Lean Manufacturing (Chapter 8)

Lean Manufacturing Philosophy

•  Definition: Lean manufacturing is a "philosophy" focused on continuous improvement, efficiency, and value creation. Lean system thinking tends to result in an increase in employee training

• Principle-Based Approach: Built on core principles that guide operations.

• Cultural Shift: Requires a fundamental change in employee mindset.

• Focus on Continuous Improvement: Encourages an ongoing pursuit of efficiency.

• Systemic Thinking: Requires viewing production holistically.

• Respect for People: Empowers employees and values their input.

• Long-Term Perspective: Prioritizes long-term success over short-term gains.

Origins of Lean Systems and Just-in-Time Production

• Taiichi Ohno: Credited with developing the Lean Production System and the Toyota Production System (TPS).

  • Influenced by Ford Motor Company and the American Supermarket.

  • Key concepts: Quick Setup, Community Culture, Continuous Improvement, Waste Elimination.

• Piggly Wiggly: The first self-service grocery store in the U.S., influencing concepts of self-service and efficiency in lean.

• Ohno’s Visit to Ford’s River Rouge Plant: Observed practices like setup reduction, work standardization, and employee training but was critical of large inventories and rework.

Strategic Benefits of Lean Systems

• Reduced Breakeven Point: Outsourcing non-core activities and implementing lean practices lower the break-even quantity and increase contribution margins.

The 5 Guiding Principles of Lean

1. Specify Value precisely: Understand the value of each product as defined by the customer through engagement tools like CRM.

2. Identify the 7 Wastes: Use value stream analysis to target waste areas:

   • Transportation: Unnecessary movement.

   • Inventory: Excess stock.

   • Motion: Unneeded movement by people or equipment.

   • Waiting: Delays.

   • Overprocessing: Extra work without added value

   • Overproduction: Producing beyond demand and is considered the worst of all wastes.

   • Defects: Failures to meet quality standards.

3. Make Value Flow Without Interruptions:

   • Eliminate non-value activities.

   • Ensure continuous flow by balancing the line and matching takt time with demand.

   • Reduce work-in-progress (WIP).

4. Let the Customer Pull Value: A pull system where production is based on actual customer demand rather than forecasts.

5. Continuous Improvement / Pursue Perfection:

   • Kaizen, or “change for the better,” emphasizes small, incremental improvements.

Lean System Culture

1. Acceptance: Gain company-wide buy-in.

2. Source of Flexibility: Crosstrain employees to handle varied tasks.

3. Working in Teams: Encourage teamwork to solve problems.

4. Empowering Workers: Give employees the authority to make decisions.

5. Shared Values and Beliefs:

   • Data-driven management, goal setting, standardization, and process orientation.

   • Example: Apple emphasizes managing data and constantly reducing waste.

Implementing Lean Systems: Tools and Techniques: Goal is to reduce variability of the lean system

1. Total Productive Maintenance (TPM): Prevents equipment breakdowns through regular maintenance, predictive IoT-based monitoring, and training.

2. Facility Development - Focused Factories: Factories can be product-focused or market-focused, like Apple’s dedicated iPhone production in Shenzhen and Mac production in Austin.

3. Operation Control:

   • TAKT Time: Synchronizing production with demand.

   • Setup Time Reductions (SMED): Converting internal tasks to external to minimize downtime.

4. Visual Control:

   • Andon Lights: Real-time status indicators.

   • Digital Dashboards: Real-time data.

   • Shadow Boards and Safety Signs: Standardized, visible organization.

5. Continuous Improvement - Kaizen Events: Short-term projects focusing on process improvements through cross functional team-oriented, actionable events.

6. Poka-Yoke (Error Proofing): Techniques like physical guides, color coding, and sensors to prevent errors.

7. 5S Program:

   • Sort: Remove unnecessary items.

   • Set in Order: Organize workspace.

   • Shine: Clean regularly.

   • Standardize: Create and follow best practices.

   • Sustain: Maintain and improve continuously.

Simplification and Standardization

• Standardization: Uniform procedures, materials, and components.

• Simplification: Reducing complexity in processes, products, and procedures.

• Example: Apple’s switch to in-house silicon chips for its Mac products.

Applying Lean Systems Across Industries

1. Services:

   • Accounting: Streamlining onboarding processes.

