SCM Final Exam

Logistics

the part of supply chain management that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information, from the point of origin to the point of consumption, in order to meet customer requirements

Logistics is necessary to

* Inbound Logistics
* Material Handling
* Outbound Logistics

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

**Products have little value to the customer until they are**

**moved to the customer’s point of consumption**

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

Decisions driving Warehouse Management include

* Number of warehouse facilities in the network 
* Site selection 
* Layout of the warehouse(s)

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 an order into an appropriate container for safe shipping, and then 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. (doesn’t include transportation)

Functions of a Warehouse

* **Quality Inspections**
* **Repackaging**
* **Assembly Operation**

Quality Inspections

incoming and outgoing

Repacking

for specific customer orders

Assembly Operations

warehouse operation that puts products together with other items/components before shipping them out to the final customer

Types of Ownership

* Public Warehouses
* Contract Warehouses
* Private Warehouses

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

* Own their own equipment and hire their own 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

\
think of Public Warehousing as a Hotel for inventory

Advantages of Public Warehouse

* No capital investment or property taxes
* Flexibility:
* Can be short or long term contract
* For seasonal products
* Add storage capacity even on 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 Warehouse

* 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 position within a building
* usually requires a client to commit to services for years rather than months

\
think of Contract Warehousing as renting an Apartment for inventory

Advantages of Contract Warehouse

* Services: client can obtain specialized services tailor-made to suit their needs. 
* Cost:  can be bundled in the contract and negotiated at a lower cost.
* Control: contract warehousing offers a degree of control at a reasonable price

Disadvantages of Contract Warehouse

* Duration:  The client company is expected to enter into a contract for a specific period of time; generally three years

Private Warehouse

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

* Generally established by companies that have a large volume or highly valuable goods, or the need for some type of specialized storage or handling

\
think of Private Warehousing as buying a House for inventory

Advantages of Private Warehouse

* Control: offers greater flexibility in designing the warehouse and gives users significant control over operations
* Visibility: inventory, material flow, handling, supervision, and associated costs
* Cost:  operating cost can be 15% - 25% lower if the company achieves at least 75% utilization

Disadvantages of Private Warehouse

* 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: 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

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

Main reasons cross-docking is implemented

1. Provide a _central site for products to be sorted and combined for delivery to multiple destinations in the most productive and fastest method possible
2. Consolidate: Combine smaller product loads into one method of transport to save on transportation costs
3. Break-Bulk: Break down large product loads into smaller loads for transportation for an easier delivery process to the customer

Advantages of Cross-Docking Warehouse

* 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: as there is no storage at the warehouses, total inventory in the supply chain can be reduced

Warehouse Network

Simply the number of, and the relationship between, the warehouses that a company has in their organizational structure

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

* The level of customer service the company wants to provide
* The greater the desired custom service level – the more warehouses the company may need to geographically disperse inventory


* 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

Positives of Single Warehouse

* 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 of Single Warehouse

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

Positives of Multiple Warehouse

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

Negatives of Multiple Warehouse

* 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

Hybrid Warehouse 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

In a hybrid warehouse approach

* operating costs are…
* inventory is…
* customer service is…

* lower because the spoke warehouses are smaller than in a purely decentralized model
* lower as all of the safety stock is held centrally, which generally means that less total safety stock is required because all of the risk and uncertainty is managed centrally
* generally better than in a purely centralized model since some of the inventory is maintained closer to the customer

main warehouse network location strategies

* 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 cost

Product Positioned Strategy

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

Intermediately Positioned Strategy

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

* This strategy is used when distribution requirements are high, and product comes from various supply locations
* A warehouse network optimization study may be needed to determine the optimal number and location of warehouse in this strategy

Warehouse Network Optimization

* Companies need to find the balance that will work for their products and markets
* There are many consulting companies that offer services to help a company determine their optimal number of warehouses and locations by using a number of different optimization software programs
* The software analyzes the inputs including customer and manufacture locations, and then informs the optimal numbers of warehouses and locations based on all the factors
* These programs try to minimize the amount of transportation on both ends, inbound from your suppliers and outbound to your customers

LEAN Warehouse

Warehouses and distribution centers are continuing to develop their LEAN capabilities:

* 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

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

* 3PL providers charge a fee for their services
* They typically generate a 10 to 20% savings in logistics costs
* Favored by small businesses Used to a significant degree for international logistics

Advantages of Using a 3PL

* 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 of Using a 3PL

* 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

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

Contact 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

mode refers to

the way in which goods are transported

carrier refers to

the company that transports the goods

Modes of Transportation

* truck
* air
* pipeline
* rail
* water

What’s the most flexible mode of transportation?

truck

What do trucks carry?

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

How much freight to trucks carry?

over 80%

Short Haul

0 - 200 miles from the driver's home terminal

Long Haul

over 200 miles from the driver’s home terminal

General Freight Carriers

A trucking company which handles a wide variety of commodities in standard trailers. Freight is generally palletized

Specialized Carriers

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

Less-Than-Truckload (LTL)

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

Advantages of LTL

can be cost effective.; there are more available carrier options. Ideal for small businesses

Disadvantages of LTL

increased risk of theft/damage. Increased shipping times and delays

Full-Truck Load (FTL)

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

Advantages of FTL

best way to transport large shipments. Ideal for high risk or delicate freight shipments; considerably faster than LTL

Disadvantages of FTL

costs more than LTL

How much freight does rail carry?

about 9%

When is rail typically used for transportation?

when distance is long and the shipments are heavy or bulky

Rail is slow and inflexible but it…

has the most capacity

How much freight does pipeline carry?

2%

What’s the most reliable mode of transportation?

pipeline

Which mode of transportation has the lowest cost per unit?

pipeline

How does pipeline work?

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

How much freight does air carry?

5%

What’s the fastest mode of transportation?

air

What’s the most expensive mode of transportation?

air

What items does air carry?

high cost to weight ratio; cannot carry extremely heavy or bulky cargo

How much freight does water carry?

5%

Water

* Inexpensive
* Very slow and inflexible

Water is primarily used for…

heavy, bulky, low value materials like coal, grain, sand, and petroleum

Which modes of transportation carry cargo?

water, rail, and pipeline

Which mode of transportation is the most accessible?

Truck

Which mode of transportation has the highest capability?

rail

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

The most common forms of intermodal transportation are

* Rail and Motor Carriers (i.e., trucks)
* Rail and Water Carriers
* Roll-on/Roll-off Ships

Rail and Motor Carriers

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

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

Interstate Commerce Act of 1887

created the Interstate Commerce Commission (ICC); transportation regulation

ICC Termination Act of 1995

eliminated the Interstate Commerce Commission (ICC) ; transportation deregulation

Pro’s of Regulation

* Tends to assure adequate transportation service throughout the country
* Protects consumers from monopoly pricing, safety, and liability

Con’s of Regulation

* Discourages competition


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