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The introduction to logistics highlights the evolution from treating logistics components—transport, inventory, and warehousing—as isolated functions to understanding them as interconnected elements essential for efficient supply chains. Early views did not recognize logistics as a distinct business function. However, the modern perspective emphasizes a holistic approach, integrating these elements to optimize operations and meet customer needs effectively.
Keywords:
Logistics: The management of the flow of goods and information from the point of origin to the point of consumption to meet customer and corporate requirements.
Transport: The movement of goods from one location to another.
Inventory: The stock of goods or materials held by a business.
Warehousing: The storage of goods before they are distributed.
Holistic View: Considering all elements and their interrelationships within logistics.
Importance of Logistics and Distribution
Economic Impact: Logistics significantly influences national economies by utilizing human and material resources. Studies show that logistics can represent a substantial percentage of GDP, varying by region and country. For instance, logistics accounted for 7.4% to 14.5% of GDP in various countries, illustrating its economic importance and the need for cost management.
Keywords:
GDP (Gross Domestic Product): The total value of goods and services produced by a country.
Logistics Costs: Expenses associated with the movement and storage of goods.
Industry Impact: Within industries, logistics costs are primarily driven by transport, followed by inventory carrying, warehousing, customer service, and administration. For example, in the US, transport costs dominate at 48.4% of logistics expenses. Costs vary by industry and company size, with small companies and low-value products generally experiencing higher logistics costs.
Keywords:
Transport Costs: Expenses related to moving goods.
Inventory Carrying Costs: Costs associated with holding inventory, including storage and insurance.
Warehousing Costs: Expenses related to the storage of goods.
Definitions of Logistics
Several definitions capture different facets of logistics:
Collins Dictionary: Logistics is the management of goods flow between origin and destination to meet requirements.
Council of Supply Chain Management Professionals: It encompasses the planning and control of goods, services, and information flow to meet customer needs efficiently.
Chartered Institute of Logistics and Transport: Focuses on the 'five rights'—right place, time, quantity, quality, and price.
Keywords:
Five Rights: Ensuring goods are in the right place, at the right time, in the right quantity, quality, and price.
Key Considerations
Information Flows: Logistics also involves managing information alongside physical goods.
Reverse Logistics: The process of returning products and packaging through the supply chain.
Total Logistics Concept (TLC)
The Total Logistics Concept (TLC) integrates various elements of distribution and logistics into a single, cohesive system. It recognizes that elements like transport and storage should not be optimized in isolation but rather as part of the broader supply chain. This holistic view helps avoid sub-optimization, where improving one aspect may lead to increased overall costs due to negative impacts on other logistics functions.
Keywords:
Total Logistics Concept (TLC): An approach that integrates all elements of distribution and logistics into a unified system.
Sub-Optimization: Improving one aspect of a system at the expense of overall performance, leading to increased total costs.
Holistic View: Considering all parts of a system and their interrelationships to optimize overall performance.
Trade-Off Analysis
Understanding trade-offs is crucial for effective logistics planning. Four levels of trade-offs are identified:
Within Logistics Components: Trade-offs within a single function (e.g., choosing between random vs. fixed storage locations).
Between Logistics Components: Trade-offs between different logistics elements (e.g., improving packaging strength to reduce warehousing costs).
Between Company Functions: Trade-offs between different company functions (e.g., balancing production run lengths with warehousing costs).
Between Company and External Organizations: Trade-offs involving external partners (e.g., changing delivery methods to reduce costs).
Keywords:
Trade-Off Analysis: Evaluating the costs and benefits of different logistics decisions to optimize the overall system.
Logistics Components: Individual parts of the logistics system such as warehousing or transport.
Company Functions: Various departments or processes within a company that can influence logistics decisions.
Planning for Logistics
Effective logistics planning involves three levels:
Strategic Planning: Long-term decisions impacting the overall logistics strategy.
Tactical Planning: Mid-term decisions that support strategic goals and involve resource allocation.
Operational Planning: Short-term decisions for daily operations and efficiency.
Keywords:
Strategic Planning: Long-term, high-level planning focused on setting overall logistics goals.
Tactical Planning: Mid-term planning focused on resource allocation and supporting strategic objectives.
Operational Planning: Short-term planning focused on daily operations and efficiency.
Planning and Control Cycle
The planning and control cycle involves:
Current Status Assessment: Evaluating the current logistics position.
Objective Setting: Defining goals related to customer service and operational efficiency.
Planning Process: Developing strategies and plans based on objectives.
Monitoring and Control: Regularly measuring performance and adjusting plans as needed.
Keywords:
Planning and Control Cycle: A systematic approach to managing logistics that involves assessment, planning, monitoring, and adjustment.
Current Status Assessment: Reviewing the existing logistics situation to inform planning.
Objective Setting: Establishing goals for logistics performance.
Monitoring and Control: Tracking performance and making adjustments to ensure objectives are met.
The TLC approach emphasizes the importance of viewing logistics as a unified system, understanding trade-offs, and maintaining an effective planning and control cycle to manage the dynamic nature of logistics operations. ----
Physical Distribution Channel Types and Structures
Physical Distribution Channel: Refers to the method and means used to transfer a product from production to the final customer. Historically, this ended at retail outlets but increasingly includes direct delivery to the consumer’s home or digital transfer via the internet (B2C). For industrial products, it involves business-to-business (B2B) transfers.
Trading Channel: Focuses on the non-physical aspects of the transfer, including negotiation, buying and selling, and ownership changes during the distribution process.
Direct Distribution Channel: The product moves directly from the manufacturer to the consumer without intermediaries.
Indirect Distribution Channel: Involves intermediaries such as wholesalers or retailers between the manufacturer and the final consumer.
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Outsourcing Channels
Outsourcing: Refers to contracting third-party logistics (3PL) services instead of managing distribution in-house.
Reasons for Outsourcing:
Cost Reduction: Outsourcing can be more cost-effective.
Service Improvement: Third parties may offer better service or reach.
Focus on Core Competency: Allows companies to focus on their primary business activities.
Asset Reduction: Transfer of assets like warehouses and vehicles to the contractor.
Access to New Markets: Quick entry into new geographic areas.
Reasons Against Outsourcing:
Core Competency: Distribution may be seen as a critical capability.
Cost Issues: Contractors’ profit margins may negate cost savings.
Control Loss: Potential loss of control over distribution operations.
Dependency Risk: Over-reliance on third parties.
Skill Loss: Risk of losing key distribution skills.
This overview should help you grasp the key concepts and terms related to physical distribution channels and their structures.
Summary of Key Concepts in Digital Supply Chain
1. The Digital Supply Chain: Overview and Context The digital supply chain integrates advanced technologies to enhance and transform traditional supply chain operations. It addresses evolving customer expectations for personalized, fast, and sustainable service amid complex and often disrupted supply chains.
Key Concepts:
Digital Supply Chain: Incorporates digital technologies to streamline and optimize supply chain processes.
Fourth Industrial Revolution (4IR): Refers to the integration of digital technologies, societal shifts, and business practices revolutionizing commerce and industry.
Supply Chain 4.0 (SC:4): The next stage in supply chain evolution, characterized by real-time data, smart analysis, and data-driven decision-making.
2. Supply Chain 4.0 (SC:4) SC:4 emphasizes the integration of digital technologies to improve supply chain efficiency and responsiveness. It includes advancements such as autonomous vehicles, drones, and 3D printing, which are transforming logistics and operational practices.
Key Concepts:
Big Data: Large datasets analyzed to identify patterns and trends. It enables predictive insights and improved decision-making.
Artificial Intelligence (AI): Machine learning technologies that perform tasks requiring human intelligence, such as managing inventory or optimizing routes.
Internet of Things (IoT): A network of interconnected devices that exchange data, enhancing real-time visibility and control.
Control Towers: Central hubs providing visibility and decision-making support across the supply chain.
Blockchain: A decentralized digital ledger that ensures transaction transparency and security.
Distributed Order Management (DOM): Systems optimizing order fulfillment by analyzing various factors like stock levels and delivery speed.
Digital Marketplace: Platforms that streamline logistics operations, such as freight exchanges.
Crowd-Shipping: Utilizing social networks for local parcel deliveries.
Robotics/Automation: The use of robots for warehouse and logistics tasks, improving efficiency.
Autonomous Vehicles: Self-driving vehicles and drones for delivery.
3D Printing: Produces items on-demand, reducing the need for large inventories.
3. Digital Supply Chain: Key Aspects A digital supply chain features several essential elements for achieving automation and optimization.
Key Concepts:
Supply Chain Transparency and Sustainability: Complete visibility and environmentally conscious practices throughout the supply chain.
Closed-Loop Planning: Integrates planning across all levels and time horizons, including financial and capacity considerations.
Smart Logistics Flows: Utilizes automated systems and optimized transportation for efficient logistics management.
Dynamic Supply Chain Segmentation: Adapts supply chains to varying service levels, costs, and market conditions.
AI-Driven Supply Chain Management: Employs AI for enhanced demand forecasting and autonomous decision-making.
4. External Environmental Impacts External factors such as environmental policies, road congestion, labor shortages, and unexpected disruptions influence logistics and supply chain operations.
Key Concepts:
Environmental Policies: Regulations like road freight bans and recycling initiatives affecting logistics practices.
Road Congestion: Impacts just-in-time systems and logistics efficiency, prompting strategies like out-of-hours deliveries.
Labor Shortages: Skill gaps and high demand for experienced logistics professionals.
Supply Chain Disruption: Events like natural disasters and pandemics affecting supply chain stability and highlighting the need for resilience.
Future Considerations:
The COVID-19 pandemic and Brexit have underscored the need for more resilient and flexible supply chains.
Companies are reevaluating supply sources and logistics strategies to mitigate risks and adapt to changing conditions.
Summary of Key Concepts in Manufacturing and Supply
1. Developments in Manufacturing and Inbound Logistics Technological and organizational changes in manufacturing and inbound logistics impact supply chains by altering production requirements, supplier relationships, and logistics flows.
Key Concepts:
New Manufacturing Technologies:
Computer Integrated Manufacturing (CIM): Uses computer systems to control machinery and production processes.
3D Printing: Allows for on-demand production of complex products, affecting inventory and logistics.
Nanotechnology: Enables the creation of materials and products at the molecular level, potentially altering supply chain dynamics.
New Supplier Relationships:
Single Sourcing: Relying on one supplier for specific products to streamline processes and enhance collaboration.
Lean Supply: Collaboration between suppliers and buyers to reduce waste and improve efficiency.
Focused Factories: Production centers concentrating on a limited range of products, which may increase transportation distances.
Global Sourcing: Sourcing materials and products from global locations, often leading to longer supply chains.
Postponement: Delaying the final configuration of products to reduce finished goods inventory and adapt to customer demand.
Co-makership: Partnerships between suppliers and buyers to optimize costs and improve product quality.
Co-location: Placing supplier operations near customer production sites to reduce transportation time.
2. Impact of Product Characteristics on Logistics Changes in product range and characteristics affect logistics, including inventory management and the speed of delivery.
Key Concepts:
Product Life Cycles: Shorter life cycles increase pressure on inventory management to prevent obsolescence.
Wider Product Range: Greater variety increases inventory needs and costs.
Time-Sensitive Products: High demand for quickly delivered products, such as fresh foods, impacts logistics operations.
3. Lean Manufacturing Originating from automotive industry benchmarks, lean manufacturing focuses on eliminating waste to enhance efficiency.
Key Concepts:
Lean Thinking Principles:
Value Specification: Define value from the customer’s perspective.
Value Stream Mapping: Identify and eliminate waste across the entire value chain.
Flow Improvement: Ensure smooth, uninterrupted flow of value-creating activities.
Just-in-Time Production: Produce only what is demanded by customer orders.
Continuous Improvement: Constantly remove layers of waste to improve processes.
4. Agile Supply Chain The agile supply chain adapts to rapid changes in customer demand by maintaining flexibility in production and distribution.
Key Concepts:
Agility Characteristics:
Cross-Functional Planning: Integrates production planning across different functions.
Minimal Inventory Levels: Holds stock as work-in-progress to be completed based on actual demand.
Demand-Driven Replenishment: Uses sales data to guide inventory replenishment.
Direct Fulfillment: Delivers products directly from factories to customers.
Integrated Systems: Provides clear visibility of inventory and operations across the supply chain.
5. Factory Gate Pricing (FGP) FGP aims to reduce logistics costs by separating the cost of goods from transportation expenses, providing transparency and control over transport costs.
Key Concepts:
Factory Gate Pricing: Products are purchased at the factory gate without included transport costs, allowing buyers to manage transportation more effectively.
Inbound Supply Chain Management (I2M): Focuses on managing the inbound flow of materials from suppliers to manufacturing sites, optimizing inventory and reducing costs.
Vendor-Managed Inventory (VMI): Suppliers manage inventory levels at the buyer’s location to ensure timely replenishment and efficient inventory management.
Logistics and Distribution
Key Developments:
Third-Party Logistics (3PL):
Definition: Outsourcing of logistics functions to external experts who manage specific logistics activities such as warehousing and transportation.
Characteristics: 3PLs focus on operational aspects and utilize their own physical assets.
Fourth-Party Logistics (4PL):
Definition: An advanced form of 3PL where an external provider manages and integrates all aspects of the supply chain. The 4PL coordinates various 3PLs and other resources to deliver comprehensive supply chain solutions.
Characteristics: 4PLs are asset-light, focusing on management and integration rather than ownership of logistics assets. They provide a holistic supply chain solution and can handle design and management across the entire supply chain.
Digital Freight Exchanges:
Definition: Online platforms for matching shipper demands with carrier availability. They range from simple bulletin boards to sophisticated algorithm-based systems.
Characteristics: These platforms help in freight purchasing and can streamline spot transport needs but may not replace detailed contract agreements.
Networked Economy:
Definition: A business model where companies collaborate across the supply chain to improve efficiency and leverage shared resources.
