BUENOS DIASBUENOS DIAS

AGENDAAGENDA

OverviewOverview Supply Chain ManagementSupply Chain Management

DefinitionDefinition NetworkNetwork CyclesCycles

AGENDAAGENDA

LogisticsLogistics DefinitionDefinition ComponentsComponents CostsCosts MeasuresMeasures

AGENDAAGENDA

InventoryInventory IntroductionIntroduction RationaleRationale CostsCosts TypesTypes ModelsModels

AGENDAAGENDA

Ex/ImEx/Im Basic TransactionBasic Transaction CostingCosting

Summary and ConclusionsSummary and Conclusions

OVERVIEW: INSTRUCTOROVERVIEW: INSTRUCTOR

Kevin BobergKevin Boberg PositionsPositions

Associate DeanAssociate Dean ProfessorProfessor

BackgroundBackground

OVERVIEW: ALL YOU NEEDOVERVIEW: ALL YOU NEED

kboberg@kboberg@nmsunmsu..eduedu http://cbae.nmsu.edu/~kboberghttp://cbae.nmsu.edu/~kboberg http://http://cbaecbae..nmsunmsu..eduedu/~/~kbobergkboberg//ctwctw

OVERVIEW: AUDIENCEOVERVIEW: AUDIENCE NameName BackgroundBackground InterestsInterests

GeneralGeneral TopicTopic

Goal: What do you want to learn?Goal: What do you want to learn?

AGENDAAGENDA

Supply Chain ManagementSupply Chain Management DefinitionDefinition NetworkNetwork CyclesCycles

DEFINITIONDEFINITION Supply Chain ManagementSupply Chain Management

IntegrationIntegration Business ProcessesBusiness Processes End UserEnd User Original SuppliersOriginal Suppliers Products, Services, InformationProducts, Services, Information Add ValueAdd Value

SUPPLY CHAIN NETWORKSUPPLY CHAIN NETWORKIn

itia

l Sup

plie

rs

Tie

r 3

to n

Sup

plie

rs 1

2

n

Tier 3 Tier 2 Tier 1 Tier 1 Tier 2 Tier 3

1

2

n

1

2

n

1

2

n

1

2

1

2

Tie

r 3

to n

Cus

tom

ers

End

Cus

tom

ers

Customer Order CycleCustomer Order Cycle Replenishment CycleReplenishment Cycle Manufacturing CycleManufacturing Cycle Procurement CycleProcurement Cycle

SUPPLY CHAIN CYCLESSUPPLY CHAIN CYCLES

Customer Order Cycle

Replenishment Cycle

Manufacturing Cycle

Procurement Cycle

Customer

Retailer

Distributor

Manufacturer

Supplier

SUPPLY CHAIN CYCLESSUPPLY CHAIN CYCLES

Customer Order CycleCustomer Order Cycle Customer ArrivalCustomer Arrival Customer Order EntryCustomer Order Entry Customer Order FulfillmentCustomer Order Fulfillment Customer Order ReceivingCustomer Order Receiving

SUPPLY CHAIN CYCLESSUPPLY CHAIN CYCLES

Customer Arrival

Customer Order Entry

Customer Order Receiving

Customer Order Fulfillment

Customer Order CycleCustomer Order Cycle

SUPPLY CHAIN CYCLESSUPPLY CHAIN CYCLES

Replenishment CycleReplenishment Cycle Retail Order TriggerRetail Order Trigger Retail Order EntryRetail Order Entry Retail Order FulfillmentRetail Order Fulfillment Retail Order ReceivingRetail Order Receiving

SUPPLY CHAIN CYCLESSUPPLY CHAIN CYCLES

Retail Order Trigger

Retail Order Entry

Retail Order Receiving

Retail Order Fulfillment

Replenishment CycleReplenishment Cycle

SUPPLY CHAIN CYCLESSUPPLY CHAIN CYCLES

Manufacturing CycleManufacturing Cycle Order Arrival From CustomerOrder Arrival From Customer Production SchedulingProduction Scheduling Manufacturing and ShippingManufacturing and Shipping Receiving by CustomerReceiving by Customer

