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Warehousing
Involves having the right product in the right place at the right time, providing time and place utility.
Primary functions of a warehouse
receiving
storage
picking - withdrawing components from stock
packing
(prep for) shipping
Public Warehouse
Provides storage and related functions to companies on a short or long-term basis for a fee
hotel for inventory
advantages
no capital investment or property taxes
flexible
lower costs and reduced risk
access to special features and services
disadvantages
potential for incompatible computer systems
specialized services may not be what is required/needed
space may not be available when/where needed
Contract Warehouse
variation of public warehousing that handles shipping, receiving, and storage of goods on a contract basis, often requiring a commitment for years
renting an apartment for inventory
advantages
specialized services
Cost: can be bundled in the contract and negotiated at a lower cost
offers a degree of control at a reasonable price
Disadvantages
Long duration
Private Warehouse
Owned by the company storing the goods, offering control over operations and visibility but with high start-up costs
buying a house for inventory
advantages
can lower operating costs
disadvantages
not easy to move to another location
fixed size and costs
types of warehouses
Consolidation
Break-bulk
Cross-docking
Consolidation Warehouse
Combines products from different sources for further distribution, located closer to the supply base
Break-bulk Warehouse
Divides full truckloads from a single source into smaller quantities for use or distribution
Cross-docking Warehouse
Unloads materials from incoming trucks and loads them directly onto outbound trucks with little to no storage in between to reduce inventory investment and storage space requirements
reasons for implementation:
Provide a central site for products to be sorted and combined for delivery to multiple destinations
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
Warehouse Network
The number of, and relationship between, warehouses in a company's structure
how many warehouses needed and where
determined by desired level of customer service
Single warehouse
Pros
Less complicated
Lower operating costs and inventory
No duplication of equipment, warehouse staff, and managers
Centralized network, ppl, systems
Warehouse can focus on customers’ needs
Cons
May take longer to deliver product to some customers who are remote from the central location
Multiple warehouses
Pros
Potentially faster delivery to customers
Cons
More complicated
Higher operating costs and inventory; duplication of equipment, warehouse staff, and managers
Decentralized network; ppl, equipment, and systems spread out
Hybrid warehouse network
a centralized warehouse (the hub) holds the most inventory and feeds its linked smaller warehouses (spokes)
lower operating costs and inventory
better customer service
Market Positioned Strategy
Sets up warehouses close to customers to maximize distribution services and improve delivery
used when customers are geographically spread out
FTL shipments coming in from few suppliers and LTL shipments going out to many customers
Product Positioned Strategy
Establishes warehouses close to supply sources to consolidate goods before shipping to customers
used when company has more suppliers than customers
LTL shipments coming in from many suppliers and FTL shipments going out to few customers
Intermediately positioned strategy
Warehouses set up midway between suppliers and customers
used when distribution requirements are high and products come from various suppliers
Third Party Logistics (3PL)
Outsourced provider managing logistics requirements for a fee, offering cost savings and expertise
10-20% savings in logistics costs
advantages:
cost: eliminates need for investment in logistics process
logistics expertise
efficiency: can leverage relationships and volume discounts
disadvantages
company lacks control
dependency on 3PL
locked price
Fourth Party Logistics (4PL)
Manages 3PLs
Transportation company classifications
Contract carrier - transports freight under contract to one/limited number of shippers
Private carrier - transports its own cargo
Common carrier - transports freight for a fee that can be hired by anyone
Exempt carrier - specializes in services or transporting commodities exempt from regulation by the Interstate Commerce Act
Transportation objectives
To maximize the value to the company through price negotiation
To make sure service is provided effectively
To satisfy customers’ needs
Trucking (mode)
Most flexible mode of transportation
carries 80% of U.S. freight and competes with rail and air for short-to-medium hauls
Short haul - 0-200 miles from driver’s home terminal
Long haul - over 200 miles from 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 that handles the movement of cargo that requires specialized equipment for transportation because of shipment’s size, weight, and shape
LTL vs. FTL
Less-than-truckload (LTL) - freight does not require entire truck space
Advantages:
Can be cost effective
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
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 (mode)
competes for long-distance heavy or bulky shipments, involves building materials, coal, etc.
