topic 2 – logistics processes outline 1.1 customer service 1.2demand forecasting 1.3inventory...

Topic 2 – Logistics Processes

Outline

1.1 Customer Service

1.2 Demand Forecasting

1.3 Inventory Management

1.4 Logistics Communications

1.5 Materials Handling

1.6 Order Processing

Topic 2 – Logistics Processes

Outline (con’t)

1.7 Packaging

1.8 Parts & Service Support

1.9 Plant & Warehouse Site Selection

1.10 Procurement

Topic 2 – Logistics Processes

Outline (con’t)

1.11 Reverse Logistics

1.12 Traffic & Transportation

1.13 Warehousing & Storage

1.14 Integration of Logistics Activities

1.1 Customer Service

★ The logistics function is the final phase of the buyer-seller sales transaction - the one involving the physical transfer of goods.

-- There is no value to a product until it is in the hands of the customer or consumer.

★ Coyle, Bardi and Langley (1992) dichotomized logistics into (i) supply chain logistics and (ii) service response logistics.

-- While supply chain logistics is the traditional process associated with the acquisition and distribution of goods, service response logistics is the process of coordinating non-material activities necessary to the fulfillment of the service in a cost and customer-service-effective way.

1.1 Customer Service

Good logistical customer service is contingent upon

a. Cycle time

b. Dependability - of lead-time, safe delivery

and correct orders

c. Communication

d. Convenience - flexibility

1.2 Demand Forecasting

Demand forecasting involves determining the quantity of product and accompanying service that customers will require at some point in the future.

Such forecasts determine:

a. Production schedules

b. Purchasing & acquisition strategies

c. In-plant inventory

d. Finished goods inventory positioning

e. Allocation of resources to logistics activities in order to service forecasted demand

1.3 Inventory Management

Inventory management involves trading off the level of inventory held to achieve high customer service levels with the cost of holding inventory, including capital tied up in inventory, warehousing and obsolescence.

Main categories of inventory:

a. Raw materials

b. Work-in-process

c. Finished goods

Inventory consumes physical space, personnel time and capital – significant opportunity costs

1.4 Logistics Communications

Effective communication must take place among:

a. An organization, its suppliers and its customers

b. Major functions within an organization such as logistics and engineering,

c. All the individual logistics activities

d. Various aspects within each logistics activity, e.g. coordinating warehousing of materials, work-in-process and finished goods

e. Various members of the supply chain, including those not directly linked to the organization, e.g. intermediaries and secondary customers or suppliers

Accurate and timely communication is fundamental to successful logistics management

1.5 Materials Handling

Materials handling covers every aspect of the movement or flow of raw materials, in-process inventory and finished goods within a plant or warehouse.

Effective logistics management strives to minimize the amount of handling performed on an item since handling adds no value to a product.

Objectives to support this:

a. Eliminate handling wherever possible

b. Minimize travel distance

c. Minimize work-in-process

d. Provide uniform flow that is free of bottlenecks

e. Minimize losses from waste, breakage, spoilage and theft

1.6 Order Processing

Components of order processing:

a. Operational elements – order entry/editing, scheduling, shipping, invoicing, etc.

b. Communication elements – order modification, order status enquiries, tracing & expediting and product information requests, etc.

c. Credit & collection elements – credit checking, accounts receivables processing/collection, etc.

Speed and accuracy of order processing have a big impact on customer’s perception of an organization’s service level because it is a key area of a customer’s interaction with the organization.

1.7 Packaging

Packaging performs 2 basic functions:

a. Marketing – the package’s size, weight, colour and printed information acts as a form of communication or

advertising

b. Logistics – the package performs 2 roles:

i. Protects the product from damage while being stored or transported

ii. Makes it easier to store and move products, and therefore reduce handling costs

Packaging requirements for export are more stringent than those for domestic markets because of longer distances travelled and more physical handling.

1.8 Parts & Service Support

Logistics’ responsibility does not end when the product is delivered to the customer.

