Escolar Documentos
Profissional Documentos
Cultura Documentos
Distribution Management
Sub Code 335
Developed by
Prof. Sandeep Narvekar
On behalf of
Prin. L.N. Welingkar Institute of Management Development & Research
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Advisory Board
Chairman
Prof. Dr. V.S. Prasad
Former Director (NAAC)
Former Vice-Chancellor
(Dr. B.R. Ambedkar Open University)
Board Members
1. Prof. Dr. Uday Salunkhe
2. Dr. B.P. Sabale
3. Prof. Dr. Vijay Khole
4. Prof. Anuradha Deshmukh
Group Director
Chancellor, D.Y. Patil University, Former Vice-Chancellor
Former Director
Welingkar Institute of Navi Mumbai
(Mumbai University) (YCMOU)
Management Ex Vice-Chancellor (YCMOU)
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Contents
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INTRODUCTION TO LOGISTICS
Chapter 1
INTRODUCTION TO LOGISTICS
Objectives
Structure
1.8 Summary
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INTRODUCTION TO LOGISTICS
As a concept, it means the art of managing the flow of raw materials and
finished goods from the source of supply to their users. In other words,
primarily it involves efficient management of goods from the end of
product line to the consumers and in some cases includes the movement of
raw materials from the source of supply to the beginning of the production
line. These activities include transportation, warehousing, inventory
control, order processing and information monitoring. These activities are
considered primary to the effective management of logistics because they
either contribute most to the total cost of logistics or they are essential to
effective completion of the logistics task. However, the firms must carry out
these activities as essential part of providing customer with the goods and
services they desire.
1. The definition says that it is part of the supply chain management – this
means that supply chain involves a bigger process which engages
different organizations; however, logistics determines how well or how
poor an individual firm can achieve their goals.
2. It is part of SCM that plans, implements, and controls – this means that
logistics must cover all these areas not just one or two.
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INTRODUCTION TO LOGISTICS
3. It also mentions the efficient, effective, forward and reverse flow and
storage – this means “How well does the company do what they are
going to do?”
4. Goods, services, and related information between the point of origin and
point of consumption – this means that information about what you are
delivering is as important as the delivery itself.
Activity A
Logistics must deliver products to a customer at the time, method and cost
to satisfy that particular customer's requirements [Fig. 1(a)].
Responsiveness is needed, the quicker the better, the smoother the better.
Flexibility is needed to meet the quickly changing market and customer
demands.
Effective and efficient physical movement of the tangible product will speak
of intangible services associated with the product and the organization
which is delivering it. In case of intangible product, the delivery of
tangibles at the right place and right time will speak about its quality. On
the macro level, infrastructure such as various modes of transport,
transportation, equipment, storage facilities, connectivity and information
processing are contributing to a large extent in the physical movement of
goods produced in manufacturing, mining and agriculture sectors.
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INTRODUCTION TO LOGISTICS
At micro level, logistics plays a critical role in the value delivery system of
business organization to provide superior customer service, i.e., to achieve
a desired level of delivered services and quality at the lowest possible cost.
In a nutshell, any productivity improvement that could be achieved in any
part of logistic system, at the micro or macro level, would help in cost
reduction and proper deployment of scarce national resources to their
productive purposes. India’s logistic cost as a percentage of the GDP is as
high as 13%-14%.
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Figure 1(a): Basic Logistic Function
Activity B
❖What is the importance of logistics and how does it affect the delivery
system?
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INTRODUCTION TO LOGISTICS
Given that a system/product will likely fail at some point in time during its
operation, some maintenance will then be required in order to restore the
system to normal operational use so that it can continue to accomplish its
mission.
In other words, one needs to address all of the activities in the life cycle for
a given system, to include not only what is presented in Fig. 1(b), but
those activities which support material phase out, recycling, and/or
disposal.
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INTRODUCTION TO LOGISTICS
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Figure 1(b): Logistics in the System Life Cycle
Information Flow:
• Order registration
• Order checking and editing
• Order processing
• Coordination
Warehousing:
• Material Storage
• Load Utilizing and Material Handling
• Site Selection and Network Planning
• Order Picking and Filling
• Dispatch Documentation
Inventory Control:
Packaging:
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INTRODUCTION TO LOGISTICS
• For Communication
• For Inter-modal Transportation
Transportation:
• Route Planning
• Mode Selection (Air, Sea, Road, Rail, Pipeline, Ropeway)
• Vehicle Scheduling
The logic of this trend is that the company will increasingly focus on those
activities in the value chain in which it has a distinctive advantage and
outsource everything else. As shown in the Fig. 1(c), the value chain
activities of a firm can be categorized into primary activities: Inbound
Logistics, Operations, Outbound Logistics, Marketing and Sales, and
Services. Support activities such as: Firm Infrastructure, Human
Resources, Technology and Procurement.
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INTRODUCTION TO LOGISTICS
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Figure 1(c): Customer Value Delivery Chain
Activity C
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INTRODUCTION TO LOGISTICS
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Figure 2: Logistics Functions
Order Processing
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INTRODUCTION TO LOGISTICS
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Figure 2(a): Order Processing Cycle
Inventory Management
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INTRODUCTION TO LOGISTICS
two important lead times makes it possible to know when to place an order
and how many units must be ordered to keep production running smoothly.
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INTRODUCTION TO LOGISTICS
Warehousing
Warehousing plays a vital role in providing the desired level of service to
the customer at the lowest possible cost and is an important link between
the producer and the customer. Improving the flow of goods through a
warehouse by minimizing handling and movement can generate significant
and measurable business benefits. The major criteria in choosing a
warehouse are:
Warehousing Location
Number of Warehouses
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INTRODUCTION TO LOGISTICS
Transportation
Freight transportation plays an important role in today’s economy since it
enables production and consumption to take place at locations far away
from each other. Freight transportation accounts for two-thirds of total
logistics costs and has a major impact on the level of customer service.
Therefore, transportation planning plays a key role in logistics system
management.