Characteristics: Emphasizes integration and cooperation to handle complex global supply chains and foster collaborative environments.
Horizontal Collaboration:
Definition: When competing companies share logistics operations to reduce costs and improve service levels.
Characteristics: Involves sharing logistics resources and practices to gain mutual benefits, though it requires careful partner selection and trust-building.
Aftermarket Logistics:
Definition: Logistics services focused on post-sales support, including parts logistics, returns management, and field support.
Characteristics: Critical for high-tech industries; involves fast fulfillment and management of global service parts.
Retailing Trends:
Inventory Reduction:
Definition: Strategies aimed at reducing stock levels across the supply chain, often to maximize retail space and improve efficiency.
Characteristics: Includes practices like minimizing stock in stores, reducing DC stockholding, and applying Just-In-Time (JIT) principles.
On-Shelf Availability:
Definition: The ability to have the right product available for sale at the right time and place.
Characteristics: Aims to address out-of-stock issues by improving inventory accuracy, replenishment systems, and in-store management.
Time-Based Competition:
Definition: A strategy focusing on reducing the time products spend in the supply chain to gain a competitive edge.
Characteristics: Includes reducing time to market, time to serve, and time to react to demand changes.
E-Commerce:
Definition: Buying and selling goods and services over the internet.
Characteristics: Includes business-to-consumer (B2C) and business-to-business (B2B) transactions; involves challenges related to seasonality and logistics structure.
Omnichannel Retailing:
Definition: A retail strategy that integrates various shopping channels (e.g., online, in-store) to provide a seamless customer experience.
Characteristics: Requires consistent product information across channels and effective fulfillment strategies to meet consumer expectations.
Key Definitions:
Third-Party Logistics (3PL): Outsourced logistics services managing specific operations.
Fourth-Party Logistics (4PL): Comprehensive supply chain management service integrating various resources and providers.
Digital Freight Exchange: Online platforms for matching freight demand with carrier availability.
Networked Economy: Collaborative business model integrating supply chain activities.
Horizontal Collaboration: Shared logistics operations among competing companies.
Aftermarket Logistics: Post-sales support logistics including parts and returns management.
On-Shelf Availability: Ensuring product availability at retail locations.
Time-Based Competition: Strategy focusing on reducing supply chain time to gain advantage.
E-Commerce: Internet-based buying and selling of goods and services.
Omnichannel Retailing: Integrated retail approach across multiple shopping channels.
1. Consumer Trends in Non-Store Shopping
Non-Store Shopping: Includes home and mobile shopping, significantly increasing over time.
Historical Context: Initially introduced through direct selling and mail order catalogues.
Modern Developments: Home computing, broadband internet, and online banking have facilitated this shift.
Mobile Shopping (M-Commerce): Buying and selling goods via mobile phones and tablets.
Impact of COVID-19: Accelerated the use of home and mobile shopping.
2. Logistics Implications of Non-Store Shopping
Home Delivery vs. Home Shopping:
Home Shopping: Ordering products from home.
Home Delivery: Physical delivery of products to homes (e-fulfilment).
Final Mile: Refers to delivery challenges and solutions for reaching the final consumer.
Key Logistics Challenges:
Customer availability to receive and sign for goods.
Safe placement of goods if the customer is absent.
Restricted delivery time windows impacting vehicle and driver utilization.
Need for new distribution systems (e.g., small vehicles for residential areas).
High return rates (30-50% outside grocery sector).
Potential shift of some shops to showrooms.
3. Specialized Logistics for Grocery Home Delivery
Vehicle Design: Specialist small vehicles for delivering various types of groceries (ambient, fresh, chilled, frozen).
Order Picking:
Low Throughput: Multiple order picking using compartmentalized trolleys.
High Throughput: Zone picking or batch picking with automated sortation systems.
Challenges:
Picking errors, product damage, and quality issues with fresh food.
4. Types of Home Delivery Providers
Internet Companies: Like Amazon, manage their own delivery operations.
3PLs: Existing third-party logistics providers with local delivery operations.
Parcel Delivery Companies: Specialized in home delivery.
Legacy Postal Companies: Established home delivery services.
Courier Services: Focused on home delivery.
5. Solutions to Home Delivery Challenges
Urban Warehouses: Located near high-density areas for quick deliveries.
Mobile Sortation Hubs: Semi-trailers and electric bikes for city deliveries.
Secure Delivery Boxes: For safe placement of goods outside homes.
Alternative Delivery Points: Workplaces, petrol stations, parcel towers.
In-Home Delivery: Smart lock technology for secure deliveries inside homes.
Crowd-Shipping: Gig economy and crowd-sourcing for local deliveries.
Autonomous Delivery Options: Drones and autonomous vehicles under trial.
6. Customer Service and Logistics
Customer-Facing Operations: Emphasis on satisfying customer demands rather than just selling products.
Service Policies Based on Market Segmentation: Tailoring service to different customer needs.
JIT and Quick-Response Systems: Require frequent and reliable deliveries.
Brand Image: Shift from brand strength to product availability.
Service Implications: Increased importance of logistics in customer service.
7. Demand Chain Management (DCM)
Concept: Focuses on customer demand rather than just supply.
Integration of SCM and CRM: Links supply chain management with customer relationship management to focus on customer needs.
Big Data Analytics: Helps integrate SCM and CRM by providing detailed customer data.
1. Consumer Trends in Non-Store Shopping
Non-Store Shopping: Includes home and mobile shopping, significantly increasing over time.
Historical Context: Initially introduced through direct selling and mail order catalogues.
Modern Developments: Home computing, broadband internet, and online banking have facilitated this shift.
Mobile Shopping (M-Commerce): Buying and selling goods via mobile phones and tablets.
Impact of COVID-19: Accelerated the use of home and mobile shopping.
2. Logistics Implications of Non-Store Shopping
Home Delivery vs. Home Shopping:
Home Shopping: Ordering products from home.
Home Delivery: Physical delivery of products to homes (e-fulfilment).
Final Mile: Refers to delivery challenges and solutions for reaching the final consumer.
Key Logistics Challenges:
Customer availability to receive and sign for goods.
Safe placement of goods if the customer is absent.
Restricted delivery time windows impacting vehicle and driver utilization.
Need for new distribution systems (e.g., small vehicles for residential areas).
High return rates (30-50% outside grocery sector).
Potential shift of some shops to showrooms.
3. Specialized Logistics for Grocery Home Delivery
Vehicle Design: Specialist small vehicles for delivering various types of groceries (ambient, fresh, chilled, frozen).
Order Picking:
Low Throughput: Multiple order picking using compartmentalized trolleys.
High Throughput: Zone picking or batch picking with automated sortation systems.
Challenges:
Picking errors, product damage, and quality issues with fresh food.
4. Types of Home Delivery Providers
Internet Companies: Like Amazon, manage their own delivery operations.
3PLs: Existing third-party logistics providers with local delivery operations.
Parcel Delivery Companies: Specialized in home delivery.
Legacy Postal Companies: Established home delivery services.
Courier Services: Focused on home delivery.
5. Solutions to Home Delivery Challenges
Urban Warehouses: Located near high-density areas for quick deliveries.
Mobile Sortation Hubs: Semi-trailers and electric bikes for city deliveries.
Secure Delivery Boxes: For safe placement of goods outside homes.
Alternative Delivery Points: Workplaces, petrol stations, parcel towers.
In-Home Delivery: Smart lock technology for secure deliveries inside homes.
Crowd-Shipping: Gig economy and crowd-sourcing for local deliveries.
Autonomous Delivery Options: Drones and autonomous vehicles under trial.
6. Customer Service and Logistics
Customer-Facing Operations: Emphasis on satisfying customer demands rather than just selling products.
Service Policies Based on Market Segmentation: Tailoring service to different customer needs.
JIT and Quick-Response Systems: Require frequent and reliable deliveries.
Brand Image: Shift from brand strength to product availability.
Service Implications: Increased importance of logistics in customer service.
7. Demand Chain Management (DCM)
Concept: Focuses on customer demand rather than just supply.
Integration of SCM and CRM: Links supply chain management with customer relationship management to focus on customer needs.
Big Data Analytics: Helps integrate SCM and CRM by providing detailed customer data.
Summary
International trade regulations and compliance requirements are governed by several principles and practices to ensure fair and secure trading environments. Key principles established by the World Trade Organization (WTO) include Most Favoured Nation (MFN) and national treatment. These principles aim to prevent discrimination between trading partners and ensure that imported and locally produced goods are treated equally.
However, trade is rarely free of restrictions. Countries implement import tariffs, safety and security measures, and environmental and health controls to protect their domestic industries and populations. Compliance with these requirements can be complex, involving tariffs, taxes, quotas, safety controls, environmental protections, and market regulations. Additionally, border procedures often involve extensive documentation and coordination among various stakeholders.
Keynotes and Definitions
Most Favoured Nation (MFN) Principle
Definition: A WTO principle stating that countries must treat all other WTO members equally in trade matters. Any favorable trade terms granted to one country must be extended to all others.
Keynote: Ensures non-discriminatory trade practices among member states.
National Treatment Principle
Definition: A WTO principle requiring imported and locally produced goods to be treated equally within a country.
Keynote: Promotes fairness by eliminating discriminatory practices against imported goods.
Import Tariffs
Definition: Taxes imposed on imported goods, designed to protect domestic industries from foreign competition.
Keynote: Can impact the cost of goods and the competitiveness of foreign products.
Customs Tariffs
Definition: A percentage tax based on the value and origin of goods.
Keynote: Provides a means for countries to collect revenue and regulate trade.
Value Added Tax (VAT)
Definition: A tax applied on the value added to goods and services at each stage of production or distribution.
Keynote: Includes Import VAT for goods entering a country; businesses may reclaim VAT paid on inputs.
Excise Duties
Definition: Additional taxes on specific goods, such as alcohol, tobacco, and petrol.
Keynote: Aims to control consumption and generate revenue from particular products.
Anti-Dumping and Countervailing Measures
Definition: Measures to offset unfair pricing practices or subsidies in international trade.
Keynote: Protects domestic industries from unfair competition.
Export Controls and Licenses
Definition: Regulations that restrict or control the export of certain goods, often for security or policy reasons.
Keynote: Includes military goods and items of national heritage.
Phytosanitary Controls
Definition: Measures to prevent the spread of plant pests and diseases.
Keynote: Applies to products of the soil and wooden packaging materials.
Veterinary Controls
Definition: Regulations to prevent the spread of animal diseases through products of animal origin.
Keynote: Ensures animal and public health safety.
Food Controls
Definition: Regulations to ensure food safety, including hygiene standards and checks for contaminants.
Keynote: Includes measures to prevent the entry of unsafe food products.
Product Safety Standards
Definition: Regulations ensuring that products meet safety requirements, such as the CE label in Europe.
Keynote: Protects consumers and ensures product reliability.
Customs Brokers and Agents
Definition: Professionals who assist with the preparation and submission of customs declarations.
Keynote: Facilitate compliance with import/export procedures.
Border Agencies
Definition: Government bodies responsible for enforcing trade regulations and collecting duties.
Keynote: Includes customs, immigration, and specialized enforcement agencies.
Trade Facilitation
Definition: Efforts to simplify and streamline trade procedures to reduce costs and improve efficiency.
Keynote: Involves cooperation between business operators and border agencies.
International Trade Agreements
Definition: Treaties between countries to reduce trade barriers and enhance economic cooperation.
Keynote: Includes agreements like the CPTPP and regional trade deals.
Compliance Steps and Stakeholders
Documentation: Extensive paperwork is often required, including health certificates, customs declarations, and import/export licenses.
Stakeholders: Customs brokers, freight forwarders, transport companies, terminal operators, banks, and official laboratories are involved in ensuring compliance.
Border Management: Customs and other agencies ensure trade compliance while balancing security, revenue collection, and facilitation of trade.
Skills Needed for Cross-Border Logistics Operations:
Logistics Support: Ensuring timely border clearance.
Supply Chain Management: Minimizing costs and liabilities.
Compliance Systems: Maintaining robust compliance capabilities and good relations with border agencies.
· Cross-border logistics plays an important role in today's businesses:
Cross-border logistics is crucial in modern business as it ensures the seamless movement of goods across international boundaries. It integrates various supply chain functions to manage the flow of products from suppliers to consumers across different countries. Effective cross-border logistics enhances global trade efficiency, reduces lead times, and optimizes inventory management. By coordinating multiple transportation modes and complying with international regulations, businesses can expand their market reach, improve customer satisfaction, and gain competitive advantages in the global marketplace.
· Cross-border logistics uses different modes of freight transportation:
Cross-border logistics employs a range of freight transportation modes to facilitate the international movement of goods. These modes include:
Ocean Freight: Utilized for large volumes of goods, often in containers, and is cost-effective for long distances.
Air Freight: Provides rapid delivery for high-value or time-sensitive shipments, though at a higher cost.
Rail Freight: Offers an efficient option for heavy and bulk goods overland, particularly across continents.
Road Freight: Facilitates the transportation of goods over shorter distances and provides flexibility in delivery routes.
Intermodal Transportation: Combines multiple modes (e.g., rail and truck) to optimize costs and transit times, leveraging the strengths of each mode.
Using these modes strategically, businesses can balance cost, speed, and reliability in their cross-border logistics operations.
· International freight forwarders in cross-border logistics operations have many responsibilities:
International freight forwarders play a pivotal role in cross-border logistics by managing and coordinating various aspects of global shipments. Their responsibilities include:
Documentation Management: Ensuring all necessary shipping documents, such as bills of lading, customs declarations, and certificates of origin, are accurately prepared and compliant with regulations.
Customs Clearance: Handling the customs procedures to ensure that goods comply with import and export regulations and that duties and taxes are properly assessed and paid.
Transportation Coordination: Organizing and optimizing the movement of goods across different transportation modes to achieve cost-efficiency and timely delivery.
