Materials Management BUS 3 – 141 Physical Inventory: Logistics, Transportation, & Disposal Week of Feb 19, 2007

Page 2 2 Agenda –Questions from Last Week –“Deal of the Weekend” –Transportation Modes and Carriers –Shipping Terms and Conditions –Third Party providers –Pricing and Supplier Management –Material Salvage and Disposal

Page 3 3 Reminder about Grading Policy

Transportation Modes and Carriers

Page 5 5 Definitions The management of inventory at motion and at rest Logistics – from the Textbook * That 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 customers’ requirements Logistics – from the Council of Logistics Management (CLM) The movement of goods from the point of origin to the point of consumption: a subset of the overall Logistics process Transportation * Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

Page 6 6 Transportation Modes: Planes, Trains, and Automobiles

Page Major Types of Carriers Type Characteristics Common – Service to all shippers – Standard, published Rates – Examples are UPS and FedEx – Most large organizations negotiate discounted rates based on volumes Contract – Specific arrangement for exclusive service for a limited number of shippers – Usually lower rates because of more predictable schedules and routes – Examples are Curriers for medical offices, bus companies to transport students to school Private – In-sourced transportation; Dedicated equipment and facilities that are either owned or leased by the company – Example is Sysco Foods has its own fleet of refrigerated trucks – Becoming more and more rare

Page 8 8 Factors to consider when choosing mode and carrier –Required deliver time –Cost –Type of Item being shipped –Shipment size –Distance to destination

Shipping Terms & Conditions

Page Transportation Terms: F.O.B. – Free On Board –Who pays the freight costs? –When does title pass? –Who makes the claims when something goes wrong? –Who routes the freight? The FOB decision addresses several issues involving the COST and RESPONSIBILITIES of delivering goods between seller and buyer Origin Destination Transportation (Seller) (Buyer) There are several options between seller and buyer when choosing shipping terms. There is no “one size fits all” that fits every company or every transaction

Page F.O.B. Origin Title passes to buyer F.O.B. Origin, Freight Collect Freight charges paid by buyer SellerBuyer Buyer - Pays freight charges Buyer - Bears freight charges Buyer - Owns goods in transit Buyer - Files claims (if any) Seller - Pays freight charges Seller - Bears freight charges Buyer - Owns goods in transit Buyer - Files claims (if any) F.O.B. Origin, Freight Prepaid Title passes to buyer Freight charges paid by seller SellerBuyer F.O.B. Origin, Freight Prepaid and Charged Back Title passes to buyer Freight charges paid by seller SellerBuyerSeller - Pays freight charges Buyer - Bears freight charges Buyer - Owns goods in transit Buyer - Files claims (if any) …then collected from buyer by adding amount to invoice * Adapted from Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

Page F.O.B. Destination Title passes to buyer F.O.B. Destination, Freight Collect SellerBuyer Buyer - Pays freight charges Buyer - Bears freight charges Seller - Owns goods in transit Seller - Files claims (if any) F.O.B. Destination, Freight Collect and Allowed Title passes to buyer Freight charges paid by buyer SellerBuyer Buyer - Pays freight charges Seller - Bears freight charges Seller - Owns goods in transit Seller - Files claims (if any) Seller - Pays freight charges Seller - Bears freight charges Seller - Owns goods in transit Seller - Files claims (if any) F.O.B. Destination, Freight Prepaid Title passes to buyer Freight charges paid by Seller SellerBuyer Freight charges paid by buyer …then charged to seller by deducting amount from invoice * Adapted from Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

Third Party Logistics Providers

Page Services provided by Third Party Logistics providers (3PL) –Economies of Scale –Professional focus and expertise –Warehousing –Outbound and Inbound transportation –Freight bill auditing and payment –Freight consolidation –Distribution –Order Fulfillment –Cross-docking –Packaging –Returns Major Carriers enable their customers to focus on core competencies, while the carrier drives efficiencies and increased services in transportation and logistics

