ISQA 510LogisticsLecture 1

Agenda- Opening ground-rules and expectations- Asian Culture & SCM- Sourcing, Risk, Ernst & Kim; & Monczka / Trent- Logistics Defined- Logistics as a strategy- Logistics as a system- Logistics Metrics- Modes and types of carriers- Genchev CLSC: Why and what are the barriers?- 3PL providers- 3M Healthcare / Team Breakouts- Port of GZ tour

Asian Culture & SCM- Logistics is infrastructure dependant- Inventory is both evolutionary and culturally

dependant- Payment terms- Quality- Maturity

- Quality is VERY cultural- Collectivist Kaizen- Continuous improvement

- NPI - Collectivist & power distance

International Sourcing & Risk Management

What might cause disruption in supply?

Risk Mitigation plans to address

Cost Vs Risk consideration

What could happen?

Labor disputes – carriers, mfg., etc.Terrorist event Infectious disease - SAR’s, Bird Flu, etc.Military conflict – Iraqi, Korea, etc.Natural Disasters – Tsunami, earthquake,

fire, etc.Limitations of resources – Rolling blackouts

in ChinaCorruption and Political unrestPoor performance – unqualified…

Some ideas to offset the risk…Multiple Sources in Multiple Geo’sAlternate or substitute strategiesInventory strategy

HubsSafety StockOn site consignment/VMI

(Vendor Managed Inventory)Strong qualification process or

evaluationVerify capabilities directly or via

customer referralsAsk for certifications, audit

results, endorsements, etc.

Cost Vs Risk..Global Source Vs Local Source

Transportation costStorage costPotential recovery costAgility of supply lineLoss, etc…

Should consider risk from source to proximity of assemblyUnderstand the flow of the materials in the supply chainManufacturing location through finished good distribution

Value add should increase as you get closer to the end customer (Postponement)

Ensure you understand ALL of the costs and understand the Risk What happens if the lines go down? Cost per minute? Loss of

revenue or sales?

Understanding integrated global sourcing (Trent & Monczka)

Questions:1) What is the difference in your and the authors

minds regarding international purchasing and global sourcing?

2) Do you agree with the levels of domestic basic sourcing to global? How does a strategy achieve this? Why are orgs moving to this level of dedication?

3) Describe two of the critical success factors of global sourcing and describe why these are the most critical?

Current and expected Sourcing Levels as a %

Virtually through ‘linkages’

The concept of global production network (GPN)

Source: Ernst & Kim, 2001

Global Production Networks (Ernst & Kim)Questions:1)What are the largest hurdles the “Flagship”

and the “network must overcome to streamlining the GPN?

2)What are the characteristics of the GPN, examples of MNCs that fit this profile?

3)How does knowledge transfer play a part and how might it affect the transfer or outsourcing of a factory?

Logistics defined

“That which plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and information between the point of origin and the points of consumption.”

Quote from: Council of Supply Chain Management Professionals

Logistics as a strategy- In this course, “logistics” will concentrate

on carrier selection, ports, and free trade zones.

- Reminder about CASH- Logistics can be a profit center for outbound materials or a loss on reverse logistics or continuity of supply / inventory.

Logistics as a strategy - Data- Council of Supply Chain Management

Professionals (CSCMP) Data 2010- 2009 logistics costs as % of GDP 7.7%,

down from 9.3% in 2008- Inventory carrying costs fell 4.6%- Transportation costs were down 20.2%

- These due to interest rate declines and recession

- What has changed in 2011? Oil prices!

Logistics Strategies Include….Uninterrupted Supply of Inbound Material

Supplier SelectionForecasting of SupplyInformation SharingInbound Transportation

Facility Numbers and Locations & ChannelsLocal WarehousesDistribution Centers

Inventory Quantities and LocationsTimely Distribution of Necessary Materials

Forecasting of DemandOutbound Transportation

Key Logistics System FeaturesCycle Time / Lead TimeConsistency of CyclesOrder AccuracyConsolidationProblem

Notification/ResolutionCustomer

Satisfaction/FeedbackFlexibility / ResponsivenessCost

Logistics Measurements- Total Costs: Inventory, warehousing,

buffer stock, broker fees, insurance, customs, etc.

