Intro Supply Chain Chapter 9 Rutgers

Logistics

"from the point of origin to point of consumption"

Inbound Logistics

Move goods and materials from suppliers to buyers

Material Handling

Move goods and materials between sites (internal and external)

Outbound Logistics

Move finished goods to the customer

Warehouse

Facility used to store purchases, work-in-process (WIP), and finished goods inventory

Warehousing

Function that allows a company to receive, store, breakdown, repackage, and distribute items to a manufacturing location, or finished products to a customer

Primary Functions of a Warehouse

Receiving: Physical receipt of material, identification, inspection for conformance with the purchase order (quantity and damage), put-away, and preparation of receiving reports

Storage: The safe and secure retention of parts or products for future use or shipment.

Picking: Withdrawing components from stock to make assemblies or finished goods, or to ship to a customer.

Packing: Placing one or more items of an order into an appropriate container for safe shipping, and marking and labeling the container with customer shipping destination data, and other information that may be required.

Shipping: Outgoing shipment of parts, components, and products. Includes packaging, marking, weighing, and loading for shipment.

Secondary Functions of a Warehouse

Quality Inspection- incoming and outgoing.

Repackaging- for specific customer orders.

Assembly Operation- Warehouse operation that puts products together with other items/components before shipping them out to the final customer. Examples: Literature, Spare Parts,

Advertising Materials

Warehouse Ownership Types

Public Warehouses (hotel for inventory)

Contract Warehouses (renting an apartment for inventory)

Private Warehouses (buying a house for inventory)

Public Warehouse

A business that provides storage and related warehouse functions to companies on a short or long-term basis, generally on a month-to-month basis for a fee.

Contract Warehouse

A variation of public warehousing that handles the shipping, receiving, and storage of goods on a contract basis for a fee.

Private Warehouse

A storage facility that is owned by the company that owns the goods being stored in the facility.

Types of Warehouses

Consolidation Warehouse

Break-Bulk Warehouse

Cross-Docking Warehouse

Consolidation Warehouse

Warehouse operation that receives products from different plants or suppliers, stores them, and then combines them with similar shipments from other plants or suppliers for further distribution.

Break-Bulk Warehouse

Warehouse operation that divides full truckloads of items from a single source or manufacturer into smaller, more appropriate quantities for use or further distribution.

Cross-Docking Warehouse

The logistics practice of unloading materials from an incoming truck or railcar and loading these materials directly onto outbound trucks or railcars, with little or no storage in between to reduce inventory investment and storage space requirements.

Warehouse Network

Warehouse Network: Single Warehouse

Positives:

Less complicated

Operating costs and inventory will be lower

No duplication of equipment, warehouse staff, and managers

Network will be centralized and the company will have its best people, equipment and inventory systems concentrated in one place.

Warehouse can more actively focus on the needs of its customers

Negatives:

The single warehouse (i.e., centralized network) may take longer to deliver product to some customers who are remote from the central location

Warehouse Network : Multiple Warehouses

Positives:

Potentially faster delivery to customers from a decentralized network that is geographically dispersed throughout the market, assuming adequate inventory in each warehouse

Negatives:

More complicated

Operating costs and inventory will be higher as each warehouse costs money to staff and operate. Duplication of equipment, warehouse staff, and managers

Network will be decentralized and the company will have to spread its best people, equipment and inventory systems across a larger network.

Warehouse Network : Hybrid Approach

One hybrid network is a "hub-and-spoke" where there is a centralized warehouse (i.e., the "hub") which holds most of the inventory linked to a series of smaller geographically dispersed warehouses (i.e., the "spokes") which hold only a small amount of inventory to support their local area in the immediate time frame

The hub warehouses feeds the spoke warehouses with inventory as necessary on a regular basis.

Warehouse Network Strategy

1. Market Positioned Strategy: Close to customers to maximize distribution services and improve delivery.

-Few suppliers; many customers

2. Product Positioned Strategy: Close to supply source to collect goods and consolidate before shipping products out to customers.

-Many suppliers; few customers

3. Intermediately Positioned Strategy: Midway between supply source and customers, when distribution requirements are high and product comes from various locations

-Relatively equal number of suppliers and customers

LEAN Warehousing

Cross Docking- A LEAN concept because it eliminates the need to store inventory, and reduces some transportation, which are both wastes.

Reduced Lot Sizes and Shipping Quantities - By reducing lot sizes and shipping quantities, a company can increase velocity in the warehouse, and get shipments out faster. Faster throughput is a LEAN concept.

Increased Automation- Companies are using automated systems like pick to light, voice picking, conveyor systems, automatized guided vehicles (AGV's), and robotics to improve efficiencies and throughput times in the warehouse.

Green Warehousing- One of the more sustainable goals for a green warehouse is to make it a net zero energy user.