Cargo Tracking: Monitoring the shipment’s progress and providing real-time updates to stakeholders to ensure transparency and manage potential disruptions.
Risk Management: Identifying and mitigating risks associated with international shipping, including insurance coverage and handling of potential delays or damage.
Regulatory Compliance: Ensuring adherence to international trade regulations, safety standards, and environmental requirements.
Customs Administrations: Customs administrations are specialized government bodies that manage the control of trade across borders. They are pivotal in ensuring that goods entering or leaving a country are declared, controlled, and comply with legal requirements. Their key functions include collecting import duties, VAT, and excise taxes. Beyond revenue collection, customs also focus on enforcing trade restrictions, maintaining supply chain security, and supporting other regulatory agencies. They have the authority to detain goods and enforce trade prohibitions, which include restrictions on dangerous or prohibited items like certain medicines and wildlife products.
Keywords:
Customs Administration: Government agency responsible for overseeing the import and export of goods, ensuring compliance with trade regulations.
Import Duties: Taxes levied on goods brought into a country.
VAT (Value Added Tax): A consumption tax placed on goods and services at each stage of production or distribution.
Excise Duties: Taxes imposed on specific goods, such as alcohol, tobacco, and fuel.
Trade Prohibitions: Restrictions on certain goods that cannot be imported or exported, often for safety, environmental, or ethical reasons.
Institutional Arrangements: Customs administrations can be organized into several models, including autonomous agencies, revenue authorities, ministerial departments, and border protection services. These structures define how customs functions are integrated with other government services like immigration and finance. For instance, in the UK, customs duties are collected by Her Majesty’s Revenue and Customs (HMRC), while border enforcement is managed separately by the UK Border Force.
Keywords:
Autonomous Customs Agency: A standalone government body responsible for customs operations.
Revenue Authority: An agency that combines customs and tax collection functions.
Ministerial Department: A division within a government ministry handling customs responsibilities.
Border Protection Service: An agency responsible for both customs and immigration controls at borders.
Customs Law: Customs law governs the procedures and regulations related to the import and export of goods, including the application of tariffs and trade restrictions. It is closely linked with international trade laws and agreements, such as those from the World Trade Organization (WTO). The Revised Kyoto Convention serves as a key framework, setting standards for customs procedures and facilitating trade by reducing bureaucratic hurdles.
Keywords:
Customs Law: Legislation that governs customs procedures, tariffs, and the control of goods crossing borders.
Revised Kyoto Convention: An international agreement providing guidelines for efficient customs procedures.
WTO (World Trade Organization): An international body that sets global trade rules and agreements.
Trade Facilitation Agreement: A WTO agreement aimed at simplifying and harmonizing international trade procedures.
Import Duties and Taxes: Import duties are a significant source of revenue for some countries, though their primary role is often to protect local industries from foreign competition. There are direct taxes (on income and profits) and indirect taxes (on goods and services, such as VAT and excise duties). The significance of customs duties varies by country, with some relying on them heavily for revenue and others using them primarily for trade protection.
Keywords:
Direct Taxes: Taxes levied on income or profit, such as corporation tax and personal income tax.
Indirect Taxes: Taxes on goods and services, including VAT and customs duties.
Trade Protection: Measures, such as tariffs, used to shield domestic industries from foreign competition.
Coordinated Border Management (CBM) aims to improve the effectiveness and efficiency of border control agencies by fostering collaboration among them. This approach encompasses both domestic and international efforts to streamline operations and enhance security.
Key Objectives of Coordinated Border Management:
Improved Enforcement: Enhance capabilities to combat illegal trade through coordinated efforts.
Operational Efficiency: Streamline operations between agencies to reduce costs and improve performance.
Resource Utilization: Optimize the use of resources (finance, staff, equipment) through shared access.
Shared Facilities: Effective operation of joint facilities and systems.
Reduced Compliance Costs: Lower trade compliance expenses and simplify interactions with businesses.
Clear Responsibilities: Define command structures and responsibilities clearly.
Skill Sharing: Share expertise and skills across agencies.
Examples of Coordinated Border Management:
Mutual Recognition of Documents: Accepting documents from one country as valid in another without additional validation.
Joint Audits: Conducting combined audits to cover overlapping control objectives.
Harmonized Data Standards: Agreeing on standardized data formats for smoother data sharing.
Synchronized Inspections: Performing joint inspections to minimize repetitive checks.
Shared Facilities: Using common infrastructure to reduce costs and improve efficiency.
Collaborative Investigations: Working together on criminal investigations across borders, such as with the U.S. Border Enforcement Security Task Force (BEST).
Single Window Solutions: Implementing a single interface for businesses to interact with multiple agencies.
Institutional and International Frameworks:
World Customs Organization (WCO): Promotes CBM through guidelines and frameworks, such as the SAFE Framework of Standards.
WTO Trade Facilitation Agreement (TFA): Mandates border agency cooperation and the adoption of single window systems for trade facilitation.
Domestic and International Coordination:
Domestic Coordination: Involves collaboration within and between national agencies, ensuring consistent application of controls and administrative practices.
International Coordination: Includes bilateral or multilateral agreements between countries to harmonize border management practices and share information.
Administrative Tiers in Border Management:
Local Level: Manages day-to-day operations at specific border facilities.
District/Regional Level: Offers shared services for multiple facilities within a region.
National Level: Involves policy development and coordination among different functional units.
Vertical and Horizontal Coordination:
Vertical Coordination: Ensures consistency and flexibility in applying rules across different administrative levels.
Horizontal Coordination: Facilitates smooth interactions between agencies at the same level, enhancing operational efficiency and reducing duplication.
Definitions:
Coordinated Border Management (CBM): A strategic approach to improving border control by enhancing cooperation among various border agencies.
Single Window System: An electronic platform that allows businesses to submit all necessary documents and information to multiple government agencies through a single interface.
Mutual Recognition: The acceptance of documents or certificates from one country by another without additional validation.
Harmonized Data Standards: Agreement on consistent data formats to facilitate data sharing among agencies.
This approach is crucial for improving trade efficiency, enhancing security, and reducing operational costs by fostering better cooperation among border management agencies.
Definitions and Keynotes:
Supply Chain Security:
Definition: Measures and policies designed to prevent the misuse of global supply chains for criminal or terrorist purposes, ensuring the safety of goods and efficiency in trade processes.
Keynotes:
Initiated post-9/11 due to heightened security concerns.
Aims to identify and mitigate risks within cargo before shipment.
Focuses on both national and international measures to secure supply chains.
Advance Manifest:
Definition: A requirement for shippers to submit cargo details to customs authorities before goods arrive at the border, enabling risk assessment and pre-arrival inspection.
Keynotes:
Introduced by the US and now common globally.
Facilitates early identification of high-risk shipments.
Customs Partnership Against Terrorism (CTPAT):
Definition: A voluntary program in the US where businesses adhering to strict security standards receive benefits such as expedited customs clearance and reduced inspections.
Keynotes:
Rewards businesses for enhancing supply chain security.
Includes mutual recognition agreements with several countries.
Authorized Economic Operator (AEO):
Definition: A program implemented by the EU and other countries where businesses that meet specific security and compliance criteria receive benefits like reduced inspections and priority treatment.
Keynotes:
Offers advantages such as fewer physical controls and mutual recognition with other countries.
Varies in criteria and benefits by country.
WCO SAFE Framework of Standards:
Definition: A global framework developed by the World Customs Organization to standardize customs practices for supply chain security.
Keynotes:
Consists of three pillars: customs-to-customs cooperation, customs-to-business cooperation, and customs-to-government cooperation.
Promotes advance cargo reporting, customs cooperation, and mutual recognition of security programs.
Customs-to-Customs Cooperation:
Definition: Collaboration between customs administrations across borders to enhance security and efficiency in handling international cargo.
Keynotes:
Focuses on early identification of high-risk goods.
Utilizes shared information and technology for scanning and risk assessment.
Customs-to-Business Cooperation:
Definition: Partnership between customs and businesses to improve supply chain security in exchange for benefits such as reduced customs inspections.
Keynotes:
Implemented through programs like AEO and CTPAT.
Businesses must demonstrate strong security measures and compliance.
Customs-to-Government Cooperation:
Definition: Coordination between customs and other government agencies (e.g., maritime, aviation) to enhance overall supply chain security.
Keynotes:
Includes collaboration with agencies responsible for ports, terminals, and transport security.
Extends to non-customs agencies in some countries.
Mutual Recognition Agreements:
Definition: Agreements between countries that recognize each other’s security programs (like AEO or CTPAT), allowing for streamlined processes and reduced barriers.
Keynotes:
Enhances international trade by reducing the need for duplicate security checks.
Facilitates smoother trade relations between countries.
Data Pipeline:
Definition: The continuous flow of data generated throughout the supply chain, from procurement to delivery, which can be used for real-time risk assessment.
Keynotes:
Enables authorities to monitor and assess risks dynamically.
Potential for future systems that reduce or replace formal customs declarations.
Conclusion: Supply chain security is a critical component of modern customs administration, focusing on preventing misuse while facilitating efficient trade. Key initiatives like advance manifest requirements, partnership programs, and international cooperation frameworks aim to integrate security into the entire supply chain, ensuring safety without disrupting global commerce.
Summary of Logistics and Supply Chain Management Theory and Practice
Key Definitions:
Logistics Management: Involves the flow and storage of goods, materials, and information within a production system. It focuses on optimizing internal processes to ensure the efficient movement and management of goods.
Supply Chain Management (SCM): Encompasses the configuration, planning, and management of production systems from suppliers' suppliers to customers' customers. SCM involves coordinating activities across multiple organizations to improve efficiency, reduce costs, and enhance value.
Theoretical Foundations:
Value Chain: Porter's model suggests that competitive advantage arises from the value added through each activity in the chain. Activities are categorized into primary (e.g., inbound logistics, operations, outbound logistics) and support activities (e.g., infrastructure, human resources).
Industrial Dynamics and the Bullwhip Effect: Jay Forrester's model illustrates how minor changes in demand can cause significant production fluctuations due to uncoordinated inventory management. This phenomenon, known as the 'bullwhip effect', highlights the importance of coordination across the supply chain.
Transaction Cost Economics: Oliver Williamson's theory focuses on transaction costs—expenses incurred when coordinating and managing activities within and between firms. High transaction costs can make outsourcing less attractive and affect overall supply chain efficiency.
Strategic Approaches:
Lean Thinking: Derived from the Toyota Production System, this strategy focuses on reducing waste and improving efficiency throughout the supply chain.
Just-in-Time (JIT): A time-focused strategy aimed at minimizing inventory levels and reducing waste by receiving goods only as they are needed in the production process.
Agility: Involves designing flexible production systems that can quickly adapt to changes in demand or unforeseen disruptions, ensuring that businesses can remain responsive and resilient.
Key Themes in Literature:
Industrial Dynamics and Inventory Costs: Examines the impact of inventory management on costs and production stability.
Customer Value and Responsiveness: Focuses on how supply chains can be configured to deliver superior customer value and respond effectively to market demands.
Transaction Costs: Discusses ways to minimize costs associated with transactions and coordination within the supply chain.
Conclusion:
Logistics and supply chain management involve a complex network of activities and relationships aimed at optimizing the flow of goods and information. Key theories and practices such as lean thinking, JIT, and agility play crucial roles in enhancing efficiency, reducing costs, and improving competitiveness. The literature emphasizes the importance of coordination, strategic management, and minimizing transaction costs to achieve a competitive advantage in today's dynamic business environment.
Summary of Lean Thinking, Just-In-Time, and Agile Supply Chains
Lean Thinking
Definition: Lean thinking focuses on maximizing value by reducing waste ("muda") in production processes. This approach, pioneered by Toyota, emphasizes achieving more with less, thereby improving cost efficiency and market responsiveness.
Key Points:
Waste (Muda): Activities that add cost without adding value. Examples include overproduction, waiting, errors, excess processing, unnecessary movement, excess transport, and excess inventory.
Continuous Improvement: Lean production involves eliminating unnecessary steps and aligning activities into a continuous flow. This includes re-combining labor into cross-functional teams and striving for constant improvements.
Supply Chain Coordination: Successful lean thinking relies on synchronizing operations across organizational units, suppliers, and customers. Collaborative relationships and trust are crucial, and the concept of "lean supply" highlights the mutual benefits of lean practices across the supply chain.
Just-In-Time (JIT) and Time-Focused Strategies
Definition: JIT is a strategy where products are produced or delivered only as they are needed, minimizing inventory and reducing waste. It is a 'pull' system driven by consumer demand rather than 'push' production based on forecasts.
Key Points:
Inventory Management: JIT minimizes inventory levels and reduces costs associated with surplus stock. Efficient management of inventories is crucial for reducing operational inefficiencies.
Quick Response (QR) and Efficient Consumer Response (ECR): These concepts, particularly relevant in industries like textiles and groceries, emphasize speed and responsiveness to short-lived consumer demands. Technologies such as EPOS systems and barcodes facilitate real-time data capture and inventory replenishment.
Agility: Agility in supply chains allows for quick adaptation to changing market conditions, often involving a blend of cost-effective and agile suppliers to handle demand fluctuations.
Agile Supply Chains
Definition: Agile supply chains are designed to respond swiftly to market changes by leveraging technology and data sharing across the supply chain. These systems focus on being highly responsive to market demands with minimal reliance on inventory.
Key Points:
Demand Chains: Agile supply chains prioritize customer demands, enabling rapid responses and minimizing inventory needs. Flexibility is key to adapting to market changes and unexpected disruptions.
Multi-Strategy Approach: Companies often use a mix of supply chain strategies. They may source from low-cost suppliers for standard needs and switch to more agile suppliers for urgent or unpredictable requirements.
Borders and Compliance in Supply Chain Management
Definition: Supply chains often cross international borders, requiring compliance with trade and customs regulations, which can impact efficiency and costs.
