Measuring Logistics’ Performance June 20, 2014

Logistics Lead Time (LLT) … is the delay (aka latency) between the initiation of an order and the completion of its fulfillment. Procurement Holding mandatory inventory mandatory to start production (e.g., raw materials, parts, components, recipe ingredients) Production I ncludes specifications, conception, design, transformation, manufacture, assembly, and quality management. Distribution Includes planning, allocation, assignment, and tracking of shipment and delivery resources.

Example: Production of Blouses Logistics department has to procure the following for the production line: Fabrics, which will be cut out in the first production line Yarn, which will be sewed together with the cut-out fabrics Buttons, which will be sewed on the blouses.

Procurement Logistics

Example Contd – Determine Economic Order Quantity (EOQ) (Carrying) Costs of -Transport -Storage -Cost of tied capital Total Costs Purchasing Price Costs Quantity Economic Order Quantity

Example (Contd…): Optimal Order Quantity for the Fabrics ParametersPart Order (In Rs.’0000s)Total Order (In Rs.’0000s) Purchase Price Transport Costs Storage Costs Cost Of Tied Capital Handling Costs 0.02 Total Costs

Example (Contd…): Detailed Procurement Plan MaterialFebMarAprMayJuneTotal Fabric A bales Fabric B Bales Yarn 11,000 5,000 reels Yarn ,000 reels Button Z60006,000 30,000 pieces Button X50005,000 20,000 pieces

Example (Contd…): Lead Time Calculation Factors to be confirmed Whether material will be available immediately or if a delivery time is involved The transportation period Time required for customs clearance (if any) or any other clearances

Example (Contd…): Lead Time Calculation Contd… Factors Confirmed Delivery time after receipt of order = 10 days Transportation by trucks including delivery time to warehouse = 21 days Transportation by airfreight including delivery time to warehouse = 3 days Customs and/or other clearances = 3 days Acceptance and inspection of goods at our warehouse = 2 days

Example (Contd…): Lead Time Calculation Contd… Determine Order Point: The quantity (of inputs) on-hand that will (theoretically) cover your average usage over the supplier’s lead time. It is to leave you with your “safety stock” inventory on-hand when replenishment arrives. Also, known as ‘Order Point Inventory System’ For e.g. We use 10 pieces per week and we need 3 weeks to replenish stock, we would order when the on-hand inventory reaches 30 pieces. If 10 pieces per week is a comfortable safety stock (given, firm capacity, demand/market factors, etc.), then our order time will be 10 pieces (our safety stock) + 30 pieces(replenished stock). The in-house inventory control systems would automatically trigger a replenishment signal when on-hand inventory hits a level of 40 or less. (Reference: KANBAN)

Lead Time Calculation Contd…Order Point (Blouses Example) Maximum Stock: 1,000 Pieces Order Point Stock: 600 Pieces Minimum Stock: 300 Pieces Order Quantity: 700 Pieces = Consumption Stock Quantity After Acceptance Of Goods: 1,000 Pieces = Maximum Stock Inventory Level over Time Order Quantity Maximum Stock Order Point Stock Minimum Stock Stock movement Order Point

Example (Contd…): Lead Time Calculation Contd… Make Order Placement: The order schedule is provided to the supplier, the producer can plan production and ensure immediate delivery Depending on time availability, supplies’ delivery can be scheduled by truck and/or airfreight

Lead Time Calculation Contd…Order Placement Order Point Plan With Quantities And The Need Date Fabric A 01. Feb01. Mar01. Apr01. May01. Jun Inventory01,000 Demand1,000 Emergency Stock1,000 0 Order Quantity2,0001,000 0 Purchasing Lead Time - Vessel36 Days Latest Order Point (Vessel)23. Feb.26. March25. April26. May25. June Purchase. Lead Time - Airfreight 18 Days Latest Order Point (Airfreight)13. March12. April13. May12. June13. July

Example (Contd…): Lead Time Calculation Contd… Transport and Acceptance Goods: Arrange for transport from supplier to warehouse, followed by: Counting the material Checking quality Accepting goods and signing delivery note Registering incoming goods in the inventory records

Quiz Main task of procurement logistics? – Price and market analyses – Flow of materials and information To calculate EOQ, we consider? – Purchasing price and handling (carrying) costs – Only purchasing price of goods

