©the mcgraw-hill companies, inc. 2008mcgraw-hill/irwin chapter 12 logistics: positioning goods in...
TRANSCRIPT
©The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin
Chapter 12
Logistics:Positioning Goods in the
Supply Chain
12-2
Introduction to Logistics
“the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.”
Logistics
• Purchased goods must be transported from the point where they originate to the place needed, with inventories held at a minimum amount, to ensure production and customer service.
The management of inventory in motion and storage is called logistics.
Council of Logistics Management
• Part of the supply chain that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption in order to meet the customers’ requirements.
Logistics
• Logistics - (business definition) Logistics is defined as a business planning framework for the management of material, service, information and capital flows. It includes the increasingly complex information, communication and control systems required in today's business environment. -- (Logistix Partners Oy, Helsinki, FI, 1996)
Logistics Costs
• Logistics costs can be divided into:
- Inventory carrying cost
- Administrative cost
- Transportation cost (major portion of the total cost)
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Logistics Network Configuration
• Costs are incurred and time is required to move goods from raw materials to consumers.
• An important task for supply chain management is to determine distances and how travel will take place.
Supply Chain and Logistics
• Supply chain should be emphasizing reducing costs and cycle time and cycle time.
• It requires efficient transportation and other logistics services.
• Information flow is a critical first step
Logistics Requirements
• Logistics requires skill and knowledge in the field.
• Knowledge of the rules and regulations
Logistic Activities
• Transportation
• Warehousing
• Material Handling
• Packaging
• Inventory Management
• Logistics Information Systems
Effects of Logistics
• Logistics Accounts for 5 to 35 percent of total sales costs
• In North America the logistics is 10.7 per cent of GDP
• Logistics affects delivery, lead time, and location of an item
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Outsourcing Logistics Services
• Third party providers are known as 3PLs
• 3PLs can be narrow in focus or quite broad
Logistic Strategy
• To ensure that the logistics choices are consistent with its overall business strategy and supports the performance dimension that targets customers value.
• Performance Dimensions:
- Quality
- Time
- Flexibility
- Cost
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Logistics Network Configuration
• Costs are incurred and time is required to move goods from raw materials to consumers.
• An important task for supply chain management is to determine distances and how travel will take place.
12-15
3PL Selection
• Steps to selecting a 3PL
Owning vs. Outsourcing
• Do you have enough volume to justify a private logistics system?
• Would owning private logistics system limit the firm’s ability to respond to change?
• Is logistics a core competency of the firm?
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Reverse Logistics• The flow of goods back to their producer• Increasing in importance• Often outsourced• May function as asset recovery (products to be resold)
Transportation
• Transportation is an important supply chain driver because products are rarely produced and consumed in the same location.
• Transportation is a significant component of the costs incurred by most supply chain.
Transportation represents 10 percent of the GDP and employs more than 20 million people, accounts for 16 percent of the US employment.
Transportation
• Any supply chain’s success is closely linked to the appropriate use of transportation.
• Shipper is the party that requires the movement of the product between two points in the supply chain.
• Carries is the party that moves or transports the product.
Transportation
• Owner or operators of the transportation facilities
• Agencies that set transportation policies
• Transportation network as a collection of nodes and links.
Transportation
• The effectiveness of any mode of transport is affected by equipment investments and operating decision by the carrier as well as the available infrastructure and transportation policies.
Transportation
• Longer supply chain creates complex transportation system
• Long distances creates complex transportation system
• Many modes of transportation choices add complexity
• Modes are: road, rail, air, ships, pipeline, and intermodal.
• new
Carrier Objectives
• Objective is to ensure good utilization of its assets while providing customer with an acceptable level of service.
• The decision is affected: equipment cost, fixed operating cost, variable operating cost, and price it can charge.
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Transportation Modes
• U.S. Commercial Freight Activity by Transportation Mode
Truck is the largest mode.
