CHAPTER 9 Decision Strategies in Transportation

Areas in the Supply Chain Affected by Transportation Source: Adapted from The Emergence of Third Party Logistics, White Paper no. 4 (Atlanta, GA: PricewaterhouseCoopers, 1998), p. 5.

Terms Bill of Lading Manifest Claims Tracing and Expediting Inbound Outbound

Mode/Carrier Selection Problem recognition Search process Choice process Post-choice evaluation similar to the MDMP process

Cost Factors Often Considered in Mode Carrier Selection Freight costs Inventory carrying costs –inventory in pipeline –cycle stock at the receiving location –required safety stock at the receiving location Investment cost required to produce the inventory to fill the pipeline a

Service Factors Often Considered in Mode Carrier Selection Perceived quality of customer service Shipment tracking and tracing capabilities Billing/invoicing accuracy Electronic data interchange (EDI) capabilities Potential to develop mutually beneficial long-term partnership Cargo capacity limitations Ability to provide service that does not damage goods in transit Customs clearance capabilities for international shipments Impact on the shipper’s negotiating position/leverage on other shipping activities

Compairdata.com

Freight Brokers

Tracking and Expediting

Transportation Security

C-T PAT Customs-Trade Partnership Against Terrorism Joint government - business program voluntary participants Security - procedural, physical personnel, manifest prevent incoming dirty bomb/material in containers ensure integrity of practices reduced inspections reduced losses from theft

Questions?

CHAPTER 10 Warehousing

Objectives Why is warehousing important - 2-5% of sales Types of warehouses functions why have warehouses in a JIT economy? Is there a difference between a Distribution Center and a Warehouse?

Warehousing Management Warehousing emphasizes storage of products. Distribution centers emphasize rapid movement of products through the facility. Throughput is the amount of product entering and leaving a facility in a given time period. Regrouping function –Accumulating (increasing quantity) –Allocating (reducing quantity) –Assorting (building up a variety of products) –Sorting (separating products into grades and qualities)

Uses of Warehousing Manufacturing support Product - mixing Consolidation Breakbulk Cross Docking shorten customer wait times and transportation lead times

Functions Receive putaway Store order entry Pick Pack Ship Value added services postponement

Factors Influencing Warehousing in the Future Time - The best warehouse operations are those designed to reduce every aspect of order cycle time. Quality - Users now expect performance that approaches perfection. Asset productivity - Reduce total cost, reuse, and recycle. New kind of workforce - Requirements for both management and labor will change significantly.

Private Warehousing Private warehousing is owned or occupied on a long-term lease Offers control to owner Assumes both sufficient demand volume and stability so that warehouse remains full High fixed costs

Advantages of Private Warehousing Control Flexibility Less costly Better use of human resources Tax benefits Intangible benefits

Advantages of Public Warehousing Conservation of capital Use of space to meet peak requirements Reduced risk Economies of scale Flexibility Tax advantages Specific knowledge of storage and handling costs

Disadvantages of Public Warehousing Effective communication may be difficult because of system incompatibility Specialized services may not always be available. Space may not be available on demand.

Attributes of World Class Warehouses and Distribution Centers 100% Inventory Accuracy Perfect Order Fulfillment Value added services Cleanliness Time Definite Delivery On-time deliveries Logical warehouse flow

World Class Employee Education Programs Safety Layout Obsolete Stocks Turns Processing Times Cross Docking

Ideal Facility for Pure Supplier Consolidation (Full Pallet Movement)

Poor Warehouse Warning Signs Excessive handling poor utilization/cube obsolete equipment obsolete merchandise old docks manual procedures lack of barcodes

Cycle Counting Reduce losses identify problems earlier security costs “Significant cuts in inventory come only from finding and fixing the causes of excess.”

Measures Picks per worker per hour inventory accuracy loss/shrinkage stockouts percent of utilization facing fill rates

CHAPTER 12 Procurement

Goals of Procurement Uninterrupted flow of materials, supplies, and services keeping investment at a minimum maintain and improve quality find and/or develop competent suppliers standardize items and procedures

Purchasing What is purchasing? Primarily a buying activity A decision area to be integrated with overall materials management and logistics At times, an area to be used to the firm’s strategic advantage Mission Securing the products, raw materials, and services needed by production, distribution, and service organizations at the right time, the right price, the right place, the right quality, and in the right quantity. CR (2004) Prentice Hall, Inc.

