Intro to Supply Chain Management - Exam 3 / Final - Wohlfahrt - Rutgers

Logistics

That part of supply chain management that plans, implements, and controls the flow and storage of goods/services from the point of origin to the point of consumption, to meet customer requirements

Products have little value to the customer until they are moved to the customer's point of consumption, at the right time and right location

Logistics is necessary to:

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

Warehousing

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

The true value of warehousing lies in having the right product in the right place at the right time. Warehousing provides time and place utility, the availability necessary to give materials value

Warehouse

A facility that stores purchases, work in process WIP, and finished goods inventory

Decisions driving warehouse management include

Number of warehouse facilities in the network

Site selection

Layout of the warehouses

Methods of receiving, storing, retrieving, and distributing products and materials (ex: manual, semi-automated, fully automated)

Primary functions of a warehouse

Receiving

Storage

Picking

Packing

Shipping

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 a customer order into an appropriate container for safe shipping, 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. Does NOT include transportation

Secondary functions of a warehouse

Quality inspections

(Incoming and outgoing)

Repackaging

(For specific customer orders)

Assembly operation

(Warehouse operation that combines products with other items/components before shipping them to the final customer)

Warehouse robotics

Warehouse robotics uses automated systems, robots, and specialized software to transport materials, perform various tasks, and streamline warehouse processes. The most common types of warehouse robotics

Automated Guided Vehicles AGVS

Automated storage and retrieval systems (AS/RS)

Collaborative robots (Cobots)

Automated Guided Vehicles AGVS

AGVs replace manually driven forklifts to transport materials within warehouse facilities. AGVs navigate warehouse facilities by following routes marked by writes, tracks, or sensors embedded in the floor or other physical guides

Automated Storage and Retrieval systems (AS/RS)

Automate the storage/retrieval of goods to speed up order fulfillment and materials handling operations. They operate as cranes on fixed tracks that traverse product aisles and vertical heights to deposit or remove items

Collaborative Robots (Cobots)

Semi-autonomous mobile robots that help human workers perform tasks. They can speed up order fulfillment by delivering inventory items to stationary pick-up stations where human operators fulfill orders

Warehouse ownership types

Public warehouses

Contract warehouses

Private warehouses

Public warehouses

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

Owns their equipment and hires their staff to manage the facility

Fees are typically a combination of a monthly storage fee plus a pallet-in fee and a pallet-out fee

Public warehousing is like a hotel for inventory

Advantages of public warehouses

No capital investment or property taxes

Flexibility

- It can be a short or long term contract

- For seasonal products

- Add storage capacity even on a short notice

Lower costs and reduced risk

Access to special features and services

- Temperature controlled storage

- Customer service,inventory ordering, etc

- Office space for customer's sales, accounting, etc

Disadvantages of public warehouses

Potential for incompatible computer systems

Specialized services may not be what is required/needed

Space may not be available when/where needed

Contract warehouse

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

The contract can be for an entire building or for a defined portion within a building

Usually requires a client to commit to services for years rather than months

The fee structure may be fixed cost, cost-plus, or a combination

The company providing the space handles the employees, equipment, and maintenance

Think of contract warehousing as renting an apartment for inventory

Advantages of contract warehouse

Services

The client can obtain specialized services tailor-made to suit their needs

Cost

Can be bundled into the contract and negotiated at a lower cost

Control

Contract warehousing offers a degree of control at a reasonable price

Disadvantage of contract warehouse

Duration

The client company is expected to enter into a contract for a specific period, generally three years

Private ownership

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

Generally established by companies with a large volume or valuable goods, or the need for specialized storage or handling

Can be operated as a separate division within a company

Can be co-located on-site with manufacturing or off-site

Think of private warehousing as buying a house for inventory

Advantages of private ownership

Control

Offers greater flexibility in designing the warehouse and gives users significant control over operations

Visibility

Inventory, material flow, handling, supervision, and associated costs

Costs

Operating cost can be 15%-25% lower if the company achieves at least 75% utilization

Disadvantages of private ownership

High start-up cost

Capital to build or buy a warehouse. Long, risky investment. Cost of hiring and training employees. Purchase of material handling equipment

Fixed location

It is not easy to move to another location if the market changes

Fixed-size and costs

When volume is low, the company still assumes the fixed costs.

Types of warehouses

Consolidation warehouses

Break bulk warehouses

Cross docking warehouses

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.

