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Contemporary Logistics summary english
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Summary of the book: Contemporary logistics by: Paul R. Murphy, Jr. Donald F. Wood Tenth edition. Pearson
Summary of Chapters:1, 5, 7, 8, 10 & 14 20 Pages in total
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Chapter 1 An overview of logistics
Economic impacts of logistics
Economic utility (the value or usefulness of a product in fulfilling customer needs or wants) 4 general types:
Possession utility : the value or usefulness that comes from a customer being able to take possession of a product Form utility : a product’s being in a form that can be used by the customer and is of value to the customer(allocation; smaller quantities that are desired by customers) Place utility :having products available where they are needed by customers Time utility : having products available when they are needed by customers
What is logistics?
‘logistics management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers’ requirements.’ Mass logistics: every customer gets the same type and levels of logistics service(then some will be overserved/underserved) Tailored logistics: groups of customers with similar logistical needs and wants are provided with logistics service appropriate to these needs and wants
Increased importance of logistics by:
A reduction in economic regulation Changes in consumer behavior Technological advances The growing power of retailers Globalization of trade
The systems and total cost approaches to logistics
Systems approach: indicates that a company’s objectives can be realized by recognizing the mutual interdependence of the major functional areas(marketing, production, finance and logistics) of the firm. Stock-keeping units(SKUs): each different type or package size of a good is a different SKU. Materials management: movement and storage of materials into a firm. 2
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Physical distribution: storage of finished product and movement to the customer. Total cost approach: all relevant activities in moving and storing products should be considered as a whole, not individually.
Logistical relationships within the firm
Finance Production
Postponement: the delay of value-added activities such as assembly, production, and packaging until the latest possible time.
Marketing
Place decisions Price decisions - Landed costs: which refers to the price of a product at the source plus transportation costs to its destination. - Phantom freight - Freight absorption Product decisions Stockouts: being out of an item at the same time there is demand for it Promotion decisions
Marketing channels
‘a set of institutions necessary to transfer the title to goods and to move goods from the point of production to the point of consumption and, as such, which consists of all the institutions and all the marketing activities in the marketing process.’ Ownership channel: covers movement of the title to the goods; Negotiations channel: the one in which buy and sell agreements are reached; Financing channel: payments for goods/ company’s credit Promotions channel: promoting a new or an existing product
Sorting function
‘the discrepancy between the assortment of goods and services generated by the producer and the assortment demanded by the consumer.’ 3 Sorting out; A-eggs from different suppliers into a company’s storage-> Storage only A-eggs (is sorting a heterogeneous supply of products into stocks that are homogeneous) Accumulating; bring together similar stocks from different sources
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Allocating; breaking a homogeneous supply into smaller lots. Assorting; building up assortments of goods for resale(to retail customers)
Activities in the logistical channel
Customer service: keeping existing customers happy Demand forecasting: estimate product demand in a future time period. Facility location decisions: location of the relevant warehousing and production facilities. International logistics: the logistics activities associated with goods that are sold across national boundaries. Inventory management: stocks of goods that are maintained for a variety of purposes Materials handling: the short- distance movement of products within the confines of a facility(warehouse) Order management: management of the activities that take place between the time a customer places an order and the time it is received by the customer Packaging: industrial(protective) packaging refers to packaging that prepares a product for storage and transit. Procurement: raw materials, component parts, and supplies brought from outside organizations to support a company’s operations. Reverse logistics: products can be returned for various reasons, such as product recalls, product damage, lack of demand, and customer dissatisfaction. Transportation management: actual physical movement of goods or people from one place to another, whereas transportation management refers to the management of transportation activities by a particular organization. Warehouse management: places where inventory can be stored for a particular period of time.
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Chapter 5 The supply chain management concept
Supply chain management
‘SCM encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, 3rd party service providers and customers. In essence, SCM integrates supply and demand management within and across companies.’
Evolution of supply chain management
Supply chain: all activities associated with the flow and transformation of goods from the raw material stage(extraction), through to the end user, as well as the associated information flows.