Third Party Logistics (3PL)

an outsourced provider that manages all, or a significant part, of an organization's logistics requirements for a fee

-charge a fee for their services.

-typically generate a 10 to 20% savings in logistics costs

-favored by small businesses

-used to a significant degree for international logistics

Third Party Logistics - Advantages & Disadvantages

Advantages:

Cost: Eliminates the need for a company to invest in warehouse space, technology, and staff to execute the logistics process.

Logistics Expertise: Knowledgeable of industry best practices and the latest developments in technology.

Efficiency: 3PL's can leverage relationships and volume discounts, which result in lower overhead and the fastest possible service.

Disadvantages:

Control: A company will not have direct control over the logistics operation.

Dependency: Outsourcing logistics creates a dependency on the 3PL.

Pricing: The company is locked into the pricing model specified in the contract

Fourth Party Logistics (4PL)

an interface between the client company and multiple logistics service providers.

A company will select a lead logistics partner (referred to as a 4PL) that is then charged with managing the activities of all the other 3PL's being used by the company

Transportation

The function of planning, scheduling, and controlling activities related to the mode, carrier, and movement of inventories into and out of an organization.

Get the right product, to the right place, at the right time by ensuring the product is moved as efficiently as possible from point-of-origin to point-of-destination.

Objectives of Transportation:

1. To maximize the value to the company through

price negotiations

2. To make sure service is provided effectively

3. To satisfy customers' needs

Transportation Company Classifications

Contract Carriers

Private Carriers

Common Carriers

Exempt Carriers

Contract Carriers

Person or company who transports freight under contract to one or a limited number of shippers.

Private Carriers

Person or company that transports its own cargo as a part of a business that produces, uses, sells or buys the cargo that is being hauled.

Common Carriers

Person or company who transports freight for a fee that can be hired by anyone to transport goods.

Exempt Carriers

Person or company specializing in services or transporting commodities exempt from regulation by the Interstate Commerce Act.

Modes of Transportation

Truck

Rail

Pipeline

Air

Water

"Mode"

refers to the way in which goods are transported

"Carrier"

refers to the company that transports the goods

Truck

Most flexible mode of transportation

Carries > 80% of U.S. Freight

Because of interaction with other transportation modes to and from ports & warehouses

Carries nearly anything from packaged household goods, to building materials, to liquid petroleum, etc.

Competes with Rail and Air for short-to-medium hauls.

Short Haul = 0 - 200 miles from the driver's home terminal

Long Haul = over 200 miles from the driver's home terminal

Impacted by the truck driver shortage and Hour-of-Service rules

Less-Than-Truckload (LTL)

the transportation of relatively small freight, i.e., the freight does not require the entire space of a truck.

Advantages: Can be cost effective. There are more available carrier options. Ideal for small businesses.

Disadvantages: Increased risk of theft/damage. Increased shipping times and delays.

Full-Truckload (FTL)

the transport of goods that fill up a full truck, or a partial load shipment occupying an entire truck.

Advantages: Best way to transport large shipments. Ideal for high risk or delicate freight shipments. Considerably faster than LTL.

Disadvantages: Costs more than LTL.

Rail

Accounts for approximately 9% of total US freight spend.

Competes for transportation when the distance is long and the shipments are heavy or bulky.

*slow and inflexible but it has the MOST CAPABILITY*

Paired with trucks for door-to-door delivery.

Pipeline

Accounts for approximately 2% of total US freight spend

*Most reliable form of transportation**

Lowest per unit cost for transportation

Limited variety of commodities.

Materials are transported in a liquid or gaseous state; petroleum, natural gas, drinking water, gasoline

Little maintenance needed once the pipeline is running

Air

Accounts for approximately 5% of total US freight spend

**Generally the fastest mode of transportation.**

**Most expensive mode of transportation**

Cannot carry extremely heavy or bulky cargo. Ideally, items with a high cost to weight ratio.

Half of the goods transported by air are carried by freight-only airlines, e.g., FedEx.

Other half in passenger planes with luggage

Paired with trucks for door-to-door delivery

Water

Accounts for approximately 5% of total US freight spend

Inexpensive

Very slow and inflexible

Primarily used for heavy, bulk, low value materials like coal, grain, sand, and petroleum.

Competes with rail and pipeline for some cargo shipments.

Paired with trucks for door-to-door delivery.

Intermodal Transportation aka "Piggy-back" service

sometimes referred to as the sixth mode of transportation, but it is really the use of multiple modes of transportation to execute a single transport shipment

Intermodal is growing substantially because it is fairly cost-efficient and cost-effective.

The most common forms of intermodal transportation involve:

Rail and Motor Carriers (trucks):

Offer point-to-point pickup and delivery service known as Trailer-on-Flatcar (TOFC)

Rail and Water Carriers:

Offer point-to-point pickup and delivery service known as Container-on-Flatcar (COFC)

Roll-On/Roll-Off Ship:

specifically designed to allow trucks to be driven directly on and off the ship without the use of cranes.