SUPPLY CHAIN CYCLESSUPPLY CHAIN CYCLES

Order Arrival

Production Scheduling

Receiving

Manufacturing and Shipping

Manufacturing CycleManufacturing Cycle

SUPPLY CHAIN CYCLESSUPPLY CHAIN CYCLES

Procurement CycleProcurement Cycle Order Arrival From ManufacturerOrder Arrival From Manufacturer Supplier Production SchedulingSupplier Production Scheduling Component Manufacturing & ShippingComponent Manufacturing & Shipping Receiving at ManufacturerReceiving at Manufacturer

SUPPLY CHAIN CYCLESSUPPLY CHAIN CYCLES

Order Arrival

Supplier Production Scheduling

Receiving at Manufacturer

Component Mfr. and Shipping

Procurement CycleProcurement Cycle

SUPPLY CHAIN CYCLESSUPPLY CHAIN CYCLES

SUPPLY CHAIN CYCLESSUPPLY CHAIN CYCLES

Push/Pull ViewPush/Pull View PushPush

AnticipateAnticipate CustomerCustomer

PullPull ReactReact CustomerCustomer

Customer Order Cycle

Replenishment Cycle

Manufacturing Cycle

Procurement Cycle

Customer Order Cycle

Replenishment Cycle

Manufacturing Cycle

Procurement Cycle

Push Processes

Customer Order Cycle

Replenishment, Mfr., Procurement Cycle

Pull Processes

Order Arrives

SUPPLY CHAIN CYCLESSUPPLY CHAIN CYCLES

Customer Order Cycle

Replenishment Cycle

Manufacturing Cycle

Procurement CyclePush

Processes

Customer Order, Replenishment, Mfr. Cycle

Procurement Cycle

Pull Processes

Order Arrives

SUPPLY CHAIN CYCLESSUPPLY CHAIN CYCLES

AGENDAAGENDA

LogisticsLogistics DefinitionDefinition ComponentsComponents CostsCosts MeasuresMeasures

DEFINITIONDEFINITION LogisticsLogistics

Part of the Supply ChainPart of the Supply Chain Plans, Implements, ControlsPlans, Implements, Controls Flow and StorageFlow and Storage Goods, Services, InformationGoods, Services, Information Origin, Consumption, DisposalOrigin, Consumption, Disposal Adding ValueAdding Value

COMPONENTS OF LOGISTICSCOMPONENTS OF LOGISTICS

Natural Human

Financial

Physical

Info.

Inputs

Mgmt. Actions

Plan Implement Control

Logistics Management

RM WIP FG

MKTG

Utility

Efficient

Proprietary Asset.

Outputs

Suppliers Cust.