   • Healthcare: Hospitals reduce wait times, inventory, and medical errors.

2. Innovations:

   • Lean Design Principles: Encourage waste reduction.

   • Incremental vs. Radical Innovation: Lean is most effective with gradual, incremental improvements rather than radical changes.

Multiple Choice, Chapter 8

1. Which of the following best describes the Lean Manufacturing philosophy?

   • a) A focus on short-term profit maximization

   • b) A philosophy of continuous improvement, efficiency, and value creation

   • c) A set of fixed processes that discourage employee input

   • d) A standardized approach with no room for customization

2. Taiichi Ohno, who developed the Toyota Production System (TPS), was influenced by which two sources?

   • a) Ford Motor Company and The American Supermarket

   • b) Apple Inc. and Microsoft

   • c) Walmart and Target

   • d) General Motors and Sears

3. Which of the following is NOT one of the 7 wastes identified in Lean Manufacturing?

   • a) Transportation

   • b) Inventory

   • c) Overproduction

   • d) Market Expansion

4. In Lean System Culture, which of the following best describes 'Source of Flexibility'?

   • a) Increasing inventory to meet potential changes in demand

   • b) Cross-training employees to handle varied tasks

   • c) Focusing only on top management decision-making

   • d) Hiring temporary workers for all shifts

5. Which tool in Lean Manufacturing uses real-time visual cues like Andon Lights and Digital Dashboards to display performance data?

   • a) Kaizen Events

   • b) Poka-Yoke

   • c) Visual Control

   • d) Total Productive Maintenance (TPM)

Answers:

1. b) A philosophy of continuous improvement, efficiency, and value creation

2. a) Ford Motor Company and The American Supermarket

3. d) Market Expansion

4. b) Cross-training employees to handle varied tasks

5. c) Visual Control

Chapter 9:  Customer Service Management

The Importance of Customer Service

• Purpose: The primary aim of customer service is to ensure customer satisfaction.

• Functions of Customer Service: Addressing problem resolution, providing customer support, building customer loyalty, enhancing brand reputation, collecting feedback, and creating a personalized customer experience. Companies should strive to realize customer management approaches may be different for different customers.

Chapter 9: Customer Service Management Outline

Basic Service

• Hierarchy of Customer Service

• Six Basic Rights: The right product, right amount, right place, right time, right condition, and right information.

• Four Dimensions: Product availability, order-to-delivery lead time, service reliability, and service information.

• Product Availability and the Perfect Order

• Technology Enablement of Basic Service

Customer Success

• Achieving Customer Success

• Customer Relationship Management (CRM)

Customer Service Strategy

Basic Service: Six Basic Rights

• Ensuring that customers receive the right product, in the right amount, at the right place, at the right time, in the right condition, with the right information.

Basic Service: Four Key Dimensions

• Product Availability: Measure of fill rates and stockout likelihood, calculated by:

  • Unit Fill Rate: Total units delivered / Total units ordered.

  • Line Fill Rate: Total lines delivered / Total lines ordered.

  • Order Fill Rate: Total complete orders delivered / Total orders.

• Order-to-Delivery Lead Time: Total time to complete various stages from order to delivery:

  • Order Processing: Time to place/schedule the order.

  • Product Design: Time required to complete the design phase.

  • Procurement: Time to acquire inputs for production.

  • Production: Time from start to finish of manufacturing.

  • Delivery: Time to transport finished goods to the customer.

• Service Reliability: Key to customer satisfaction, includes:

  • Accuracy: Precise information and product details.

  • Timeliness: Effective forecasting and inventory management to ensure timely delivery.

  • Consistency: Uniform service levels across channels.

  • Dependability: Clear response times and issue resolution.

• Service Information:

  • B2B Relationships: Managed through CRM systems, Electronic Data Interchange (EDI), customer portals, and IoT for real-time tracking.

  • B2C Relationships: Include AI-powered chatbots, self-service portals, video chat options, sentiment analysis, and customer experience tools (CX).

Technology Enablement of Basic Service

• Product Platforms: Enhance customer experience with additional services, like scheduling maintenance, ordering consumables, or managing device-specific needs.

Customer Success: The Highest Level of Customer Service

•  Goal: 

•               Addressing problem resolution, providing customer support, building customer loyalty, enhancing brand reputation, collecting feedback, and creating a personalized customer experience.

