A 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.

Objectives of Business System:

1. To meet the user and customer needs.

2. To cut down the operating costs and increase savings.

3. To smooth the flow data through various levels of the organization.

4. To speed up the execution of results with the reliable data available in a system.

5. To handle data efficiently and provide timely information to the management.

6. To establish the most desirable distribution of data, services and equipment’s

throughout the organization.

7. To define a proper method of handling business activities.

8. To eliminate duplicated, conflicting and unnecessary services.

1. 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.

2. LOGISTIC SYSTEM

A logistics system (LS) is a network of organizations, people, activities, information, and

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

3. 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.

4. 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.

5. 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.

LOGISTICS ACTIVITIES

Logistics is comprised of five interdependent activities: costumer response, inventory planning

and management, supply, transportation, and warehousing.

1. Customer Response

Customer response links logistics externally to the customer base and internally to sales and marketing. Customer response 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 customer response includes the activities of

Developing and maintaining a customer service policy.

Monitoring customer satisfaction.

Order entry (OE).

Order Processing (OP).

Invoicing and collections.

2. Inventory Planning and Management.

The objective of inventory planning and management (IP&M) 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

3. Supply

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 supply includes:

Developing and maintaining a Supplier Service Policy (SSP)

Sourcing

Supplier integration

Purchase order processing

Buying and payment

4. Transportation

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.

5. Warehousing

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 warehousing activity be outsourced. In addition, a good warehouse plan incorporates ultimately portrays the efficiency or inefficiency of the entire supply chain.

The objective of warehousing 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

warehousing includes:

• Receiving

• Put away

• Storage

• Order picking

• Shipping

Fundamental logistics questions are:

When should a resource be produced?

Where should a resource be produced?

The ―when? question includes the topics of aggregate resource planning, and production

scheduling.

The ―where? question includes the topics of facility location and production allocation.

Some of the important productions questions are:

● What outside source should be used to supply a part?

● Where should a new facility built?

● When should a facility produce different items, taking into account:

❖ Seasonal demand patterns?

❖ Demand uncertainly

❖ Cost of operating single, double triple shifts?

❖ Labor costs?

INVENTORY:

Fundamental logistics questions are: when should a resource (material, machine or labor) be

put in inventory and taken out of inventory; and where should a resource be stored.

The ―when? question includes the general topics of economic order quantity models,

safety stock models and seasonal models, and specialized topics of fleet management and personal

planning.

The ―where? questions includes the topic or inventory echelons.

Some of the important inventory questions are:

✔ How much does it cost to store resources in inventory?

✔ How much ―safety stock should be carried in inventory to prevent against running

out of a resource?

✔ How much inventory should be carried in order to smooth out seasonal variations

in demand?

✔ Where should replacement parts be stored in multi-echelon inventory systems?

STORAGE:

This includes the flow (shipping and receiving) of physical inventory, as well as that of more

abstract goods, including information and time. It is also known as warehouse logistics and may also

extent to anything from warehouse pest control, to damage goods handling, to safely policies, to human resources management to customer returns.

TRANSPORTATION:

Fundamental logistics are: where should resources be moved to, and by what mode and route;

when should be moved.

The ―where question includes the topics of terminal location, vehicle routing, and shortest

path methods and network low allocation.

The ―when questions includes the topic of distribution rules:

Some of the important questions are:

❖ When should shipment be sent through terminals, and when should shipment be sent

direct

❖ Which, and how many, terminals should shipments be sent through

❖ What are the best vehicle routes

❖ When should a vehicle be dispatched over a route

LOGISTICS DECISIONS

Logistics is a part of a firm’s corporate strategy, but planning a logistics system has its own definitions, components, rules, and so on. According to the planning horizon, logistics decisions are traditionally classified as strategic, tactical, and operational. Logistics decisions are generally made hierarchically, in an interactive manner from the strategic to the tactical and the operational (Figure 3.2). But because this chapter is about logistics strategic decision-making and planning, we describe these three logistics decisions in reverse order.

Operational Decisions

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

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

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.

Strategic decisions are made to optimize three main objectives:

1. Capital reduction (the level of investment, which depends on owned equipment and

inventories)

2. Cost reduction (the total cost of transportation and storage)

3. Service-level improvement (customer satisfaction and order cycle time)

Transport Fundamentals

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

Transport involves

- Equipment ( trucks, planes, trains, boats, pipeline),

- People (drivers, loaders, & un-loaders), and

- Decisions (routing, timing, quantities, equipment size, transport mode).

When deciding the transport mode for a given product there are several things to consider

Model price

Transit time and variability (reliability)

Potential for loss or damage

Single-mode Service Choices and Issues

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

Vehicle Routing:

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.

● We first suppose that anytime that we make a delivery to customers we are able to make

use of only a single vehicle, i.e., that vehicle capacity of our only truck is never an issue.

● In this case, we need to dispatch a single vehicle from our depot to n – 1 customers, with

the vehicle returning to the depot following its final delivery.

● This is the well-known traveling salesman problem (TSP). The TSP has been well studied and solved for problem instances involving thousands of nodes. We can formulate the TSP as follows:

'

In the TSP formulation if we removed the third constraint set we have the simple

assignment problem, which can be easily solved.

The addition of the third constraint set, commonly called sub tour elimination

constraints; make this a very difficult problem to solve.

Vehicle Routing: TSP Inventory routing, and vehicle routing

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

1. Load points closest together on the same truck

2. Build routes starting with points farther from depot first

3. Fill the largest vehicle to capacity first

4. Routes should not cross

5. Form teardrop pattern rotes.

6. Plan pickups during deliveries, not after all deliveries have been made

Vehicle Routing

Find best vehicle route(s) to serve a set of orders from customers.

Best route may be

- Minimum cost,

- Minimum distance, or

- Minimum travel time.

Orders may be

- Delivery from depot customer

- Pickup at customer and return to depot.

- Pickup at one place and deliver to another place.

More Applications

Time windows for pickup and delivery.

- Hard vs. soft

Compatibility

- Vehicles and customers.

- Vehicle and orders.

- Order types.

- Drivers and vehicles.

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.

Simple Models

Homogenous vehicles.

One capacity (weight or volume)

Minimize distance

No time windows or one time window per customer

No compatibility constraints

No DOT rules

Forecasting Techniques

Forecasting is a technique that uses historical data as inputs to make informed estimates that are predictive in determining the direction of future trends. Business utilize forecasting to determine how to allocate their budgets or plan for anticipated expenses for an upcoming period of time.

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 causal model.

A causal model 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.