Air is fastest growing
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Road Transport
– Trucking consist of two major segments:
FTL (Full truckload) is the cheapest.
LTL (Less than truckload) costs more.– Truck is most commonly used cargo mode– Most goods transportation ends with a truck
delivery– Most flexible mode of transportation
64 percent of U.S. commercial freight by value and 58 percent by weight is moved by truck.
Road Transportation
• Trucking is most expensive than rail
• Door-to-door shipment
• Shorter delivery time
• No transfer required between pickup and delivery
Full Truck Load (FTL)
• Low Fixed cost
• Fewer Trucks
• Economies of Scale
• Good for transportation between factories and warehouses (manufacturer and suppliers)
Less Than Truck Load (LTL)
• Small load
• Cheaper
• Consolidate package
Air
• If speed is required, use air• Cost is very high and should be used in
emergency• Long distance may require air transportation• Cost can be justified by reducing lead time,
reliable delivery, and quick cash recovery (sell product quickly)
• new
RAIL
• Carried 4 percent shipment b value, and 12 percent by weight and more tan 25 percent of total ton-miles.
• Higher fixed cost in cars and locomotives
• Price is structured and heavy load make it economical
• Ideal for very heavy, low-value shipments (coal).
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Rail Transport
• Less flexible than truck. But less costly over long distances.
• Takes longer than truck• Trend is toward specialty wagons (railcar).• Can provide specialty wagon such as: - Hopper wagon for bulk powder products - Flat wagon for steel and equipment - tanker wagon for liquid - car wagon for automobile for different products. Road trailer can be easily
changed to truck trailer.• Double stacking (containers are stacked on railcars) is
becoming more common.
MARINE TRANSPORTATION
• Limited to certain areas
• Inland waterway (rivers)
• Coastal water
• Large load and low cost
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Marine Transport
• Breakbulk ships (goods packed in boxes, crates, or cartons) carry loose freight. This makes loading and unloading easy.
• Containerships carry containers.– Faster loading and unloading– Easy transfer to rail or truck
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Pipeline
• Least flexible, only used for specialized product e.g. gas, water or oil.
• Often used to transport between isolated areas
• High initial investment, but low operating costs
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Intermodal Transport
• At least two different modes are used, e.g. Marine/rail, rail/road, marine/road, marine/rail/road, etc.
• Integrated transport carriers use whatever is best– Customer doesn’t have to deal with modes
and is given total cost up front
• Utilizes containerized shipping.
Integrated Transportation
• Integrate transportation decisions with inventory and warehousing, order management, forecasting, and production planning.
• Combination of modes that best suite the product from origin to destination,
• Only costs are negotiated and the choice of modes is made by providers.
Implications of Strategy
Delivery reliability
Deliver on time consistently
Highway
Air
None (direct ship)
Assortment
Spot Stock
Delivery Speed
Minimal time from order to delivery
Air
Highway
None (direct ship)
Assortment
Spot stock
Mix Flexibility
Support a wide range of different products/delivery needs
Highway
Air
Rail
Assortment
Spot Stock
Performance Transportation Warehousing
Dimension Mode System
Implications of Strategy
Design reliability
Support design changes/unique customer needs
Highway
Air
Postponement
Volume Flexibility
Provide products/delivery services in whatever volume the customer needs
Highway
Air
None (direct ship)
Assortment
Spot stock
Cost
Minimize the cost of transportation
Rail
Water
Pipeline
Rail
Consolidation
Cross-docking
Hub and Spoke
Performance Transportation Warehousing Dimension Mode System
Buyer/Seller Responsibility
• Who pays for product’s transportation• Who bears the risk and when risk passes• In international transaction the transportation
terms as well as the sale price are negotiated.• International Commercial terms (Incoterms)
defined the terms for transportation.
- international carriage not paid by the seller
- international carriage paid by the seller
- arrival at stated destination
Origin
• EXW – Ex Works : Means that the seller delivers when they place the goods at the disposal of the buyer at the seller’s premises or some named place, not cleared for export and not loaded on a vehicle.