slow and inflexibile but most capable
paired with trucks for door-to-door delivery
Pipeline (mode)
most reliable and lowest cost
transports materials in liquid or gaseous state
Air (mode)
fastest but expensive
ideal for high-value goods like jewelry, pharmaceuticals
paired with trucks for door-to-door delivery
Water (mode)
inexpensive but slow and inflexible
primarily used for heavy, bulky, low-value materials
Transportation mode ranking
Intermodal Transportation
Use of multiple modes for a single shipment
growing due to cost-efficiency
common forms:
Rail and 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 ships
allows trucks to be driven directly on and off the ship
Freight
Terms of sale - delivery and payment terms
Free on Board (FOB) origin - seller places goods FOB with carrier at the seller’s location and buyer pays freight costs
Ownership of goods passes to buyer when public carrier accepts goods from seller
Buyer assumes risk for in-transit loss or damage
Free on Board (FOB) destination - seller places goods FOB to buyer’s place of business and seller pays freight costs
Ownership of goods remains with seller until goods reach buyer
Seller assumes risk for in-transit loss or damage
Other transportation intermediaries
Freight forwarder - consolidates LTL shipments into FTL shipments
Load/transportation broker - bring shippers and carriers together
Shippers’ association - nonprofit cooperatives that arrange for members’ shipping
Intermodal marketing company - purchase blocks of rail capacity and sell it to shippers
Reverse Logistics
Process of moving products back to origin
focuses on damage control and customer service
5 Rs: returns, recalls, repairs, repackaging, and recycling
Offshore Factory
Set up in a country with cheaper labor/raw materials for import back to the home country
Source factory
Manufactures products at low cost but with skilled workers and significant managerial resources
Server factory
purpose: to take advantage of government incentives
Contributor factory
focused on developing and engineering products to be manufactured
Outpost factory
set up near advanced suppliers, competitors, research facilities, etc.
Lead factory
organization’s source of innovation and competitive advantage
“go-to” factory
Global Location Factors
Used to compare and contrast one potential location against another
Competitiveness
Taxes and incentives
Currency 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
(nearby) Institutions
Infrastructure
Macroeconomic stability
Health and primary education
Higher education and training
Nearby universities, education system of the country
Goods market efficiency
Labor market efficiency
Financial market sophistication
Technological readiness
Market size
Business sophistication
Innovation
global location factor: taxes and incentives
Tariffs - federal taxes that are designed to protect local businesses
Countries with high tariffs discourage importing goods into the country and encourage multinational corporations to produce locally
global location factor: access and proximity to markets
manufacturing trend: be within delivery proximity to customers
global location factor: labor issues
Labor availability, productivity, and skills
Unemployment/underemployment rates
Wage rates; turnover rates; labor force competitors
global location factor: right-to-work laws
28 states have laws protecting the right of employees to join/support a union
global location factor: utility availability and cost
availability and cost of energy are critical considerations in heavy industries
telecommunication costs have dropped
global location factor: land availability and costs
trend: locate in suburbs/rural areas due to rising costs in cities
global location factor: quality-of-life issues
need for people to work at these locations → consider quality-of-life issues in terms of maturity, sophistication, robustness, etc.
Business clusters
Geographic concentrations of interconnected companies and institutions
Regional trade agreements
European Union (EU): [1950] following WWII, consists of 26 European countries
North American Free Trade Agreement (NAFTA): [1994] Removed most barriers to trade and investment among U.S., Canada, and Mexico
World Trade Organization
deals with the global rules of trade between nations
Main goal: ensure trade flows smoothly, predictably, and as freely as possible
Global location decision factors
Weighted-factor rating model
Compares attractiveness of several locations along a number of quantitative and qualitative dimensions
Customs and Border Protection (CBP)
controls import process
Mission: to safeguard America’s borders
Foreign trade zones (FTZs)
areas inside the U.S. supervised by U.S. Customs and Border Protection that are considered outside of the U.S. territory
Foreign and domestic merchandise may be moved into these for operations not otherwise prohibited by law, including these Permitted Activities:
assembly, exhibition, inspection, salvage, destruction, reclassification, manufacturing, processing, storage, testing, relabeling, repackaging
Deemed Exports
Release of technology or source code that is subject to Export Administration Regulations to a foreign national even within the U.S.