•               Companies should strive to realize customer management approaches may be different for different customers.

•               Customer success is offered to a small percent of customers that represent high revenue and high profits.

•  

• Approach:

  • Proactive Engagement: Anticipate needs and resolve issues before they arise.

  • Long-Term Focus: Aim to guide customers and achieve their objectives.

  • Value Creation: Support customers in reaching their business goals.

  • Continuous Interaction: Foster ongoing communication to ensure goals are met.

  • Selective Offering: Given its high cost, this level of service is often limited to key customers.

Examples of Customer Success:

• Apple:

  • Dedicated Teams: The Apple at Work program provides specialized support for enterprise clients.

  • Customized Onboarding: Assists with device setup and software configuration.

  • Technical Support: AppleCare for Enterprises offers 24/7 support with technical managers.

  • Strategic Relationship Management: Assigns account managers and conducts regular reviews.

  • Integration with Third-Party Solutions: Includes enhanced security measures.

• Walmart and P&G:

  • Dedicated P&G Operations: Tailored to Walmart’s needs.

  • Embedded Employees: P&G staff work at Walmart headquarters, managing inventory.

  • Collaboration: Both companies work together to improve quality, delivery, and costs.

Customer Relationship Management (CRM)

• Definition: CRM integrates technology and personal interactions to organize and analyze customer data from various channels (e.g., sales calls, purchases). The purpose is to ensure the development of strategically appropriate relationships with customers.

• Functions:

  • Tracking Interactions: Logs all customer interactions.

  • Customer Information Storage: Holds transaction history and customer profiles.

  • Sales Management: Tracks leads and opportunities.

  • Customer Service: Manages issues and service requests.

  • Marketing Tool: Supports targeted marketing and personalized communication.

Chapter 9:  Multiple Choice Customer Service Management

1. What is the primary purpose of customer service?

   • A) To increase product diversity

   • B) To ensure customer satisfaction

   • C) To reduce operational costs

   • D) To develop marketing campaigns

2. Which of the following is NOT one of the "Six Basic Rights" of customer service?

   • A) Right product

   • B) Right place

   • C) Right profit

   • D) Right information

3. In customer service, Order-to-Delivery Lead Time includes which of the following stages?

   • A) Product design and procurement only

   • B) Order processing, procurement, production, and delivery

   • C) Marketing and customer feedback

   • D) Customer returns processing

4. Which technology is commonly used to enhance B2C customer service relationships?

   • A) Electronic Data Interchange (EDI)

   • B) AI-powered chatbots

   • C) Inventory tracking systems

   • D) Blockchain technology

5. Customer Success focuses on:

   • A) Meeting basic customer expectations

   • B) Achieving long-term customer satisfaction by anticipating needs

   • C) Reducing customer service response times

   • D) Streamlining sales transactions

6. What is the primary function of Customer Relationship Management (CRM)?

   • A) Reducing production lead time

   • B) Organizing and analyzing customer data from multiple channels

   • C) Managing product availability in warehouses

   • D) Monitoring employee performance in customer service roles

Answers:

1. B) To ensure customer satisfaction

2. C) Right profit

3. B) Order processing, procurement, production, and delivery

4. B) AI-powered chatbots

5. B) Achieving long-term customer satisfaction by anticipating needs

6. B) Organizing and analyzing customer data from multiple channels

Chapter 10: Sourcing and Supply Management

Chapter 10: Sourcing and Supply Chain Management Outline

• Supply Management’s Impact on Firm and Supply Chain Performance

• Supplier Category Management

·       Examining the Sourcing Process

Supply Chain Management’s Impact on Firm and Supply Chain Performance

Types of Purchases:

• Raw Materials

• Indirect Materials

• Capital Equipment

• Information Systems and Software

Supply Management Goals:

1. Ensure Availability and Timely Delivery of Resources

   • Products and services are delivered on time, at the correct location, in the correct amount, and in the correct condition.

2. Identify, Assess, and Mitigate Supply Chain Risk

   • Risks include supplier quality/financial issues, demand changes, natural disasters (fires, hurricanes, floods), political instability, and government regulation changes.

3. Reduce Total Costs of Ownership

Before Transaction: Costs of visiting suppliers.

During Transaction: Purchase price, ordering, transporting, expediting, receiving, and inspecting.

After Transaction: Inventory costs, supply risk, production downtime, defects, recalls, and repairs.

