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Transcript of OMSAN LOJİSTİK Global Logistics and International Operations 1. Global Logistics Framework Top...
OMSAN LOJİSTİK
Global Logistics and International Operations
1. Global Logistics Framework
Top Management Program in Logistics & Supply Chain Management (TMPLSM)
3
Profit Drivers
• Maximize revenue Maximize margin
• Minimize cost
• Minimize investment => Maximize velocity
(Relatively) easy individually … difficult in simultaneous combination
4
Follow the Money
• All organizations have financial requirements and goals
• For non-profit organizations, non-financial goals are typically achieved by leveraging financial resources
• For most profit-maximizing firms, growing shareholder wealth is the ultimate measure of success.
5
Why Profits?
“ProfitsProfits are the bestbest measuremeasure of whether a company is the best at what it does.
Profit measures howhow customerscustomers value value the products and services that a company delivers, and how efficientlyhow efficiently the company operates to deliver that value.
Profits provideprovide cash forfor shareholdersshareholders, for managers’managers’ and employees’employees’ compensation, and for investment in further growthgrowth.”
From Double Your Profits
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Evolution of Global Supply Chain Needs …
• What forcesforces are shaping the Evolution
of Supply Chains?
• What are the consequencesconsequences of
Globalization?
• How to take advantagetake advantage of the dynamic
process?
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Some Forces Shaping the Evolution of Supply Chains
Globalization and Regional Economic Alliances (e.g., EU, NAFTA, MercoSur, FTAA)
Government Regulations (e.g., content and import restrictions)
Technology is advancing very rapidly (e.g., Internet, cell phones)
CHINA: A producer evolving into a Customer
Infrastructure Improvements (e.g., mixed platforms)
Financial Performance is very important again (i.e., profitability more than market share)
Environmental Concern (i.e., more awareness)
Increased uncertainty (e.g., political risks, terrorism, exchange rate volatility)
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Turkey and the EU… Opportunities• Turkey is a bridge connecting the East and the West
– Situated in a very central place with the capability of reaching 700-800 million people (e.g., Turkic Republics, Russia, Middle East and Eastern Europe) within a short period of time
• Large domestic market Turkey has a population of 70 million – larger than the United Kingdom and Ireland combined
• Low-Cost and Productive Labor Force
• Attractive economic and political stability
• Already a wave of “solid” logistics companies
• Capability of developing logistics Platforms
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New Comers…Critical criteria for Global Logistics include: Wages, taxes, transportation links, fiscal incentives, labor, utilities …
• In Eastern Europe, Poland, Slovakia and Bulgaria have the highest labor availability
• Germany has closest proximity to customers and suppliers also Germany, Hungary and the Czech Republic are closest to rail hubs
• Bulgaria and Hungary have the lowest corporate taxes; Incentives are perhaps best in the Czech Republic, Austria, Germany and Hungary
• The Baltic Countries will become more attractive as DC hubs serving Northern Europe and Russia
• Inland waterway transport (especially on the Danube) will favor DC placement in Hungary and Germany
• In the last two years Slovakia has attracted Volkswagen and Hyundai/Kia plants (transportation network) and DHL will open a data center in Prague (wages of trained workforce) this year
Global Logistics & Supply Chain Strategies, April, 2004
10
Some Consequences of Globalization Changing Market Requirements (i.e., new competitive pressures)
Faster Efficient and Effective Response (i.e., more than juts cost)
SCM considered as a Strategic Competitive Advantage
Customers are more sophisticated (e.g., worldwide standards of quality, global products and world brand development)
Reverse Logistics and Green Logistics
Outsourcing of Non-Core Business
The need for MEASUREMENT (i.e., if you don’t measure you cannot manage!)
Global Compliance and Security
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Worldwide Logistics Expenditures
1985 1990 1995 2000 20050
500
1000
1500
2000
2500
$ Billions (1980 $)
Source: Temple, Barke, & Sloane, Inc., 2000
* Approximately 20-25 cents of every sales dollar within the US. It should exceed $600 billion per year during the 1990s.
* Worldwide logistics expenditures should rise to nearly 2.5 trillion $US by 2005 (approx. 16% of worldwide GNP).