Cost per unit is high coming from the different plants

The items combined at the consolidation warehouse then have a low cost per unit when they are sent to the customer in a Full Truckload FTL Shipment

Located closer to the supply base so that smaller FTL shipments travel shorter distances and can be consolidated into larger FTL shipments traveling longer distances to the customer

Break bulk warehouse

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

Low-cost per unit items come from a full truckload shipment from a plant to the break bulk warehouse

The cost per unit of the items then becomes high when it goes from the breakbulk warehouse to multiple customers in less than truckload shipments.

Located closer to the customer base so that the smaller LTL shipments travel shorter distances while the larger FTL shipments from the single source travel longer distances before arriving at the break bulk warehouse.

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, reduces inventory investment and storage space requirements

Suppliers holding specific items, inbound receiving, then put their items in the sorting area. The items get mixed and the outbound shipping trucks receive a mix of each of the specific items.

Suppliers and customers can be internal or external

Main reasons why cross docking is implemented

Provide a central site for products to be sorted and combined for delivery to multiple destinations in the most productive and fastest method possible

Consolidate: Combine smaller product loads into one method of transport to save on transportation costs

Break bulk: Break down large product loads into smaller loads for transportation for an easier delivery process to the customer

Advantages of cross docking warehouses

Transportation cost savings

8 FTL shipments are less expensive per unit than 16 LTL shipments

Operational efficiency

Warehouse operations are more efficient as the material does not have to be stored at the warehouse, moving directly from receiving to shipping

Inventory efficiency

There is no warehouse storage, so total inventory in the supply chain can be reduced

Warehouse network

A warehouse network is simply the number of, and the relationship between, the company's warehouses in their organizational structure

Trade-offs that will determine how many warehouses the company needs and where they should be located are:

The level of customer service the company wants to provide

(The greater the desired customer service level, the more warehouses the company may need to disperse inventory geographically)

The amount of inventory the company is willing to invest in

(The more warehouses the company needs, the greater the amount of inventory the company will need to invest)

Single warehouse

Multiple warehouse

Hybrid approach

Single warehouse (warehouse network)

Positives

-Less complicated

-Operating costs and inventory will be lower

-No duplication of equipment, warehouse staff, and managers

-The 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 (ie, centralized network) may take longer to deliver products to some customers who are remote from the central location

Multiple warehouses (warehouse network)

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

-The network will be decentralized, and the company will have to spread its best people, equipment, and inventory systems across a more extensive network.

Hybrid approach (warehouse network)

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

The hub warehouse feeds the spoke warehouses with inventory as necessary regularly

Operating costs are lower because the spoke warehouses are smaller than in a purely decentralized model.

Inventory is also lower as all safety stock is held centrally. This generally means less total safety stock is required because all risk and uncertainty are managed centrally

Customer service is generally better than in a centralized model since some inventory is maintained closer to the customer

Warehouse network strategy

Company must determine which location strategy makes the most sense for its business

The strategy decision depends on the nature of the business and how many customers and suppliers the company has

The three main warehouse network location strategies are

Market positioned strategy

Product positioned strategy

Intermediately positioned strategy

Market positioned strategy

Warehouses are set up close to customers to maximize distribution services and improve delivery

Companies use this strategy when they have many more customers than suppliers and the customers are spread out geographically around the market

If the warehouses are closer to the customers, the company can minimize transportation costs

FTL shipments will likely come in from suppliers from greater distance, and LTL shipments will go out to customers from shorter distances

Fewer suppliers, many customers

Product positioned strategy

Warehouses are set up close to supply sources to collect goods and consolidate before shipping products to customers

This is the reverse of the market-positioned strategy

Companies use this strategy when they have many more suppliers than customers

If the warehouses are closer to the suppliers, the company can minimize transportation costs

LTL shipments will likely come in from suppliers from shorter distances and consolidated FTL shipments going out to customers from longer distances

Many suppliers, few customers

Intermediately positioned strategy

Warehouses are set up midway between the supply sources and the customers to balance costs, inventory, and customer service

This strategy is used when distribution requirements are high and the product comes from various supply locations

A warehouse network optimization study may be needed to determine the optimal number and location of warehouses in this strategy

Third-party logistics 3PL

A third-party logistics 3PL company is an outsourced provider that manages all or a significant part of an organization's logistics requirements for a fee.

Charges a fee, generate 10-20% in savings, favored by small businesses, used for international logistics

Typical services offered by 3PL's include

Inbound transportation

Outbound transportation

Warehousing

Pick and pack

Freight forwarding

Customs Brokerage

Customs clearance

Order taking

Billing and invoicing

Inventory auditing

Freight bill auditing and payment

Third-party logistics advantages

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

Logistics expertise- Knowledgeable of industry best practices and the latest technological developments

Efficiency- 3PLs can leverage relationships and volume discounts, which result in lower overhead and the fastest possible service

Third-party logistics disadvantages

Control - A company will not directly control 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.