“Technology” - the specific information necessary for the development, production or use of a commodity
Examples
Allowing a foreign national to view blueprints of a U.S. missile guidance system
Allowing foreign national to download U.S. encryption software
Sending a foreign national U.S. software using email
Giving a foreign national access to a portal containing restricted information
Conducting a facility tour for a foreign national
Global logistics intermediaries
Customs brokers - move global shipments through customs and handle documentation
International freight forwarders - move goods to and from foreign destination
Trading companies - put buyers and sellers from different countries together and handle import/export arrangements, documentation, and transportation
Non-vessel-operating common carriers (NVOCC) - operate like freight forwarders but only use scheduled ocean liners
Customer Relationship Management (CRM)
The transformation of people, process, and technology to become customer-centric
“customer first”
focuses on acquiring, retaining, and partnering with selective customers to create superior value
Strategically significant customers
customers with high lifetime value (i.e., repurchasers)
serve as role models for other customers
inspire change in supplier and/or supply chain
Personalizing customer communications: clickstream
tracking how a customer navigates a website can help tailor a website’s images, ads or discounts based on past usage of the site
Cross-selling and Up-selling
Cross-selling - company sells an additional related product or service
Up-selling - involves persuading a customer to buy a more expensive item or upgrade a product or service to make the sale more profitable
Relationship/permission marketing
an approach to selling in which a customer explicitly agrees in advance to receive marketing information to build ongoing relationship
Customers self-select the type and time of communication they want
Churn reduction
all of the efforts companies develop to stop losing customers to the competition
complements Customer Defection Analysis
Churn - the process of customers changing their buying preferences because they find better or cheaper products and services elsewhere
5% improvement in customer retention can result in a 75% increase in profits
Customer Lifetime Value (CLV)
Prediction of net profit from the entire future relationship with a customer
How SCM differs in service industry vs. manufacturing
lack of tangibility of end product
customers are much more directly involved
quality is assessed differently
much higher ratio of labor:materials in the service industry
facility location considerations: services are largely provided very near where customers are located
Types of services
Pure services - offer very few or no tangible products to customers
Ex.: consulting, storage facilities, training/education, etc.
End product services - offer tangible components along with the service component
Ex.: restaurants (food along with the dining service)
State utility services - directly involve things owned by the customer
Ex.: car repair, dry cleaning, haircut, and healthcare
Service Capacity
The number of customers a service provider can serve at a given time, crucial for managing demand fluctuations and ensuring optimal utilization of resources.
Differences between goods and services
Services:
cannot be inventoried
often unique to customer
high customer interaction
decentralized: must be located near customer base
Service strategies
Cost leadership: lowest cost service provider
Requires large capital investment in the state-of-the-art equipment and significant efforts to control and reduce costs
Ex. UPS optimization
Differentiation: unique service created based on customer input and feedback
Ex.: Sunday car servicing at Hyundai, Ford, etc. → being different from another local dealer
Focus: serve a narrow niche better than other firms
Ex.: grocery shopping for you, mechanic specializing in Volvo or Porsche repair
Bundling services
can deliver more than expected and enhance customer satisfaction
Explicit services - availability and access to the service, consistency of performance, comprehensiveness of the service, and training of service personnel
Ex.: safe deposit boxes, loans, etc.
