CHAPTER 2 Topic: Logistics Activities Planning and Decision

MANAGEMENT SYSTEM

MANAGEMENT SYSTEM

A is how organizations ensure things get done. If the organization holds regular staff meetings, those are part of its management system. If you have reminders to yourself on post-it notes strewn about your desk, those are part of your management system. Taken as a whole, all of the processes, formal and informal, that enable your organization to deliver its products or services, make up its management system.

can be simple or complex, ongoing or ad hoc, standard across the organization or distinct to individuals. And of course, different management systems can result in varying degrees of effectiveness. Obviously, what works for one organization may not be optimal for another. What’s more interesting, however, is that the management system that got your organization to where it is, may not be the right one to get your organization where you want it to be in the future.

LOGISTIC SYSTEM

A is a network of organizations, people, activities, information, and

resources involved in the physical flow of products from supplier to customer.

ENGINEERING SYSTEM

is an interdisciplinary field of engineering and engineering management that focuses on how to design and manage complex systems over their life cycles... Systems engineering ensures that all likely aspects of a project or system are considered, and integrated into a whole.

MARKETING SYSTEM

A is the network of buyers, sellers and other actors that come together to trade in a given product or service. The participants in a market system include: Direct market players – producers, buyers and consumers who drive economic activity in the market.

MANUFACTURING SYSTEM

A can be defined as the arrangement and operation of machines, tools, material, people and information to produce a value-added physical, informational or service product whose success and cost is characterized by measurable parameters.

Customer Response

links logistics externally to the customer base and internally to sales and marketing. is optimized when the customer service policy (CSP) yielding the lowest cost of lost sales, inventory carrying, and distribution is identifies and executed.

The logistics of includes the activities of

Developing and maintaining a customer service policy.

Monitoring customer satisfaction.

Order entry (OE).

Order Processing (OP).

Invoicing and collections.

Inventory Planning and Management.

The objective of is to determine and maintain the lowest inventory levels possible that will meet the customer service policy requirements stipulated in the customer service policy. The logistics of inventory planning and management includes:

Forecasting.

Order quantity engineering.

Service level optimization.

Replenishment planning.

Inventory Deployment

Supply

is the process of building inventory (through manufacturing and/or procurement) to the targets established in inventory planning. The objective of supply management is to minimize the total acquisition cost (TAC) while meeting the availability, response time, and quality requirements stipulated in the customers service policy and the inventory master plan.

The logistics of includes:

Developing and maintaining a Supplier Service Policy (SSP)

Sourcing

Supplier integration

Purchase order processing

Buying and payment

Transportation

physically links the sources of supply chosen in sourcing with the customers we have decided to serve chosen as a part of the customer service policy. We reserve transportation for the fourth spot in the logistics activity list because the deliver- to points and response time requirements determined in the customer service policy and the pick-up points determined in the supply plan must be in place before a transportation scheme can be developed.

The objective of transportation is to link all pick-up and deliver-to points within the

response time requirements of the customer’s service policy and the limitations of the

transportations infrastructure at the lowest possible cost. The logistics of transportations

include:

Network design and optimization.

Shipment management.

Fleet and container management

Carrier management.

Freight management.

Warehousing

is the last of the five logistics activities because good planning in the other four activities may eliminate the need of warehousing or may suggest the activity be outsourced. In addition, a good warehouse plan incorporates ultimately portrays the efficiency or inefficiency of the entire supply chain.

The objective of is to minimize the cost of labor, space, and equipment, in the warehouse while meeting the cycle time and shipping accuracy requirements of the customer’s service policy and the storage capacity requirements of the inventory play. The logistics of

includes:

• Receiving

• Put away

• Storage

• Order picking

• Shipping

Operational Decisions

are made in real time on a daily or weekly basis, so their scope is narrow. Decisions such as vehicle loading or dispatching, shipment, and warehouse routines are among the many types of operational decisions. These kinds of decisions are based on lots of detailed data and usually made by supervisors.

Tactical Decisions

are made on a longer-term basis, whether monthly, quarterly, or even annually. Production planning, transportation planning, and resource planning are the best known types of logistics tactical decisions. These decisions are often made by middle managers or logistics engineers and often with disaggregated data.