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Incoterms: International Carriage Not Paid
By the Seller
FCA stands for Free Carrier. The seller delivers the goods, cleared for export, to the carrier the buyer specifies, at a named location, not loaded. The seller’s responsibility is fulfilled when he delivers the goods to the carrier.
• FAS means Free Alongside Ship. The seller delivers when the goods are placed alongside the vessel at the named port of shipment. This is specifically used for ocean shipments that aren’t containerized.
• FOB stands for Free on Board. FOB means that the seller delivers when the goods pass the ship’s rail at the named port of shipment. The buyer is responsible for costs and risks as soon as the goods pass the ship’s rail.
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Incoterms: International Carriage Paid By the Seller
• CFR designates Cost and Freight. The seller is responsible for the cost and fright required to bring the goods to the named destination, but the buyers is responsible for the risks when the goods pass the ship’s rail in the port of shipment.
• CIF means Cost, Insurance, and Freight. This is the same a CFR, except that the seller is responsible for insurance against loss or damage.
• CPT stands for Carriage Paid To. The seller is responsible for the cost of freight to the named destination. The risks associated with loss, damage, or cost increases becomes the buyer’s when the goods have been delivered to the custody of the first carrier.
• CIP stands for Carriage and Insurance Paid To. This is the same as CPT, except the seller is responsible for transport insurance against loss or damage.
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Incoterms: Arrival at Stated Destination • DAF stands for Delivered at Frontier. DAF means that the seller’s
responsibility stops when the goods have arrived at the frontier, but before the customs border of the country specified in the contract.
• DES stands for Delivered Ex Ship. DES means that the seller’s responsibility ends upon placement of the goods at the disposal of the buyer on board the ship at the named port of destination.
• DEQ stands for Delivered Ex Quay. DEQ means that the sellers obligation is fulfilled when the goods are made available on the quay (wharf) to the buyer at the named port of discharge.
• DDU stands for Delivered Duty Unpaid. DDU means that the seller’s responsibility goes up to the point when the goods have been made available to the buyer at the named place in the country of importation. The buyer has to pay all duties, taxes, and customs charges required for importation.
• DDP stands for Delivered Duty Paid. DDP is like DDU in that the seller’s obligation ends when the goods have been made available to the buyer at the named place in the country of importation. However, the seller is responsible for all duties, taxes, and customs charges.
Warehouses
• As product moves form supplier to customer, there may be a need for a storage.
• Storage could be provided by supplier, retailer, or 3PL.
• Warehouse may be used to reduce cost, reduce response time, increase variety of product, and handle emergency.
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Warehousing
• Distribution Strategies:
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Direct Shipment
• Shipping directly from manufacturer to retailer
• Eliminates warehouse costs
• Probably won’t take advantage of FTL transportation savings.
• High inventory level needed
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Consolidation Warehousing
• Storage in warehouse, then shipped.
• More likely to use FTLs
• Risk pooling benefits of reduced inventory in system
• Used in combination with postponement (delays the commitment of products to final configuration. Packaged to meet needs of different customers.)
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Cross-Docking
• Continuous shipment from suppliers to warehouses where goods are redirected and delivered to customers.
• Most sophisticated system. Require close communication between supplier and retailer.
• Require reliable forecast• High cost, but very efficient• Used by high-volume retailers
like Wal-Mart and Dollar General
• FTL bulk shipments to cross-dock center, then FTL mixed loads to retailers
12-49
Warehouse Location Decisions
• Center-of-gravity method: used for locating a distribution center among warehouses or retail stores.
• Finds the “most central location” for the DC by calculating the X and Y coordinates that minimize transportation costs.