12
Global Sources for US Companies
Raw Materials Components
Finished Products
Europe 42% 0% 33%
South America 5% 40% 4%Far East 29% 18% 35%Africa 0% 15% 0%Indian 0% 15% 1%Middle East 1% 12% 1%Other 23% 0% 26%
65% to 70% of the companies in the survey mentioned cost as themain reason for outsourcing, 20% to 30% mentioned availability,and 5% to 20% mentioned quality.
Source: Temple, Barker & Sloane, Inc. “International Logistics: Meeting the Challengesof Global Distribution Channels”
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Critical Changes in Global Logistics
Deregulation of Transport
Intermodalism
Technology Facilitators
Liberalization of Commerce
Restrictions in Commercial Policies
Management of Exchange Rates
Emerging Economies and in Transition
Strategic Outsourcing
Ecology & Human Rights
Terrorism & Security
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The Target is then …
• A GLOCAL Supply Chain
1. More supportsupport for build up of different Site CompetencesSite Competences– Technical Knowledge– Supply Chain Management– Market Knowledge
2. More locallocal decision making power– Centralized Information– Decentralized Decisions
Responsive and reflective Organizations
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Economic Development of the Region
Competitiveness
Logistics Supply Chain
Public Policy
Analysis of Infrastructure MACRO
Corporate Strategies MICRO
Tariffs
Regulation FinancialPolicy Etc…
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Logistics Supply Chain
Corporate Strategies MICRO
Analysis of Infrastructure MACRO
Ports, Roads, Airports, Customs Communications,Utilities, …
Companies,Industries,Sectors … per region
17
New Comers…Critical criteria for Global Logistics include: Wages, taxes, transportation links, fiscal incentives, labor, utilities …
• In Eastern Europe, Poland, Slovakia and Bulgaria have the highest labor availability
• Germany has closest proximity to customers and suppliers also Germany, Hungary and the Czech Republic are closest to rail hubs
• Bulgaria and Hungary have the lowest corporate taxes; Incentives are perhaps best in the Czech Republic, Austria, Germany and Hungary
• The Baltic Countries will become more attractive as DC hubs serving Northern Europe and Russia
• Inland waterway transport (especially on the Danube) will favor DC placement in Hungary and Germany
• In the last two years Slovakia has attracted Volkswagen and Hyundai/Kia plants (transportation network) and DHL will open a data center in Prague (wages of trained workforce) this year
Global Logistics & Supply Chain Strategies, April, 2004
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The Logistics System
SUPPLIERS
ComponentManufacturing
FinalAssembly
Distribution &Warehousing
CUSTOMERS
Physical SupplyInbound LogisticsInbound Logistics
Physical DistributionOutbound LogisticsOutbound Logistics
Material Information and Finance
Material Information and Finance
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Each logistics process has a specific role to assure the support of service levels and the optimization of
resources.Customer Service
Inventory Planning
SourcingTransportation & Distribution
Warehousing & DC Operations
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Supply Chain Management
The discipline that coordinates with a systemic perspective all corporate
functions in charge of optimizing the flow of materials, information and
finances across business partners.
NewtonVaureal, LLC
21
7 Rights of the Logistics Manager
Ensure the availabilityavailability
of the rightright product,
in the rightright quantity,
and the rightright condition,
at the rightright place,
at the rightright time,
for the rightright customer,
at the rightright cost.
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Interface with the Other Functional Areas
Logistics
Marketing Production
FinanceOthers
Price, Product, Promotion, Place
Length of Production RunSupply Side Interfaces
Competing for ResourcesManagement of InformationAccounting Congruency
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Axis of the Logistics Evolution
COSTSCOSTS
SERVICESSERVICES
PHYSICAL FLOWPHYSICAL FLOW
INFORMATION FLOWINFORMATION FLOW EXTERNAL EXTERNAL THIRD PARTY THIRD PARTY LOGISTICSLOGISTICS
INTERNALINTERNAL
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What are the Key Questions?
• Do you have a Customer Segmentation Strategy?– Do you know your “best customers”?– Do you treat them differently? From a Marketing or
from a L/SCM point of view?