Transportation

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

Objectives

-To maximize value to the company through price negotiations

-To make sure service is provided efficiently

-To satisfy customer needs

Transportation company classifications

Contract carriers

Private carriers

Common carriers

Exempt carriers

Contract carriers

A person or company who transports freight under contract to a limited number of shippers

Private carriers

A person or company that transports its cargo as part of a business that produces, uses, sells, or buys the cargo being hauled

Common carriers

A person or company that transports freight for a fee and can be hired by anyone to transport goods

Exempt carriers

A person or company specializing in transporting commodities is exempt from regulation by the Interstate Commerce act.

Mode

The way in which goods are transported

Carrier

The company that transports the goods

Modes of transportations

Truck

Rail

Pipeline

Air

Water

Truck

Most flexible mode of transportation

Carries > 80% of US freight because of interaction with other transportation modes.

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

Short haul = 0 - 200 miles from the drivers home terminal

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

Impacted by driver shortage and hour of service rules

General Freight Carriers (Truck)

A trucking company that handles various commodities in standard trailers. Freight is generally palletized

FTL or LTL carriers

Carry majority of goods shipped

Does not require specialized equipment

Specialized carriers (truck)

A trucking company that handles the movement of cargo that requires specialized equipment for transportation because of the shipment's size, weight, and shape

Transports commodities like liquids, petroleum, household goods, building materials, specialized items

Less than truckload LTL (truck)

The transportation of relatively small freight, the freight does not require the entire space of a truck

Can be cost effective, available carrier options, ideal for small business

Increased risk of theft, increased shipping times/delays.

Full Truckload FTL

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

Best way to transport large shipments, ideal for high risk and delicate freight shipments. Faster than LTL

Costs more than LTL

Rail

Rail is slow and inflexible but has the most capability

Accounts for approximately 9% of total US freight spend

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

Building materials, construction equipment, coal, gravel, sand, lumber.

Paired with trucks for door to door delivery

Aging infrastructure and equipment

Pipeline

Lowest per unit cost for transportation

Accounts for approximately 2% of total US freight spend

Most reliable form of transportation

Limited variety of commodities

Materials are transported in a liquid of gaseous state: petroleum, natural gas, drinking water, gasoline

Little maintenance

Air

Generally the fastest mode of transportation

Most expensive mode of transportation

Accounts for 5% of total US freight spend

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

Light high value goods that must travel long distances quickly. Jewelry, fine wines, pharmaceuticals, racehorses.

Half of the goods transported by air are carried by freight only airlines like FedEx. The other half in passenger planes with luggage

Paired with trucks

Water

Inexpensive

Very slow and inflexible

Accounts for 5% of total US freight spend

Includes inland waterways, coastal and intracoastal and deep-sea cargo shipments

Primary used for heavy, bulky, low value materials like coal, grain, sand, and petroleum.

Because water is cheap, almost any item may be shipped by water, including automobiles, produce, containerized cargo, etc

Competes with rail and pipeline for cargo shipments

Paired rucks for door to door delivery

Intermodal Transportation

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

Cost efficient and effective

Rail and motor carriers (trucks)

Rail and water carriers

Roll-on / Roll-off ship

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 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 need for cranes. Provides flexibility and speed

Transportation regulation

Interstate Commerce Act of 1887

Created the Interstate Commerce Commission ICC

Regulation Pros

Ensures adequate transportation service

Protects consumers from monopoly pricing and provides for safety

Regulation Cons

Does not allow prices to adjust based on demand/negotiation

Discourages competition

Transportation deregulation

ICC Termination Act of 1995: The Interstate Commerce Commission ICC was eliminated

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

US Transportation industry remains mostly deregulated

Transportation pricing

Cost of service pricing

Value of service pricing

Combination pricing

Net rate pricing

Cost of Service pricing

The setting of a price for a service based on the costs incurred in providing it

Value of service pricing

A pricing strategy that sets prices based on the value perceived by the customer ie "priced at what the market will bear"

Combination pricing

Price is set 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 (FOB Shipping Point)

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

Ownership passes to buyer when the seller ships it

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

Ownership passes to buyer when it is delivered to buyer

Freight forwarder

Consolidates LTL shipments into FTL shipments

They consolidate small shipments from multiple companies 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 them to shippers