4. Enhance Quality

Approaches include collaboration, supplier audits, training, development programs, partnerships, shared quality systems, and continuous improvement.

5. Access Technology and Innovation

Identify suppliers with technology to enhance products, as in Apple’s collaboration with TSMC for custom silicon chips.

6. Foster Sustainability

Sustainability efforts improve community support, social diversity, environmental responsibility, human rights, and workplace safety.

7. Promote Responsible Sourcing

• Ensures that all materials, products, and services are sourced ethically, sustainably, and responsibly across the full supply chain.

Supply Category Management

Purpose: To create consistent supply management strategies for categories

Step 1: Identify Purchase Categories

• Analyze current and anticipated future needs, conducting a spend analysis to see what is bought, the cost, and which suppliers are involved.

Step 2: Develop Strategies Using Portfolio Analysis

• Kraljic Matrix Quadrants:

  • Non-critical items: Low supply risk, low profit impact.

  • Leverage items: Low supply risk, high profit impact.

  • Bottleneck items: High supply risk, low profit impact.

  • Strategic items: High supply risk, high profit impact.

• Category Tactics:

  • Strategic Items: High value and high risk; focus on strong relationships with one or two suppliers, or dual source to balance risks and costs.

  • Bottleneck Items: High risk, low value; use multiple suppliers and explore alternative materials to ensure availability.

  • Leverage Items: Low risk, high value; standardize purchases, use competition to select suppliers, and consolidate to negotiate discounts.

  • Non-Critical Items: Low-impact purchases; consider vendor-managed inventory, competitive bidding, supplier consolidation, and catalog purchasing.

Number of Suppliers:

• Supply Base Optimization: Balancing the number of suppliers to manage complexity and risk by standardizing purchases and consolidating suppliers where possible.

Supplier Location:

• Considerations for using close, local suppliers, national or regional presence, global suppliers, or sourcing from emerging economies if low cost is the goal.

Type of Relationship:

• Arm’s Length: Price-focused transactions.

• Cooperative Relationships: Buyers and suppliers work together to achieve mutual benefits.

Outsourcing

• The rule of thumb is outsourcing is a good choice when a product is in the mature phase of the product life cycle

Examining the Sourcing Process

1. Identify Need and Develop Specifications

   • Work closely with internal customers to understand current and future needs, often starting with a purchase requisition.

2. Identify Potential Suppliers

   • Use current suppliers to save time and cost; maintain preferred supplier lists. Sources include the internet, catalogs, trade directories, journals, and networking. One of the first places to look is the suppliers your company has used in the past.

3. Access and Select Suppliers

   • Once potential suppliers are identified, the supply manager issues a Request for Proposal

   • Selection: Competitive bidding is used for cost-sensitive purchases, while strategic purchases involve thorough evaluations and negotiation.

4. Evaluate Suppliers Criteria include quality systems, technological capabilities, supply management processes, and financial stability.

5. Manage Ongoing Supplier Relationships

   • The contract signing begins the buyer-supplier relationship, and buyers must monitor performance for adherence to agreements.

Managing Ongoing Supplier Relationships

Supplier Relationship Management (SRM)

•  Information Sharing and Coordination:  

• Procure-to-Pay Systems:  

• Blockchain Technology

Supplier Relationship Management (SRM) Typically:

• Streamlines Processes: Enhances communication and efficiency.

• Identifies Critical Suppliers: Focuses on those integral to operations.

• Measures and Reports Supplier Performance: Tracks adherence to standards.

• Assesses Supply Risks: Proactively manages potential issues.

• Manages Contracts: Ensures clear expectations and responsibilities.

Chapter 10:  Multiple Choice Questions - Chapter 10: Sourcing and Supply Management

1. What is one of the primary goals of supply management?

A) Reduce marketing expenses

B) Ensure timely availability of resources

C) Increase production time

D) Decrease customer satisfaction

2. Which of the following is not considered a type of purchase within supply chain management?

A) Indirect Materials

B) Raw Materials

C) Brand Promotion

D) Information Systems

3. In the Kraljic Matrix for Portfolio Analysis, which category is characterized by low supply risk and high profit impact?