• Do you have a Product Segmentation Strategy?– Do you know your “best products”?– Do you treat them differently? From a Marketing or
from a L/SCM point of view?
Do you have a Logistics/SCM Strategy?
25
More Questions? …
• What makes Customers to buy from you instead of the Competition?
– Cost
– Quality
– Service
– Flexibility
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What are your Winning and Qualifying Criteria?
YOURYOUR COMPANYCOMPANY
Competitors
MarketResponse
C U S T O M E R S
Cost
Flexibility
Service
Quality
Demand Share
Demand Share
PerformancePerformanceOutputs
Outputs
Preferences
Market Size
Inputs
Inputs
SUPPL I ERS
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Winning versus Qualifying Criteria
Initial Cost: the cost of acquiring the product which is directly related to the price the customer pays (usually relevant in everyday use consumer products)
Lifecycle Cost: the cost of acquiring, maintaining and disposing the product (relevant in industrial equipment markets)
Design Quality: features, styling and other product attributes that enhance fitness for use(typically important in luxury products)
Conformance Quality: the product conforms to set standards during the production process (important for almost all product markets)
Delivery Speed: ability to produce and deliver the product in a short notice(characteristic environments of time based competition)
Delivery Reliability: ability to produce and deliver consistently products according to contractually prespecified time intervals
New Product Flexibility: ability to introduce in an effective and timely manner new products (again characteristic of time based competition)
Customization: ability to produce a large variety of products that match the needs of a highly segmented market (mass customization)
Product Mix Flexibility: ability to efficiently and effectively adjust the production mix in response to demand fluctuations of various products (cyclical demand markets)
COST
QUALITY
SERVICE
FLEXIBILITY
{
{
{
{
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What are the right combinations?Winning Criteria Category Examples
Cost +
Service
Commodities Sugar, paper clips
Quality + Flexibility
Loyal Customers POLO, Nike, PUMA, IBM
Cost +
Quality
Intruding Markets Toyota, VW
Service + Flexibility
Repositioning / New Channels
HP, Amazon
Service + Quality
New Entrants / Mass Markets
Starbucks, 7-Eleven
Cost +
Flexibility
Leaders! Dell, Zara, Wal-Mart
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Trade-Offs …Today’s customers are very demanding...
... but tomorrow their demands will be even greater and competitors will set new standards.
RequestedServiceToday Today
RequestedService inFuture
Cost CostGap
ServiceGap Current
Trade-offsCost
ServiceGap
FutureTrade-offs
ServiceService
Key Capabilities• Perfect Order• Short Order Cycle Times• Continuous Replenishment• Customized Delivery Options• Information Responsiveness
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Global Logistics Framework
Geographic
Sectorial Functional
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Intra-Firm Integration
* Firms are formed by different functional areas, e.g., marketing, production, finance, accounting, etc.
* They are NOT competing among themselves.
* They are part of the same organization and “hopefully” after the SAME objectives.
* LEADERSHIP consists on finding the right incentives for making ALL move in the same direction. Functional
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Intra-Firm Integration
PERFORMANCE MEASURES
Business As A SystemBusiness As A SystemCOST RATIOSFunctionally Oriented
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Inter-Firm Integration
* Industrial Markets are formed by suppliers and customers or, more generally, by buyers and sellers.
* Lasting relationships are beneficial for all parties involved.
* The interaction requires extensive knowledge about each other, e.g., resources, organization, strategies.
* LEADERSHIP consists on finding the right mechanism of control, coordination, and conflict resolution. Sectorial
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Geographic Elements
• Worker Productivity is not necessarily the same everywhere
• Process Adaptability might be difficult
• Governmental Concerns and/or Incentives may balance economic problems
• Infrastructure Available (e.g., transportation)
• Cultures (e.g., social structure) are not homogeneous
• Exchange Rate Volatility affects long term decisions
Geographic
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US versus Europe: Can we Compare?
• Geographical concentration
– Approx. 80% of the population in Europe live in the area equivalent to 12% of the land mass of the US!... And 85% of the people are located within 500 miles radius.