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INTRODUCTION TO LOGISTICS
Logistical Packaging
Logistical Packaging is the science, art and technology of enclosing or
protecting products for distribution, storage, sale, and use. It also refers to
the process of design, evaluation, and production of packages. Packages
can have features which add convenience in distribution, handling, display,
sale, opening, use, reclosing and reuse. It also aids the control of
inventory.
Information
Information flow identifies specific locations within a logistical system that
have requirements. Information also integrates the three operating areas.
Within individual logistics areas, different movement requirements exist
with respect to size of order, availability of inventory, and urgency. The
primary objective of information flow management is to reconcile these
differentials to improve overall supply chain performance.
Synchronizing the supply chain is, in essence, getting all of the partners
operating in a manner that is mutually supportive (flexible, cooperative)
and seamless (smooth, unnoticed by customers).
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INTRODUCTION TO LOGISTICS
Often, vertical channel conflict (i.e., between layers of the supply chain)
occurs due to ambiguous or conflicting roles and responsibilities. That is,
conflicts such as poor service levels, passive sales efforts, and missed
deadlines.
Educate the people. Explain in simple terms what synchronization is, what
it intends to achieve, how it intends to achieve it and what is their role in
it.
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INTRODUCTION TO LOGISTICS
• Develop the supply chain schedule. This varies for each supply chain.
Mapping and understanding current supply chain flows and timings, and
developing a new optimized supply chain synchronization model are
essential.
• Map the current process. Map it from start to finish, including volume and
timing for all trading partners. Trends and levels of competency within
the group of players will become apparent during this process. Use
current supply chain timing to compare with proposed timing models to
identify any opportunities at hand.
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INTRODUCTION TO LOGISTICS
3. Product/Information Linking
Collect data in parallel with the overall effort, streamlining the process to
minimize additional work. Data collection should be a byproduct of the
supply chain process, not activity unto itself.
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INTRODUCTION TO LOGISTICS
Finally, define the optimal trailer (carrier) as the goal of the load
optimization process. This methodology can be built into load-building
algorithms in the provider's system, based on the total order flow cube,
density and quantities for all products moving to a given destination in the
same service timeframe.
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INTRODUCTION TO LOGISTICS
1.8 Summary
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INTRODUCTION TO LOGISTICS
2. What are the key elements and activities of the business logistics
function?
5. Physical items that can be perceived by the sense of touch, e.g., cars,
food items, computers, telephones, etc. are known as:
Options
a. Intangible products
b. Tangible products (Ref: Para 1.3.3)
c. Sensible products
d. Delivery products
Options:
a. Intangible products (Ref: Para 1.3.3)
b. Tangible products
c. Sensible products
d. Delivery products
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INTRODUCTION TO LOGISTICS
Options:
a. Custom
b. Lifecycle
c. System (Ref: Para 1.4.2)
d. Products
Options:
a. Delivery schedules
b. Requirements for smooth operation
c. Downstreaming of costs (Ref: 1.4.4)
d. Upgrading of systems
Options:
a. (i), (ii), (iii) and (iv)
b. (i), (ii) and (iii)
c. (ii), (iii) and (iv)
d. (i), (ii) and (iv) (Ref: 1.5.1)
10. Activities in the value chain in which they have a distinctive advantage
can be categorized into primary activities such as:
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INTRODUCTION TO LOGISTICS
Options:
a. All of the above (Ref: 1.5.4)
b. None of the above
c. (i), (ii) and (iii)
d. (ii), (iii) and (iv)
i. Products are retrieved from the stock, packed, and delivered along
with their shipping documents
ii. Availability of the requested product and the customer’s credit status
are verified
iii. Orders are then transmitted and checked for completeness and
accuracy
iv. A request from a customer for a particular product via an order form.
Options:
a. (i), (ii), (iii) and (iv)
b. (i), (iii), (iv) and (ii)
c. (iv), (iii), (ii) and (i) (Ref: 1.6.1)
d. (ii), (iv), (i) and (iii)
Options:
a. (i), (ii) and (iv)
b. (i), (ii) and (iii)
c. (i), (iii) and (iv)
d. (ii), (iii) and (iv) (Ref: 1.6.2.1)
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INTRODUCTION TO LOGISTICS
Options:
a. Transportation (Ref: 1.6.4.1)
b. Equipment
c. Warehousing
d. Inventory
Options:
a. True (Ref: 1.6.5.1)
b. False
15.On a day-to-day basis, many tasks and activities require this: entering
orders, conforming schedules, tracking shipments, communicating
status information, invoicing, collecting payments, processing returns
and resolving disputes.
Options:
a. Operating synchronization (Ref: 1.7.4)
b. Operating system
c. Operating tasks
d. Operation handling
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INTRODUCTION TO LOGISTICS
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
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TRANSPORTATION INFRASTRUCTURE
Chapter 2
TRANSPORTATION INFRASTRUCTURE
Objectives
Structure
2.6 Summary
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TRANSPORTATION INFRASTRUCTURE
Introduction
Proponents of increasing investment in transportation infrastructure argue
there is a substantial need to invest in transportation infrastructure and
that infrastructure is central to a modern economy. The quality of transport
infrastructure is a key determinant of performance in the transport sector
and development of transport infrastructure supports economic growth.
A key aim of this chapter is to provide detailed guidance for the uniform
collection of data on transport infrastructure spending and assets,
ultimately leading to better decision-making.
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TRANSPORTATION INFRASTRUCTURE
• Matching up to transport rates with routes and services for the best
combination of price and delivery options.
Activity A
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Transportation Functionality
The purpose or function of transportation is to serve as a connecting link
between separate units within a firm’s own organization (such as between
plants and warehouses) and between units of the firm and units of other
firms and individuals (such as suppliers and customers). Good
transportation has the effect of holding to a minimum the time and cost
involved in the relationships of the firm. In economic theory terms,
transportation’s function is to create place utility for the goods produced or
distributed by the firm. Transportation enterprises provide two major
services: product movement and product storage.