Page Other logistics services –Expedited shipments, including same day services –Freight forwarding –Reserving dedicated freight capacity –Brokering between shipper and carriers –Customshouse brokers for imports

Page Factors to consider when establishing a transportation partner –Reliable On-Time Delivery –Assured capacity –Worldwide reach –Low cost –Security –Carrier final situation –Minimal damaged goods –Invoicing and ease of doing business –Tracking capability and other IT Information –Experience with your product or industry Negotiating transportation deals should be a collaboration between the Purchasing and Logistics groups

Pricing & Supplier Management

Page Rates and Pricing Transportation Costs are a function of: –Distance –Quantity and size –Speed Don’t pay for more than you need. Use overnight services for urgent needs ONLY; don’t get on the habit of automatically overnighting If you spent the premiums for expedited shipping, don’t let the items SIT in receiving, or somewhere else, inside your business For lowest cost, make every reasonable effort for full containers: Full pallet loads, Full trucks, Full Ocean Containers, Full Planes, etc.. Distance Speed Quantity & Size

Materials Salvage and Disposal

Page Definitions The Recovery of some amount of the original investment after materials have been determined to be no longer usable in their current form Salvage Disposal The Removal of some amount of the original investment after materials have been determined to be no longer usable in their current form The goal is to AVOID THE NEED to manage salvage and disposal. Any chronic pattern of waste must be identified, root causes understood, and corrective action taken. However, some amount of disposal and salvage are inevitable and should be managed in a way that brings the least cost and most revenue, while being environmentally responsible

Page The Reverse Flow of Materials raw material processing manufacturing distribution consumption Recovery recycleremanufacturereuse Waste Processing disposal resell Reduce Reuse Recycle less risk less complexity easier to implement smaller environmental benefits * Adapted from Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

Page Materials Recaptured from a Computer Plastic Pothole Filler Aluminum Cans, Foil Steel Cars Construction Beams Nonleaded Glass Usable Glass Copper Wiring, Pipes, Computer Circuitry Lead Car Batteries, Film Leaded Glass Asphalt, Industrial Abrasives Precious Metals Jewelers, Dentists, Chip Makers * Adapted from Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

Page Ways to Salvage material and help the environment –Reduce Scrap and waste –Convert waste to byproducts that can be sold –Carefully manage the storage and use of Hazardous Materials –Recover precious metals Most well-run global organizations follow the strict United States environmental standards throughout the world

Page Six categories of Material for Disposal Excess - Surplus Obsolete - No longer required Rejected End Items – Poor conformance to specifications Scrap - Residual from a production process; rejected components. May be converted to another use Waste – Similar to scrap, but unusable Hazardous (HazMat) – Toxic, flammable, corrosive

Page Actions to take before disposal –Carry excess materials for a reasonable time (Forecasts change frequently; what appeared to have no demand may soon be required) –Find a substitute use for the item –Find another division or Business Unit (for large organizations) that may need the material –Disassemble and sell the spare parts –Have a “fire sale” and sell for less than standard price (similar to a garage sale for a business) –Repair damaged goods and sell as refurbished

Page Business Reasons for carefully Managing Disposal Receive some amount revenue (even if deeply discounted from original cost) Avoid the risk of poor quality products delivered to customers –Ensure that no issues emerge that could impact image and liability Protect Intellectual Property –Many items have been taken from landfills and been reverse- engineered. Any item that might represent a competitive advantage must be removed or destroyed before disposal Comply with governmental regulations Reclaim some amount of the original material and protect the environment

Page Methods for Waste disposal –Sell “as-is” to non-competing markets –Public auctions –Return excess to the original supplier (an acceptable instance for paying restocking charges) –Consign to a broker –Sell to a dealer –Donate to charities and schools The skills and contacts that exist in the Purchasing organization are ideal for negotiating disposal deals