A) Non-Critical Items

B) Bottleneck Items

C) Leverage Items

D) Strategic Items

4. What is Supply Base Optimization primarily focused on?

A) Expanding the number of suppliers

B) Reducing costs by using only local suppliers

C) Balancing the number of suppliers to manage complexity and risk

D) Replacing existing suppliers frequently

5. In the sourcing process, what is typically the first step for supply managers?

A) Assess and select suppliers

B) Identify need and develop specifications

C) Manage ongoing supplier relationships

D) Issue a purchase order

6. What is a key function of Supplier Relationship Management (SRM)?

A) Minimizing communication with suppliers

B) Reducing quality standards to save costs

C) Streamlining processes and interactions with suppliers

D) Expanding the supply chain with multiple global suppliers

Answers:

1. B) Ensure timely availability of resources

2. C) Brand Promotion

3. C) Leverage Items

4. C) Balancing the number of suppliers to manage complexity and risk

5. B) Identify need and develop specifications

6. C) Streamlining processes and interactions with suppliers

Chapter 10: Sourcing and Supply Management

Chapter 10: Sourcing and Supply Chain Management Outline

• Supply Management’s Impact on Firm and Supply Chain Performance

• Supplier Category Management

·       Examining the Sourcing Process

Supply Chain Management’s Impact on Firm and Supply Chain Performance

Types of Purchases:

• Raw Materials

• Indirect Materials

• Capital Equipment

• Information Systems and Software

Supply Management Goals:

8. Ensure Availability and Timely Delivery of Resources

   • Products and services are delivered on time, at the correct location, in the correct amount, and in the correct condition.

9. Identify, Assess, and Mitigate Supply Chain Risk

   • Risks include supplier quality/financial issues, demand changes, natural disasters (fires, hurricanes, floods), political instability, and government regulation changes.

10. Reduce Total Costs of Ownership

Before Transaction: Costs of visiting suppliers.

During Transaction: Purchase price, ordering, transporting, expediting, receiving, and inspecting.

After Transaction: Inventory costs, supply risk, production downtime, defects, recalls, and repairs.

11. Enhance Quality

Approaches include collaboration, supplier audits, training, development programs, partnerships, shared quality systems, and continuous improvement.

12. Access Technology and Innovation

Identify suppliers with technology to enhance products, as in Apple’s collaboration with TSMC for custom silicon chips.

13. Foster Sustainability

Sustainability efforts improve community support, social diversity, environmental responsibility, human rights, and workplace safety.

14. Promote Responsible Sourcing

• Ensures that all materials, products, and services are sourced ethically, sustainably, and responsibly across the full supply chain.

Supply Category Management

Purpose: To create consistent supply management strategies for categories

Step 1: Identify Purchase Categories

• Analyze current and anticipated future needs, conducting a spend analysis to see what is bought, the cost, and which suppliers are involved.

Step 2: Develop Strategies Using Portfolio Analysis

• Kraljic Matrix Quadrants:

  • Non-critical items: Low supply risk, low profit impact.

  • Leverage items: Low supply risk, high profit impact.

  • Bottleneck items: High supply risk, low profit impact.

  • Strategic items: High supply risk, high profit impact.

• Category Tactics:

  • Strategic Items: High value and high risk; focus on strong relationships with one or two suppliers, or dual source to balance risks and costs.

  • Bottleneck Items: High risk, low value; use multiple suppliers and explore alternative materials to ensure availability.

  • Leverage Items: Low risk, high value; standardize purchases, use competition to select suppliers, and consolidate to negotiate discounts.

  • Non-Critical Items: Low-impact purchases; consider vendor-managed inventory, competitive bidding, supplier consolidation, and catalog purchasing.

Number of Suppliers:

• Supply Base Optimization: Balancing the number of suppliers to manage complexity and risk by standardizing purchases and consolidating suppliers where possible.

Supplier Location:

• Considerations for using close, local suppliers, national or regional presence, global suppliers, or sourcing from emerging economies if low cost is the goal.

Type of Relationship:

• Arm’s Length: Price-focused transactions.

• Cooperative Relationships: Buyers and suppliers work together to achieve mutual benefits.

Outsourcing

• The rule of thumb is outsourcing is a good choice when a product is in the mature phase of the product life cycle

Examining the Sourcing Process

1.      Identify Need and Develop Specifications Work closely with internal customers to understand current and future needs, often starting with a purchase requisition.

2.      Identify Potential Suppliers

a.      Use current suppliers to save time and cost; maintain preferred supplier lists. Sources include the internet, catalogs, trade directories, journals, and networking.