Purchasing (Cont’d) What is purchased? Price - Cost of goods - Terms of sale - Discounts Quality - Meeting specifications - Conformance to quality standards Service - On-time and damage-free delivery, order-filling accuracy, product availability - Product support CR (2004) Prentice Hall, Inc.

Purchasing (Cont’d) Importance of purchasing management Decisions impact on 40 to 60% of sales dollar Decisions are highly leveraged Activities of purchasing Selects and qualifies suppliers Rates supplier performance Negotiates contracts Compares price, quality, and service Sources goods Times purchases Sets terms of sale Evaluates the value received Measures inbound quality if not a responsibility of quality control Predicts price, service, and sometimes demand changes Specifies form in which goods are to be received CR (2004) Prentice Hall, Inc

Four Buying Situations Routine order Procedural problem Performance problem Political problem

12 Steps in buying process Establish need establish specs search for alternatives establish contract set purchase and usage criteria evaluate alternative buying actions determine budget availability Evaluate specific alternatives negotiate with suppliers buy use post purchase evaluation

Purchasing Variables Lead Time Lead Time variability % on time delivery % in stock availability capacity to expedite downtime Reliability quality rejects - number and reasons price

Supplier Development Defined A systematic organizational effort to create and maintain a network of competent suppliers and to improve various supplier capabilities that are necessary for the buying organization to meet its increasing competitive challenges. Why would you want to develop your suppliers?

Supplier Selection Criteria for selecting suppliers Past or anticipated relations - Honesty - Financial viability - Reciprocity Measured performance - Price - Responsiveness to change or requests - On-time delivery - Product or service backup - Meeting quality goals CR (2004) Prentice Hall, Inc.

Supplier Selection (Cont’d) Single vendors Allows for economies of scale Consistent with the just-in-time philosophy Builds loyalty and trust May be only source for unique product or service Multiple vendors Encourages price competition Diffuses risk May disturb supplier relations, reduce loyalty, reduce responsiveness, and cause variations in product quality and service CR (2004) Prentice Hall, Inc.

Supplier Selection (Cont’d) Finding suppliers Personal contacts Trade publications Web sites, catalogs, and directories Advertisements and solicitations Qualifying suppliers Previous experiences and formal rating schemes Word of mouth Samples of product Reputation Site visits and demonstrations CR (2004) Prentice Hall, Inc.

Supplier Selection (Cont’d) Criteria for selecting suppliers (Cont’d) Operational compatibility - Informational compatibility - Physical compatibility Ethical and moral issues - Minority vendors - Lowest price bidding - Patriotic purchasing - Open bidding but a pre-selected vendor CR (2004) Prentice Hall, Inc.

Objectives of Systems Contracts and Stockless Purchasing Lower inventory levels. Reduce the number of suppliers. Reduce administrative cost and paperwork. Reduce the number of purchases of small dollar value and requisitions that purchasers have to handle. Provide the opportunity for larger dollar volumes of business to suppliers. Provide for timely delivery of material directly to user. Standardize purchase items when possible.

Through just-in-time planning - Material requirements planning for continuous work - Gantt charts and CPM/PERT for project work Through inventory management - Push methods - Pull methods According to market conditions - Speculative buying - Forward buying - Hand-to-mouth buying, or buying to current requirements Timing of Purchases Methods 10-49

Timing of Purchases (Cont’d) Speculative buying Buying more than the foreseeable requirements at current prices in the hope of reselling later at higher prices. Some of the purchased quantities may be used in production and some simply resold. Generally a financial activity, not a materials management one. Forward buying Buying in quantities exceeding current requirements, but not beyond foreseeable needs. - Takes advantage of favorable prices in an unstable market, or takes advantage of volume transportation rates - Reduces risk of inadequate delivery CR (2004) Prentice Hall, Inc

Timing of Purchases (Cont’d) Hand-to-mouth buying Buying to satisfy immediate needs such as those generated through MRP. - Advantageous when prices are dropping - May improve cash flow by temporarily reducing expenses of carrying inventory CR (2004) Prentice Hall, Inc

Government Influences on Foreign Trade Government controls on the flow of international trade –Customs or duties –Import quotas –Health inspections –Safety standards –Currency outflow –Political or military reasons –Port choice –Non-trade reasons –Country of Origin

Upcoming Chapter 13, 15, Reverse Logistics Final Exam