Key Points:
Customs Procedures: Trade and customs compliance can incur both direct and indirect costs. Direct costs include document preparation and inspection fees, while indirect costs can involve lost competitiveness and missed opportunities.
Trade Facilitation: Measures like inward and outward processing relief, duty drawback, and customs-free zones aim to reduce compliance costs and improve supply chain efficiency.
Government Interaction: Cooperation between border agencies and businesses is essential. Streamlining customs procedures and adopting modern technologies can reduce friction and costs associated with cross-border logistics.
Costs and Their Resolution
Direct Costs:
Compliance Costs: Include preparation and submission of documents, systems setup, and specialist staff and intermediaries.
Agency Costs: Include administration, inspection, and infrastructure.
Indirect Costs:
Business Costs: Loss of competitiveness, missed opportunities, risk of liabilities, and cascading activities due to delays.
Government Costs: Inefficiency, loss of competitiveness, and societal costs from poor control practices.
Resolution:
Improved Coordination: Enhanced collaboration between business operators and border agencies can reduce costs and streamline processes.
Technology Adoption: Implementing electronic customs systems and engaging with experienced customs agents can aid in navigating complexities and improving efficiency.
In summary, lean thinking, JIT, and agile supply chains each offer unique approaches to managing production and supply chain efficiency. Understanding and addressing the costs and challenges associated with international trade and customs can further enhance overall supply chain performance.
Summary and Keynotes on Stockholding and Inventory Management
The Need to Hold Stocks
Companies hold stocks for several reasons, aiming to balance costs and service levels. Key reasons include:
Production Cost Management:
Definition: The need to minimize the cost of machine setups by producing larger quantities, despite the costs of holding inventory.
Accommodating Demand Variations:
Definition: Keeping safety stock to manage fluctuations in demand and avoid stockouts.
Variable Supply Times:
Definition: Holding extra inventory to cover delays from suppliers.
Buying Costs:
Definition: Reducing administrative costs by ordering larger quantities less frequently, guided by Economic Order Quantity (EOQ).
Quantity Discounts:
Definition: Purchasing in bulk to take advantage of lower unit costs.
Seasonal Fluctuations:
Definition: Building up inventory to meet peak seasonal demand or adjust for production cycles.
Price Fluctuations/Speculation:
Definition: Buying in advance to manage price changes.
Smooth Operations:
Definition: Maintaining stock to avoid disruptions in production and distribution processes.
Immediate Customer Service:
Definition: Ensuring products are available for immediate delivery in competitive markets.
Minimizing Production Delays:
Definition: Keeping spare parts to prevent downtime of machinery.
Work-in-Progress (WIP):
Definition: Holding semi-finished goods between production stages to facilitate the manufacturing process.
Types of Stockholding/Inventory
Raw Materials, Components, and Packaging:
Definition: Inventory used to start production processes.
In-Process Stocks (Work-in-Progress):
Definition: Partially finished goods between manufacturing stages.
Finished Products:
Definition: Final goods held in a warehouse for sale.
Pipeline Stocks:
Definition: Inventory in transit through the distribution chain.
General Stores:
Definition: Inventory supporting operations, such as maintenance supplies.
Spare Parts:
Definition: Inventory for repairing or maintaining machinery and equipment.
Inventory Classifications
Cycle Stock:
Definition: Inventory for regular demand, excluding safety stock. Reflects production batch sizes.
Safety Stock:
Definition: Extra inventory to cover demand variability and prevent stockouts.
Speculative Stock:
Definition: Inventory bought in advance for expected future increases in demand or price changes.
Seasonal Stock:
Definition: Inventory built up to manage peak demand periods.
Stockholding Policy Implications
Distribution Centers (DCs):
Definition: Number of DCs affects overall costs. Fewer DCs can reduce inventory but may increase transportation costs.
Inventory Costs:
Definition: Major costs include capital financing, service, storage, and risk costs. Effective inventory management balances these costs.
Reorder and Set-up Costs:
Definition: Costs associated with placing orders and setting up production processes.
Shortage Costs:
Definition: Costs incurred from not fulfilling customer orders, including lost sales and reputation damage.
Reasons for Rising Inventory Costs
Reduced Product Life Cycles:
Definition: Fast obsolescence of technology products increases stockholding requirements.
Product Proliferation:
Definition: More product variations increase stock levels.
Customer Expectations:
Definition: Higher service levels require larger inventory to avoid lost sales.
Demand Volatility:
Definition: Increased demand fluctuations necessitate higher inventory.
Extended Supply Chains:
Definition: Globalization increases supply chain complexities and requires more safety stock.
Just-in-Time (JIT) Responsibilities:
Definition: Although JIT aims to reduce inventory, it can shift inventory requirements to suppliers.
These summaries and keynotes cover the essentials of stockholding and inventory management, providing a foundation for effective planning and cost management in logistics.
nventory Replenishment Systems
Objective: An effective inventory replenishment system aims to balance the cost of holding stock with customer service requirements. This balance prevents issues arising from both low and high stock levels.
Disadvantages of Low Stock Levels:
Order Fulfillment: Customer orders might not be immediately fulfilled, risking the loss of current and future business.
Frequent Orders: Requires frequent reordering, increasing ordering, handling, and delivery costs.
Disadvantages of High Stock Levels:
Capital Tied Up: Capital invested in inventory could be used elsewhere.
Product Risks: Risk of product deterioration or obsolescence.
Storage Costs: Higher costs for additional storage space.
Inventory Replenishment Systems:
Periodic Review System:
Definition: Stock levels are reviewed at regular intervals. Orders are placed to bring stock to a predetermined level. The order quantity varies each time.
Example: Reviewing stock at the beginning of each month and ordering enough to reach a set stock level, accounting for lead time.
Fixed Point Reorder System:
Definition: A specific stock level triggers a reorder. The same quantity is reordered each time the stock reaches this level.
Example: When stock hits a fixed reorder point, an order of a fixed quantity is placed.
Reorder Point and Safety Stock:
Reorder Point: The inventory level at which a new order is placed. It includes safety stock to cover uncertainties.
Safety Stock: Extra inventory held to prevent stockouts due to demand and supply variability. Factors influencing safety stock:
Demand Rate: Number of items sold over a period.
Lead Time: Time until new stock is received.
Lead Time Variability: Variation in lead times.
Service Level: Probability of avoiding stockouts.
Forecast Error: Difference between forecasted and actual demand.
Bullwhip Effect:
Definition: Demand fluctuations are amplified up the supply chain, leading to overstocking or stockouts. Causes include:
Order Batching: Large, infrequent orders.
Promotions: Disruptive demand patterns.
Rationing: Impact during low supply.
Demand Forecasting: Variability in forecasts.
Economic Order Quantity (EOQ):
Definition: A formula to determine the optimal order quantity by balancing holding costs and ordering costs.
Formula: EOQ = √(2DS/H)
D: Demand rate.
S: Ordering cost per order.
H: Holding cost per unit per year.
Purpose: Minimize total inventory costs by finding the quantity that balances ordering and holding costs.
Assumptions: Constant demand, zero lead time, and no stockouts.
Factors Affecting EOQ:
Special Factors:
New Product Lines: No historic data; careful stock management needed.
Promotional Lines: Adjust stock for promotional spikes.
Test Marketing: Accommodate unpredictable demand.
Basic Lines: Maintain certain stock levels for customer satisfaction.
Range Reviews: Adjust reorder quantities for product range changes.
Centralized Buying: Manage stock based on bulk discounts.
General Factors:
Outstanding Orders: Include in stock analysis to avoid overstocking.
Minimum Order Quantities: Adhere to minimum order requirements.
Seasonality: Adjust for peak demand periods.
Pallet Quantities: Order in bulk to optimize costs.
Issues with EOQ Calculation:
Changing Costs: Delivery and order costs vary.
Variable Demand and Lead Times: Assumptions of constant rates and zero lead time are often unrealistic.
Production Capacity: Constraints may affect order fulfillment.
Linked Products: Complete order fulfillment may require coordination with other products.
Modern Approaches:
Continuous Replenishment: Orders are smaller and more frequent, reflecting a shift from traditional EOQ methods.
Summary: Inventory replenishment systems seek to balance holding costs and service requirements through periodic reviews or fixed reorder points. Safety stock and reorder points are crucial for managing uncertainty. The EOQ method provides a formula for optimal ordering quantities but must be adapted to modern supply chain dynamics and constraints.
Summary and Keynotes on Push and Pull Systems
Definitions
Push System:
Inventory replenishment is based on forecasted or estimated demand. Products are manufactured and stocked in advance of actual orders to anticipate future needs.
Characteristics: Proactive, relies on demand forecasts, suitable for dependent demand products or environments with uncertainties in supply or production capacity.
Examples: Traditional manufacturing systems, seasonal product planning.
Pull System:
Inventory is replenished based on actual customer demand. Products are made or ordered only when there is a confirmed need.
Characteristics: Reactive, relies on actual demand, ideal for independent demand products or environments with high variability in demand.
Examples: Just-in-time (JIT) production, customized or build-to-order items.
Dependent Demand vs. Independent Demand
Independent Demand:
Demand for a product is not influenced by the demand for other products. Examples include consumer electronics like tablets.
Inventory Management: Requires forecasting; often managed using Economic Order Quantity (EOQ) models.
Dependent Demand:
Demand for a product is related to the demand for another product. For example, the demand for computer components like cables depends on the number of computers sold.
Inventory Management: Typically managed using Material Requirements Planning (MRP) or Manufacturing Resource Planning (MRP II) systems.
Push vs. Pull Systems
Push System:
Inventory decisions are made in advance based on forecasts. Stock is built and held to meet anticipated demand.
Applicability: Works well with dependent demand or when dealing with supply uncertainties or production limitations.
Example: Seasonal clothing production, where items are manufactured and stocked before the season starts.
Pull System:
Inventory is driven by actual customer orders. Production or restocking happens in response to confirmed demand.
Applicability: Effective with independent demand, where demand is unpredictable or when shorter order cycles are needed.
Example: Custom-made furniture, where production starts only after an order is placed.
The Decoupling Point
Definition: The point in the supply chain where the transition occurs from a push system (based on forecasts) to a pull system (based on actual orders).
Types of Manufacturing:
Make-to-Stock: Finished goods are produced based on forecasts and stocked.
Assemble-to-Order: Pre-assembled modules are combined to meet specific customer orders.
Make-to-Order: Products are manufactured from scratch based on customer orders.
Engineer-to-Order: Products are designed and manufactured according to specific customer requirements.
Importance: Helps in determining where to hold inventory and how to balance between forecast-based and order-based production.
The Lead-Time Gap
Definition: The difference between the time required to manufacture and deliver a product (logistics lead time) and the time customers are willing to wait (order cycle time).
Impact: A larger lead-time gap necessitates higher inventory levels to meet customer demands. Reducing this gap can help lower inventory levels.
Inventory and Time
High Inventory Risks: Excessive inventory can mask underlying problems such as unreliable suppliers or inaccurate forecasts. It can also incur costs related to storage, obsolescence, and capital tied up.
Strategies for Reduction:
Manage the Supply Chain: Optimize inventory by treating the supply chain as a unified system.
Improve Information Flow: Use better data to refine forecasts and reduce excess inventory.
Increase Visibility: Enhance stock visibility to make more accurate inventory decisions.
Focus on Key Processes: Address bottlenecks and improve critical supply chain processes.
Adopt Just-in-Time (JIT): Reduce lead times by synchronizing production with demand.
Use Faster Transport: Reduce inventory needs by speeding up delivery.
Develop Partnerships: Collaborate with supply chain partners to share information and reduce inventory.
Analysing Time and Inventory
Value-Adding vs. Non-Value-Adding Activities:
Value-Adding: Activities that enhance the product and are valued by customers.
Non-Value-Adding: Activities that do not contribute to the product's value and can be eliminated.
Supply Chain Mapping: A technique to visualize and analyze the time inventory is held, distinguishing between value-adding and non-value-adding time, to identify and reduce unnecessary inventory.
These concepts and approaches help in designing effective inventory management strategies tailored to different demand types and operational contexts.
Here’s a summary and key notes on the various topics related to inventory planning horizons, forecasting methods, and accuracy:
Inventory Planning Horizons
Long-term (more than 3 years): Includes new product development and facilities planning.
Medium-term (3 months to 3 years): Covers aggregated demand, production schedules, and material requirements (e.g., MRP, DRP).
Short-term (less than 3 months): Focuses on forecast throughput, inventory levels, and supply synchronization.
Qualitative Forecasting Methods
Judgemental Methods: Based on subjective assessments when historical data is limited.
Executive Brainstorming: Collective views of senior managers to estimate demand.
Scenario Planning: Experienced employees and key customers create probable demand scenarios.
Delphi Studies: Panel of experts provide estimates iteratively until consensus is reached.
Experimental Methods: Use test markets or customer groups to gauge demand for new products.
Test Marketing: Small-scale market tests to predict broader demand.
Customer Questionnaires: Surveys to estimate potential demand.
Quantitative Forecasting Methods
Causal Methods: Forecast demand based on factors influencing it.
Economic Indicators: Use economic data (e.g., GDP, interest rates) to forecast demand.
Econometric Modelling: Mathematical models considering multiple economic variables.
Common Projective Methods:
Moving Average: Average of past periods’ demand to forecast future demand.
Weighted Moving Average: Similar to moving average but weights recent data more heavily.
Exponential Smoothing: Gives more weight to recent data and adjusts for forecast errors.
Regression Analysis: Fit a line to historical data to identify demand trends and correlations.
Time Series Models:
Trend Analysis: Identifies long-term directions in demand.
Seasonal Fluctuations: Adjusts for regular seasonal variations.
Random Fluctuations: Accounts for unpredictable demand changes.
Advanced Projective Methods:
Double Exponential Smoothing: Handles trends and random variations (e.g., Holt-Winters method).