Provides flexibility and speed

Interstate Commerce Act of 1887

created the Interstate Commerce Commission (ICC)

ICC Termination Act of 1995

The Interstate Commerce Commission (ICC) was eliminated

Regulation Pro's

Tends to assure adequate transportation service throughout the country.

Protects consumers from monopoly pricing, safety, and liability.

Regulation Con's

Discourages competition

Does not allow prices to adjust based on demand or by negotiation.

Deregulation

encourages competition and allows prices to adjust as demand and negotiations dictate

U.S. transportation industry remains mostly deregulated

Transportation Pricing

Cost of Service Pricing - is the setting of a price for a service based on the costs incurred in providing it.

Value of Service Pricing - is a pricing strategy which sets prices based on the value perceived by the customer, i.e., "priced at what the market will bear".

Combination Pricing - price is set at a value between cost-of-service minimum and value-of-service maximum. Most carriers use some form of combination pricing. Common in highly volatile markets and changing competitive situations

Net-Rate Pricing - Established discounts and accessorial charges are rolled into one all-inclusive price. Pricing is tailored to the individual customer's needs

Freight: Terms of Sale =

Delivery and payment terms agreed between a buyer and a seller

Free on Board (F.O.B.) Origin

Seller places goods Free On Board with the carrier at the seller's location, and buyer pays freight costs.

Ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller.

Buyer assumes the risk for in-transit loss or damage

Free on Board (F.O.B.) Destination

Seller places goods Free On Board to the buyer's place of business, and the seller pays freight costs.

Ownership of the goods remains with the seller until the goods reach the buyer.

Seller assumes the risk for in-transit loss or damage.

Freight Forwarder

Consolidates LTL shipments into FTL shipments.

-They take small shipments from multiple companies and consolidate them into larger shipments

Load or Transportation Broker

Bring shippers and carriers together

Shippers' Association

Nonprofit cooperatives which arrange for members' shipping

Intermodal Marketing Company

Purchase blocks of rail capacity and sell it to shippers

Technology and Trends in Transportation

Platooning

Driverless Trucks

Drone Delivery

Logistics Management Software Applications

Warehouse Management Systems (WMS)

-Track and control the flow of goods from receiving dock to outbound shipment. New technologies, such as RFID tags, facilitate tracking.

Transportation Management Systems (TMS)

-Used to select the best mix of transportation services and pricing.

Global Trade Management Systems (GTM)

-Provides global visibility, standardization, and documentation to comply with international trade regulations.

Reverse Logistics (also known as Returns Management)

Backwards flow of goods from customers in the supply chain

"Reverse logistics is all about damage control and making the process as customer-friendly as possible"

Reverse logistics cost 4 - 5 times as much as forward logistics and requires on average 12 times as many processing steps.

Five R's of Reverse Logistics

Returns- Customers return products for a number of reasons. An item may be defective, damaged, seasonal, fail to meet expectations, or be excess inventory.

Recalls- Recalls are more complex than basic returns because they typically involve a product defect or potential hazard and may be subject to government regulations, liability concerns or reporting requirements.

Repairs- Not all products that are returned are disposed. Manufacturers may identify the failure and repair, refurbish or remanufacture the product to like-new condition and return it to stock, or harvest various components for re-use.

Repackaging- 95% of returned products are because customers are dissatisfied with them not because there are defective. These products are typically repackaged and returned to inventory for restock or resale.

Recycling- When products reach the ends of their useful lives and must be scrapped, companies must find safe, cost-effective and environmentally friendly ways to dispose of them. Companies can reduce costs and minimize waste.

Poor Reverse Logistics Can Hurt A Company

Problems Include:

-Inability of information systems to handle returns

-Lack of worker training in reverse logistics procedures

-Little or no identification on returned packages

-Need for adequate inspection and testing of returns

-Danger of placing returned products back into sales stocks

Can affect the entire supply chain financially

Can have a large impact on how a consumer views a product or brand, potentially impacting future sales.

Retail returns = 6% to 10% of sales

Return of Unsold Goods

In some industries, goods are distributed to downstream members in the supply chain with the understanding that the goods may be returned for credit if they are not sold e.g., newspapers, magazines, even pharmaceuticals.

This acts as an incentive for downstream members to carry more stock, because the risk of obsolescence is borne by the upstream supply chain partner.

The risk is that the downstream member in the supply chain might exploit the situation by ordering more stock than is required and returning large volumes.

Green Reverse Logistics Programs

Can have a positive impact on the environment though activities such as recycling, reusing materials and products, or refurbishing unused products.

These programs can reduce environmental impact on landfills and deal with dangerous contaminants.

Example: Unused pharmaceutical product returned to the pharmacy rather than "flushing it down the toilet" which ultimately causes the drug to end up in the water supply.