1. Product Movement
Whether the product is in the form of materials, components, assemblies,
work-in-progress, or finished goods, transportation is necessary to move it
to the next stage of the manufacturing process or physically closer to the
ultimate customer. A primary transportation function is product movement
up and down the value chain. Transportation utilizes temporal, financial,
and environmental resources. It is important that items be moved only
when it truly enhances product value.
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2. Product Storage
A less common transportation function is temporary storage. Vehicles make
rather expensive storage facilities. However, if the in-transit product
requires storage but will be moved again shortly (e.g., in a few days), the
cost of unloading and reloading the product in a warehouse may exceed
the profitability. A second method to achieve temporary product storage is
diversion. This occurs when an original shipment destination is changed
while the delivery is in transit. Traditionally, the telephone was used to
direct diversion strategies. Today, satellite communication between
enterprise headquarters and vehicles more efficiently handles the
information.
Activity B
Transportation Principles
There are two fundamental economic principles that impact transport
efficiency: economy of scale and economy of distance.
1. Economy of Scale
It refers to the characteristic that transportation cost per unit of weight
decreases when the size of the shipment increases. For example, truckload
(TL) shipments (i.e., shipments that utilize the entire vehicle’s capacity)
cost less per kg than less-than-truckload (LTL) shipments (i.e., shipments
that utilize a portion of vehicle capacity). It is also generally true that
larger capacity transportation vehicles such as rail or water are less
expensive per unit of weight than smaller capacity vehicles such as road or
air. Transportation economies of scale exist because fixed expenses
associated with moving a load can be spread over the load’s weight. As
such, a heavier load allows costs to be “spread out,” thereby decreasing
costs per unit of weight. The fixed expenses include administrative costs of
taking the transportation order, time to position the vehicle for loading or
unloading, invoicing, and equipment cost. These costs are considered fixed
because they do not vary with shipment volume.
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2. Economy of Distance
It refers to the characteristic that transportation cost per unit of distance
decreases as distance increases. For example, a shipment of 600 miles will
cost less than two shipments (of the same combined weight) of 300 miles.
Transportation economy of distance is also referred to as the tapering
principle since rates or charges taper with distance. The rationale for
distance economies is similar to that for economies of scale. Specifically,
the relatively fixed expense incurred to load and unload the vehicle must
be spread over the variable expense per unit of distance. Longer distances
allow the fixed expense to be spread over more miles, resulting in lower
overall per mile charges.
Activity C
❖ How can you achieve economies of scale and economies of distance?
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Transportation Participants
• The carrier
• The government
• The public…
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Figure 2.1: Major Relationships among Transportation Participants
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Government
The Government always desires a stable and efficient transportation
environment so that there is a positive and direct impact of transportation
on economic success.
Internet
Internet is used to share real-time information with customers and
suppliers. The Internet now provides the vital communication links
between the transactional participants (shipper-carrier-consignee). The
real-time tracking of packages and shipments replaces the old system of
phones and faxes. In the past, truckers would need to call in regularly to
update their location. It is also used for items such as freight matching
(things going to similar locations), and purchases of items such as fuel,
equipment parts and supplies.
Public
Public is concerned with transportation accessibility, expenses, and
standards for security, safety and the environment. The public creates
transportation demands by purchasing goods.
Activity D
• Rail
• Road
• Air
• Water (Sea/Inland)
• Pipeline
• Ropeways
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1. Rail Transportation
Rail transport is literally the strategic sector that offers a broad possibility
for the integration of transport in sustainable development. Railway
development has always played an important part among major regional
economic cooperation projects, especially over the past decade, in
particular due to freight transport safety, due to the superiority of rail
transport in terms of pollution, but mostly due to transport costs against
road or sea transport. The railway infrastructure plays the role of a catalyst
for an increased regional integration, but also in supporting trade and
foreign investments. In developing or expanding their projects, major
companies and logistics operators seek a reliable railway infrastructure and
especially a railway network that provides access to sea ports.
Transport infrastructure development has been the main focus of all major
projects of economic cooperation in Europe and Asia. This was mainly due
to freight transport safety, the fact that railway transport is eco-friendly,
but especially due to the fact that, from the point of view of the transport
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• Environmentally friendly
Activity E
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The support for this assertion is straightforward and there are many ways
we can justify it.
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Growth of transport sector post globalization has well exceeded what was
achieved over 40 prior years. Still, the level attained so far is quite low
when compared with international norms. Rather importantly, in India one
has noticed a gradual transition from rail-dominated transport to a road-
dominated one. Besides, the contribution of transport sector to GDP, as
expected, has been rising. It rose from 3.8% in 1980-81 to 4.6% in
1990-91 and then to 5.5% in 2000-01 grossing 6.7% of the annual growth
rate in 2008-09 and estimated to be 8.0% in 2010-2011
2008-2009 6.7
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Note: X1: Rail contribution to GDP; X2: Road contribution to GDP; X3:
Water contribution to GDP; X4: Air contribution to GDP; X5: Total transport
infrastructure contribution to GDP.
Activity F
India has one of the largest transport sectors. The railway network
connecting the four metropolitan cities of Delhi, Mumbai, Chennai and
Kolkata is known as the “Golden Quadrilateral” of The Indian Railways. The
hypothetical diagonals of this Golden Quadrilateral connect Delhi-Chennai
and Mumbai-Howrah. The total route length of the Golden Quadrilateral
and its diagonals add up to 10,122 km and is responsible for generating
more than 55% of the total revenue of the Indian Freight Railways. Though
covering 16% of the routes in India, these corridors are “High Density
Corridors” carrying 52% passengers and 58% freight.
A corridor project that will enable the Railways run faster, longer and
heavier goods trains along dedicated tracks is planned by the Indian
Railways in an ambitious $4 billion (` 25,000 crore) programme inviting
the private sector to build and develop multimodal logistics parks along the
proposed eastern and western dedicated freight corridors. The first phase
of this plan involves the construction of two DFCs, the Western DFC and
the Eastern DFC. The Eastern DFC will start from Ludhiana in Punjab
passing through the States of Haryana, Uttar Pradesh, Bihar and finally
ending in Dankuni, West Bengal. The Western Corridor will start from Dadri
to Mumbai and pass through the States of Delhi, Haryana, Rajasthan,
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Gujarat and Maharashtra. The two corridors are estimated to span a route
length of 3300 kilometers and expected to be completed by 2017. The
basic objective of the logistics projects is to enhance the volume of rail
freight in the overall transport chain of the country with complete solutions
to help companies reduce both the cost and time of transporting goods.