• Considers distance between the DC and warehouses or stores as well as the number of shipments necessary between them
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Location Decision-Making Techniques:Center-of-Gravity Method
Cx = ΣdixVi
Σ Vi
Cy = ΣdiyVi
Σ Vi
where
Cx = X coordinate of the center of gravity
Cy = Y coordinate of the center of gravity
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = Volume of goods moved to or from the ith location
12-51
Information Technology
• Radio Frequency Identification (RFID)– Each tag has a
unique identifier that uses the electronic product code (EPC) format.
Exhibit 12.12 EPC Format
12-52
Information Technology
• Radio Frequency Identification (RFID)– RFID tags emit a signal that
can be read at a distance.– The signal contains a
unique identifier that can be read by a reader
– Information about the item can be stored on a host computer
– RFID can be used to aid in inventory counts, security, product tracking, etc.
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Information Technology
• Potential RFID Applications:
12-54
Information Technology
• Global Positioning systems– Determine precise locations using satellites.– Used to monitor vehicle locations– Estimate arrival times– Update customers on delays– Increase security
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Logistics Costs
• Landed Cost computations– Convert all logistics-related costs to a per unit basis for
comparison
Supply Chain and Information Technology
• Widespread implementation of enterprise resource planning (ERP) systems offers the promise of homogeneous, transactional databases that will facilitate integration of supply chain activities.
Examples of ERP – SAP, Oracle, and PeopleSoft.
• To effectively apply IT, a company must use its transactional and analytical information.
Information Technology
• Transactional Database – keeping record of all business transactions
• Analytical Process – Ability to evaluate large numerical databases in helping manager identify optimal option. Analysis not only must evaluate each option but also compare multiple option to suggest a best option.
Transactional VS. Analytical IT
• Transactional IT deals with acquiring, managing, and communicating raw data of the company’s supply chain and compilation and dissemination of reports summarizing these data.
• Analytical IT deals with evaluating supply chain options using descriptive and optimization models.
- Description models – forecast and cost models.
- Optimization models – Linear programming, decision
models, project management.
Internet Enabled 4PL A Case Study
Padraic Allen
Two Trends Facing Supply Chain Managers Today
• eCommerce – – the internet can offer true the internet can offer true integration – the Cornerstone of Supply integration – the Cornerstone of Supply Chain ManagementChain Management
• Outsourcing – organisations – organisations are are outsourcoutsourcinging non-core competencies non-core competencies
Manufacturer
Supplier Distributor Merchant
Partners with small IS staffs
Legacy systems
Incompatible information formatsNeed for real tim
e information
Security concerns
Cumbersome communicationsHigh costs
Too much stock
Outdated pricing
Long turn around time
Largesupport
staff
CustomerserviceIssues
The Supply Chain Challenge
eBusiness & Supply Chain Management
One area where the payback from e-Business can be substantial is in the integration of the supply chain
“The B2B Frenzy is all about the Supply Chain” AMR Research
Outsourcing
• Listed by Harvard Business Review as one of the most important management concepts of the past 75 Years
• Means of increasing performance of non-core supply chain activities
• Fourth Party Logistics is the evolution of supply chain outsourcing
The key benefit of 4PL is that of increasing shareholder value
-Benefits of 4PL–
• 4PL provider maintains primary accountability and quality within the arrangement
• 4PL has the overarching responsibility for supply chain performance
• 4PL should be able to impact the entire supply chain – increasing revenue, lowering costs, reducing working capital and fixed capital
4PL Operating Models
The 4PL environment has three primary operating models:
• The Synergy Plus Model • The Solution Integrator Model• The Industry Integrator Model
Note: 4PL is a trademark of Accenture
4PL Operating Models
• The Synergy Plus Model - relies on a working relationship between the 4PL Organisation and a 3PL Company. Both the 4PL and the 3PL partner to market supply chain solutions which capitalise on the capabilities and market reach of both. The 4PL offers a broad range of services to the Third Party Logistics Provider including; technology, supply chain strategy skills and program management.