Triple Exponential Smoothing: Accounts for trend, seasonality, and randomness (e.g., Winters method).
Croston’s Exponential Smoothing: For intermittent demand, separates zero and non-zero demand periods.
ARIMA: Models time series data to predict future points (Box-Jenkins).
AI and Machine Learning: Uses real-time data and algorithms to forecast demand and adapt quickly (e.g., demand sensing).
Life Cycle Forecasting
Stages: Introductory, Growth, Maturity, Decline.
Implications:
Introductory: Set initial stock levels and avoid overstocking.
Growth: Manage inventory levels cost-effectively.
Maturity: Adjust for market competition and substitutes.
Decline: Minimize stock to avoid obsolescence.
Accuracy and Level of Forecasting
Measures:
MAD (Mean Absolute Deviation): Average absolute forecast errors.
MSE (Mean Square Error): Average of squared forecast errors.
MPE (Mean Percentage Error): Average percentage error.
MAPE (Mean Absolute Percentage Error): Average of absolute percentage errors.
SKU Forecasting: Forecast at a product type level and allocate to various options rather than forecasting each SKU individually.
Approach to Demand Forecasting
Plan: Develop a clear forecasting strategy and select appropriate methods.
Check: Ensure data accuracy and clean anomalies.
Categorize: Group products with similar characteristics and choose suitable methods.
Metrics: Use statistical techniques to evaluate forecasting performance.
Control: Monitor and adjust forecasts to account for changes in product demand and market conditions.
These summaries should help in understanding the different aspects of inventory planning and forecasting methods.
Inventory Planning for Manufacturing
Summary: Inventory planning in manufacturing has evolved to address limitations of traditional stock replenishment methods. It began with Materials Requirements Planning (MRP) and advanced to Manufacturing Resource Planning (MRP II). These systems help reduce inventory levels and improve service levels by forecasting material needs based on production schedules. Distribution Requirements Planning (DRP), Enterprise Resource Planning (ERP), and Supply Chain Planning (SCP) further enhance inventory management across distribution networks and entire supply chains.
Key Notes:
Materials Requirements Planning (MRP):
Definition: A computerized system for forecasting material needs based on the master production schedule and bill of materials.
Purpose: To calculate time-phased requirements for components and materials, reducing inventory levels and improving production lead times.
Manufacturing Resource Planning (MRP II):
Definition: An extension of MRP that includes broader aspects of production, including capacity planning and shop floor control.
Purpose: To integrate various manufacturing processes and improve overall efficiency.
Distribution Requirements Planning (DRP):
Definition: A system that manages forecast demand and aligns it through the distribution network on a time-phased basis.
Purpose: To pull products through the distribution system based on actual demand and address multi-echelon distribution challenges.
Enterprise Resource Planning (ERP):
Definition: A comprehensive system that integrates all aspects of business operations across the supply chain.
Purpose: To facilitate time-phased planning and resource management across an entire organization.
Supply Chain Planning (SCP):
Definition: A system that extends planning to encompass the entire supply chain, from suppliers to end customers.
Purpose: To optimize and synchronize supply chain activities and inventory levels.
Time Compression:
Definition: Planned reduction in manufacturing and work-in-progress (WIP) inventory to achieve faster production and delivery.
Considerations:
Full supply chain perspective to avoid sub-optimization.
Detailed analysis of data collection and validation.
Identification of unnecessary inventory and steps in processes.
Balancing customer service and cost minimization.
Compatibility of product design and production processes with supply chain needs.
Inventory Planning for Retailing
Summary: Retail inventory management has shifted focus to reducing operating costs and enhancing customer service, driven by retailers' increasing control over supply chains. Techniques such as Vendor-Managed Inventory (VMI), Continuous Replenishment Programs (CRP), Quick Response (QR), Efficient Consumer Response (ECR), and Category Management (CM) address the unique challenges of retail inventory.
Key Notes:
Vendor-Managed Inventory (VMI):
Definition: A system where manufacturers manage inventory levels at the retailer's distribution center or store.
Purpose: To reduce operating costs and improve inventory visibility and control.
Co-Managed Inventory (CMI):
Definition: Similar to VMI, but inventory replenishment orders are confirmed by the retailer.
Purpose: To provide shared responsibility in inventory management.
Continuous Replenishment Program (CRP):
Definition: A system that uses real-time point-of-sale data to drive inventory replenishment directly from suppliers.
Purpose: To reduce pipeline inventories and ensure timely product availability.
Quick Response (QR):
Definition: A system emphasizing fast response to retail demand with frequent, small production runs.
Purpose: To enhance responsiveness and align production with retail demand.
Efficient Consumer Response (ECR):
Definition: A strategy using advanced IT to streamline the supply chain, focusing on efficiency and responsiveness.
Purpose: To integrate supply chain activities, reduce costs, and improve customer service.
Category Management (CM):
Definition: The practice of grouping products with similar characteristics for inventory planning.
Purpose: To tailor inventory management practices to different product categories, improving control and efficiency.
Inventory Planning for the Supply Chain
Summary: Advanced inventory planning techniques aim to optimize inventory across the entire supply chain rather than individual segments. Collaborative Planning, Forecasting, and Replenishment (CPFR) and Supply Chain Inventory Optimization are key methods in this area.
Key Notes:
Collaborative Planning, Forecasting and Replenishment (CPFR):
Definition: A collaborative approach involving coordination across the supply chain to manage demand and inventory.
Purpose: To reduce demand amplification and improve product availability through joint planning and forecasting.
Supply Chain Inventory Optimization:
Definition: A scientific approach to determining optimal inventory levels and locations across the supply chain.
Purpose: To minimize unnecessary inventory while maintaining service levels by analyzing data and optimizing stock levels at various stages and locations.
These summaries and keynotes provide an overview of modern inventory planning techniques and their applications in manufacturing, retailing, and the broader supply chain.
Summary
Introduction:
Information is essential for logistics and distribution systems, akin to the "lifeblood." Effective logistics depend on a smooth flow of information, aligning with the company’s strategy and operational goals.
The planning and control cycle begins with assessing the current status, setting objectives, developing plans, and finally monitoring and controlling performance. Monitoring logistics costs and performance is crucial, guided by clear business objectives and a formalized approach.
Why Monitor?
Monitoring ensures that logistics operations align with overall business objectives and operate efficiently. It supports planning, control, and identifies areas for improvement, ensuring resources are used effectively.
Approaches to Cost and Performance Monitoring:
Balanced Scorecard:
A framework translating strategic goals into tangible objectives and measures across financial, customer, internal, and innovation perspectives.
SCOR® Model:
A hierarchical model focusing on benchmarking, refining, and improving operational processes, followed by introducing key performance measures.
Integrated Supply Chain Approach:
Emphasizes a total systems approach, monitoring metrics across the entire business or supply chain rather than in traditional functional silos.
Operational Approach:
A straightforward method for small to medium-sized companies, focusing on setting clear goals, monitoring performance, and taking corrective actions.
What to Measure Against?
Various methods include historical data, budget comparisons, direct product profitability (DPP), activity-based costing (ABC), cost-to-serve, engineered standards, and external standards.
Key Notes and Definitions:
Balanced Scorecard:
Definition: A strategic management tool that translates a business’s mission into tangible objectives across four perspectives: financial, customer, internal processes, and innovation/learning.
Key Aspects: Balances external and internal measures to monitor and guide business operations.
SCOR® Model:
Definition: A process-oriented framework for measuring and improving supply chain performance, using benchmarks and key performance metrics.
Levels: Competitive advantage, strategy implementation, process definition, and detailed process elements.
Integrated Supply Chain Approach:
Definition: A holistic method that considers the entire supply chain, ensuring that performance metrics are based on a horizontal view of the business.
Focus: Identifying outcomes and establishing diagnostic measures across the supply chain.
Operational Approach:
Definition: A simple, practical method for setting logistics goals, monitoring performance, and taking corrective actions, tailored to smaller companies.
Steps: Define scope, objectives, principles, goals, develop an MIS, and take action.
Direct Product Profitability (DPP):
Definition: An approach that identifies all costs associated with a product as it moves through the distribution channel, providing a true cost analysis.
Purpose: To understand the real cost of products, beyond just the purchase price.
Activity-Based Costing (ABC):
Definition: A costing method that assigns costs based on the activities that use resources, rather than traditional broad allocations.
Advantages: Provides visibility into true costs associated with logistics activities, offering more accurate cost information.
Cost-to-Serve®:
Definition: Similar to ABC, but less resource-intensive, focusing on aggregate analyses of cost drivers across the supply chain.
Application: Helps assess customer profitability and identify opportunities for cost improvements.
Engineered Standards:
Definition: Detailed, predefined measures for specific logistics tasks, often derived from time and work studies.
Use: Provides accurate performance metrics, though initial data collection can be costly and challenging.
External Standards:
Definition: Comparing a company's performance against industry norms or external benchmarks to assess relative performance.
Goal: To provide realistic comparisons and identify areas for improvement based on external practices.
Summary of Logistics Operational Planning and Control System
In a logistics operational planning and control system, the budget serves as the foundation for setting quantitative goals for the logistics operation. The plan details costs divided by time (e.g., weekly or monthly), functional elements (e.g., wages, fuel), logistics components (e.g., storage, delivery), and activities (e.g., major customers, product groups). Key Performance Indicators (KPIs) like tonne/miles are linked to standards to monitor performance.
The control system ensures the operational plan is followed by identifying deviations and their causes to allow for quick corrective action. Best practices in creating an effective monitoring and control system include principles like accuracy, user ownership, and cost-effectiveness. The system's content should cover aspects like clear cost categories, variance analysis, and use of reference points (e.g., budget, forecast, trends). The output should be relevant, timely, and presented in the most appropriate format for its intended use.
A good monitoring system is characterized by the ability to measure volume, efficiency, cost-effectiveness, quality, and stability, while also considering factors like comprehensibility, timeliness, and responsiveness to change. Operational variables like throughput variability, product profile, and regional cost variations are important for comparing performance across different sites.
Key Notes and Definitions
Logistics Operational Planning: The process of outlining how a logistics operation will meet its objectives, including cost allocations, performance indicators, and schedules.
Control System: A system that checks whether the operational plan is being followed, identifies deviations, and enables corrective action.
Budget: A financial plan that provides quantitative objectives for monitoring logistics operations.
Key Performance Indicators (KPIs): Metrics like tonne/miles traveled, used to measure and monitor logistics performance against set standards.
Variance Analysis: The process of analyzing the difference between planned and actual performance to understand causes and take corrective actions.
Cost Categories: Clear identification of fixed and variable costs to better manage and monitor logistics operations.
Flexible Budgeting: A budgeting approach that allows adjustments based on changes in business activity.
Reference Points: Standards or benchmarks (e.g., budget, forecast, trends) used to measure performance in logistics operations.
Comprehensibility: The requirement that all users of a monitoring system must understand the information provided to them.
Timeliness: The need for reports and information to be available in time for effective decision-making and action.
Cost-effectiveness: Ensuring that the benefits of a monitoring system outweigh its costs.
Operational Variables: Factors like throughput variability, product profile, and regional cost variations that influence the performance and efficiency of logistics operations across different sites.
Summary of Formal Benchmarking Systems
Formal benchmarking systems are structured methods for comparing and improving organizational performance. Various systems have been developed over time, including:
Quality Function Deployment (QFD): Originating in Japan, QFD focuses on translating customer requirements into actionable improvement agendas by aligning supplier performance with customer perceptions.
ISO 9004-2009: Part of the ISO 9000 series, this framework offers a standard for ongoing quality comparisons across any business type.
Malcolm Baldridge National Quality Award: Established in the U.S. in 1985, this award recognizes excellence in quality management and is the only legally mandated award for outstanding company performance in the United States.
CILT (UK) Logmark Supply Chain Benchmarking Group: Members participate in surveys covering diverse areas of supply chain operations, receiving customized reports and meeting quarterly to discuss findings.
For distribution operations, benchmarking typically involves comparing various aspects of a distribution center’s (DC) performance across multiple sites or companies. This process includes collecting and analyzing data on activities like goods receipt and order picking, and then assessing performance against league tables or benchmarks. The benchmarking process follows a hierarchy, from single-task benchmarking to total logistics benchmarking, ensuring comparisons are drawn on a similar basis across different operations.
Data collection and analysis are crucial yet challenging aspects of benchmarking, requiring careful consideration of factors like data availability, consistency, sampling, and categorization. Results from such studies provide insights into operational efficiency, with key findings often highlighting cost drivers like building expenses and order picking performance.
Key Notes and Definitions
Benchmarking: The process of comparing business processes and performance metrics to industry bests or best practices from other companies.
Quality Function Deployment (QFD): A structured method developed in Japan for translating customer needs into specific technical requirements and improvements in product or service quality.
ISO 9004-2009: A quality management standard providing guidelines for sustained success by meeting the needs and expectations of customers and other stakeholders.
Malcolm Baldridge National Quality Award: A U.S.-based award that recognizes companies for excellence in quality management and performance. It is the only official recognition of outstanding performance in the United States.
CILT (UK) Logmark Supply Chain Benchmarking Group: A UK-based group that conducts surveys and provides tailored benchmarking reports for its members on various aspects of supply chain operations.
Distribution Center (DC): A warehouse or specialized building where goods are stored, repackaged, and distributed to retailers or directly to customers.
League Tables: Rankings that compare the performance of different companies or sites based on key statistics or performance metrics.
Activity Measures: Metrics used to evaluate specific functions within a distribution center, such as the number of orders picked or pallets stored.
Cost Drivers: Elements that cause costs to rise, such as building expenses or labor-intensive processes like order picking.
Sampling: The process of selecting a representative subset of data for analysis, often necessary when complete data is unavailable.
Data Consistency: Ensuring that data is uniform and comparable across different companies or sites, crucial for accurate benchmarking.