3.      Access and Select Suppliers

a.      Once potential suppliers are identified, the supply manager issues a Request for Proposal

b.      Selection: Competitive bidding is used for cost-sensitive purchases, while strategic purchases involve thorough evaluations and negotiation.

4.      Evaluate Suppliers

a.      Criteria include quality systems, technological capabilities, supply management processes, and financial stability.

5.      Manage Ongoing Supplier Relationships

5. The contract signing begins the buyer-supplier relationship, and buyers must monitor performance for adherence to agreements.

Managing Ongoing Supplier Relationships

Supplier Relationship Management (SRM)

•  Information Sharing and Coordination: 

• Procure-to-Pay Systems: 

• Blockchain Technology

Supplier Relationship Management (SRM) Typically:

• Streamlines Processes: Enhances communication and efficiency.

• Identifies Critical Suppliers: Focuses on those integral to operations.

• Measures and Reports Supplier Performance: Tracks adherence to standards.

• Assesses Supply Risks: Proactively manages potential issues.

• Manages Contracts: Ensures clear expectations and responsibilities.

Multiple Choice Questions - Chapter 10: Sourcing and Supply Management

1. What is one of the primary goals of supply management?

A)     Reduce marketing expenses

B)     Ensure timely availability of resources

C)    Increase production time

D)    Decrease customer satisfaction

2. Which of the following is not considered a type of purchase within supply chain management?

A)     Indirect Materials

B)     Raw Materials

C)    Brand Promotion

D)    Information Systems

3. In the Kraljic Matrix for Portfolio Analysis, which category is characterized by low supply risk and high profit impact?

A)     Non-Critical Items

B)     Bottleneck Items

C)    Leverage Items

D)    Strategic Items

4. What is Supply Base Optimization primarily focused on?

A)     Expanding the number of suppliers

B)     Reducing costs by using only local suppliers

C)    Balancing the number of suppliers to manage complexity and risk

D)    Replacing existing suppliers frequently

5. In the sourcing process, what is typically the first step for supply managers?

A)     Assess and select suppliers

B)     Identify need and develop specifications

C)    Manage ongoing supplier relationships

D)    Issue a purchase order

6. What is a key function of Supplier Relationship Management (SRM)?

A)     Minimizing communication with suppliers

B)     Reducing quality standards to save costs

C)    Streamlining processes and interactions with suppliers

D)    Expanding the supply chain with multiple global suppliers

Answers:

7. B) Ensure timely availability of resources

8. C) Brand Promotion

9. C) Leverage Items

10. C) Balancing the number of suppliers to manage complexity and risk

11. B) Identify need and develop specifications

12. C) Streamlining processes and interactions with suppliers

Chapter 11: Logistics Management

The Role of Logistics Management

Logistics management is responsible for overseeing the movement of goods across several essential areas:

• Inbound Flows: The management of materials critical for meeting operational requirements.

• Internal Flows: Coordinating the movement of information, products, and materials within the organization to support internal processes.

• Outbound Flows: Managing the distribution of finished goods to customers, ensuring timely and efficient delivery.

• Logistics is important because it affects customer service.

The core functions of logistics management include Order Processing, Inventory Management, Transportation Management, Warehousing Management, Logistics Network Design, Material Handling Management, and Packaging.

Order Processing

A perfect order relies on an order processing system designed to maximize accuracy, efficiency, and speed. Key steps include:

• Order Receipt, Order Entry, Shipping, Order Tracking, Delivery, and Returns.

Inventory Management

Key tasks of inventory management are to determine:

• How much to order from suppliers

• When to place orders with suppliers

• How much inventory to maintain

• Where to store inventory

Logistics’ Impact on Inventory:

• Transportation Speed:

  • Faster Transportation: Allows companies to reduce inventory levels.

  • Slower Transportation: Requires holding more inventory to buffer against delays.

• Lead Times:

  • Longer Lead Times: Increase the need for safety stock.

  • Shorter Lead Times: Enable lower inventory levels with more frequent restocking.

• Service Levels:

  • Higher Service Levels: Require higher inventory levels.

  • Lower Service Levels: Allow for reduced inventory levels.

Transportation Management

Topics in Transportation Management include Transportation Economics, Consolidation, and Modes of Transportation.