4PL Operating Models
• The Solution Integrator Model - focuses on the strength of the 4PL as an individual organisation which manages a comprehensive supply chain solution for a single client. This arrangement encompasses the resources of the 4PL with a selection of complementary service providers, chosen by the 4PL, to establish a “best fit” integrated solution for the client company.
4PL Operating Models
• The Industry Innovator Model - is the most complex operating model within the 4PL environment but also the most rewarding. Within this model,a 4PL organisation develops and runs a supply chain solution for multiple industry players with a focus on synchronization and collaboration.
What is the Industry Innovator Model?
– The Industry Innovator is an integrated eCommerce based range of outsourced supply chain functions that act as a highly efficient path for enabling the transfer of product from suppliers to buyers.
– An individual company in each industry will have slightly different supply chain needs, but there should be similarities within an individual industry.
– Although the model looks similar to a marketplace, it could in fact be a series of one-to-many relationships pushed through one Market site on the web.
Typical Supply Chains
Inefficient and Clogged with inventory!
Supply Chain Re-engineering for a Single Company
Supply Chain Re-engineering for an Entire Industry
Internet Enabled 4PL – A Case Study
iTooling.com
iTooling.com was conceptualised as an ‘Industry Innovator’ 4PL. It was developed for the industrial tooling sector with an initial focus on cutting tools.
Brief Profile of the Industry
• Customers – Aerospace, Automotive, Job Shops, etc.
• $19Bn Worldwide Market (Roughly 1/3 in each region US, Europe & Asia)
• Small form factor
• Relatively high value
• Consumable – Frequent repeat buying
• Many suppliers – Very fragmented
Background
• The industrial tools market is one of the most fragmented and agency locked markets in the world today.
• The route from manufacturer to customer is characterised by the involvement of many intermediaries, several hand-offs and multiple inventory holding points.
• The belief was that there is minimal value added by these intermediaries and the consequence of their involvement is additional touches, increased customer cost and an erosion of manufacturer’s margin.
• It was felt that there was an outstanding opportunity to totally simplify the supply chain and in doing so reduce the cost and significantly improve the buying experience for the customer.
Supply Chain
Global Manufacturers
Typical Supply Chain
RegionalDistributor
CountryWholesaler
Local AgentCustomer
+ +
Supply Chain Future
Global Manufacturers
Global Manufacturers
RegionalDistributorRegional
DistributorCountry
WholesalerCountry
Wholesaler
Local AgentLocal AgentCustomerCustomer
iTO
OL
ING
.com
Strategy
• Partner with quality brand manufacturers of selected industrial tools.
Create a multi brand carrying internet site to allow customers a full catalog view of the selected products and pricing.
Manage the customer relationship and the fulfillment process and this would become a core competence of the company.
Partner with strategically positioned logistics providers capable of meeting or exceeding customer’s response expectations.
Strategy (Continued)
Hub inventory at the logistics sites calculated to achieve a defined customer fill rate
Take ownership of the product only when it is being picked for a customer order and aggressively manage the cash conversion cycle
Primarily trade on-line and actively encourage customers to do so but this will be supplemented by call center support
Work on an agreed service fee calculated to cover iTOOLING.com’s costs and achieve target profit
itoolexp4.exe
Hubbing Animation…
•Real Time Demand Information
•Online without being in direct competition with existing channels
•Forecasting Data Available
•Distribution Coverage
•Product Feedback
•Improved Manufacturers Margin
•Product Choice & Comparison
•Best Price Available
•Improved Purchasing Experience
•Simple / Transactional Cost Savings
•Improved Customer Service
•Technical Support available 24/7
•One Stop Shop for Industry
Benefits- Win, Win
Manufacturer Customer
iTOOLING.com ProfitiTOOLING.com Profit
Existing Distribution Existing Distribution Network ModelNetwork Model
Price
Manufacturer Selling PriceManufacturer Selling Price
Geographic Agent MarginGeographic Agent Margin
National Distributor MarginNational Distributor Margin
Local Distributor MarginLocal Distributor Margin
End User PriceEnd User Price
Sheffield Recommended Sheffield Recommended Retail Price ModelRetail Price Model
iTOOLING.com ModeliTOOLING.com Model
iTOOLING.com iTOOLING.com Service ChargeService Charge
Discountvs R.R.P.