Technology and trends in transportation

Platooning

Driverless trucks

Drone delivery

Driver monitoring

Traffic coordinating

Safety technology

New concept trucking

Vertically folding shipping containers

Autonomous / self driving vehicles

An autonomous and self driving vehicle is equipped with technology that senses the conditions around it, including traffic, pedestrians, and physical hazards. It can adjust its course and speed without a human being in control

Significant concern involves driver job security and legal issues around insurance and liability for accidents

Drones

Many companies are exploring the possibilities of providing some of their delivery services through drones. While the technology is still not fully developed, it could be the go to alternative for delivering time-sensitive goods, emergency aid, medical supplies, and more

Useful in:

-Last mile delivery and short to medium distance transportation

-Inventory management and order picking

-Surveillance and inspection

Advantages:

Reduce costs, save time, efficient, save resources, save environment

Disadvantages:

High safety requirements in air, no fly zones, personal handover of goods is hard, lack of landing options in the city.

Blockchain

chain

A blockchain is a digitally distributed, decentralized, public ledger across a network. It provides all parties involved in the supply chain with unrestricted insight into all transactions

Facilitates transparent immutable records of supply chain activities and can help mitigate issues like counterfeit, compliance violations, delays, and waste

Businesses can track and verify supply chain process steps

Information about status/location is available in real-time

Blockchain automates specific logistics processes like payments or contract enforcement through smart contracts.

Warehouse management systems WMS

Track and control the flow of goods from the 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

Global Location Decisions

Due to increased globalization, technology, transportation, and open markets, companies can be located anywhere worldwide

Global facility types

Offshore factory

Source factory

Server factory

Contributor factory

Outpost factory

Lead factory

Offshore factory

A factory set up for manufacturing or assembly in a country where labor or raw materials are less expensive for eventual import back into the manufacturer's home country

Low labor costs and manufactures products at a low cost

Import/acquire parts locally then export to manufacturer or directly to customers

Ex: clothing produced in Bangladesh or indonesia

Source factory

Manufactures products at low cost but with skilled workers and significant managerial resources

Like an offshore factory that includes involvement in supplier selection, involvement in production planning, more developed local infrastructure, access to skilled workforce, and low production costs

Example: Hewlett Packard Singapore factory produced calculators and keyboards.

Server factory

A factory set up to take advantage of government incentives or reduced tax/tariff barriers to meet regional or local market needs.

Firm uses government incentives, low exchange risk and tariff barriers to reduce taxes and logistics costs, makes minor improvements to product and processes, set up to serve the local market

Example: Coca cola bottling, mix the final ingredients to take advantage of exchange rates, tariff, and taxes.

Contributor factory

Focused on product development and engineering for products they manufacture

Like a server factory that also includes product development, production planning, procurement decisions, and supplier development

Example: 1973 Sony built a server factory in Wales and then 15 years later got involved in development, planning, etc, and is now a contributor factory.

Outpost factory

A factory set up in an area with abundant advanced suppliers, competitors, research facilities, etc

Set up in a location within proximity to advance suppliers, competitors, research facilities and universities for materials, components, and products

Example: Raleigh, durham, chapel hill NC. Research triangle center. UNC, Duke, IBM, Cisco, etc. Silicon valley, Calif

Lead factory

Source of product and process innovation and competitive advantage across the entire organization (world-class)

Competitive advantage of the organization, source of innovation

Example: Intel factory in Penang Malaysia opened in mid 1970s, now is a lead factory. This is your go-to factory.

Global location factors

These are factors used to compare one potential location against another when making global location decisions

Competitiveness

Tax and incentives

Current stability

Access and proximity to markets

Labor issues

Right to work laws

Access to suppliers and cost

Utility availability and cost

Environmental issues

Land availability and cost

Quality of life issues

Business clusters

Trade agreements

12 Pillars of competitiveness

Institutions

Infrastructure

Macroeconomic stability

Health and primary education

Higher education and training

Goods market efficiency

Labor market efficiency

Financial market sophistication

Technological readiness

Market size

Business sophistication

Innovation

Tax and incentives

Several levels of government must be considered when evaluating potential locations

Tariffs are federal taxes that are designed to protect local business

Countries with high tariffs discourage importing goods into the country and encourage multinational corporations to produce locally.

Currency stability

Impacts business costs and consequently location decisions. If a country has high inflation, it's not easy to set prices in that currency environment.

Access and proximity to markets

The trend in manufacturing is to be within delivery proximity of your customers

Logistics timelines and costs are the concerns, reinforcing a clustering effect of suppliers and producers to places offering lower cost labor and real estate prices.

In the service industry, proximity to customers is even more critical. You can't service a washing machine if your technician is 3000 miles away