The Business of Logistics
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Transcript of The Business of Logistics
Learning Objectives
Understand the role and nature of inbound logistics in a supply chain context
Explain the different types of inbound systems in a supply chain
Discuss the major materials management activities
Understand the procurement process
Learning Objectives (cont.)
Identify the four steps necessary for
procurement
Explain the criteria for evaluating
vendors
Understand the major inventory
techniques associated with materials
management
Logistics Profile
Robbins Company
– Parts too big and costly to ship by air
– Ocean transport too unreliable
– Impact of missed deliveries
– Trans-Atlantic shipping runs like clockwork
• Systems in place when not (Fax/EDI)
– Despite transportation improvements –
Customs remains difficult
Inbound vs. Outbound
Inbound
– Materials management
– Procurement
Outbound
– Customer service
– Channels of distribution
Focus on MM, Inventory management and Procurement
Inbound Logistics along the
Supply Chain
Mining Firm – extractive, most concerned about outbound
Steel Firm – inbound items stored outside in piles, finished steel requires more sophisticated handling
Container firm – cans of different sizes, also part of supply chain for auto making etc
Inbound Logistics along the
Supply Chain (cont.)
Food Firm – stores cans as „brights‟
adding labels later
Retail Store- labels added per orders
Return – today‟s economy recycles
Complexity – Boeing vs. US Steel
inbound vs. outbound
Materials Management
Integration
– Information needs to flow both directions
for effective coordination
Definition
– “the planning and control of the flow of
materials that are a part of the inbound
logistics system”
Procurement
Importance
– Links members in the supply chain and
assures the quality of the suppliers
Definition
– “act of buying goods and services for a firm
or the process of it”
– Activities are interfirm (org boundaries) and
intrafirm (functional boundaries)
Procurement - Activities
Identify or reevaluate needs– Specifications from external customers
Define and evaluate user requirements– Measurable criteria
Decide whether to make or buy
Identify the type of purchase– Straight rebuy
– Modified Rebuy
– New buy
Procurement - Activities
Conduct a market analysis– Oligopoly/ monopoly markets etc.
Identify all possible suppliers– Simple as the yellow pages for small companies
Prescreen all possible sources– Demands vs. desires of users
Evaluate the remaining supplier base
Choose a supplier– Mechanics of the relationship (T‟s and C‟s)
Procurement - Activities
Receive delivery of the product or
service
Make a postpurchase performance
evaluation
– “control” activity
– Measure supplier performance against
user requirements
Managing the Procurement
Process
Determine the type of purchase
Determine the necessary levels of investment
– Time and information of the firm
Perform the procurement process
Evaluate the effectiveness of the procurement
process
– Control step to determine:
• User needs met
• Was the investment necessary
Vendors
Vendor Partners
– Competitive advantage of the company
– Customer satisfaction
– Reduced total number of suppliers
– TQM and JIT systems
Vendor Selection Criteria
Quality– Life of product, ease of repairs
Reliability– Delivery and performance history and
performance life of the product
Capability– Production facilities, capacity and technical
capability, management, organizational capabilities and operating controls
Financial– Must be stable or it affects supply chain
Vendor Selection Criteria
Desirable Qualities
– Image or impression
– Training aids
Vendor Location
– Fill rush orders, delivery dates
Factor Importance
– Depends on the material being purchased
Procurement Price
Sources of Price
– Commodity Markets• Grain, oil, sugar and raw materials
– Price List• Publishes, may offer volume breaks
– Price negotiations• RFP/RFQ
– Negotiations• When other methods don‟t apply or fail
Hierarchy of Costs
Traditional basic input costs– Primary price (bid, quoted, negotiated)
Direct transaction costs– Detecting inventory need, requisitioning, preparing
and transmitting order documents, receiving information - EDI
Supply relational costs– Travel, training, links between purchasing and
traffic, engineering, research, product development
Hierarchy of Costs
Landed costs– Actual transportation costs
– Sales/F.O.B terms
– Four different inbound options:• Supplier selected for hire or private carrier
• Buyer selected for hire or private carrier
– Who owns it and when/claims and damage
Quality costs/factors– Conformance of goods to desired spec.