Logistics ActivitiesCS Inventory Location O/P

Forecasting WH Pkg. MH

Traffic IS MM Support

The Marketing Concept

Customer Satisfaction•Suppliers•Intermediate Customers•Final Customers

Company Profit•Max. Profits•Lower Total Cost•Proprietary Asset

Integrated Effort•Product•Price•Promotion•Place

COMPONENTS OF LOGISTICSCOMPONENTS OF LOGISTICS

LOGISTICS COSTSLOGISTICS COSTS

PRICE

PLACE

PROMO

PROD

OP/IS

ICC

OC

TC

WH

Mar

keti

ng

Log

isti

cs

Customer Service Level•Customer Service•Parts and Service Support

OP and IS•OP•Forecast•Communication

Warehousing•Store and handle•Location

Transportation Cost•Traffic and transport

Inventory Carrying Cost•Inventory Mgmt.•Pkg.•Reverse Logistics

Lot Quantity Costs•MH•Procurement

LOGISTICS COSTSLOGISTICS COSTS

Inventory CarryingInventory Carrying $332$332

TransportationTransportation $548$548

Shipper RelatedShipper Related $ 5$ 5

AdministrationAdministration $ 35$ 35

TotalTotal $920$920

LOGISTICS COSTSLOGISTICS COSTS

Inventory CarryingInventory Carrying 36.09%36.09%

TransportationTransportation 59.57%59.57%

Shipper RelatedShipper Related 0.54%0.54%

AdministrationAdministration 3.80%3.80%

TotalTotal 100.00%100.00%

LOGISTICS COSTSLOGISTICS COSTS

MEASURES: PROFIT MODELMEASURES: PROFIT MODEL

Assets

Sales

Sales

NP

NPM

ROALeverage

Asset T/O /

/

XX=ROI

MEASURES: ROAMEASURES: ROA

TURNOVER X MARGIN EARNINGSROA

ASSETS AVE.

SALES

SALES

INCOME NETXROA

MEASURES: ROAMEASURES: ROA

EQPMT& PLANTPROPERTY,PPE

OTHERINVENARCASHCA

WHEREPPE CA

SALESX

SALES

INCOME NETROA

MEASURES: ROAMEASURES: ROA

OTHER FINANCIAL MEASURESOTHER FINANCIAL MEASURES Cash Flow Conversion CycleCash Flow Conversion Cycle

WIP

RM

FG

Sales

Cash In

Conversion

Conversion Conversion

Conversion

OTHER FINANCIAL MEASURESOTHER FINANCIAL MEASURES Working CapitalWorking Capital

sLiabilitieCurrent

AssetsCurrent

Capital Working

CL

CA

WC

Where

CLCAWC

OTHER FINANCIAL MEASURESOTHER FINANCIAL MEASURES Current RatioCurrent Ratio

sLiabilitieCurrent

AssetsCurrent

RatioCurrent

CL

CA

CR

WhereCL

CACR

OTHER FINANCIAL MEASURESOTHER FINANCIAL MEASURES Quick RatioQuick Ratio

sLiabilitieCurrent

Inventory

AssetsCurrent

RatioCurrent

CL

INV

CA

CR

WhereCL

INVCAQR

OTHER FINANCIAL MEASURESOTHER FINANCIAL MEASURES Average Age of ReceivablesAverage Age of Receivables

sReceivable Trade Ave.

SalesCredit Net

Turnover Receivable

sReceivable of Age Average

RTO

Yearin Days

RTO

AAR

Where

AAR

OTHER FINANCIAL MEASURESOTHER FINANCIAL MEASURES Average Age of PayablesAverage Age of Payables

Payable Accounts

Yearin Days

Payable Acounts

Payables of Age Average

AP

DIYACCTPAY

AP

DIY

ACCTPAY

AAR

Where

AAP

OTHER FINANCIAL MEASURESOTHER FINANCIAL MEASURES Average Days Supply in InventoryAverage Days Supply in Inventory

Inventory Average

Sold Goods ofCost

TurnoverInventory

InventorySupply Days Average

ITO

Yearin Days

ITO

ADSI

Where

ADSI

AGENDAAGENDA

InventoryInventory IntroductionIntroduction RationaleRationale CostsCosts TypesTypes ModelsModels

INTRODUCTIONINTRODUCTION

InvestmentInvestment 20% of Total Assets for Mfr.20% of Total Assets for Mfr. 50% Of Total Assets for50% Of Total Assets for

WholesalersWholesalers RetailersRetailers

INTRODUCTIONINTRODUCTION

Manage to ImproveManage to ImproveROAROACash FlowCash FlowProductivityProductivityCustomer ServiceCustomer Service

INTRODUCTION: TRENDSINTRODUCTION: TRENDS

Product ProliferationProduct Proliferation Market DispersionMarket Dispersion Service ExpectationsService Expectations Shrinking PlcShrinking Plc Time-based CompetitionTime-based Competition