Saving
““Sheffield” MarginSheffield” Margin
But….
• Industry was not ready for radical change
• Manufacturers feared increased competition and even less opportunity for differentiation
• Intermediaries proved to be more valuable than anticipated and in fact held a lot of power in the chain
These lessons were not unique to the Tooling industry!
Where to next?• How Could We ?
– Continue to engage the Intermediaries– Overcome the Manufacturers fears– And Still Achieve Supply Chain Efficiencies
Conclusion: By moving From Revolution to Evolution
A.S.P. Charge
Dist A :Business as usual with reduced inventory
Dist B : On-line presence & reduced inventory
Dist C : Added value sales agent. On line presence, sources product & provides technical support
No Dist : Manufacturer Website or Large Customer
Exchange, MRO or other marketplace (Covisint?)
Mfg A Mfg B Mfg B Mfg C Mfg D Mfg E
Supply & Inventory ManagementSupply & Inventory Management
On-line Web PresenceOn-line Web Presence
Order FulfilmentOrder Fulfilment
Invoicing & BillingInvoicing & Billing
Sell DirectSell Direct
eMarketseMarkets
Manufacturer(s)Manufacturer(s) IndustryIndustryMasterMaster
Channel Channel Partner Partner CatalogCatalog
Touch Touch PointsPoints
End-User End-User Custom Custom CatalogsCatalogs
4PL Management4PL Management
Integrated M3 Cataloging Technology & 4PL Mgmt.
The Information Conduit
ManufacturerManufacturerManufacturerManufacturer
ManufacturerManufacturerManufacturerManufacturer
ManufacturerManufacturerManufacturerManufacturer
ManufacturerManufacturerManufacturerManufacturer
iTooling.comiTooling.comiTooling.comiTooling.comChannel Type BChannel Type BChannel Type BChannel Type B
Channel Type CChannel Type CChannel Type CChannel Type C
Channel Type DChannel Type DChannel Type DChannel Type D
Channel Type AChannel Type AChannel Type AChannel Type A
iTooling.com Value PropositioniTooling.com Value Proposition
Design & Manage Design & Manage ProcessesProcesses
Design & Manage Design & Manage ProcessesProcesses
3PL Partners: Tracking, Delivery, Inbound3PL Partners: Tracking, Delivery, Inbound Manage Hubs, Reports, Manage Hubs, Reports,
3PL Partners: Tracking, Delivery, Inbound3PL Partners: Tracking, Delivery, Inbound Manage Hubs, Reports, Manage Hubs, Reports,
Software Partner: Catalogs, ASP, Back Office, Software Partner: Catalogs, ASP, Back Office, eCommerce PlatformeCommerce Platform
Software Partner: Catalogs, ASP, Back Office, Software Partner: Catalogs, ASP, Back Office, eCommerce PlatformeCommerce Platform
Technical & Technical & Business Business
ImplementationImplementation
Technical & Technical & Business Business
ImplementationImplementation
Partner Partner Relationship Relationship ManagementManagement
Partner Partner Relationship Relationship ManagementManagement
ASP £ Model
Variable £ Model
Communicate & Communicate & ConsultConsult
Communicate & Communicate & ConsultConsult
Cost + Mgmt. Fee
Fee % Based
Standard Software Interface to 3PL PartnersStandard Software Interface to 3PL Partners Standard Software Interface to 3PL PartnersStandard Software Interface to 3PL Partners
Conclusions
• The story continues…• There are still tremendous efficiencies
to be achieved in Supply Chains• Despite the bad press, eBusiness is
happening now and is a major force in achieving these savings
• The path will be more an evolution than a revolution as first expected