Scale Effects: The cost advantages that result from operating at a larger scale, often leading to reduced costs per unit.
Summary of Basic Communication Systems
Basic Communication Systems are essential tools that enhance the efficiency and effectiveness of supply chain management. These systems facilitate the exchange of information and data across various locations, ensuring smooth operations and accurate tracking of goods and services. The key systems include:
Satellite Communication: This system allows communication with people, remote installations, and equipment anywhere on Earth, particularly where traditional mobile or fixed-line services are unavailable. Satellite communication is crucial for tracking mobile assets and accessing the internet in remote areas, significantly improving supply chain management.
Mobile Data: Mobile phone technology, including voice communication and short messaging systems, has revolutionized communication. Advanced mobile devices provide internet access, email, and specialized apps, enabling mobile staff to stay connected and update systems in real time, such as delivery drivers using ruggedized devices for electronic signatures.
Electronic Data Interchange (EDI): EDI enables computer-to-computer exchange of structured data for automatic processing. It is widely used in supply chains for tasks such as replenishment triggered by point-of-sale data, sending invoices, and shipping details. EDI improves efficiency by reducing manual data entry and errors.
Barcodes: Barcodes represent numbers or codes in a machine-readable format and are used throughout the supply chain to track goods. They are essential for inventory management and speed up operations. However, issues may arise if barcodes are defaced or labels fall off.
Radio Frequency Identification (RFID): RFID uses tags with memory chips that store and update data about an object. RFID tags can be read from a distance, do not require line-of-sight, and are less prone to damage compared to barcodes. They are used for tracking various assets, including mixed pallets, people, and animals.
Key Applications in the Supply Chain: Effective supply chain systems architecture integrates various components, such as enterprise-wide information systems (e.g., ERP systems), to support planning and operations across the entire supply chain. These systems enable seamless data capture and information flow, essential for coordinating activities like customer orders, inventory management, and financial transactions.
Key Notes and Definitions
Satellite Communication: A communication system using geostationary satellites to enable global communication, particularly in remote areas where traditional communication methods are unavailable.
Mobile Data: The use of mobile phone technology to facilitate communication, internet access, and the use of specialized applications, enabling real-time updates and connectivity for mobile staff.
Electronic Data Interchange (EDI): A system for the computer-to-computer exchange of structured data, used to automate and streamline business processes between supply chain partners.
Barcodes: Machine-readable representations of numbers or codes used to track and manage inventory throughout the supply chain.
Radio Frequency Identification (RFID): A technology that uses tags with memory chips to store and update information about objects, allowing for tracking and identification without the need for direct line-of-sight.
Enterprise Resource Planning (ERP) Systems: Integrated transaction-based information systems that capture and manage data across an entire organization, supporting functions like order processing, inventory management, and financial reporting.
Summary: Key Points in Supply Chain and Logistics Systems
Supply Chain Planning and Advanced Planning and Scheduling (APS) Systems:
Definition: Decision support and operational planning tools that enable companies to plan and manage logistics operations using an integrated system.
Key Components: Real-time demand, production capacities, inventory levels, supplier lead times, costs, etc.
Functionality: Allows planners to perform "what-if" analyses to determine operational needs based on current or potential scenarios.
Network Strategy:
Definition: Strategic decision-making tools for optimizing the number and location of distribution centers (DCs) within a company's network.
Functionality: Helps analyze costs and logistics across geographically dispersed production sites to determine optimal locations for manufacturing or distribution.
Business Planning Systems:
Sales and Operations Planning (S&OP):
Definition: A business management process that aligns various business functions to balance supply and demand.
Goal: Increase transparency, balance supply/demand, and improve profitability.
Integrated Business Planning (IBP):
Definition: An expanded form of S&OP that links strategic objectives with operational planning across the value chain.
Functionality: Involves cross-functional analysis for decisions related to supplier collaboration, demand shaping, and product development.
Distributed Order Management (DOM):
Definition: Software systems that optimize order fulfillment to meet customer requirements at the lowest cost.
Key Features: Automates order routing, splitting, shipping, and inventory management, ensuring seamless multi-channel order fulfillment.
Warehouse Management Systems (WMS):
Definition: Key systems used to manage and control warehouse activities, often integrated with warehouse execution systems (WES) and control systems (WCS).
Functionality: Includes RF communications, equipment control, and sophisticated simulation models for warehouse operations.
Inventory Management and Demand Forecasting:
Definition: Systems that manage day-to-day stock control and forecast future customer demand using advanced algorithms and real-time data.
Goal: Optimize inventory levels across the supply chain to reduce stockouts and improve capital returns.
Freight Transport Systems:
Vehicle Fleet/Transport Management Systems:
Functionality: Monitors and improves fleet performance using KPIs, fuel monitoring, and vehicle activity data.
Vehicle Telematics:
Definition: Combines telecommunication and information systems to track assets, assist navigation, and enhance vehicle efficiency.
Computerized Vehicle Routing and Scheduling:
Definition: Essential tools for planning and optimizing road transport operations, including route planning and resource allocation.
International Trade and Freight Management Systems:
Definition: Software packages for controlling international goods movement, managing documentation, trade finance, and export/import compliance.
E-Commerce and Omnichannel Fulfillment:
E-Commerce:
Definition: The buying and selling of goods/services over electronic networks, primarily the internet, with significant implications for logistics.
Omnichannel Fulfillment:
Definition: A seamless approach to consumer experience across all shopping channels, requiring integrated logistics to fulfill orders from multiple platforms.
Digital Supply Chain:
Supply Chain 4.0 (SC:4):
Definition: The integration of digital technologies into supply chain operations to enhance real-time data gathering, predictive analytics, and decision-making.
Key Technologies:
Big Data: Analysis of large data sets to reveal patterns and trends in supply chain operations.
Artificial Intelligence (AI): Utilizes machine learning to automate tasks traditionally performed by humans, enhancing efficiency.
Internet of Things (IoT): Network of physical objects embedded with sensors and software to exchange data, improving industrial efficiency.
Summary: Performance Measurement in Humanitarian Logistics
In humanitarian logistics, performance measurement is crucial for monitoring operations, especially at the strategic level where donors demand accountability for how their funds are used. However, performance measurement at the operational level is often neglected due to the urgent and high-pressure environment in which aid organizations work.
Anne Leslie Davidson (2006) proposed four key performance measures for the International Federation of Red Cross and Red Crescent Societies (IFRC) to assess logistics performance in terms of speed, cost, and accuracy. These measures aim to provide a general sense of whether performance is improving or deteriorating, despite the challenging conditions in humanitarian logistics.
Since Davidson's study, other academic research has explored performance measurement in humanitarian logistics, especially after the 2004 Asian Tsunami, highlighting the need for better systems to improve accountability and efficiency. Additionally, issues such as high staff turnover, poor training, and the impact of media coverage on resource allocation further complicate effective performance measurement in this field.
Keynotes and Definitions
Appeal Coverage:
Definition: A measure subdivided into the percentage of appeal covered and the percentage of items delivered. The first part assesses the quantity of items pledged by donors compared to what was requested, and the second part evaluates the actual delivery of those items.
Significance: Helps in assessing the effectiveness of procurement from donors and the efficiency of delivery operations.
Donation-to-Delivery Time:
Definition: The time taken to deliver donated items to the point of need, expressed as an average or median time.
Significance: Measures the speed of the logistics operation in delivering aid.
Financial Efficiency:
Definition: A measure subdivided into three components: the comparison of budgeted prices with actual prices paid for items, and the ratio of total transport costs to the total purchase price of delivered items.
Significance: Reflects cost management and efficiency, particularly as an emergency situation evolves.
Assessment Accuracy:
Definition: Evaluates how accurately field operations staff estimated the needs during an emergency, measured as positive or negative variances from the original budget.
Significance: Indicates the precision of needs assessment and planning in the field.
Scorecard:
Definition: A tool used to consolidate and present performance data at regular intervals, aiding in the decision-making process.
Significance: Provides a comprehensive overview of performance, enabling better management and adjustment of logistics operations.
Perverse Incentive:
Definition: A negative consequence of poor performance measurement where relief agencies may focus on high-profile emergencies to attract more funding, rather than on actual need.
Significance: Leads to inefficient allocation of resources, with some emergencies receiving disproportionate attention.
Visibility:
Definition: The transparency of an organization's activities to donors and the public.
Significance: Ensures accountability and can influence donor behavior and funding decisions.
High Staff Turnover:
Definition: Frequent changes in personnel within an organization.
Significance: Disrupts continuity, affects performance, and often results in a lack of accumulated knowledge and experience.
Lack of Practical Skills:
Definition: Insufficient hands-on experience or training among staff.
Significance: Hampers effective performance in the challenging environments typical of humanitarian logistics.
Summary: Types of Logistics Operations: Dedicated vs. Multi-User
When deciding whether to outsource logistics or keep it in-house, companies must choose between two main types of outsourcing: Dedicated Operations and Multi-User Operations. Understanding the differences between these can help companies weigh the trade-offs between cost and service.
1. Dedicated (Exclusive) Operations
Definition: A logistics operation managed exclusively for one client by a third-party logistics provider (3PL).
Target Audience: Typically large companies that require custom logistics solutions.
Resources Involved: Can include warehouses, distribution centers, transport fleets, and personnel dedicated solely to the client.
Advantages:
Service: High service levels as all resources are focused on a single client.
Customization: Facilities, equipment, and procedures can be tailored to the client’s needs.
Specialization: Staff can develop expertise in the client’s products, improving efficiency.
Disadvantages:
Cost: Generally more expensive due to the exclusive nature of the service.
Scale: Only large companies can afford this due to the significant scale and cost involved.
2. Multi-User (Shared-User) Operations
Definition: A logistics operation where a 3PL serves multiple clients within the same facilities and with shared resources.
Target Audience: Small to medium-sized companies that cannot afford dedicated operations.
Resources Involved: Shared warehouses, transport fleets, and personnel among multiple clients.
Advantages:
Cost: Lower costs due to shared resources, leading to economies of scale.
Flexibility: Clients benefit from shared resources, which can lead to cost savings and more frequent deliveries.
Scalability: Suitable for companies with varying needs over time.
Disadvantages:
Service: Potential compromises in service due to conflicting demands from different clients.
Standardization: Less customization, as standard equipment and processes are used across clients.
Key Considerations for Choosing Between Dedicated and Multi-User Operations
Service vs. Cost:
Dedicated Operations: Higher service levels at a higher cost.
Multi-User Operations: Cost savings with potential service compromises.
Company Size:
Large companies may prefer dedicated operations for superior service.
Small to medium-sized companies are typically better suited to multi-user operations due to lower costs.
Drivers and Drawbacks of Outsourcing Logistics
Organizational: Outsourcing allows companies to focus on core competencies and gain access to advanced technologies, but may result in a loss of control and expertise.
Financial: Outsourcing can reduce capital costs and provide economies of scale, but transition costs and loss of assets might negate savings.
Service: Outsourcing, particularly multi-user operations, can improve delivery frequency but may introduce service inconsistencies.
Physical: Outsourcing can help manage complex logistics structures, but compatibility issues between products and delivery systems might arise.
Definitions:
Dedicated Operation: A logistics service dedicated exclusively to one client, often involving custom facilities and processes.
Multi-User Operation: A logistics service where multiple clients share the same resources, leading to cost savings and potential service compromises.
3PL (Third-Party Logistics): A provider that manages logistics services for other companies, either in a dedicated or multi-user setup.
These factors must be carefully evaluated to align logistics operations with the company's overall business strategy and customer service requirements.
Chapter 18: Principles of Warehousing - Summary and Key Notes
Introduction
Warehouses are crucial in modern supply chains, involved in sourcing, production, and distribution. They facilitate high customer service levels and are among the most costly elements in supply chains due to their extensive land use, labor, and equipment requirements. Proper planning and management of warehouses are critical for balancing service and cost.
Warehouse Classifications
Warehouses can be classified based on various criteria:
Stage in the Supply Chain: Materials, work-in-progress, finished goods, returned goods.
Geographic Area: Global, regional, national, or local.
Customer Type: Stores, e-fulfillment centers.
Product Type: Small parts, large assemblies, frozen food, perishables, security items, hazardous goods.
Function: Inventory holding, sortation.
Ownership: Owned by the user or by third-party logistics companies.
Company Usage: Dedicated or shared-user warehouses.
Area and Height: Range from small to large warehouses, and from low to high bay.
Equipment: Manual operations to highly automated systems.
The Role of Warehouses
The main objective of warehouses is to facilitate the storage and movement of goods through the supply chain. Inventory is often necessary to smooth variations between supply and demand, especially when:
Continual Demand: Products offered for sale continually need inventory to be 'pulled' through the supply chain based on demand.
Supply Lead Time Greater than Demand Lead Time: Inventory is essential to meet customer lead times when supply cannot keep pace with demand.
Warehouses also perform various roles beyond inventory holding:
Consolidation Center: Combine different product lines for delivery.
Cross-Dock Center: Transfer goods directly from incoming to outgoing vehicles without storage.
Sortation Center: Sort goods for specific regions or customers.
Assembly Facility: Postpone final assembly to minimize inventory.
Trans-Shipment Depot: Sort goods for smaller vehicle loads for delivery.
Returned Goods Center: Handle returned goods, end-of-life products, or packaging recycling.
Warehouse Operations
Warehouses should be designed to meet specific supply chain requirements, but certain operations are common across most warehouses:
Receiving: Unloading, checking, and recording incoming goods, including quality control.
Reserve Storage: Holding bulk inventory for later retrieval.
Order Picking: Retrieving goods to fulfill customer orders, a critical and costly operation.
Sortation: Batching and sorting orders for dispatch.
Collation, Added-Value Services, and Packing: Assembling customer orders, adding value through services like kitting or labeling, and packing for dispatch.
Marshalling and Dispatch: Organizing and loading goods for delivery.