– Europe moves almost the same amount of truck freight as the US in one-third the geographical area.
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US versus Europe: Can we Compare?
• European companies have developed better logistics control systems– In Europe the transport infrastructure has been a patchwork of
national networks whose structures vary considerably due to geographic, economic, political and historical factors (e.g., in France 4% is by water while in Germany it is 20%).
– In Europe, as opposed to the US, most of air transport has been stimulated by passenger traffic. Air trades has been historically oriented toward international trade.
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Resource Oriented Logistics
• Rationalization of Resources
• Economies of Scale
• Supply Chain Coordination
• Financial Flexibility (e.g., Tax Incentives)
Geographic
Functional
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Information Oriented Logistics
• Rationalization of Resources
• Economies of Scope
• Network Optimization
• Operational Flexibility
Geographic
Sectorial
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SetupTime
Lot SizePrincipalOperationTime Per
Item
Apparent Operation Time Ratio(%)
4 hrs. 100 1 min.1min. +
4x60 / 100 = 3.4 min. 100
4 hrs. 1,000 1 min.1 min. +
4x60 / 1,000 = 1.24 min. 36
Economies of Scale
SetupTime
Lot SizePrincipalOperationTime Per
Item
Apparent Operation Time Ratio(%)
3 min. 100 1 min.1min. +
3 / 100 = 1.03 min. 100
3 min.. 1,000 1 min.1 min. +
3 / 1,000 = 1.003 min. 97
Economies of Scope
40
User Oriented Logistics
• Rationalization of Resources
• Technology Development and R&D
• Customer Service (Winning, Maintain)
• Responsiveness Flexibility
Sectorial Functional
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There is more than one type of logistics
Geographic
Sectorial Functional
ResourceOrientedLogistics
InformationOrientedLogistics
User OrientedLogistics
42
Decide your priorities for Logistics
• Cost• Utilization• Efficiency
• Speed of
Exchange• Extent of
Communication
• Customer
Service• Bargaining
Power
ResourcesResources InformationInformation User User OrientedOriented Oriented Oriented Oriented Oriented
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It is a very dynamic process!
GLOBALLOGISTICS
ResourcesLogistics
User Logistics
InformationLogistics
44
Retail Industry Examples
WAL MART
C + FC + F C + SC + S
S + QS + Q
Geographic
Sectorial Functional
45
The Global Corporation
Fully integrates product design, materialsupply, production, distribution, accounting,marketing, and finance on a world-wide basis.
Typically design their operating strategyobjectives around four components:Technology, Marketing, Manufacturing, andLogistics.
46
… and even more Questions ? …
• What are the Logistics/SCM Implications of the Winning/Qualifying positioning?
• What are the Financial Implications of the
“right” Logistics/SCM?
– logistics/SCM has a direct impact at the bottom line of the company, by understanding those linkages it is easier to prioritize initiatives and projects
47
Under Valued Inc. has a substantial sales base that grows consistently at a rate comparable to the overall economy. The company’s stable pattern of earnings is expected to continue. UV’s net profit rate is roughly twice its industry’s average and at parity with the best performing competitor. The company’s stock price has been gradually declining in a rampant, prosperous bull market. Most alarmingly, UV’s stock price has fallen sharply relative to its competitors’. For simplicity, assume that future prospects are highly correlated with current performance, that the stock market values companies on a fair, timely, and accurate basis, and that ROI is a substantial determinant of equity valuations.
Summarize an operations-based hypothesis that might explain UV’s predicament and recommend several specific (and distinct) operational actions that UV might consider for improving its operating performance and stock price fundamentals.
Under Valued Inc.
Performance MeasurementFinancial
• Net profit– an absolute measurement in dollars
• Cash flow– a survival measurement ....