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3 SCM models Supply Chain Operations Reference(SCOR) model:
Plan Source Make Deliver Return
Global Supply Chain Forum(GSCF) model:
Customer relationship management Customer service management Demand management Order fulfillment Manufacturing flow management Supplier relationship management Product development and commercialization Returns management
Process Classification Framework(PCF)
Develop vision and strategy Develop and manage products and services Market and sell products and services Deliver products and services Manage customer service Develop and manage human capital Manage information technology Manage financial resources Acquire, construct and manage property Manage environmental health and safety (EHS) Manage external relationships Manage knowledge, improvement and change
The PCF and SCOR model provide open-source benchmarking data for the logistics activities that are part of their established processes, while the GSCF model has an assessment tool that includes logisticsrelated items.
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Attributes affecting SCM implementation
Customer power
Consumer has a greater access to information(internet)-> become highly knowledgeable about an organization and about competing organizations and its products.
Goals:
Fast supply chain: emphasizes a speed and time component Agile supply chain: focuses on an organization’s ability to respond to changes in demand with respect to volume and variety. Lean supply chain/leagility: A lean supply chain defines how a well-designed supply chain should operate, delivering products quickly to the end customer, with minimum waste.
Long-term orientation
Long-term orientation-> relational exchanges Short-term orientation-> transactional exchanges Partnerships: long-term relationships between SC participants, are part and parcel of a relational exchange.
Leveraging technology Enhanced communication across organizations
The enhanced communication across organizations is dependent on both technological capabilities and a willingness to share information(part of a long-term orientation)
Inventory control
1st aspect: move from a pattern of stops and starts to a continuous flow. 2nd aspect: a reduction in the amount of inventory in the supply chain. Reduced by: Smaller, more frequent orders Use of premium transportation Demand-pull, as opposed to supply-push Replenishment; aanvulling Elimination or consolidation of slower-moving product. Bullwhip effect: variability in demand orders among supply chain participants
Interorganizational collaboration
Supply chain collaboration: cooperative, supply chain relationships-formal or informal- between manufacturing companies and their suppliers, business partners or customers, developed to enhance the overall business performance of both sides.
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Supply chain facilitators
3rd party logistics(3PL) also called: logistics outsourcing or contract logistics: one company allows a specialist company to provide it with one or more logistics functions. 3PL providers: FedEx SC services, Schenker logistics, UPS SC solutions.
Barriers to SCM implementation
Regulatory and political considerations
Several decades ago, many of the SC arrangements in use today would have been considered illegal under certain regulatory statutes. Because it will make it more difficult for others to enter particular markets. It would be wise to seek sound legal advice before entering into future supply chain arrangements.
Lack of top management commitment
Top management commitment is absolutely essential if supply chain efforts are to have any chance of success. Top management has the ability to allocate the necessary resources for supply chain endeavors and the power to structure, or restructure, corporate incentive policies to focus on achieving organizational and inter-organizational objectives.
Reluctance to share, or use, relevant information
Some organizations are reluctant to share information, particularly information that might be considered proprietary in nature. Supply chain analytics: combines technology with manual employee effort to identify trends, perform comparisons, and highlight opportunities in supply chain processes, even when large amounts of data are involved.
Incompatible information systems
One advantage to the single integrator approach is that there should be coordination across the various applications. (with transportation management software)
Incompatible corporate cultures
Important that the participants be comfortable with the companies they will be working with. Corporate cultures refers to: ‘how we do things around here’.
Globalization
Global supply chains translate into both longer and more unpredictable lead times(time from when an order is placed until it is received) for shipments, which increases the chance that customer demand might not be fulfilled, due to a potential out-of-stock situation.
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Supply chain integration
Fe. Food manufacturers may sell to grocery chains, institutional buyers, specialty firms and industrial users. -> The packaging expectations of specialty firms might be more demanding than those of industrial users.
3 primary methods of supply chain coordination:
Vertical integration: where one organization owns multiple participants in the supply chain. Formal contracts: franchising Informal agreements: offers supply chain participants flexibility in the sense that organizations can exit unprofitable or unproductive arrangements quickly and with relative ease, organizations should be aware of potential shortcomings.