• Transportation Economics

  • Economies of Scale: When the cost per unit decreases as the volume of goods transported increases. This is why sea container ships are so large.

  • Economies of Distance: When transportation cost per unit of distance decreases as the distance traveled grows.

• Transportation Economics and Consolidation

  • Larger Loads, Lower Costs: Shipment consolidation maximizes truck capacity, reducing per-unit weight costs.

  • Longer Shipments, Lower Cost per Mile: Longer-haul shipments benefit from economies of distance, reducing the cost per mile.

• Types of Consolidation:

  • Market Area Consolidation: Combines multiple small shipments from a single shipper to the same geographic area.

  • Pooled Area Consolidation: Combines shipments from various shippers heading to the same area, used by companies like UPS and FedEx.

  • Scheduled Delivery: Sets specific delivery times, allowing customers to consolidate orders into larger, less frequent shipments.

Modes of Transportation

Key modes of transportation include Truck, Rail, Air, Water, and Pipeline. Each mode has distinct Service Characteristics:

• Speed: Time required to transport goods from origin to destination.

• Availability: Ability to reach various locations.

• Dependability: Reliability of delivery times.

• Capability: Ability to handle different types of shipments.

• Frequency: Number of transport schedules available.

• Greenhouse Gas Emissions (GHG): Environmental impact in terms of emissions.

Transportation Management by Mode

Distribution and Fulfillment Management

Key Functions in distribution and fulfillment include:

• Stockpiling: Maintaining inventory to meet fluctuating demand.

• Production Support Services: Ensuring materials are available for production needs.

• Consolidation Activities: Includes break-bulk, pooling, and cross-docking to optimize distribution.

• Reverse Logistics: Managing returns, recycling, and disposal.

• Value-Added Services: Includes packaging, labeling, and light assembly to add final value to the product.

Distribution Center/Fulfillment Center Operations involve:

• Receiving and unloading, In-storage handling, Storage management, Order picking and packing, Staging for shipment, Shipping and dispatch.

Materials Handling and Packaging

• Impact of Packaging Quality: Poor-quality packaging often leads to product damage, increasing costs for replacements, returns, and repairs.

• Sustainability Implications: Packaging significantly affects a company's sustainability efforts, with sustainable options such as recyclable materials and eco-friendly designs reducing environmental impact.

• Returnable Packaging Solutions: Common in closed-loop supply chains, returnable packaging such as reusable containers, pallets, and crates help reduce waste and enhance sustainability.

Third-Party Logistics (3PL) Service Providers: Services Provided

3PL providers offer various services to optimize supply chain functions:

• Transportation Management

• Warehousing and Distribution

• Freight Forwarding

• Packaging and Labeling

• Inventory Management

• Reverse Logistics

• Technology Solutions

• Transportation Consolidation

• Customs and Compliance

• Last-Mile Delivery

• Cross-Docking

Chapter 11: Logistics Management (Week 7)

1. Which of the following is NOT a core function of logistics management?

A) Inventory Management

B) Advertising Campaigns

C) Transportation Management

D) Order Processing

2. In inventory management, why might a company hold more inventory if transportation speed is slower?

A) To increase product diversity

B) To serve as a buffer against potential delays

C) To meet legal requirements

D) To reduce transportation costs

3. What does "Economies of Distance" in transportation economics refer to?

A) Lower cost per unit with increased shipment volume

B) Decreased cost per mile as the distance traveled increases

C) Higher cost with longer distances

D) Faster delivery with shorter distances

4. Which type of transportation mode typically has the lowest greenhouse gas (GHG) emissions?

A) Trucks

B) Rail

C) Air

D) Intermodal

5. Which type of consolidation involves combining shipments from multiple shippers to the same area, used by companies like UPS and FedEx?

A) Market Area Consolidation

B) Scheduled Delivery

C) Pooled Area Consolidation

D) Cross-Docking

6. What is a primary benefit of using returnable packaging solutions in logistics?

A) Reduces customer demand

B) Increases product pricing

C) Reduces waste and enhances sustainability

D) Decreases order fulfillment times

Answers:

1. B) Advertising Campaigns

2. B) To serve as a buffer against potential delays

3. B) Decreased cost per mile as the distance traveled increases

4. B) Rail

5. C) Pooled Area Consolidation

6. C) Reduces waste and enhances sustainability