INTRODUCTION: SERVICEINTRODUCTION: SERVICE

CustomersCustomers InternalInternal ExternalExternal

MeasuresMeasures Fill rateFill rate TimelinessTimeliness

RATIONALERATIONALEEconomies of Scale: BalanceEconomies of Scale: Balance

Unit CostUnit CostHolding CostHolding Cost

RATIONALERATIONALESeasonalitySeasonality

DemandDemandSupplySupplyBothBoth

RATIONALERATIONALESpecializationSpecialization

Plant LevelPlant LevelDc LevelDc LevelFocused FactoryFocused FactoryAssignmentAssignment

RATIONALERATIONALEUncertaintyUncertainty

VariabilityVariabilityWithin LogisticsWithin LogisticsWithin FirmWithin FirmWithin Supply ChainWithin Supply Chain

RATIONALERATIONALE UncertaintyUncertainty

COSTS: TLCCOSTS: TLC

TradeoffsTradeoffsWithin LogisticsWithin LogisticsWithin FirmWithin FirmWithin Supply ChainWithin Supply Chain

COSTS: TLCCOSTS: TLC

PRICE

PLACE

PROMO

PROD

OP/IS

ICC

OC

TC

WH

COSTS: TYPESCOSTS: TYPES Ordering CostOrdering Cost

ORDER SIZE (Q)

OR

DE

R C

OS

T

COSTS: TYPESCOSTS: TYPES Stock Out CostStock Out Cost

ORDER SIZE (Q)

ST

OC

K O

UT

CO

ST

COSTS: TYPESCOSTS: TYPES Transport CostTransport Cost

ORDER SIZE (Q)TR

AN

SP

OR

T C

OS

T

COSTS: TYPESCOSTS: TYPES Carrying CostCarrying Cost

ORDER SIZE (Q)

CA

RR

YIN

G C

OS

T

COSTS: TYPESCOSTS: TYPES Carrying CostCarrying Cost

SERVE

K

ICC%

STORE

RISK

COSTS: TYPESCOSTS: TYPES Carrying CostCarrying Cost

K

ICC%

WACC

COSTS: TYPESCOSTS: TYPES Carrying CostCarrying Cost

ICC%

STORE PRIVATE

LEASED

PUBLIC

PLANT

COSTS: TYPESCOSTS: TYPES Carrying CostCarrying Cost

SERVEICC%

INSURANCE

TAXES

COSTS: TYPESCOSTS: TYPES Carrying CostCarrying Cost

ICC%

RISK

OBSOLESCENCE

SHRINKAGE

DAMAGE

RELOCATION

COST AND SALES: COST AND SALES: BALANCEBALANCE

ORDER SIZE (Q)

CO

ST

TAC

ICC$

OC

TYPESTYPES

CycleCycle Lot SizingLot Sizing Many MethodsMany Methods Sold or Used inSold or Used in

ProductionProduction MarketingMarketing

TYPESTYPES

CycleCycleConditions ofConditions of

CertaintyCertaintyMean PerformanceMean Performance

TYPESTYPES CycleCycle

Basic MathBasic Math

PERCENT COSTCARRYING

UNITPER VALUE

SIZE LOTSTOCK CYCLE

WHERE

2

1

C

V

Q

CVQTACCYCLE

TYPESTYPES

SafetySafetyLead TimeLead TimeDemandDemandOther FactorsOther Factors

TYPESTYPES

SafetySafety ConstantConstant Function ofFunction of

VariabilityVariability Customer Service LevelCustomer Service Level

TYPESTYPES SafetySafety

Basic MathBasic Math

PERCENT COSTCARRYING

UNITPER VALUE

VAR. OF MSR. X UNITSDAILY AVE.