Production Logistics

Example (Contd…): Production Schedule ParametersBlack BlouseWhite Blouse Demand60 Blouses per day40 blouses per day Cutting Resource100 Blouses per day Sewing Resource200 Blouses per day Fabric Cutting12 blouses per bale20 Blouses per bale Yarn1.2 blouses per reel1 blouse per reel Button5 buttons per blouse Black blouses and White Blouses to be produced in a period of 5 months

Example (Contd…): Production Management Plan Start with cutting fabrics – Move 5 Bales of fabric A and 2 bales of Fabric B to the cutting line – Transport cuttings to the sewing line along with yarn and buttons One day later, sewing line will begin sewing blouses – Sewing line will sew fabric with yarn and buttons – Sewn blouses will be transported into packing zone and packed into shipping boxes – The finished and packed blouses will be stored in finished-goods warehouse Both production lines (cutting and sewing) will produce 60 black and 40 white blouses per day

Example (Contd…): Inventory Management Plan Date01. March02. March03. March Fabric A 200 bales Fabric B 160 bales Yarn 1 1,500 reels1,5001,450 Yarn 2 1,200 reels1,2001,160 Button Z 9,000 pieces9,0008,700 Button X 6,000 pieces6,0005,800 Cuttings black0 60 Cuttings white0 40 Blouses black0 060 Blouses white0 040 Stock movement must be fixed in the inventory records End of day or shift, stock movements will be recorded in inventory card of each article (raw material, semi-finished and finished goods)

Safety Stock of Finished Goods A buffer or safety stock is held to balance fluctuations: – Scrap – Quality problems – Production problems – Higher demand Stock falls below safety stock then work needs to be expedited to maintain a stock of finished goods in the right amount to meet the requirements of the distribution market

Quiz Main task of production logistics? – Materials manipulation, quality control and maintenance – Material planning, in-house transport and packaging To reduce the stock of finished goods – Define for each product a safety stock and a maximum stock – Produce the whole demand of each article at one time

Distribution Logistics

Inventory and Warehouse Management The company works with a central warehouse and not regional warehouses. – Advantages: Minimize stock and capital lock up; No transport between regional warehouses to balance stock and thus has only one (set) of safety stock held – Disadvantages: Longer route of transport The finished goods are classified into A-parts (high-runner), B- parts (medium-runner) and C-parts 9low runner) [Reference: ABC analysis]. Each type also has safety stock TypeWeeks Demand Per Week Safety Stock A-parts12,000 B-parts35001,500 C-parts51050

Order Picking …defined as the activity by which a small number of goods are extracted from a warehousing system, to satisfy a number of independent customer orders. Start of Picking Packing and Dispatching Zone A- Parts B- Parts C- Parts To minimize picking time the warehouse is also sub-divided into different picking zones using the method of batch picking. What is batch picking?

Transport Management Production Warehouse Distribution Warehouse Retailer Wholesale Warehouse Exports Own Truck Third-Party carrier Own Truck Air freight or Ship

Order Processing Identify means of communication – Telephone, written or data exchange Order Lead Time – Delivery time from ordering upto delivery Damages, claims and returns - Permission to return goods

Quiz Main task of distribution logistics? – Order processing, warehousing and transport – Pricing, promotion and marketing True or false? Will have same safety stock of each article in our warehouse – No, we define each article a different safety stock (A-part, B-part, etc) – Yes. Every article is important

Disposal Logistics

Type of Wastes Packing material like plastic film and cardboard, Empty yarn reels and fabric coils, Scrap from fabric cutting, Lubricating oil, Broken machinery parts.

Waste Containers Production Warehouse Distribution Warehouse Shipping Plastic film Recycling Cardboard Recycling Remaining Rubbish

Reusable Cycle Weaving mill Full reel/coil Empty reel/coil Textile Plant

Waste Disposal Sorting of wastes Distinguishing as harmless and hazardous waste Harmless waste disposed at waste disposal site Hazardous waste should be disposed off as per mandatory laws

Quiz Main task of disposal logistics? – Waste and environment management – Delivery of goods to the customer Disposal Management – Reduces costs – Increases costs

Logistics Functions Information Management Inventory Control Transportation Warehousing Network Design

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