Activity G
2. Road Transportation
The network of roadways of a country is as essential as the arterial system
to the human body. The roads in a big way facilitate advancement in the
economy of a country and they simultaneously facilitate communication. In
the matter of surface transport, they are almost equal to the railways
which connect other parts of the country through its large railway network
system. These two transports are not parallel but interdependent.
Road transport is one of the most promising and potent means for rapid
industrialization and agricultural advancement. It plays an important role in
the economy of the country and is particularly suitable for short and
medium distance. It provides the basic infrastructure for bringing the
majority of the people who are living in far-off villages into the mainstream
of life by connecting them with the rest of the country.
Full Truckload
Full Truckload (FTL) shipping is the movement of large amounts of
homogenous cargo. Generally, FTL carriers will contract an entire trailer
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Less-than-Truckload
Companies providing less-than-truckload (LTL) services can range from
specialized services developed for this particular need and parcel services.
They often combine the loads and shipping requirements of several
different companies on their trucks, which makes it more cost-effective
than running an entire truck for one small load. It allows the carrier to
distribute costs among several different businesses. However, a less-than-
truckload shipment may take longer to be delivered than a full shipment
because it does not follow a direct route from the shipper to the
destination.
Activity H
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3. Air Transportation
The newest but least utilized mode of transport is air freight. Its significant
advantage lies in the speed with which a shipment can be transported. A
coast-to-coast shipment via air requires only a few hours contrasted to
days with other modes of transportation. One prohibitive aspect of air
transport is the high cost. However, this can be traded off for high speed,
which allows other elements of logistical design, such as warehousing or
inventory, to be reduced or eliminated. The air cargo industry plays a
critical role as it is involved from the procurement cycle to the delivery of
the finished product overseas. Liberal and open sky policies are great
catalysts and can trigger unconstrained growth capability, which is
important for any developing economy.
Two major changes have taken place over recent years in many
manufacturing industries and it is due to these changes that air freight is
becoming a popular choice for transporting products internationally. The
reason for this increase is:
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❖ Substantial reduction in capital requirements
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Many interesting trends are taking place like the construction of an air
cargo hub in tier-II city of Nagpur in Maharashtra, rise in budget airlines
and cargo carriers with the relaxation in regulations. The cost of air-freight
is expected to drop in the coming years which will open up new economic
opportunities in India’s second tier cities which are now being added to the
air network. There are plans by many airlines to create full-fledged cargo
operations and it is expected that these cargo carriers will also move to
tier-II and tier-III cities. Even logistics companies are planning to acquire
their own aircrafts. All these augur well for aviation logistics and as the
demand for air cargo continue to grow steadily, it will attract many more
new players facilitating faster growth.
Domestic air freight market in India was at 568 metric tons in 2007-08
amounting to a total of ` 20,149 million. The market is likely to grow at a
rate of 12.9% in next 5 years and reach a figure of 1043 metric tons by
2012-13. At current realization level, this will amount to ` 36,986 million
by 2012-13.
Key players in the Domestic sector are Jet Airways (38% market share),
Indian Airlines (27% market share) and Blue Dart (17% market share). Jet
Airways also leads in value share at 38%, followed by Blue Dart at 26%
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and Indian airlines at 22%. Mumbai and Delhi are the busiest ports with
Mumbai – Delhi being the most important sector.
The International air freight market in India was at 1146 metric tons of
which about 55 metric tons gets into interline movement within India. It is
estimated that the growth in the international sector will continue in the
coming years at an estimated growth rate of around 12.8% on a year-to-
year basis over the next five years.
Key players in the International sector are Singapore Airlines (12% market
share), Lufthansa (9% market share), Emirates (7% market share), Air
India (7% market share) and British Airways (7% market share).
Activity I
Air way Bill: An airway bill is a shipping document airlines use. Similar to
a bill of lading, the airway bill is a contract between the shipper and airline
that states the terms and conditions of transportation. The airway bill also
contains shipping instructions, product descriptions, and transportation
charges.
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• Does not track the shipment while it is in the cartage agent's possession.
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Terminal: Freight building and grounds where shipments are prepared for
local delivery or transportation to other terminals.
Shortage: The number of units received is less than the quantity shown
on shipping documents. The outstanding units may be delivered later.
4. Water Transportation
Sea transportation is very important as about 80% of all the world's
international trade is carried out through sea. Compared to transportation
by air and land, the transportation of heavy and bulky goods is more
convenient by sea. Although transportation of bulky goods through big
ships can mean several days of journeying time, it is still preferred as the
goods transported will reach in good condition. Sea freight is the most
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The following factors should be taken into account when considering the
transit times for goods being carried by sea. These are:
• The actual sailing time between the port of loading and the port of
discharge
Is the sailing an inducement sailing, the vessel will only call the port of
loading or discharge if there is sufficient cargo to load or discharge.
A visit to any harbour around the world will highlight the many different
types of ships that one finds plying international waters. The most common
types of ships operating in international waters are given below:
• Conventional break bulk ships that carry only break bulk, non-
containerized cargo.
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• Ro-Ro ships that are multipurpose, with the addition of a stern ramp, to
the quayside, by which cargoes are received and dispatched.
• Lo-Lo vessels have their own gantry or crane on board. These vessels
can load and discharge their own cargoes.