WHERE

C

V

SS

CVSSTAC

Q

QSAFETY

TYPESTYPES

Transit or PipelineTransit or PipelineEn-routeEn-routeDoor-to-DoorDoor-to-DoorHow ValueHow Value

TYPESTYPES PipelinePipeline

Basic MathBasic Math

PERCENT COSTCARRYING

UNITPER VALUE

DOORTODOOR TIME TRANSIT

DEMAND ANNUAL

WHERE

365

C

V

t

D

CVtD

TACTRANSIT

BASIC Q-MODELBASIC Q-MODEL

CertaintyCertaintyBalanceBalance

Ordering CostOrdering Cost Inventory Carrying CostInventory Carrying Cost

BASIC Q-MODELBASIC Q-MODEL Determining Q (Cycle)Determining Q (Cycle)

UNITPER VALUE

PERCENT COSTCARRYING

DEMAND NNUAL

COSTORDERING

2

V

C

AD

P

WHERECV

PDQ

BASIC Q-MODELBASIC Q-MODEL Determining Q (Cycle)Determining Q (Cycle)

CVQICC

Q

DOC

WHERE

ICCOCTAC

2

1

P

$

BASIC Q-MODELBASIC Q-MODEL

Intensive AdministrativeIntensive Administrative Perpetual Inventory Perpetual Inventory High CostHigh Cost ““A-items”A-items”

BASIC P-MODELBASIC P-MODELFixed PFixed PVariable QVariable Q

BASIC P-MODELBASIC P-MODELLow AdministrationLow AdministrationKey is PKey is P““C” itemsC” items

AGENDAAGENDA

Ex/ImEx/Im Basic TransactionBasic Transaction CostingCosting

BASIC TRANSACTIONBASIC TRANSACTION

Source Port YouPortSource

Customs Customs

D-t-PContract

P-t-DContract

P-t-PContract

Bill of

Lading

Commercial Contract

Source Port YouPortSource

D-t-PContract

P-t-DContract

P-t-PContract

Bill of

Lading

Bill of Lading Evidence of Contract Evidence of Receipt Evidence of Title (order form)

BASIC TRANSACTIONBASIC TRANSACTION

Source Port YouPortSource

D-t-PContract

P-t-DContract

P-t-PContract

Bill of

Lading

Bill of Lading Whoever issues is the carrier Watch who issues

varies by mode varies by contract

BASIC TRANSACTIONBASIC TRANSACTION

Source YouSource

Commercial Contract

Payment Terms Sales Terms

BASIC TRANSACTIONBASIC TRANSACTION

BASIC TRANSACTIONBASIC TRANSACTION

Source YouSource

Commercial Contract

Payment Terms Cash Open Account Drafts and L/C Forfeiting

Source You

Commercial Contract

Sales Terms: INCO Terms E Term(s) C Terms D Terms F Terms

BASIC TRANSACTIONBASIC TRANSACTION

•E Term

–Ex Works

•C Terms

–CFR: Cost and Freight (named port of destination)

–CIF: Cost, Insurance, and Freight, (named port of destination)

BASIC TRANSACTIONBASIC TRANSACTION

•C Terms (continued)

–CPT: Carriage Paid To (named place of destination)

–CIP: Carriage and Insurance Paid To (named place of destination)

BASIC TRANSACTIONBASIC TRANSACTION

•D Terms

–DAF: Delivered At Frontier (named place)

–DES: Delivered Ex Ship (named port of destination)

–DEQ: Delivered Ex Quay (named port of destination)

–DDU: Delivered Duty Unpaid (named place of destination)

–DDP: Delivered Duty Paid (named placed of destination)

BASIC TRANSACTIONBASIC TRANSACTION

•F Terms

–FCA: Free Carrier (named place)

–FAS: Free Alongside Ship (named port of shipment)

–FOB: Free On Board (named port of shipment)

BASIC TRANSACTIONBASIC TRANSACTION

Any Mode• EXW• FCA• CPT• CIP• DAF• DDU• DDP

Marine Only (other than RoRo)

• EXW• FAS• FOB• CFR• CIF• DES• DEQ• DDU/DDP

BASIC TRANSACTIONBASIC TRANSACTION

Term Costs Time Variation Party Price

EXW

FAS

FOB

CFR

CIF

DES

DEQ

DDU

DDP

Total

BASIC TRANSACTIONBASIC TRANSACTION

SUMMARY SUMMARY AND AND

CONCLUSIONSCONCLUSIONS