Global Sourcing Exam 2

Logistics

The management of inventory (in motion or at rest)

Logistics costs

Carrying costs, Admin Costs, Transportizing Costs

Transportation costs

~40% of item costs

Competiing Priorities

Minimize cost while maximizing service needs

Logistics costs declining due to

Emphasis on supply chain efficiencies within organizations; Technology advances (eCommerce); Deregulation of transportation sector

What costs do you minimize when you want to save?

Transportation and holding

Reorder point formula

(Avg demand x lead time) + safety stock

Safety stock

(z) x (STDV of demand) x (sq root of lead time)

Transportation modes

Land, Sea, Air

Common Carriers

Common, public, any shipement from anybody

UPS, USPS

Private

They own it; only they can use it.

Ex. Walmart, Amazon, Pepse, Coca Cola

Walamrt

World’s largest carrier

Contract

Specific to you under contract

Specific number of trucks running a specific frequency dedicatd to a company.

Benore Logistics

Contract carrier for BMW

How much of Global trade happens by ship?

~90%

Maritime Transportation

Cost effective but increases lead time

How do you manage inventory while items are in transit?

Keep more safety stock

More safety stock =

Inventory carrying cost is higher

Why did Bosch move something in Michigan supplying something in Detroit to Brazil?

Cheaper labor, Environmental regulations were less

Transpacific route

connects asia and north america

Asia Europe route

connects asia and europe

Transatlantic route

connects europe and north america

Intra Asia route

connects the asia pacific region

The Hormuz strait

Natural bottlenck, links persian gulf with the arabian sea, main shipping route for oil from the middle east

20% of the world’s oil consumption passes through … each day

The Hormuz Strait

Concern of Hormuz Strait

Shut down because of war

Why is the oil from te Hormuz Strait important?

It is really good for making diesel

The Suez Canal

Connects the mediterranean with the Red Sea, shortest maritime route from Europe to Asia, allows ships to avoid trips around south africa

~12% of global trade passes through the…each year

Suez Canal

The Panama Canal

Links the Atlantica and pacific ocenas, alows ships to avoid trips around South America

~5% of gobal trade and ~40% of US Contianer traffic ($270 BN) pass through…

The Panama Canal

Truck delivery

Most likley if pursuing JIT

Why are there so many trucks in this area?

3 big ports: Charletson, Savannah, Jackson

Average length of an 18-wheeler

53 ft

18-wheeler constraints because of bridges and width of road

Width 102 inches, Height 110 inches

How many truck miles are driven empty?

15-25%

How many non empty miles are underutilized?

36%

Cubing the truck

trying to fill the inside of the trailer so that there is no air

FedEx approach to Route Optimization

Red Zone is within 1 day, Purple within 2, yellow 3, and so on

UPS Routing: Orion Software

On road Integrated Optimization and Navigation

Why does USPS use no left turns?

Left turns cause idle time, exception if that is the only way to get ther

Carrier selection criteria

delivery time, reliability and service quality, available services and experience, type of item being shipped, shipment size

FOB

Free Onboard or Freight Onboard

Incoterms

International Commerce Terminology

TL

Truck Load

LTL

Less than Truck load

3PL

third party logistics

4PL

fourth party logistics, will offer another service in addition to logistics

Intermodal

more than one mode of transportation

Last mile

distribution center to your home

Reverse logisticcs

working backwards: returning something to amazon

Reefer

Refrigerated trucl

Fair pice

the lowest price that assures contiuous supply

Fair price to one seller may be…

higher than a fair price to another for an equal item

Determining price: Cost approach

price is a certain amount over diect costs and allows contribution to cover indirect costs and some profit

Determining cost: Market approach

follow supply and demand model

In Cost Approcah model costs are classifies as…

Variable, Semi variable, and fixed

Market approach model

Follows the supply and demand model

Supply high

Cost low

Supply low

Cost high

Options for the market approach

live with it, find a way around it

Should-Cost models

Expanding on the cost approach, includes logistic costs

Landed Costs

the total expense of getting a product from its original manufacturing site all the way to the final delivery point

Why are landing costs asked about in Shark Tank?

see how far they have researched into suppliers, do you fully understand your cost structure

Tarrif and Trade Implications

High due to political tensions; trying to get companies to reshore their operations to get importing higher prices.

Global Sourcing Implications

Currenc, labor productivity, transport, traiffs and taxes, wuality and risk

Sherman Anti Trust Act 1890

Illegalt to do price fixing

Robinson Patman Act (1936)

Illegal to sell to different customers at different prices

Exceptions to Robinson Patman Act

Large purchase quantity, moving obsolete material, meeting local competition

Firm Fixed Price FFP

price that we have agreed to and no change under any circumstance to this price of this item

Cost plus fixed fee CPFF

Not getting profit, only covering material, labor and overhead; gives them some assurance that they are gonna make some sort of money per item

Cost no fee CNF

cost meanst no profit; they need your other business

Cost plus incentive free CPIF

Move the size of the fee over mile stones

EOQ

Economic Order Quantity

Total Cost

Holding + Ordering + Material

Total Cost of Ownership

the cost of buying, using and supporting a product over its life, not justhte purchase price. used to compare supplliers and can be an approximation

What changes when you consider the ownership with a car?

Maintenance, Insurance, Cost

Total cost of ownership…

does not need to be precise, it can be approximation, just a distinction between suppliers

TCO Accounts for costs of..

admin, follow up, expediting, transportation, inspection and test, rework, scrap, warranty, holding costs

When to stop adding to TCO list

when adding something to it does not help the TCO

Pretransaction cost

before PO, steps 1-4 of Supply process

Transaction cost

PO: during the production, transportation, taxes, customes, duties, freight, and insurance

Posttransaction cost

After recieving, inspection, inventory, forklift and driver, and maintaining the supplier relationship

Basic TCO model

Material + Freight + Inventory + Admin

Internal Costs

Process improvements, supply chain efficiencies

External costs

strategic cost management, negotiation

Strategic cost management

Analyzing costs in terms of the overall value chain; focus on year over year cost savings

Primary tools of strategic cost management

ABC and Portfolio analysis

ABC Analysis

aka Pareto analyis; 80% of the problems are caused by 20% of the issues.

In ABC analysis priorities are…

the vital few

A items

first 80% cumulative spend

B items

between 80-95% cumulative spend

C items

everything else

Wilfred

20% of the population controleld 80% of the wealth

Portfolio analysis

Quadrant analysis, Categorized tool, defined by assessing each item on risk vs value

Strategic Quadrant

High Risk, High Value; Conclusion: Form a partnership

Bottleneck

High Risk, Low Value; Conclusion: Assurance of Supply

Non Critical item

Low risk, Low Value; Conclusion: Simplify

Commodity

Low Risk, High Value; Conclusion: Minimize cost

Supply Risk

Availability, number of suppliers, price volatility, probability of supply disruption