• Return on investment– a relative measure based on investment
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Return on Investment (ROI)
• Fundamental measure of profitability• Profits ‘standardized’ by capital employed
• Financial attractiveness metric• Comparative basis across opportunities
• Guides the flow of capital• Investors seek best risk adjusted returns• Capital markets are efficient (long-run)
50
Under Valued Inc. has a substantial sales basesubstantial sales base that growsgrows consistentlyconsistently at a rate comparable to the overall economy. The company’s stablestable pattern of earningsearnings is expected to continue. UV’s net profit rateprofit rate is roughly twicetwice its industry’s averageindustry’s average and at parity withparity with the best best
performing competitorperforming competitor. The company’s stock pricestock price has been gradually decliningdeclining in a rampant, prosperous bull bull
marketmarket. Most alarmingly, UV’s stock price has fallen stock price has fallen
sharply relative to its competitors’sharply relative to its competitors’. For simplicity, assume that future prospects are highly correlated with current performance, that the stock market values companies on a fair, timely, and accurate basis, and that ROI is a substantial ROI is a substantial
determinantdeterminant of equity valuations.
Summarize an operations-based hypothesis that might explain UV’s predicament and recommend several specific (and distinct) operational actions that UV might consider for improving its operating performance and stock price fundamentals.
Under Valued Inc.
• Net profitan absolute measurement in dollars
• Return on investmenta relative measure based on investment
• Cash flowa survival measurement ....
• Throughputthe rate at which money is generated by the system through sales
• Inventoryall the money that the system has invested in purchasing things it intends to sell
• Operating expensesall the money that the system spends to turn inventory into throughput ....
Performance MeasurementFinancial
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Cost Effectiveness
Asset Productivity
Service Level
Throughput
Return on InvestmentOperations Drivers
ROI
Capacity
Profits
Revenue
Costs
Investment Working Capital
InventoryReceivablesPayables
Plant &Equipment
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FIXEDCOST
VARIABLECOST
CAPACITY
VAR COST x UNIT
PRODUCTIONOUTPUT
INVENTORY
AVAILABLE PRODUCT
DEMAND
ROI
PROFIT
INVESTMENT
REVENUE
COST
SHIPMENTS
PRICE
SCM’s Financial
Model
Information Asset’s
Investment
Capacity Utilization
Capacity Utilization
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Strategic Logistics Profit Model©
Profit
ReturnonInvestment
Investment
Reduced Logistics Assets
Increased On-Time/Complete Delivery
Reduced OC Length and Variability
Increased Forecast Accuracy
Increased Customer Responsiveness
Reduced Supply Chain Malfunction
Increased In-Stock Availability
Reduced Procurement Cost
Reduced Manufacturing Cost
Reduced Transportation Cost
Reduced Shipment Expediting Cost
Reduced Warehousing Cost
Reduced Shipment Transfer Cost
Reduced Inventory Carrying Cost
Increased SC Technology Cost
Reduced Inventory Cost
Reduced Logistics Asset Cost
Increased Inventory Turns
Reduced Cash-to-Cash CycleReducedWorking Capital
Reduced Assets
Reduced Fixed Costs
Reduced Variable Costs
Increased Sales Revenues
Reduced Cost ofLost Sales
Revenue
Cost
55
Logistics has as an objective the Optimization of Resource
Utilization
Inventory OptimizationMinimize: Cost of Carrying Inventory (ICC)
Subject to: Availability
Supply OptimizationMinimize: Total Supply Cost (TSC)
Subject to: Availability, Lead Time, Perfect P/O
Transport OptimizationMinimize: Total Transportation Cost (TTC)
Subject to: Response Time
Warehouse OptimizationMinimize: Total Warehousing Cost (TWC)
Subject to: Availability, Response Time, Perfect Orders
Logistics OptimizationMinimize: TOTAL COST OFLOGISTICS (TLC = ICC + TSC + TTC + TWC)
Subject to: CUSTOMER SERVICE POLICY (CSP) =Availability, Response Time, Perfect Orders
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Motivation to Measure...
• You can’t control what you don’t measure.
• You can’t manage what you can’t control!
• It is hard to win a game without a scoreboard!
• As soon as you start measuring something, the something improves!
