CHAPTER 9

Decision Strategies in Transportation

Cost of Processing Freight Invoices

$1-10

$11-20

$21-40

$41-50

>$51

Areas in the Supply Chain Affected by Transportation

Planning Procurement Manufacturing Distribution

Network and assetrationalization

Landed costs Interplantmovements

Load plans

Lead times Inbound in-transitinventorymanagement

JIT and otherspecializedservices

Pick lists

Vendor sourcing Reduced rawmaterial and work-in-processinventories

Shippingdocumentationpreparation

Economic orderquantity

Dock scheduling

Outbound shipmentmanagement

Mode/carrierselection

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 PATCustoms-Trade Partnership Against Terrorism

• Joint government - business program

• voluntary - 7000 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

PurchasingWhat 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.

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 supportCR (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. 10-32

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 SelectionCriteria 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 serviceCR (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.

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