Implicit services - attitude of the servers, atmosphere, waiting time, status, privacy, security, and convenience
SUPPORTED BY:
Facilities and Equipment - location, layout, architectural appropriateness, equipment, decoration
Ex.: drive-up tellers, ATM’s
Facilitating Goods - tangible elements that are used or consumed by the customer or the service provider along with the service provided
Ex.: deposit forms, statements
Service response logistics
primary concern: management and coordination of the organization’s service activities
primary activities are managing:
Service capacity
Waiting times
Distribution channels
Service quality
Service capacity
the number of customers that the service provider can service at any one time
challenges:
customer arrivals fluctuate
congestion affects perceived quality
idle capacity
inability to control demand
Capacity utilization = Actual customers served per period / Capacity
Managing service capacity strategies
Level demand strategy - Capacity remains constant regardless of demand. When demand exceeds capacity, queue management tactics deal with excess customers
One line instead of many at a bank or at McDonald’s → 1st come 1st serve
Numbers at the deli in the grocery store
Chase demand strategy - capacity varies with demand → you can handle fluctuations but must take appropriate actions prior. Need to have options
Open up additional line(s)
Call in additional off-shift workers to meet increased demand
Demand exceed capacity
3 options:
Turn customers away (i.e., lose business)
Make them wait
Increase service capacity
forecasting demand is critical
strategies to minimize hiring/lay off costs and deal with high demand
Using cross-trained employees who can help with currently busy task
Using part-time employees (e.g., during the holiday season)
Using customers, i.e., “hidden employees” (e.g., self check out)
Using technology (e.g., Scanning documents in insurance industry for use in multiple departments as necessary)
Using employee scheduling policies (e.g., nurses have to work alternating holidays)
Capacity exceeds demand
when it is not busy:
Do other jobs
Ex.: in a restaurant you might have workers clean the bathrooms, prep for the dinner rush, etc.
Do training or cross training
Use demand management techniques to shift demand from peak demand periods into non-peak periods by offering incentives like discounts and special sales
Ex.: early bird specials, 20% off from 9am to noon, etc.
Queuing management system
used to control and prioritize people waiting for services
length of time customers are willing to wait before leaving/lowering perceived quality of the service/company is directly related to the effectiveness of the queueing system being used
Types of queues
Structured queues - set in a fixed position such as a supermarket checkout line
can be structured with numbers such as “take-a-ticket number”
Unstructured queues - when people form queues somewhat informally in various directions and locations
ex.: at an airport waiting for a taxi
Mobile queues - queues formed virtually with technology
Queuing system
assumptions:
most models assume that customers stay in queue, but this may not be true
Balking - customer refuses to join queue
Reneging - customer leaves queue
infinite queue length
characteristics:
Queue discipline - describes the order in which customers are served
single or multiple lines and servers
Single channel, single phase, single server
queuing system with one server serving one customer at a time
ex.: customer to service representative
Single channel, multiple phase
queuing system with multiple servers acting in series
ex.: customer to hostess, to wait staff, to chef
Multiple channel, single phase, single server
queuing system with multiple available service representatives serving customers
Multiple channel, multiple phase, multiple servers
queuing system where multiple servers act in parallel
Ex.: customer to one of multiple fast food order takers, to fast food cook
Managing distribution channels
distribution channels involve traditional methods and new channels
Eatertainment - restaurant + entertainment elements
Ex.: Medieval Times, Dave & Busters
Entertailment - retail + entertainment elements
Ex.: Mall of America has a ferris wheel, rock climbing wall, fashion shows, play area
Edutainment (infotainment) - learning + entertainment to appeal to customers looking for substance along with play
Ex.: Epcot Center, Liberty Science Center
Franchising - allows business to expand quickly in dispersed geographic markets, protects existing markets, and builds market share and facilitates business when owners have limited financial resources
Ex.: fast food restaurants
International expansion - operate/partner with firms familiar with the region’s markets, suppliers, infrastructure, government regulations, and customers
Internet distribution strategies
primary advantages: ability to offer convenient sources of real-time information, integration, feedback, and comparison shopping
Pure strategy - selling products exclusively over the internet
Ex.: Amazon
Mixed strategy - using internet as a supplemental distribution channel
Ex.: Walmart
5 dimensions of service quality
Reliability - consistently performing the service correctly and dependably
Responsiveness - promptly and timely service
Assurance - ability to convey trust and confidence to customers
Empathy - providing caring attention to customers
Tangibles - physical characteristics of the service including facilities, servers, equipment, associated goods, and other customers