Activity J
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The shipping sector has witnessed significant cyclicality in the last decade
with a surge in freight demand in the middle of the decade slowing down
dramatically owing to a global recession towards the end. With the sector
completely open to foreign investment, there have been significant
improvements in shipping capacity available to Indian manufacturers and
traders as well as operational and scale efficiencies. Today, India is firmly
placed within the global liner network connecting Indian importers and
exporters to the remotest parts of the world. The average capacity and
parcel size of a vessel calling Indian ports has trebled since the beginning
of the decade and there have been significant improvements in turnaround
time and similar measures of operational efficiency. There has been
significant investment made in the sector both by Indian shipping
companies and international organizations alike. Challenges, however,
remain both on the physical and operational front as well as on the policy
front. Indian shipping is not able to achieve its full potential restricted by
limited draft availability in most ports, sub-optimal distribution of port
capacity across the coastline, limited road and rail evacuation capabilities
and restrictive legislative infrastructure in terms of tax and other policies.
Commercial Invoice: The commercial invoice is a bill for the goods from
the seller to the buyer. These invoices are often used by governments to
determine the true value of goods for the assessment of Customs duties
and are also used to prepare consular documentation. Governments using
the commercial invoice to control imports often specify its form, content,
number of copies, language to be used, and other characteristics.
Cost and Freight (C&F): Cost and Freight (CFR) to a named overseas
port of import. Under this term, the seller quotes a price for the goods that
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Cost, Insurance and Freight (CIF): Cost, insurance, and freight (CIF) to
a named overseas port of import. Under this term, the seller quotes a price
for the goods (including insurance), all transportation, and miscellaneous
charges to the point of debarkation for the vessel. (Typically used for ocean
shipments only.)
Return to Top
FCL or CY: Full Container Load, also known as CY. CY is the abbreviation of
Container Yard. When the term CY to CY, it means full container load all the
way from origin to destination.
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River Freight: In many countries around the world, from North America to
Asia and from Europe to Africa, river transportation is extremely important
and these countries could not survive without river transportation. To some
extent, river transportation is dealt with in a similar way to sea freight and
pretty much any type of cargo can be transported along some of the larger
rivers in the world. Other rivers may have width and depth problems,
requiring the cargoes to be transported overland instead.
5. Pipeline Transportation
Pipeline transport is the transportation of goods through a pipe. Most
commonly, liquids and gases are sent, but pneumatic tubes using
compressed air can also transport solid capsules.
As for gases and liquids, any chemically stable substance can be sent
through a pipeline. Therefore, sewage, slurry, water, or even beer pipelines
exist; but arguably the most valuable are those transporting crude
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TRANSPORTATION INFRASTRUCTURE
petroleum and refined petroleum product including fuels: oil, natural gas
(gas grid), and biofuels.
6. Ropeways
A ropeway is a form of naval lifting device used to transport light stores
and equipment across rivers or ravines. It comprises a jackstay, slung
between two sheers or gyns, one at either end, from which is suspended a
block and tackle, that is free to travel along the rope and hauled back and
forth by inhauls (ropes attached to the pulley from which the block and
tackle are suspended).
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A cargo airline uses a freight terminal to load and unload the cargo onto
airplanes. This type of airline specializes in sending large packages and
uses airplanes that are larger than familiar passenger planes. Most cargo
plans have large cargo holes at the rear of the aircraft that are used for
loading and unloading packages. A cargo airline is often used by the
military to transport heavy equipment and construction material.
At railroad terminals, special freight cars are loaded onto trains so that
goods can be transported across large areas. Many railroad terminals are
located at seaports, where freight cars are loaded onto trains from ships.
These freight cars hold many bulk materials including stone, steel, and
wood. The automobile industry relies on freight terminals to ship cars and
trucks. These terminals are located near assembly plants so manufacturers
can send newly assembled cars around the world.
Rail
• High fixed costs (land, tracks)
• Low variable costs (operating costs, e.g., labor, fuel)
• Slow, but inexpensive way to transport heavy freight that doesn’t require
special handling, long distances
Road
• Low fixed costs (government builds, maintains highways)
• Medium-high variable costs (operating costs, e.g., labor, fuel)
• Most accessible mode (more highways than railroads, waterways,
pipelines); best for transporting medium to high value products short to
moderate distances
Water
• Moderate fixed costs (ships and freight handling equipment)
• Low variable costs (operating costs, e.g., labor, fuel)
• Very slow, but inexpensive way to transport large, heavy freight over
long distances (e.g., oceans, rivers, inland waterways, lakes)
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Air
• Low fixed costs (aircraft and freight handling equipment)
• Highest variable costs (e.g., labor, fuel, maintenance)
• Very fast; used for transporting high value and/or high perishability
product over short to medium distances
Pipeline
• Highest fixed costs (right-of-way and construction costs of equipment)
• Lowest variable costs (no significant labor or fuel costs)
• Slow, but dependable (e.g., no weather, traffic disruptions); no flexibility
with regard to types of products that can be transported – must be liquid
(e.g., petroleum)
Table 1.a
Operating
Rail Road Water Air Pipe
Characteristics
Speed 3 2 4 1 5
Availability 2 1 4 3 5
Dependability 3 2 4 5 1
Capability 2 3 1 4 5
Flexibility 3 1 4 2 5
Composite 13 9 17 15 21
1 = best, 5 = worst
Activity K
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of rail, motor, and air. Package service provides both regular and premium
services.
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Activity L
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2.6 SUMMARY
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6. Explain at least two strategies that a firm can use to overcome the
challenges related with the air transportation infrastructure.
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TRANSPORTATION INFRASTRUCTURE
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
! !65
TRANSPORTATION OPERATIONS
CHAPTER 3
TRANSPORTATION OPERATIONS
Objectives
Structure
3.3 Documentation
3.4 Summary
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Introduction
Fundamentally, the role of transportation and logistics management is
simple: get the right product to the right place at the right time and at the
lowest cost. Competition in terms of transportation and logistics depends
on speed and intelligence – making the best decisions, quickly turning
decisions into action and monitoring the operation every step of the way to
deliver the superior service customers expect. Achieving this objective is
no small feat in today’s complex global environment. Companies are under
intense pressure now more than ever to streamline their operations and
overcome unprecedented economic, environmental and industry challenges
while still satisfying the ongoing expectations of a rapidly evolving
customer base.
Confronted with these and many other challenges, how can organizations
strategically streamline their transportation and logistics processes to
maximize supply chain efficiencies, customer satisfaction and profit
margins?
