated distribution planning decisions made to ensure strategy can be executed at reasonable cost - Capability requirements: product attributes, flow requirements, roles to be fulfilled -Network design issues: inventory positioning, number of facilities, locations (market or supply facing), ownership (private or public) - Facility considerations: size of operations, interior layout, product location
Distribution and Risk pooling
- decentralizing inventory inhibits the ability to adopt risk pooling as each facility must hold safety stock
Inventory Position and Facility Facing
- focuses on the issue of where inventory is located within the supply chain - Centralized: the long distance to customers, which typically extends lead times and results in higher transportation costs - Decentralized
Cash-to-Cash
- the length of time a company's cash is tied up in working capital before that money is finally returned when customers pay for the products sold or services rendered - Negative cash to cash because you have money to invest in areas - Positive cash to cash is bad because your capital is tied up in inventory
Inventory Carrying Costs (ICC)
1. COGS 2. Determine four carrying cost components - Capital - Service - Storage - Inventory Risk
Supply Chain
A set of three or more entities directly involved in the upstream and downstream of flows of products, services, finances and/or information from a source to a customer
Postponement
A strategy that minimizes risk by delaying further investment into a product until the last possible moment (time, place, and form)
Logistics Activities: Forecasting
Accurate forecasting of inventory requirements and materials is essential manufacturing efficiency, inventory control, and customer satisfaction
Nodes and Links
Allows for analyzing a logistics system with regards to the two basic elements, which is convenient for identifying system improvements.
Supply Chain Concept
An extended enterprise that crosses that boundaries of individual firms to span the related activities of all companies involved in the supply chain
Types of 3PL Providers
Asset-Based - Transportation Based - Warehouse/Distribution Based Non-Asset Based - Forwarder Based - Financial Based - Information Based
Supply Chain Collaboration
Business practice that encourages individual organizations to share information and resources for the benefit of all -- can motivate if a correct structure is in place
Logistics Activities: Facility Location
Can affect transportation costs and services, customer service, and inventory requirement
Roles and Functions of DCs
Five Roles: - Balancing supply and demand - Protecting against uncertainty - Allowing quantity purchase discounts - Supporting production requirements - Promoting transportation economies
Forwarder-Based
Freight fowarder: company that provides logistics services as an intermediary between the shipper and the carrier -- just organizes the shipment, does not touch the truck, just facilitating move
Financial-Based
Freight payment and auditing; cost accounting and control; logistics management tools for monitoring, book-keeping, tracking, tracing, and managing inventory, and consulting.
Information-Based
Growth and development of Internet-based, B2B markets for logistics services has been significant in recent years.
Materials Management
Inbound logistics; the movement and management of materials and products from procurement (supplier) through the production process
Balancing Methods
Internal (Demand): - Price (Law of Demand): if demand is less than current inventory levels (stored inventory), a price reduction should increase demand, and vice versa - Lead Time (Available): if demand exceeds the current supply (shortages), increasing expected lead times should decrease demand, and vice versa External (Supply): - Production Flexibility: changing production lines from a product to another (lean manufacturing) - react quickly to changing demand by altering the production schedule - Inventory Flexibility: companies produce products to a forecast that includes safety stock to smooth the effects of demand and lead time variability. Ex: Safety stock
Physical Distribution
Outbound logistics; the movement and storage functions associated with finished goods from manufacturing plants to warehouses and to customers
(CHAPTER TWO) Logistics Management
Part of the supply chain management that plans, implements, and controls the efficient effective forward and reverse flow and storage of goods, services, and related information
Logistics Activities: Production planning
Production planning/scheduling is closely related to forecasting terms of effective inventory control
Supplier Selection Criteria
Quality Capability Reliability Financial considerations Risk Desirable capabilities
Balanced Scorecards
Scorecard: performance measurement tool used to capture a summary of KPIs. Scorecards have color coded indicators to flag when a company is not meeting its metric targets
Supply Chain Orientation
The recognition by an organization of the systemic strategic implications of the tactical activities involved in managing various flows in a supply chain
Warehouse/Distribution Based
These 3PLs dedicate space, labor, and equipment to a client's specific product needs with the goal of providing integrated, accurate distribution services.
Logistics Activities: Procurement
Transportation costs relate directly to the geographic location of raw materials/components parts purchased for a company's manufacturing needs
Logistics Activities: Inventory Control
Two main components: - Accurate inventory levels: deals with knowing when to replenish stock (inventory on hand) -Certifying inventory accuracy: ensures the physical inventory levels match those in the system and uses RFIDs to help make this process more efficient and effective
Intensity Involvement
Vendor (Arm Length): represented simply by a seller or provider of a product or service, such as there is little or no integration or collaboration with the buyer Strategic Alliance: cost time and money, investing in relationship that is long term
Phantom Demand
When distributors and sellers "over-order"
Six Sigma
involves training experts (belt levels) who work on solving problems using methods that improve processes while teaching others within their company
ISO 9000
objective is to make sure that companies have standard processes in place, can be audited at any time
Slotting
placement of product in a facility for the purpose of optimizing materials -handling and space efficiency
TQM
represents a strategy in which entire firms are focused on examining process variability as well as on continuous process improvements