– Cost of conformance, nonconformance, appraisal and ultimate use costs
Hierarchy of Costs
Operations/Logistics costs
– Receiving and make ready costs:
unpacking, inspecting , counting, sorting,
grading, and moving to the use point
– Lot size costs
– Production costs – similar goods with
dissimilar impact on production lines
– Logistics costs
Other MM Activities
Warehousing
– Facilities required
• Raw materials vs. Finished product
Production Planning and Control
– Coordinating product supply with product
demand
• Forecast customer demand
• Provide from inventory or producing the product
Other MM Activities
Traffic
– Managing inbound transportation of materials
– Vendor Control – analyze periodically
– Modal Choice
– Rush Shipments – less on inbound
Receiving
– Inspection – Notify AP, Purchasing and Users
– Damage Claims –Notes on Bill of Lading „Guilty‟
Other MM Activities
Quality Control– Quality Standards – Meet the purchase agreement
– Quality Implications – Affects finished product
– Sample – vs. 100%
Salvage and Scrap Disposal– Value of Scrap
• Excess and obsolete materials
• Solid market exists for salvage
– Disposal• Legal and regulatory requirements for safe disposal of
hazardous materials
Inventory
Holding inventory = significant costs
Companies can reduce cost of business and improve ROI/ROA by decreasing inventory levels
MM/Inbound logistics plays a major role in driving inventory levels
Uncoordinated inventory approach = loss for company and customers
Just-in-Time
Available when a firm needs them– short consistent lead times
Kanban– Signboard indicates replenishment quantities and
times it must take place
JIT Operations– Production cards (kan cards) establish the amount
to be produced
– Requisition cards (ban cards) authorize the withdrawal of materials from feeding or supply operation
– Andon (light system), yellow (little), red (big) prob.
Just-in-Time
Fundamental Concepts– Zero inventory
– Short lead times
– Small, frequent replenishment quantities
– High quality, zero defects
Similarity to two-bin system– Or „reorder‟ point system
– One bin to fill demand for a part and when empty the second bin supplies the part
Reducing lead times– Forklift example of 1 month for Toyota vs. 6-9
months for American manufacturers
JIT vs. Traditional Approaches
Reduce Inventories– Does the supplier carry more?
Shorter Production Runs– Setup issues
Minimize Waiting lines– When and where firms need them
Short, consistent lead times– Proximity
Quality
Win-Win relationships
JIT Summary
Demand responsive, resembles EOQ
and Fixed order Quantity approaches
Difference is reliance on improved
responsiveness and flexibility
Relies heavily on accuracy of
forecasting, communication, IS, and
transportation
MRP
Materials Requirements Planning – Joseph Orlicky– Supplying materials and component parts whose
demand depends upon the demand for a specific end product
Logically related procedures, decision rules and records designed to translate a master production schedule in to time-phased net inventory requirements, and the planned coverage of such requirements for each component item needed to implement this schedule
MRP
Goals– Ensure availability of materials, components and
products for planned production and for customer delivery
– Maintain the lowest possible inventory level
– Plan manufacturing activities, deliver schedules, and purchasing activities
Exploding– Determine how much customers desire and when
they need it – timing and need for components based upon the scheduled end product need
MRP
Master Production Schedule
– MPS – detailed schedule of SKU‟s and when they
must be produced
Bill of materials file
– Recipe and when they must be available BMF
shows interrelationship of components and
subunits
Inventory status file
– Also does safety stock and lead times
MRP
MRP program
– Calculates gross requirements and takes into
account inventory and places orders
Outputs and reports
– Quantities and time of order
– Need to expedite or reschedule order dates
– Canceled need for product
– MRP system status
MRP Summary
Responsiveness– Quickly react to changing demand for finished
products
Strengths– Safety stock levels, minimize or eliminate
inventories
– Identify process problems and potential supply chain disruptions and take corrective actions
– Coordinate materials ordering across points in a firm‟s logistics system
– Most suitable for batch/intermittent production/assembly
MRP Summary
Limitations
– Computer intensive and making changes is sometimes difficult while in operation
– Ordering and transportation costs could increase as smaller amounts arrive more frequently
– Not as sensitive to short-term fluctuations in demand as order point approaches
– Complex and don‟t work as intended