Economics and pricing are concerned with factors and characteristics that
drive cost. To develop effective logistics strategy, it is necessary to
understand such factors and characteristics. Successful negotiation
requires a full understanding of transportation economics. An overview of
transportation economics and pricing builds upon four topics: (1) the
factors that drive transport costs, (2) the cost structures or classifications,
(3) carrier pricing strategy, and (4) transportation rates and ratings.
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labor, fuel, and maintenance. Figure 3.1 illustrates the general relationship
between distance and transportation cost. Different transportation modes
have different cost functions according to the serviced distance. Road, rail
and maritime transport have respectively a C1, C2 and C3 cost functions.
While road has a lower cost function for short distances, its cost function
climbs faster than rail and maritime cost functions. At a distance D1, it
becomes more profitable to use rail transport than road transport while
from a distance D2, maritime transport becomes more advantageous.
Activity A
!
Figure 3.1: Generalized Relationships between Distance and
Transportation Cost
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2. Weight: The second factor is load weight. Transport cost per unit of
weight decreases as load volume increases. Fixed costs of pickup and
delivery as well as administrative costs get spread over additional volumes.
Smaller loads must be consolidated into larger loads.
This relationship, illustrated in Figure 3.2, indicates that transport cost per
unit of weight decreases as load size increases.
Activity B
!
Figure 3.2: Generalized Relationships between Weight and
Transportation Cost
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Activity C
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Activity D
❖How can one achieve the optimum stowability while transporting goods?
…………………………………………………………………………………………………………………………
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(i) Variable Costs: Variable costs or direct costs are expenses that change
in direct proportion to the activity of a business. Costs that change in a
predictable, direct manner in relation to some level of activity are
labeled variable costs. Variable costs include direct carrier costs
associated with movement of each load. For example, fuel, travel time
and crash risk are variable vehicle costs because they increase directly
with vehicle mileage. These expenses are generally measured as a cost
per mile or per unit of weight. Typical variable cost components include
labor, fuel, and maintenance.
(ii) Fixed Costs: It is important to realize that fixed costs are fixed only
within a certain range of activity or over a certain period of time. If
enough time passes, all costs become variable.
Fixed costs are expenses whose total does not change in proportion to the
activity of a business. (Indirect costs may be fixed or variable.) Fixed costs
are associated with fixed inputs. Fixed costs can be further subdivided for
many transport operations into “Standing Costs” (i.e., vehicle operating
costs which do not vary with vehicle usage but are specific or traceable to
particular vehicles) and “Administrative Overheads” (i.e., general fixed
costs that cannot be directly attributed to particular vehicles or services).
iii. Joint Costs: A joint cost occurs when the production of one good
inevitably results in the production of another good in some fixed
proportion. For example, consider a rail line running only from point A to
point B. The movement of a train from A to B will result in a return
movement from B to A. Since the trip from A to B inevitably results in
the costs of the return trip, joint costs arise.
iv. Common Costs: Common costs arise when the facilities used to
produce one transport service are also used to produce other transport
services (e.g., when track or terminals used to produce freight services
are also used for passenger services).
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Activity E
❖What are the major differences between: (a) fixed costs and variable
costs and (b) joint costs and common costs?
…………………………………………………………………………………………………………………………
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Activity F
❖Which among the four pricing strategies are most simple to calculate?
Why?
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The rate is the price to move a product per hundred weight between two
locations (also known as tariffs) or per mile in TL. Rates may include
minimum charges and surcharge (e.g., to cover fuel cost risk).
i. Class Rate: The intent of the class rate system is to simplify the
process for pricing freight with inherently different freight
characteristics. Rather than have a unique price for each and every
commodity, articles with similar freight characteristics are assigned to
common freight ‘classes’. The logic is, the lower the class the lower the
price. The principle factors used in the freight classification process are:
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Activity G
❖How does packaging affect the ratings given while classifying the
products?
…………………………………………………………………………………………………………………………
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Rating may also include the development of narrative and exhibit material
and related information to be used by others request and negotiate new or
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Activity H
❖Why are minimum and surcharges paid over and above the variable
rates?
…………………………………………………………………………………………………………………………
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…………………………………………………………………………………………………………………………
iv. Commodity Rates: The global economy and its production systems are
highly integrated, interdependent and linked through commodity chains.
Value Chain (also known as commodity chain) is a functionally
integrated network of production, trade and service activities that
covers all the stages in a supply chain, from the transformation of raw
materials, through intermediate manufacturing stages, to the delivery of
a finished good to a market.
v. Exception Rates: Some carriers will offer exception ratings when the
characteristics of a commodity varies from the characteristics of the
same commodity in a different region. This allows carriers to offer
discounts to shippers which operate large volumes of shipments, or if
there is increased competition.
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cases. Not only does this remove the responsibility for loading the
shipment from the carrier, but it also implies that the carrier, once the
trailer is sealed, is not responsible for guaranteeing case count. Another
example of limited service is a released value rate, which limits carrier
liability in case of loss or damage. Normally, the carrier is responsible for
full product value if loss or damage occurs in transit. The quoted rate must
include adequate insurance to cover the risk. Often it is more effective for
manufacturers of high-value product to self-insure to realize the lowest
possible rate. Limited service is used when shippers have confidence in the
carrier’s capability. Cost can be reduced by eliminating duplication of effort
or responsibility.
Activity I
Joint Rate: Rate which applies for carriage over the lines of two or more
carriers and which is published as single amount (air cargo).
Local Rate: Charge which applies to carriage over the lines of a single
carrier (air cargo).
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Activity J
❖FAK Rate; Local Rate; Joint Rate; Proportional Rate: Mention when each
of them are applicable.