- Speed: metric is time when shipment released at supplier to receipt by buyer

- Reliability or fill rate: On-Time-Delivery- Capability: ability to move specific

materials- Accessibility: Carrier capable to door-to-

door service

Transportation Modes

- Motor: Highly flexible, limited to domestic service

- Rail: Low cost, limited to long lead-times & less flexible

- Air: Quick, very high cost- Water: Good for bulk, seasonal and slow

Logistics terms- FOB Destination: supplier owns until buyer takes

ownership (owns freight cost & liability)- FOB Origin: Supplier relinquishes ownership at

shipment (UCC 2-401)- CIF Incoterms (International commercial terms):

Cost ,insurance, & Freight in one shipping price; supplier can arrange, (easy to hide costs)

- FOB Incoterms: transfer of title negotiated- Rotterdam rules: Liability can now be negotiated

Types of carriers

Common: Serves general publicContract: Serves a buyer under negotiated

termsPrivate: owns own equipment, limited to

capacity availableExempt: free of regulation, limited to specific

freight

Top Ten International Logistics Companies- UPS: 1.8M customers & 6M destinations / day;

USA: 89% revenue- FedEX: USA: 76% revenue, air ops 83%- DHL: 49% EU revenue- AP Moeller: shipping mainly, 250 vessels- Nippon Express: 93% from Japan- Ryder: USA: 82% of revenue, leading 3PL- TNT Post: EU 85% of revenue- Expeditors: customs services & distribution- Panalpina: world’s largest “footprint” shipping

group; 52% revenue from EU & Africa- Excel: Primarily UK

Third party Service providers- 3PL – outsource logistics, from inventory

warehousing to inbound / outbound freight.

- Good solution for smaller businesses- UPS supply chain and FedEX participate- Very important if packaging or

postponement is part of your sourcing strategy, especially globally in an MNC.

3PL services

- Custom brokers- Freight brokerage- Warehouse / distribution center- Delivery- Packaging- SCM planning

3PL advantages / disadvantagesAdvantages-Econ of scale-Release capital-Allows core competency focus-VMI-Spares-postponement

Disadvantages-Relinquish control-Loss of integration-Service / flexibility-Information flow to customers-Direct shipment limits

Services Provided By 3PL’s

Transportation Mgt21%

Private Fleets7%

Intermodal4%

Warehousing21%

Value Added20%

International9%

Integrated9%

Other5%

Lead Logistics4%

Genchev Article – Reverse Logistics- In your mind does reverse logistics matter

as a coursing strategy? Why?- How does this play into a closed loop

quality system?- How would inventory management be

affected?- How would you disposition the product in

your company & is this a consideration for start-up organizations?

CLSC – Reverse Flow is critical

Three examples: Walk the talk

3M – What do we know?

- Heathcare in Canada is rising ~10% annually- Government is targeting new logistics methods,

dealing direct, and reducing disti- 3M Canada has over 10K SKUs- Sales to hospitals are $46.8 annually, 90% thru

VARS (value added resellers) to 350 hospitals- VARS – AP/AR, warehousing, inventory- VARS had IT / EDI integrated with 3M- Uses 3PL for balance

3M - Questions• What value do VARs provide in healthcare supply chains?

How much money can be saved by adopting a direct business model? How would the translate internationally?

• Does it make sense for 3M to eliminate VARs and increase its logistics organization?

• Why are hospitals pressuring 3M to adopt a direct business model?

• What are the long term trends in healthcare and how will VARs be affected?

• Should 3M hire a 3PL to handle distribution?• How does 3M’s distribution network help position the

company against the competition?

What should 3M do?- Currently has $4.5M in inventory- If direct, inventory rises $800K- Storage goes up $14K- Picking costs increase $720K- Transport increases $850K- Service / Order Admin increases $450K- Total - $1.6-$2.0M- Less than 10% sales, more in the 3.5%- But….

What should 3M do?- Start-up costs? – IT, return of inventory?- CRM? Order admin services, expediting,

etc…- Relationships with VARS – Market issues?- Core competence? – become a logistics

provider?- How about reducing the cost, reducign the

number of VARS, or 3PL?

Manfield Helpful hints:

7 Deadly Sins of Performance Measurements1. Vanity – cognitive dissonance (IBM PC)2. Provincialism – only measure within an org group3. Narcissism – measure from your point of view, not the

customer4. Laziness – We know best5. Pettiness – only a small component of what matters6. Inanity – Measure what you want to change7. Frivolity – Not taking metrics seriously

- What about cognitive dissonance?

Scott’s case : Helpful hintsVariables:- Ramp- Inventory- SKU proliferation- Closing time of Temecula- Seasonality- Made in USA- China market

Port of Guangzhou-On of the top 10 ports in the world, started inthe 3rd century AD.

- Handled 11 million containers 2008

- 18% growth ‘07 to ’08, but declined34% in January of ‘09 due to recession

- In China Ports of Shanghai, Hong Kong, Shenzhen, and Qingdao are all in the top 10. Hong Kong only reported 1% growth in 2008.

- Guangzhou Free Trade Zone:- founded in 1992. - located in the east of Huangpu District near

to Guangzhou Economic and Technological Development Zone.

- major industries encouraged in the zone include international trade, logistics, processing industry and computer software.