The split of warehouse floor areas includes storage, picking and packing, receiving, marshalling, and dispatch activities, with storage usually taking up the largest proportion.
Packaging and Unit Loads
Most goods passing through warehouses are packaged, often at different levels:
Primary Packaging: Directly enclosing the product.
Secondary Packaging: Containing multiple primary packages.
Outer Packaging: Facilitating transport and handling.
Warehouses must handle different order quantities, from individual items to full pallet loads. The unit load concept is central to warehousing, with common units including:
Pallets: Raised flat platforms for goods, with variations in size and material.
Cage and Box Pallets: For irregular-sized goods.
Stillage: Steel unit loads, often for specific goods like tyres or glass.
Roll-Cages: Steel mesh containers on wheels for retail distribution.
Tote Bins: Plastic bins for small items.
Dollies: Wheeled bases for stacking trays or bins.
Intermediate Bulk Containers (IBCs): For storing and transporting liquids or particulates.
Key Definitions
Warehouse: A facility for storing and handling goods within a supply chain, facilitating their movement from production to end consumers.
Inventory Holding: The storage of goods in a warehouse to balance supply and demand variations.
Consolidation Center: A warehouse function that brings together multiple product lines for delivery to a customer.
Cross-Docking: Direct transfer of goods from incoming to outgoing vehicles without storage.
Sortation Center: A facility where goods are sorted according to specific regions or customers.
Order Picking: The process of retrieving goods from storage to fulfill customer orders.
Unit Load: Standardized modules of goods for efficient transport, storage, and handling (e.g., pallets, totes, roll-cages).
Summary of Pallet Moving Equipment
Warehouse operations require various equipment to move and stack pallets efficiently. This equipment ranges from basic manual tools to advanced automated systems. Each type of equipment serves a specific purpose, depending on the nature of the task, the distance of pallet movement, and the level of automation required.
Keynotes and Definitions:
Hand Pallet Truck: A manual device with two forks that fit into pallet slots, lifted by a pump action to move pallets short distances manually.
Powered Pallet Truck: Similar to a hand pallet truck but powered by a battery, it can be controlled by a pedestrian or operated with a platform or seat.
Tugs and Tractors: Used for long horizontal pallet movements, often towing multiple trailers. These can be manually driven or robotic.
Conveyors: Mechanical systems, like gravity roller conveyors, powered roller conveyors, and chain conveyors, used for controlled pallet movement over distances.
Transfer Carts: Carts running on tracks, equipped with powered conveyors to move pallets on and off the cart, used in systems similar to railways.
Monorails: A system where pallets are transported using carriers suspended from a monorail, typically moving one or two pallets at a time.
Automated Guided Vehicles (AGVs): Battery-powered, computer-controlled trucks used to move pallets without a driver, guided by various technologies like wire-guidance, magnets, or laser systems.
Autonomous Mobile Robots (AMRs): Similar to AGVs but with greater autonomy, AMRs navigate warehouse spaces using AI, sensors, and digital mapping to move pallets.
Lift Trucks: Equipment used for both horizontal and vertical movement of pallets, including various types of forklifts and stacker trucks.
Stacker Trucks: Economical and compact fork-lift trucks used for infrequent lifting or in tight spaces, available in pedestrian-operated, ride-on, or seated versions.
Counterbalanced Fork-Lift Trucks: Versatile trucks with a counterweight to balance the load, suitable for loading, unloading, and moving goods within wide aisles.
Reach Trucks: Designed for narrow aisles, they can lift loads high while maintaining stability due to their extended mast or scissor mechanisms.
Autonomous Lift Trucks: A type of AMR specifically designed for stacking pallets autonomously, equipped with advanced navigation and positioning systems.
Alternative Fuels for Warehouse Trucks:
Diesel: Powerful, used mainly outside due to emissions.
Liquefied Petroleum Gas (LPG): Quieter, less polluting than diesel, used in well-ventilated areas.
Compressed Natural Gas (CNG): Environmentally friendlier than diesel, can be refueled quickly.
Lead-Acid Batteries: Common for internal operations, require special charging areas due to hydrogen production during charging.
Lithium-Ion Batteries: More efficient, longer-lasting, and can be rapidly charged without the need for ventilation.
Hydrogen Fuel Cells: Produce zero carbon emissions, refueled quickly, and dependent on the electricity source for hydrogen production.
These tools and technologies are essential for optimizing warehouse operations, ensuring efficient movement and stacking of pallets in various storage environments.
Palletized Storage Systems and Equipment
1. Block Stacking
Definition: The simplest form of pallet storage where pallets are stacked directly on top of each other without any racking equipment.
Key Points:
Cost-Effective: Requires no racking equipment, but limited by pallet crushability and stability.
LIFO System: Last-in, first-out retrieval method.
Layout: Rows are filled to a fixed depth and height; rows must be spaced apart for forklift access.
Utilization: Often results in ‘honeycombing,’ where only about 70% of pallet positions are used.
2. Drive-In and Drive-Through Racking
Definition: Racking system where forklifts drive into the racking structure to place or retrieve pallets, supported by horizontal metal flanges.
Key Points:
LIFO System: Last-in, first-out method due to limited access.
Dense Storage: Suitable for high numbers of pallets per SKU.
Driver Strain: Forklifts navigate within narrow aisles, which can be slow.
3. Satellite (Shuttle) Racking
Definition: Uses battery-powered shuttles to move pallets within a racking system, reducing the need for forklifts to enter the racking.
Key Points:
LIFO or FIFO: Can be configured for last-in, first-out or first-in, first-out depending on aisle placement.
Dense Storage: Suitable for a moderate number of pallets per SKU.
Space Utilization: May lose some height due to space needed for shuttles.
4. Push-Back Racking
Definition: Pallets are placed on wheeled frames that push previous pallets back when a new pallet is added.
Key Points:
LIFO System: Last-in, first-out retrieval.
Individual Access: Each level can be accessed independently.
Flexible: Suitable for SKUs with lower inventory levels.
5. Adjustable Pallet Racking (APR)
Definition: A common racking system where pallets are stored on adjustable beams fixed to vertical frames.
Key Points:
Direct Access: Each pallet can be accessed individually, ideal for FIFO operations.
Utilization: High location utilization (90-95%) but lower storage density compared to other systems.
Versatility: Can accommodate various load types.
6. Double-Deep Racking
Definition: Racking system where pallets are stored two-deep from the aisles, providing more storage density.
Key Points:
Access: Requires specialized trucks with extended forks.
Utilization: Higher than single-deep racking, but not as high as more dense systems.
Not FIFO: Generally not suited for strict FIFO operations.
7. Narrow-Aisle Racking
Definition: Racking with very narrow aisles, served by specialized narrow-aisle trucks.
Key Points:
High Storage Density: More pallets stored per square meter.
Truck Types: Includes turret trucks and very narrow-aisle trucks.
Automation: Can include semi-automated features for improved efficiency.
8. Powered Mobile Racking
Definition: Racking system on mobile bases that move to create aisles as needed.
Key Points:
High Density: Combines dense storage with good accessibility.
Operational Speed: Slower than static systems, with typically only one forklift accessing at a time.
Cost and Maintenance: Expensive and requires strong floor foundations.
9. Pallet Live Storage
Definition: Pallets are stored on inclined roller conveyors, moving forward by gravity.
Key Points:
FIFO System: Ensures first-in, first-out stock rotation.
Utilization: Variable; can be high if used for staging or lower if used for long-term storage.
Fast-Moving Goods: Suitable for products with many pallets per SKU.
10. Automated Storage and Retrieval Systems (AS/RS)
Definition: Computer-controlled cranes or shuttles move pallets in high-bay warehouses.
Key Points:
High Density: Excellent floor utilization with high storage density.
Crane Systems: Can be single-deep, double-deep, or high-density with on-board satellites.
Automation: Provides high efficiency and is common in high land cost areas.
These systems vary in terms of complexity, cost, and efficiency, with trade-offs between storage density and pallet accessibility.
Summary of Small-Item Storage Systems
Shelving, Bins, and Drawer Units
Shelving: Common for storing cases and individual items. Consists of metal shelves supported by a steel frame, typically 1,000 mm long and 300-600 mm deep, with a total height up to 2,000 mm. Shelves can support around 200 kg each. Sub-dividers can organize multiple SKUs on a single shelf.
Drawer Units: Useful for storing small items in individual drawers. Can be standalone or incorporated into shelving.
Bins: Small plastic, metal, or fiberboard containers used to store items. Can be placed on shelves or louvred panels at the end of shelving runs.
Long-Span and Cantilever Shelving
Long-Span Shelving: Designed for longer items, with spans up to 2,500 mm.
Cantilever Shelving: Supported from a central upright, ideal for storing long items without vertical panels interfering.
Mobile Shelving
Mobile Shelving: Runs on rails, allowing multiple shelving units to be accessed via a single aisle. Access can be manual (turning wheels) or electric.
Suspended Compartments
Suspended Compartments: Vertical columns of flexible compartments suspended from a track system, allowing access to various SKUs by moving columns aside.
Carton Live Storage
Carton Live Storage: Uses inclined rollers for cartons or bins, providing a first-in, first-out (FIFO) system. Ideal for order-picking and high-density storage.
Carousels and Lift Modules
Vertical Carousels: Move shelves vertically, presenting products at an ergonomic height. Suitable for high-density storage and high security.
Horizontal Carousels: Move shelving horizontally, used for larger items and low-headroom situations.
Vertical Lift Modules: Move shelves independently, allowing multiple access points and simultaneous picking and replenishment.
Miniload
Miniload: Automated storage and retrieval systems (AS/RS) for small items. Computer-controlled cranes or shuttles access bins or cartons from shelving, optimizing storage and retrieval based on throughput needs.
Multi-Level Grid Systems
Multi-Level Grid Systems: Utilize a grid frame with robots that move tote bins vertically. Suitable for dense storage and dynamic reorganization of bins.
Long Loads Storage and Handling Systems
Block Storage: Long items like wooden boards are strapped into unit loads and block-stored.
Cantilever Racking: Central uprights with extending arms for storing long items. Arms can be tilted or fitted with stop bars for stability.
Vertical Storage: Includes A-frame and toast-rack modules for vertical storage of long items.
Pigeonhole Racking: Long racking sections for loads needing support, like carpets.
Handling Long Loads
Side-Loaders: Flat-bed trucks with side-mounted masts for handling long loads. Useful for outdoor and narrow-aisle operations.
Multi-Directional Trucks: Trucks with the ability to turn front wheels, allowing access to narrow aisles.
Articulated Long Load Trucks: Trucks with 360-degree turning front wheels, transporting long loads lengthwise.
AS/RS: Automated stacker cranes used for moving long loads in cantilever racking.
Order Picking Concepts
Pick-to-Order
Definition: A picker selects items for one specific order from across the warehouse.
Method: The picker might use a trolley or roll-cage pallet with compartments for multiple orders. They pick items for each order from different locations in the warehouse.
Usage: Common in retail distribution centers, especially for picking goods for individual stores.
Batch Picking
Definition: Items for multiple orders are picked in one go, then sorted into individual orders.
Method: Pickers collect the total quantity of each SKU needed for all orders in a batch and then sort them into customer orders.
Usage: Efficient for warehouses with a large product range and where orders have few SKUs.
Pick-by-Line or Pick-to-Zero
Definition: Pickers take items from reserve storage or suppliers until the stock for a specific SKU is exhausted.
Method: The picker selects exact quantities of items for orders until the stock for that SKU is depleted.
Usage: Useful for items ordered in exact quantities, often in cross-docking scenarios.
Zone Picking
Definition: The warehouse is divided into zones, each with dedicated pickers. Orders are picked by zone, then collated and packed.
Method: Warehouse Management System (WMS) assigns picking tasks by zone. Items are picked in each zone and then consolidated.
Usage: Effective for managing different product types and handling large orders. Can be combined with other picking methods.
Wave and Waveless Picking
Wave Picking:
Definition: Orders are released in waves (e.g., hourly) to manage picking, packing, and dispatch.
Usage: Helps control operations based on vehicle schedules but may be inflexible for omnichannel needs.
Waveless Picking:
Definition: Orders are released continuously based on real-time optimization of resources.
Usage: Provides more flexibility and efficiency, especially in dynamic, high-turnover environments.
Order Picking Equipment
Picker to Goods
Trolleys and Roll-Cage Pallets: Manual methods with shelves or bins for picking.
Powered Order Picking Trucks (LLOPs): Electric trucks for ground-floor picking.
Collaborative Autonomous Mobile Robots (AMRs): Robots that assist pickers by guiding them and transporting items.
Monorail Picking Systems: Suspended carriers for moving pallets or totes.
Free-path and Fixed-path High-Level Picking Trucks: Trucks for picking from elevated storage.
Goods to Picker
Horizontal and Vertical Carousels: Rotating shelves presenting items at ideal heights.
Miniloads: Automated systems for handling cartons or totes.
Totes-to-Picker Systems: Automated systems delivering totes or cartons to pick stations.
Goods to Robot
Robotic Picking Systems: Robots pick items autonomously from shelves or totes.
Robotic Palletizers: Robots stack pallets of goods, often for dispatch or storage.
Robot to Goods
Mobile Piece-Picking Robots: Robots that travel and pick items autonomously from various locations in the warehouse.
Automated Systems
Layer Pickers: Automated machines that pick entire layers of items from pallets.
A-Frame Dispensers: Vertical magazines dispensing items onto conveyors.
Small-Item Dispensers: Automated systems for picking small items using cranes or robotic arms.
Choosing Order Picking Equipment
Factors: Scale of operation, item size, product range, stock levels, throughput.
Options: Equipment selection varies based on the specific needs of the warehouse and the products handled. Consider automation for large-scale or 24/7 operations.
This summary captures the key concepts and equipment types for order picking, providing a comprehensive overview of methods and technologies used in warehousing.