…………………………………………………………………………………………………………………………
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Activity K
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Table 3.1
COD: Collect payment on delivery
Change COD: Change COD recipient
Inside Delivery: Delivery product inside the building
Marking or tagging: Mark or tag a product as it is transported
Notify before delivery: Make appointment prior to delivery
Reconsignment of delivery: Redirect shipment to a new destination while
in transit
Redeliver: Attempt second delivery
Residential delivery: Deliver at residence without a truck dock
Sorting and segregating: Sort commodity prior to delivery
Storage: Store commodity prior to delivery
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Activity L
The business value of a fully deployed TMS should achieve the following
goals:
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Activity M
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• Yard process execution – check in/out trailers and tractors, and park
trailers at staging areas or move to dock doors for loading/unloading.
Load Planning
Load planning encapsulates the various ways of loading a consignment,
whether to have pallets, whether single units. There can be a mix of
various units – pallets + single units + barrels etc. Also there might be
different kind of requirements of certain consignment like refrigeration,
liquid holding; all these can be planned to be transported even in a single
vehicle. Load planning has a great impact on the cost of transportation for
the client, for the transporter it has an impact on the transit time. Load
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Planning would control the transfer of freight around the country. It would
make sure goods are moved in the most efficient way, taking into account
schedules, costs, and health and safety.
Software packages will help with some of these tasks, for example, to
match the size of loads with the vehicles needed to move them etc.
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Movement Administration
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Activity N
Freight costs are directly related to size of shipment and the length of haul
places a premium upon freight consolidation. Traffic management is the
business function responsible for achieving freight consolidation. Cargo
consolidation is a service provided by a freight forwarder in which several
smaller shipments are assembled and shipped together to avail of better
freight rates and security of cargo. Also called assembly service, cargo
consolidation, or freight consolidation.
Why drive alone when you can take mass transportation? The same theory
applies to businesses sourcing transportation. Why have two trucks deliver
half-full when one can carry the entire load?
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Activity O
Activity P
Activity Q
3.2.3 Negotiation
For any given shipment, it is the responsibility of the logistics department
to obtain the lowest possible rate consistent with service required. A RFQ
(Request for Quote) is a formal document, presented to a group of carriers,
requesting them to bid for the freight business. The advantage of this
approach is that the negotiating manager knows all the participants are
speaking the same language, so to speak. In the document, it is spelt out
about information of the company, its products, the volumes and
expectations. A bid completion date is specified, by which the carriers must
return the completed bid. Upon receipt of the completed bid, the offerings
are analyzed and decisions made.
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The key principle of carrier rate negotiation is: volume is king, but
profitability is queen. A shipper with enormous volumes, can negotiate
from a position of strength.
Vehicle management systems are also structured in a way that enables the
capturing of information on various aspects of fleet usage, maintenance
and operations. For example:
• distances travelled;
• destinations reached;
• distance travelled by vehicle showing official and private mileage;
• fuel consumption;
• repair and maintenance per vehicle;
• rate of consumption of spare parts; and
• servicing planned and completed.
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Activity R
❖How did the regulation on Hours of Service bring about a change in the
working conditions of the truck driver?
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Activity S
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Activity T
3.3 Documentation
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!
Figure 4: Bill of Lading
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The freight bill may be either prepaid or collect. A prepaid bill means that
transport cost is paid by the shipper prior to performance, whereas a
collect shipment shifts payment responsibility to the consignee.
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3.4 Summary
Motor transport units may be used in direct support of tactical operations
or in intermodal operations. Truck companies function through various
types and methods of hauling while supporting movement requests created
by the supported units. Efficient use of resources is identified as of
importance to best practice as growing concern mounts over fuel cost and
availability. Freight strategy and industry practices are well focused to meet
currently understood demands of freight system efficiency. However, future
best practice planning will need to include a stronger emphasis on risk
management planning to cope with possible disruptions to reliability of
transport systems in times of shortages and price increase scenarios.
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3. Describe the difference between a rate and a rating. How do they relate
to classification?
7. What is the role of the freight bill and the bill of lading in a
transportation transaction?
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
! !95
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Chapter 4
OPERATIONAL INTEGRATION
Objectives
Structure
4.9 Summary
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Introduction
Business strategy involves leveraging the core competencies of the
organization to achieve a defined high-level goal or objective. It also
includes the analytic and decision-making process surrounding what to
offer (e.g., products and services), when to offer (timing, business cycles,
etc), and where to offer (e.g., markets and segments) as a competitive
plan.
The reason for having value integration is to establish how you work with
your supply chain partners, including suppliers, distributors, customers,
and even your customers’ customers. As the marketplace becomes more
competitive, it is critical to reinforce existing relationships and work
together. And for all these reasons, a well executed value integration
results in value creation for the organization.
A truly integrated supply chain does more than reducing costs. It also
creates value for the company, its supply chain partners, and its
shareholders. The foundation of integration is information sharing.
Coordination is the next dimension. Then comes the organizational linkages
that enable sharing of risks, costs, and gains. There has been a drastic
increase in the pressure on organizations to find new ways to create and
deliver value to customers through SCM and marketing initiatives. The goal
of SCM and marketing integration is to create unique competitive
advantages by linking together customer values with a more effective flow
of products. The flow must always be refined and create customer value
proposition in a constantly changing market.
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Following are the major drivers for SCM and marketing integration:
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Activity A
Value results from the synergy among firms constituting a supply chain as
a result of five critical flows: information, product, service, financial, and
knowledge. It is imperative that every company specifically define the
functional responsibility of all departments within each of their
organizations. Integrating activities both within and beyond organizational
boundaries has become and will continue to be a major challenge for
supply chain executives. Integration efforts now extend beyond traditional
product-process design and functional integration to focus on extra-
organizational links with customers and suppliers. The object is to produce
"supply chain-enhanced" products and services. This eliminates any doubt
as to which department has responsibility for addressing any issues that
arise.
Supply chain integration focuses on two key issues – alignment and linkage
– both inside an organization and across organizations.
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Supply chain integration (Figure 4.1) calls for every organization and
individual involved in the process to understand that they can all benefit
from their efforts. The supply chain is a multi-organizational team that
should be working together. Although the buyer has the most to gain, the
supplier’s and the transportation company’s observations can often lead to
improvement in the manner the supply chain functions. An integrated
supply chain should benefit all participants. Logistics is the primary conduit
of product and service flow within a supply chain arrangement.