Strategic Decisions

are business objectives and mission statements, as well as marketing and customer-service strategies. Therefore, they are long-term kinds of decisions made over one or more years. These decisions are made by executive administrators, top managers, and stockholders. The data at hand for such decisions are often imprecise, incomplete, and need forecasts.

Transport Fundamentals

Most important component of logistics cost. Usually 1/3 – 2/3 of total cost.

Air

Rapidly growing segment of transportation industry

Lightweight, small items [products: Perishable and time sensitive goods: Flowers,

produce, electronics, mail, emergency, shipments, documents, etc.

Quick, reliable, expensive

Often combined tracking, operation

Rail

Low cost, quick, high-volume [products: heavy industry, minerals, chemicals, agriculture

products, autos, etc.]

Improving, flexibility

Intermodal service

Truck

Most used mode

Flexible, small loads [products: medium and light manufacturing, food clothing, and all

retail goods]

Trucks can go door-to-door as opposed to planes and trains.

Water

One of oldest means of transport

Low-cost, high-volume, slow

Bulky, heavy and/or large items (Products: Non-perishable bulk cargo – Liquids,

minerals, grain, petroleum, lumber, etc.)

Standardized shipping containers improve service

Combined with trucking and rail for complete systems

International trade

Pipeline

Primarily for oil and refined oil products

Slurry lines carry coal or kaolin

High capital investment

Low operating costs

Can cross difficult terrain

Highly reliable; low product losses

Separate single origin and destination:

Once we have selected a transport mode and have goods that need to go from point A to point B, we must decide how to route a vehicle (or vehicles) from point A to point B. Given a map of all of our route choices between A and B we can create a network representing these choices. The problem then reduces to the problem of finding the shortest path in the network from point A to B. This is well solved problem that can use Dijkstra’s Algorithm for quick solution of small to medium (several thousand nodes) sized problems.

Multiple Origin and Destination Points

Suppose we have multiple sources and multiple destinations, that each destination requires some integer number of truckloads, and that none of the sources have capacity restrictions [No Capacity Restriction] In this case we can simply apply the transportation method of linear programming to determine the assignment of sources to destinations.

Coincident Origin and Destination: The TSP

If a vehicle must deliver to more than two customers, we must decide the order in which we will visit those customers so as to minimize the total cost of making the delivery.

Traveling salesman problem (TSP)

salesman visits cities at minimum cost.

Vehicle routing problem (VRP)

vehicles with capacity to deliver to customers who have volume requirement, time, windows, etc.

Inventory routing

vehicle to delivery to customers with time, windows, vehicle and storage capacity constraints, and unspecified amount to be delivered.

Heuristic

quick decisions/ quick solution

Driver rules (DOT)

- Max drive duration = 10 hrs. before 8 hr. break.

- Max work duration = 15 hrs. before 8 hr. break

- Max trip duration = 144 hrs.

Forecasting Techniques

a technique that uses historical data as inputs to make informed estimates that are predictive in determining the direction of future trends.

Qualitative techniques

Primarily, these are used when data are scarce—for example, when a product is first introduced into a market. They use human judgment and rating schemes to turn qualitative information into quantitative estimates.

The objective here is to bring together in a logical, unbiased, and systematic way all information and judgments which relate to the factors being estimated. Such techniques are frequently used in new-technology areas, where development of a product idea may require several ―inventions so that R&D demands are difficult to estimate, and where market acceptance and penetration rates are highly uncertain.

Time Series analysis

These are statistical techniques used when several years’ data for a product or product line are available and when relationships and trends are both clear and relatively stable.

One of the basic principles of statistical forecasting—indeed, of all forecasting when historical data are available—is that the forecaster should use the data on past performance to get a ―speedometer reading of the current rate (of sales, say) and of how fast this rate is increasing or decreasing. The current rate and changes in the rate―acceleration and ―deceleration—constitute the basis of forecasting. Once they are known, various mathematical techniques can develop projections from them.

Causal models

When historical data are available and enough analysis has been performed to spell out explicitly the relationships between the factor to be forecast and other factors (such as related businesses, economic forces, and socioeconomic factors), the forecaster often constructs a .

A is the most sophisticated kind of forecasting tool. It expresses mathematically the relevant causal relationships, and may include pipeline considerations (i.e., inventories) and market survey information. It may also directly incorporate the results of a time series analysis.

business system

is designed to connect all of an organization’s intricate parts and interrelated steps to work together for the achievement of the business strategy.