Summary: Picking Area Layout and Order Picking
Picking Area Layout
Reserve vs. Picking Locations
Reserve Inventory: Stored separately from picking locations, often in vertical or horizontal arrangements. Vertical may involve racking with reserve on higher levels, while horizontal separates picking and reserve areas.
Picking Locations: Concentrate stock to minimize travel time. For small inventories, a single location may suffice; for large inventories, use multiple locations or advanced storage solutions like pick tunnels.
Pick Face Size
Trade-off: Balances picker travel time and replenishment effort. Optimal size often results in a U-shaped cost curve.
Carton Live Storage: Holds a good depth of inventory within a small picking face, optimizing both picker travel and replenishment.
Slotting
Definition: Placement of SKUs in locations based on factors like sales volume and space utilization.
Pareto Principle: Place high-demand SKUs in easily accessible locations.
Cube per Order Index (COI): Calculates optimal space allocation based on SKU storage needs and pick frequency. Lower COI indicates better space utilization.
Golden Zone: Ideal picking area, often at waist height or near the start/finish of picking runs.
Other Approaches: Slotting by weight, store layout, product pairings, random slotting, or data analytics for dynamic adjustments.
Pick Routes
Patterns: Includes traversing aisles in a snake pattern, approaching from one end, or using a combination of methods.
Efficiency: Optimized based on the specific layout and warehouse management system (WMS) configurations.
Alternative Methods for Order Picking
Paper Pick Lists
Description: Printed lists guiding pickers to locations and quantities, requiring manual notation of discrepancies.
Pick-by-Label
Description: Uses labels to mark items, with unused labels returned to record shortages.
Barcode Scanning
Description: Scans barcodes at locations or items to confirm picks and identify replenishment errors.
Radio Data Terminals
Description: Provide real-time communication with WMS, often combined with barcode scanners or smart gloves.
Pick-by-Light
Description: LED displays at picking locations guide pickers by illuminating quantities needed for each order.
Put-to-Light
Description: Used for sorting, LED panels show where items should be placed for specific customer orders.
Radio Frequency Identification (RFID)
Description: RFID tags confirm pick accuracy and track items through the picking process.
Voice Technology
Description: Provides voice instructions and confirms picks through voice responses, allowing hands-free operation.
Vision Technology
Description: Smart glasses or headsets provide visual guidance and confirmation for order picking, sometimes with augmented reality (AR).
Packing and Added-Value Services
Production and Customization
Includes: 3D printing for customized goods, on-demand book printing, and other services like labelling and final assembly.
Packing
Methods: Goods can be picked directly into cartons, or packed after picking. Automated systems may be used for carton sizing, labelling, sealing, and more.
Equipment: Includes print-and-apply labellers, sealing machines, and custom packing machines to optimize carton sizes and reduce waste.
Environmental Considerations
Focus: Use of recycled materials, efficient packaging, and reusable containers to minimize environmental impact.
Sorting and Dispatch
Process: After packing, goods may be sorted by various criteria (e.g., postcode, carrier) before dispatch.
Key Definitions
Reserve Inventory: Stock stored separately from picking locations.
Pick Face Size: The amount of inventory placed in a picking location.
Slotting: The process of determining the optimal placement of SKUs.
Cube per Order Index (COI): A metric for optimizing storage space based on pick frequency.
Golden Zone: The most accessible and efficient picking area.
Pick Tunnel: A storage solution with racks on either side of a picking aisle.
RFID: Radio Frequency Identification, used for tracking and confirming picks.
Summary of Warehouse Design Procedure
Designing a large, modern warehouse is a complex task requiring expertise across various disciplines, including operations, construction, materials handling, information systems, finance, and project management. The operations function typically sponsors the project, as it will manage the warehouse's operational success. External designers are often involved due to infrequent in-house design experience. A steering group of senior executives oversees the project, focusing on strategy, environmental policies, and financial resources.
1. Define Business Requirements and Design Constraints
Business Requirements: Include warehouse roles (e.g., decoupling point, cross-dock facility), throughput levels, storage capacities, customer service levels, and specified activities (e.g., production postponement).
Design Constraints: Include government regulations (health and safety, environmental), fire safety requirements, insurance considerations, and local authority restrictions.
2. Define and Obtain Design Data
Collect and adjust base data to reflect future needs. Key data includes:
Products: Throughput, value, seasonality, inventory holding, dimensions.
Order Characteristics: Order profile, frequency, service levels.
Intake and Dispatch Patterns: Vehicle types, volumes, cross-docking profiles.
Warehouse Operations: Tasks like picking, packing, quality control.
External Area Requirements: Security, truck parking, vehicle wash points.
Site and Building Details: Location, dimensions, services.
Cost Data: Rent, maintenance, equipment costs.
Existing Equipment: Size, condition.
3. Formulate a Planning Base
Aggregate data into a structured planning base using tables, charts, and diagrams. Create warehouse flow diagrams to visualize daily operations and storage needs, considering average, peak, or other activity levels. Apply Pareto analysis to classify products by sales value (A, B, C classes).
4. Define Operational Principles
Detail the basic and ancillary operations of the warehouse, such as vehicle unloading, quality assurance, storage, and picking. Determine the time available for each task and choose suitable operational methods, unit loads, and picking strategies.
5. Evaluate Equipment Types
Assess various equipment options through:
Initial Automation Assessment: Evaluate benefits and drawbacks of automation.
Attribute Assessment: Discard unsuitable equipment based on operational requirements.
Decision Trees: Use decision trees to narrow down equipment options.
Cost Comparison: Compare costs, including capital and operational expenses.
Equipment Choice: Select equipment based on flexibility, environmental impact, and overall suitability.
6. Develop Environmental Aspects
Consider environmental factors such as:
Certification Schemes: BREEAM, LEED ratings.
Construction Materials: Use low embodied energy materials.
Insulation and Airtightness: Improve energy efficiency.
Energy Efficient Lighting: Use LEDs, OLEDs.
Renewable Energy Sources: Solar, wind, ground-source heating.
Rainwater Harvesting: Collect and reuse rainwater.
Staff Transport Facilities: Electric car charging, bicycle sheds.
7. Prepare Internal and External Layouts
Create detailed layout drawings, both internal and external, using CAD software to integrate warehouse components effectively.
Keynotes with Definitions
Decoupling Point: A location in the supply chain where inventory is held to buffer against variability in demand or supply.
Cross-Dock Facility: A warehouse where products are transferred directly from incoming to outgoing transport with minimal storage.
Returns Centre: A facility dedicated to processing returned goods.
Pareto Classification: Also known as ABC analysis, it classifies items based on their importance or value, typically indicating that a small percentage of items account for a large percentage of value or activity.
Automated Storage and Retrieval Systems (AS/RS): Systems that automatically store and retrieve products, often used in high-density storage applications.
BREEAM (Building Research Establishment Environmental Assessment Method): A UK-based certification for assessing the environmental performance of buildings.
LEED (Leadership in Energy and Environmental Design): A US-based certification for green building design, construction, and operation.
Summary of Warehouse Design Considerations
Internal Layout
Warehouse Flow Diagram: Essential for visualizing the flow between zones, aiming to minimize distances and avoid backtracking or cross-flows.
Objectives:
Land Utilization: Efficient use of space, considering options like multi-storey or underground warehouses if land is scarce.
Building Utilization: Design for both new and existing structures, adhering to building norms and maximizing available space.
Throughput Efficiency: Optimize throughput with minimal resources.
Safety: Ensure separation of pedestrian and vehicle traffic, avoid hazardous junctions, and provide easy fire escape routes.
Environmental: Reduce energy consumption and greenhouse gas emissions.
Configuration Types:
Through-Flow: Direct, efficient movement through the warehouse.
U-Flow: Goods follow a U-shaped path.
L-Flow: Goods move in an L-shaped path.
Design Considerations:
Building Height: Affects cost and storage efficiency; higher buildings can be more cost-effective in high land cost areas.
Operational Requirements: Adapt layout to accommodate equipment and operational needs.
External Layout Issues
Warehouse Placement: Determine building location, roadways, and parking areas.
Considerations:
Roadway Design: Plan traffic flow around or beside the building.
Parking Areas: Allocate spaces for trucks, containers, and staff.
Security: Include gatehouses, fences, and barriers.
Facilities: Integrate wash, maintenance, and fueling stations.
Environmental Features: Implement rainwater control, landscaping, and ecological considerations.
Procedures and Information Systems
High-Level Procedures: Define processes for picking, sorting, and dispatching.
Information System Requirements:
Options: Paper lists, RFID tags, pick-by-light, or voice technology.
Purpose: Formulate specifications for warehouse management systems.
Design Flexibility
Types of Flexibility:
Volume: Adapt to growth or demand surges.
Time: Handle rush orders efficiently.
Quantity: Switch between item and case picking.
Presentation: Customize unit loads for clients.
Information: Tailor customer labels.
Flexibility Resources:
Land/Building: Plan for modular expansion.
Equipment: Choose versatile machinery.
Staff: Adjust staffing levels for peak periods.
Processes/Systems: Develop adaptable processes and systems.
Equipment and Staffing Calculations
Equipment Quantities:
Storage: Determine number of positions based on utilization figures.
Handling: Account for material movements, peak loads, and shift patterns.
Staffing Levels:
Calculations: Based on equipment needs and performance data.
Considerations: Include allowances for absenteeism, shift patterns, and managerial spans.
Cost Evaluation
Cost Categories:
Building: Land, construction, rates, power, security, and maintenance.
Equipment: Capital costs, maintenance, and running expenses.
Staffing: Management, operational, and clerical staff costs.
Information Systems: Hardware, software, and implementation.
Contingency Planning: Include allowances for unforeseen events and design details.
Final Design and Implementation
Design Evaluation: Ensure design meets business requirements and constraints.
Finalization:
Approval: Present the complete design to executives.
Implementation: Manage construction, materials handling, information systems, and personnel recruitment.
Project Management: Coordinate all activities, including planning, tendering, design, and construction.
Summary of Operational Management in Warehousing
Operational Management in a warehouse involves coordinating and optimizing complex activities to ensure efficient order fulfillment, inventory management, and overall warehouse performance. Key aspects include capacity planning, workload planning, performance monitoring, staff management, process improvement, and adherence to legal requirements.
1. Capacity Planning
Definition: The process of determining the warehouse's ability to handle current and future demands.
Key Points:
Long-term planning ensures that resources (staff, equipment, space) are scaled appropriately for growth and seasonal peaks.
Peak periods require proactive planning to manage storage, throughput, and returned goods.
Seasonal Peaks: Specific times when demand is higher than usual, e.g., during holiday sales.
2. Workload Planning
Definition: Short-term planning to balance the workload with available resources.
Key Points:
Adjust staffing levels based on order volumes and operational efficiency metrics.
Includes planning for equipment and technology requirements.
Labour Management Systems (LMS): Software tools used for planning staffing needs and monitoring performance.
3. Performance Monitoring
Definition: The continuous assessment of warehouse operations to ensure efficiency and effectiveness.
Key Points:
Metrics include service levels, operational efficiency, cost efficiency, resource utilization, stock integrity, cycle times, safety, personnel, and environmental impact.
Leading Indicators: Early signs of trends (e.g., maintenance issues affecting equipment performance).
Lagging Indicators: Measures that follow performance changes (e.g., order cycle times after equipment downtime).
4. Staff Management
Definition:Strategies and policies to recruit, motivate, and retain warehouse staff.Key Points:Motivational strategies include financial incentives and providing autonomy.Training methods can include one-on-one coaching, virtual reality, and guided systems.Good Working Conditions:Adequate lighting, ventilation, and a supportive environment.
5. Process Improvement
Definition: Ongoing efforts to enhance warehouse operations through various methodologies.
Key Points:
Lean Operations: Focuses on minimizing waste and improving efficiency.
Six Sigma: Uses data-driven techniques to improve process quality.
Staff Forums: Gather input from employees for continuous improvement.
6. Meeting Legal Requirements
Definition: Compliance with laws and regulations to ensure safe and legal warehouse operations.
Key Points:
Regulations cover manual handling, equipment safety, working hours, and health and safety.
Fork-Lift Truck Safety: Includes proper servicing and ventilation to prevent health hazards.
7. Additional Management Responsibilities
Inventory Accuracy: Maintaining accurate stock levels through periodic or perpetual counts.
Cleaning and Security: Using specialized equipment and procedures for cleanliness and safety.
Environmental Management: Managing the warehouse's carbon footprint and sustainability practices.
8. Information Technology
Definition: Use of technology to manage and optimize warehouse operations.
Key Points:
Warehouse Management Systems (WMS): Software that controls warehouse operations and interfaces with other systems (e.g., ERP, SCP).
Data Capture: Includes barcodes, RFID, and other technologies for tracking inventory.
Systems Architecture: Integrates WMS with equipment control systems and other software tools.
9. Planning Tools
Definition: Tools used for forecasting and planning warehouse operations.
Key Points:
Data Analytics: Uses real-time data to improve performance and predict future needs.
Digital Twins: Simulate warehouse operations for planning and scenario analysis.
Artificial Intelligence (AI): Optimizes processes through machine learning and automation.
Predictive Maintenance: Uses sensors and IoT for proactive equipment maintenance.
Key Terms:
Capacity Planning: Preparing for future demand by ensuring adequate resources.
Workload Planning: Managing daily operations and staffing needs.
Performance Monitoring: Tracking metrics to evaluate efficiency and effectiveness.
Labour Management Systems (LMS): Tools for managing workforce requirements.
Lean Operations: Strategy to reduce waste and improve efficiency.
Six Sigma: Methodology for quality improvement through data analysis.
Warehouse Management System (WMS): Software for controlling warehouse operations.
RFID (Radio Frequency Identification): Technology for tracking items using radio waves.
This summary captures the essentials of managing a warehouse efficiently, focusing on planning, performance, and technology integration.