Chapter 8 Inventory Management
Inventory: stocks of goods and materials that are maintained for many purposes(most common purpose: to satisfy normal demand) Inventory management:(Key component) inventory decisions are often a starting point, or driver, for other business activities, such as a warehousing, transportation and materials handling.
Inventory classifications:
Cycle, or base stock: inventory that is needed to satisfy normal demand during the course of an order cycle. Safety, or buffer stock: inventory that is held in addition to cycle stock to guard against uncertainty in demand or lead time. Pipeline, or in-transit stock: inventory that is en route between various fixed facilities in a logistics systems such as a plant, warehouse or store. Speculative stock: inventory that is held for: seasonal demand, projected price increases, and potential shortages of product.
Psychic stock: inventory that s associated with retail stores, and the general idea is that customer purchases are stimulated by inventory that they can see.
Inventory costs
‘Stockholders’ equity ‘inventory costs money: inventory appear as an asset on company balance she ets, tends to be one of the largest assets on the balance sheet.
Inventory carrying costs
Inventory carrying costs: Costs associated with holding inventory. Expressed in a percentage multiplied by the inventory’s value 9
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Inventory carrying costs % x inventory’s value = relevant carrying costs Inventory carrying costs: Inventory shrinkage: more items are recorded entering than leaving warehousing facilities. Shrinkage is generally caused by damage, loss, or theft. Although shrinkage costs can be reduced. Storage costs: costs who are associated with occupying space in a plant, storeroom, or warehousing facility. Handling costs: costs of employing staff to receive, store, retrieve and move inventory. Insurance costs: insure inventory against fire, flood or theft Taxes Interest costs: the money that is required to maintain the investment in inventory. NOTE: Some inventory items have other types of carrying costs because of their specialized nature: plants, pets and livestock.
Ordering costs
‘costs associated with ordering inventory, such as order costs and setup costs’(administration etc.)
Trade-off between carrying and ordering costs
‘respond in opposite ways to the number of orders or size of orders. That is an increase in the number of orders leads to higher order costs and lower carrying costs.
Stockout costs
The costs or penalties for a stockout involve an understanding of a customer’s reaction to a company being out of stock when a customer wants to buy an item.
Trade-off between carrying and stockout costs
Both move in opposite directions – higher inventory levels result in lower chances of a stockout.
When to order
Fixed order quantity system:a key issue with respect to inventory management involves when product should be ordered; one could order a fixed amount of inventory Fixed order interval system: or orders can be placed at fixed time intervals Reorder(trigger)point(ROPs): the level of inventory at which a replenishment order is placed ROP = DD(daily demand) x RC(replenishment cycle) +SS(safety stock)
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How much to order
Economic order quantity(EOQ)
EOQ: calculating the proper order size with respect to two costs: EOQ Costs of carrying the inventory Costs of ordering the inventory = √2AB/C
= √2x (A)nnual usage€ x administrative costs per order of placing(B)/%(C)arrying costs of the inventory=€… order size EOQ =√2DB/CI
=√2xannual (D)emand in units x (B) / (C) x €(I)nventory per unit = … units Page 159
Inventory management: special concerns
ABC analysis of inventory
Inventories are not of equal value to a firm and that , as a result, all inventory should not be managed in the same way. Value to a firm because of: criticality, item profitability, sales volume. A=highest criticality B=Moderate criticality C= Low criticality
Dead inventory
We know ABC, but D stands for ‘dogs’ or dead inventory(no sales during a 12 month period) Dead inventory increases inventory carrying costs and takes up space in warehousing facilities Dead inventory because of: overproduction or customers don’t want/need it.
Inventory turnover
Refers to the number of times that inventory is sold in a one-year period. Inventory turnover= cost of goods sold / Average inventory
Complementary and substitute products
Complementary products: inventories that can be used or distributed together(such as razor blades and razors). Substitute products:products that can fill the same need or want as another product(Coca Cola, Cola AH)
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Contemporary approaches to managing inventory
Lean manufacturing(lean)
Focuses on the elimination of waste and the increase of speed and flow. JIT approach: seeks to minimize inventory by reducing Safety Stock, as well as by having the required amount of materials arrive at the production location at the exact time that they are needed.