An organization’s product offering includes providing customers with after-sales service involving repair and parts replacement.

Logistics is responsible for making sure that spare and replacement parts are available:

a. When and where the customer needs them.

b. When and where the repair process needs them.

Overall objective is to reduce equipment downtime for customers

1.9 Plant & Warehouse Site Selection

Plant & warehouse selection affects logistics’ ability to effectively manage inbound movement and storage of materials and products, as well as outbound flows.

Considerations in site selection:

a. Location of target markets

b. Location of raw materials, component parts and sub-assemblies

c. Availability & cost of land

d. Availability & cost of labour

e. Availability of transportation services and links

f. Security

g. Local taxes, legal concerns and regulations, e.g. environmental issues

1.10 Procurement

Procurement is the process of acquiring materials and services to ensure the operating effectiveness of an organization’s manufacturing and logistics processes.

Includes:

a. selection of suppliers

b. timing of purchases

c. pricing

d. transportation modes and carriers

e. packaging

f. quality control

1.11 Reverse Logistics

Reverse logistics covers:

a. Handling of return goods

b. Salvage & scrap disposal for return goods

c. Removal and disposal of waste materials from the production, distribution and packaging processes

d. Transportation of reusable or recyclable materials to remanufacturing or reprocessing locations

Product can be returned from customers due to defects, overages, shipping errors and trade-ins etc.

Logistics must have effective procedures for collection, transportation, handling, sorting, storage and disposal of returned products and waste materials.

1.12 Traffic & Transportation

Traffic and transportation covers the movement or flow of goods from point-of-origin to point-of-consumption, and includes the return flow as well.

Involves:

a. Movement of products

b. Selection of shipment method – air, rail, sea, truck, pipeline, intermodal

c. Routing – choosing a specific path for the movement

d. Ensuring compliance with local, national and international transportation regulations

Often the single largest cost item in logistics

1.13 Warehousing & Storage

Warehousing and storage involves the management of the space needed to hold or maintain inventories

Activities include:

a. Decisions on whether storage facilities should be owned, leased or rented

b. Layout and design of storage facilities

c. Decisions on what products should be stored where

d. Operating procedures for handling and moving products within the warehouse

e. Safety and maintenance procedures

f. Personnel training

g. Productivity measurement

1.14 Integration of Logistics Activities

Integrated logistics management refers to the administration of various logistics processes as an integrated system.

The objective of integrating logistics activities is to achieve an orderly flow of materials, personnel and information within an organization, and among the organization, its customers, suppliers and service providers.

1.14 Integration of Logistics Activities

Critical Business Interfaces

Integration is crucial at the following business interfaces in order to prevent inventory buildup.

a. Supplier-Purchasing

b. Purchasing-Production

c. Production-Marketing

d. Marketing-Distribution

e. Distribution-Intermediary (wholesaler and/or retailer)

f. Intermediary-Customer

1.14 Integration of Logistics Activities

Inventory Buildup

Without effective integration, inventory buildup can occur for one or more of the following reasons:

a. Purchasing management is rewarded for achieving lowest unit purchase price for raw materials and supplies.

b. Production management is measured solely on lowest possible per-unit production costs.

c. Sales force tries to achieve market presence by positioning large inventories of product in close proximity to customers.

d. Transportation managers ship products by truckloads or by sea in order to obtain the lowest possible freight rates.

e. Customers and intermediaries purchase and ship in small lots to minimize their inventories.

1.14 Integration of Logistics Activities

Benefits of Integration

a. generally Improves flow of inventory

b. Transportation economies

i. Consolidation of shipping requirements for both inbound and outbound materials and products

ii. Using fewer carriers

iii. Better planning and coordinating of shipping schedules

c. Improves warehouse asset utilization

d. Eliminates duplication of effort

e. Cost trade-offs can be made between and among the various logistics activities

Topic 2

Summary

and

Conclusion

1. Logistics is network of related processes and activities.

2. Integration of these processes and activities improves customer service for an organization while reducing overall logistics costs.