Test 3: Supply Chain Ch. 9-12 Notes

Warehousing

Involves having the right product in the right place at the right time, providing time and place utility.

Primary functions of a warehouse

1. receiving

2. storage

3. picking - withdrawing components from stock

4. packing

5. (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:

1. Provide a central site for products to be sorted and combined for delivery to multiple destinations

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

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

1. (nearby) Institutions

2. Infrastructure

3. Macroeconomic stability

4. Health and primary education

5. Higher education and training

   • Nearby universities, education system of the country

6. Goods market efficiency

7. Labor market efficiency

8. Financial market sophistication

9. Technological readiness

10. Market size

11. Business sophistication

12. 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

  1. Ex.: consulting, storage facilities, training/education, etc.

• End product services - offer tangible components along with the service component

  1. Ex.: restaurants (food along with the dining service)

• State utility services - directly involve things owned by the customer 

  1. 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:

1. Service capacity

2. Waiting times

3. Distribution channels

4. 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

1. Reliability - consistently performing the service correctly and dependably

2. Responsiveness - promptly and timely service

3. Assurance - ability to convey trust and confidence to customers

4. Empathy - providing caring attention to customers

5. Tangibles - physical characteristics of the service including facilities, servers, equipment, associated goods, and other customers