Information
57
Supply Chain Gap Analysis: A Picture is Worth a Thousand Words
Source: Company X Chain Scorecard, 2003 Data
0.00
0.20
0.40
0.60
0.80
1.00
Total Logistics Cost/Sales Ratio
Total Inventory Turns asSales
% Orders with AvailableCapacity within Promised
Leadtime
Storage DensityCustomer Order Cycle
Time (days)
Vehicle CapacityUtilization
Total Perfect OrderPercentage
Rockwool Benelux
World-Class Benchmarks
% Orders with Available Capacity within Promised Leadtime
Company X
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Once the LPS is in place a company can begin the auditing process with itself or other companies. A good way to
capture the disparities found in an audit is through a Gap Analysis
• The logistics/SCM performance gap analysis is used to compare logistics key performance indicators with benchmark indicators.
• The gaps are used to assess strengths and weaknesses; to identify complementary logistics benchmarking partners; and to develop a cost-benefit justification of a world-class logistics initiative.
POCT (24/72)
VU (65%/95%)
COCT (42/24)
LCSR (17%/10%)
LWFP (2.4/1)
IT (2/8)
SD (8/6)
IA (90%/97%)
POP (45%/75%)
VAS (5/5)
0
1
2
3
4
5
Company X
World-Class
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Annual Volume 94,652,089$ 1,676.77 94,652,089$ 15,923,019$ 291,237$ 1,676.77 annual sales annual orders annual sales on-hand inventory daily sales annual orders
Current Performance 16.54% 44 5.94 647$ 93 26%logistics/sales orders/FTE/year current turns $/f2 cycle in days current POP
Current Resource Requirement 14,473,948$ 38 15,923,019$ 24,594 27,189,147$ 1,237 logistics cost current FTEs on-hand inventory espacio (f2) OHI/Receivables current reprocessing
Optimal Performance 8.00% 120 9.00 $ 2,000 75 75.00%optimal ratio optimal ratio optimal turns optimal $/f2 optimal cycle optimal POP
Optimal Resource Performance 7,572,167$ 14 10,516,899$ 7,962 21,842,790$ 419 optimal logistics cost optimal FTEs optimal OHI optimal space (f2) optimal OHI/Rec optimal reprocessing
Resource Savings 7,572,167$ 24 5,406,120$ 16,632 5,346,357$ 818 cost reduction personnel reductioninventory reduction space reduction asset reduction reprocessing reduction
Resource Rate Cost 30% 21,973 23% $6.46 23% $2,500ICR cost per f2 ICR cost per correction
Annual Savings 2,271,650$ 537,239$ 1,243,408$ 107,387$ 1,229,662$ 2,044,407$ Total Savings ($s/year) 5,162,103$ Payback Period (years) 2
Justifiable Investment 10,324,206$
Logistics Savings Source
Logistics Cost/ Sales
Ratio30%
Perfect Order
Percentage28%
Customer Order Cycle Time (days)
17%Storage Density
1%
Customer Order per
Person-Year7%
Inventory Turnover
17%
60
Financial Indicators Productivity Indicators
Quality Indicators Response Time Indicators
Customer Service & Order Processing
Total Response CostResponse Cost per Customer Order
Customer Orders per Person Hour
Order Entry Accuracy Order Entry TimeOrder Processing Time
Inventory Planning & Management
Total Inventory CostInventory Cost per SKU
Inventory TurnsSKUs per Planner
Fill RateForecast Accuracy
Supply Total Supply CostSupply Cost per PO
POs per Person-Hour SKUs per Buyer
Perfect PO Percentage Purchase Order Cycle Time
Transportation Total Transportation CostTransportation Cost per Mile
Stops per Route Fleet Yield Container Capacity Utilization
On-Time Arrival Percentage Damage PercentageMiles Between Accidents
In-Transit Time
DC Operations Total Warehousing Warehousing Cost Warehousing Cost per Square Foot
q Units per Person HourStorage Density
Inventory Accuracy Picking Accuracy Shipping Accuracy Damage PercentageHours Between Accidents
Warehouse Order Cycle Time
LOGISTICS Logistics Expenses
Logistics Profit
Logistics Asset Value
Logistics Asset Turnover Logistics Capital Charges Total Logistics Cost Logistics Cost-Sales Ratio Return on Logistics Assets
Logistics Value Added
Perfect Orders per Logistics FTE
Perfect Order Percentage
Total Logistics Cycle Time
61
Case Discussion