Service parts logistics
Involves designing a network of facilities to stock service parts, deciding upon inventory ordering policies, stocking the required parts, and transporting parts form stocking facilities to customers.
Vendor-Managed inventory (VMI)
The size and timing of replenishment orders are the responsibility of the manufacturer. Chapter 7
Demand management Demand management is ‘the creation across the supply chain and its markets of a coordinated flow of demand.’ Make-to-stock situations= when finishing goods are produced prior to receiving a customer order. Make-to-order situations= when finished goods are produced after receiving a customer order.
Demand forecasting models Manieren om de verwachte vraag te berekenen The 3 basic types of forecasting models are: 1. Judgemental forecasting= involves using judgment or intuition and is preferred in situations where there are limited or no historical data, such as with a new product introduction. (surveys) 2. Time series forecasting= is that future demand is solely dependent on past demand. 3. Cause and effect forecasting= assumes that one or more factors are related to demand and that the relationship between cause and effect can be used to estimate future demand.
Demand forecasting Issues Forecasting accuracy refers to the relationship between actual and forecasted demand.
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Order management Order management refers to management of the various activities associated with the order cycle. Order cycle refers to the time from when a customer places an order to when the goods are received. Order to cash cycle= the time from when a customers places an order to when the payment is received.
The order cycle has 4 stages: 1. Order transmittal: refers to the time from when the customer places an order until the seller receives the order. Ways to transmit orders: in person, by telephone, fax and electronically. 2. Order processing: refers to the time from when the seller receives an order until an appropriate location(F.E. a warehouse) is authorized to fill the order. Differences in companies approaches to manage order processing and its activities: - order receipt, the order has to be checked for completeness and accuracy, but that costs time and money. So companies structure the order receipt function to reflect historical trends on order completeness and accuracy. -order triage: decide which order is more important and prioritize orders and make the most important order first. - location. For example, the location with the most order has priority. 3. Order picking and assembly: It includes all activities from when an appropriate location( warehouse) is authorized to fill the order until goods are loaded aboard an outbound carrier. Voice-based order picking refers to the use of speech to guide order-picking activities. Pick-to-light technology, in which order to be picked are identified by lights placed on shelves or racks. An advantage of this is that the worker simply follows the lights placed from pick to pick, as opposed to the working having to figure out an optimal picking path. 4. Order delivery: refers to the time from when a transportation carrier picks up the shipment until it is received by the customer.
CUSTOMER SERVICE Customer service ‘the ability of logistics management to satisfy users in terms of time, dependability, communication and convenience. Time: refers to the period between successive events. Dependability: refers to the reliability of the service encounter and consist of 3 elements, namely, consistent order cycles, safe delivery and complete delivery. Order fill rate= the percentage of orders that can be completely and immediately filled from existing stock, is one way of measuring the completeness of delivery. Communication: effective communication should be a two-way exchange between seller and customer, with the goal of keeping both parties informed. Convenience: (gemak) The convenience component of customer service focuses on the ease of doing 13
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business with a seller. Multichannel marketing systems= separate marketing channels to serve customers, because customers like to have multiple purchasing options.
MANAGING CUSTOMER SERVICE Customer profitability Customer profitability (CPA) refers to the allocation of revenues and costs to customer segments or individual customers to calculate the profitability of the segments or customers. CPA recognizes that not all the customers are the same and divide them in groups. One group is profitable and another group not. Establishing customer service objectives. Because customer service standards can significantly affect a firm’s overall sales success, establishing goals and objectives is an important management decision. Benchmarking, refers to a process that continuously identifies understand and adapts outstanding processes found inside and outside an organisation. Performance benchmarking = which compares quantitative performance. Process benchmarking= which is qualitative in nature and compares specific processes. Service failure and service recovery Service recovery will refer to a process for returning a customer to a state of satisfaction after a service of product has failed to live up to expectations.
Chapter 10. Warehousing management.
Warehousing refers to that part of a firm’s logistics system that stores products at and between points of origin and point of consumption.
Short-haul transportation:
producer
>Transportation Retailer A,B or C
Long-haul transportation:
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producer
afraid for nuclear weapons. Tariff: tariffs or taxes that governments place on the importation of certain items. Established to protect local manufacturers, producers, or growers, and once tariff barriers are built, they are not easily torn down. Nontariff barriers: restrictions other than tariffs that are placed on imported products. One type: Import quota: limits the amount or product that may be imported from any one country during a period of time. Embargoes: a political restriction on trade and generally result from political tensions(Fe. US trade with Cuba has been banned since 1950s). Balance of payments: system of accounts that records a country’s international financial transactions
Economic factors
Currency fluctuations, market size, income, infrastructure and economic integration. -> impact international trade/logistics
Cultural factors
Religion, values, rituals, beliefs and languages. INTERNATION DOCUMANTION Some documents which are used for internation shipments: Certificate of origin specifies the county in which a product in manufactured and can be required by government for control purposes or by an exporter to verify the location of manufacture. 18
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Commercial invoice is similar in nature to a domestic bill of lading in the sense that a commercial invoice summarizes the entire transaction and contains key information to include a description of the goods, the terms of sale and methods of payment, the shipment quantity, the method of shipment, and so on. Shipper’s export declaration(SED) contains relevant export transaction data such as the transportation mode, transaction participants and decription of what is being exported. Shipper’s letter of intstruction(SLI) often accompanies an SED and provides explicit shipment instructions. TERMS OF SALE (=incoterms) 1. The physical goods (logistics channel) 2. Payment for the goods, freight charges and insurance for the in-transit goods (financing channel) 3. Legal title to the goods (ownership channel) 4. Required documentation (documentational channel) 5. Responsibility for controlling or caring for the goods in transit, say, in the case of livestock (logistics channel) METHODS OF PAYMENT Refers to the manner by which a seller will be paid by a buyer. -cash in advance: is huge risk to the buyer - letters of credit is issued by a bank and guarantees payment to a seller provided that the seller has complied with the applicable terms and conditions of the transaction. -bills of exchange - open account: seller sends the goods and all document directly to the buyer ands trusts the buyer to pay by a certain date, is a big risk for the seller. INTERNATIONAL TRADE SPECIALISTS International freight forwarders= specialize in handling either vessel shipment or air shipments. - Advising on acceptance of letter of credit -Booking space on carriers -Preparing an export declaration - Preparing an air waybill of bill of lading -Obtaining consular documents - Arranging for insuramce -Preparing and sending shipping notices and documents -Serving as general consultant on export matters. Nonvessel-operating common varriers (VOCC) Almost the same as the internation freight forwarders, differences: -NVOCC can issue their own billgs of lading -NVOCC can set their own rates for ocean and intermodal shipments -NVOCC can enter into service contrats with ocean carriers to purchase transportation services. 19
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Export management companies(EMC) A firm that acts as the export sales department for a manufacturer. Export packers Export packers custom pack shipments when the exporter lacks the equipment or the expertise to do so itself. It is for 2 distinct purposes: move easily through customs and to protect the products. TRANSPORTATION CONSIDERATION IN INTERNATIONAL LOGISTICS Ocean shipping Load centers are major ports where thousand of containers arrive and depart each week. Shipping conferences and alliances Shipping conferences are cartels of all ocean vessel operatiors operating between certain trade areas such as Asia and Europe. Ocean carrier alliances: carriers retain their induvidual identities but cooperate in the area of operations, began froming in the containes trades. International airfreight 3 types of internation airfreight operation exist: -Chartered(gehuurd/bevracht)aircraft - Intergrated air carriers that specialize in carrying parcels - Scheduled air carriers. Open skies agreements, which liberalize internation avaition opportunities and limit federal government involvement Surface transport considerations(road) An alternative to surface transport in some nations is short-sea shipping(SSS), which refers to waterborne transportation that utilizes inland and coastal waterways to move shipments from domestiv ports to their destination. LOGISTICS PERFORMANCE INDEX (LPI) Is created in recognition of the importance of logistics in global trade and measures a county’s performance across six logistical dimension 1. It can be analyzed for all countries according to the overall LPI socre 2. The LPI can be analyzed in terms of an induvidual county’s performance relative to its geogr aphic region and income group. 3. The overall and dimension-specific LPI scores among the BRIC(brazil, russia, india, china) nations.
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