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!
Figure 4.1: Supply Chain Integration
Activity B
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Activity C
Activity D
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Activity E
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Activity F
Activity G
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The most significant aspect of reverse logistical operations is the need for
maximum control when a potential health liability exists (i.e., a
contaminated product). In this sense, a recall program is similar to a
strategy of maximum customer service that must be executed regardless
of cost. The operational requirements of reverse logistics range from lowest
total cost, such as returning bottles for recycling, to maximum
performance solutions for critical recalls. The important point is that sound
logistical strategy cannot be formulated without careful review of reverse
logistical requirements.
Activity H
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Silo Mentality
In many instances, firms have not considered the impact of their actions on
the supply chain and its long-term competitiveness and profitability. Silo
mentality manifests itself in the form of using cheaper suppliers, paying
little attention to the needs of customers, and assigning few resources to
new products and service design. Eventually, these firms will create quality,
cost, delivery timing, and other customer service problems that are
detrimental to the supply chain. Cachon (2005), in his paper, describes silo
mentality as the most significant obstacle to overcome in supply chain
management of most companies.
Internally, the silo effect can also be present among departments. The
transportation manager for instance, may be trying to minimize total
annual transportation costs while inadvertently causing safety stocks to be
higher, shortages to occur, and customer service levels to deteriorate. To
overcome the silo mentality, the firm must strive to align supply chain
goals and the goals and incentives of the firm. Functional decisions must
be made while considering the impact on the entire firm’s profit and those
of the supply chain. Performance reviews of managers must include their
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Activity I
…………………………………………………………………………………………………………………………
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In the absence of supply chain visibility, trading partners have to carve out
data from their ERP (enterprise resource planning) or legacy systems and
then send it to one another where it then has to be uploaded to other
systems prior to the data being shared and evaluated, the time lost can
mean lost end customers and higher costs through the supply chain
membership.
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Activity J
The cultural, trust, and process knowledge differences in firms are such
that firms successfully managing their supply chain must spend significant
amount of time influencing and increasing the capabilities of themselves
and their partners. Change and information sharing can be threatening to
people; they may fear for their job security, particularly if outsourcing
accompanies integration. Additionally, as firms construct their supply chain
information infrastructure, they may find themselves with multiple ERP
systems, a mainframe manufacturing application, and a desktop analysis
and design software that all need to be integrated both internally and
externally. Thus, firms must realize that the people to be using the system
must be involved earlier on, in terms of purchase decision, the
implementation process, and in training. For all organizations, successful
supply chain management requires a regiment of ongoing training. When
education and training are curtailed, innovation cannot occur, and
innovation fuels supply chain competitiveness (Wisner et al, 2006).
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Activity K
…………………………………………………………………………………………………………………………
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Integration across the total supply chain began to achieve the end-to-end
efficiencies that many had anticipated. There were also some unintended,
but positive, consequences. For one thing, increased connectivity allowed
suppliers to become involved in new product innovation. Moreover,
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Activity L
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Plan: Demand and supply planning and management are included in this
first step. Elements include balancing resources with requirements and
determining communication along the entire chain. The plan also includes
determining business rules to improve and measure supply chain efficiency.
These business rules span inventory, transportation, assets, and regulatory
compliance, among others. The plan also aligns the supply chain plan with
the financial plan of the company.
Make: Manufacturing and production are the emphasis of this step. Is the
manufacturing process make-to-order, make-to-stock, or engineer-to-
order? The make step includes, production activities, packaging, staging
product, and releasing. It also includes managing the production network,
equipment and facilities, and transportation.
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SCOR Spans
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• Product development
• Training
• Quality
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Each of the eight supply chain management processes has both strategic
and operational elements - that is, a strategic element in which the firm
establishes and strategically manages the process and an operational
element in which the firm executes the process. The strategic elements
should be led by a management team comprised of representatives from
multiple functions including marketing and sales, finance, production,
purchasing, logistics, and research and development. This team is
responsible for developing the procedures at the strategic level and seeing
that they are implemented. The strategic team also identifies how the
external partners will be integrated into the supply chain. The operational
component of each process, where the day-to-day activities take place, is
executed by the managers within each functional area.
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Activity M
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Activity N
Sales and Operations Planning ties together your operational plan with your
strategic business plan, providing a holistic view of demand, supply, and
finance so that you can literally plan to profit. Sales & Operations Planning
provides a holistic framework for balancing demand with supply and
incorporates key financial measures to ensure the operational plan is
aligned with the strategic plan to produce the best possible business
results.
With multiple "what if" scenarios on both demand and supply, the best plan
to meet the customer service and financial goals can be identified,
responded more quickly to the changing landscape of demand, and
ensured the S&OP process remains strong throughout the business.
• Senior executives
• Demand planning managers
• Production managers
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Table. 4.3
Logistics and New Product
Manufacturing: Marketing
Distribution: Development
Activity O
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!
Figure 4.3: S&OP Process
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Activity P
Activity Q
…………………………………………………………………………………………………………………………
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1. Demand Planning
Demand planning and forecasting is a business process that involves
predicting future demand for products and services and aligning production
and distribution capabilities accordingly. It involves a number of different
business functions and requires the sharing of timely data, accurate
processing of this data and agreement on joint business plans along the
supply chain.
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According to research, there are three main obstacles facing the industry in
the area of forecast accuracy performance, as follows:
Collaboration is Key
A lack of collaboration with trading partners is seen as a key frustration for
suppliers in the demand planning process. It indicates that despite efforts
to share information, this is not common practice across the industry, and
is not sufficient on its own.
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Activity R
2. Production Planning
The goal of production planning is to help you produce your products more
efficiently. Supply and demand plans need to be transformed into feasible
and meaningful production and purchasing plans and schedules. The
production planning process determines when a specific production order
needs to be produced and on which production line. It also takes into
account the availability of resources and components. Purchasing/
production orders are generated in time to decrease supply costs without
endangering the production process.
Although there has been a definite trend toward make-to-order (MTO) and
assemble-to-order (ATO) manufacturing, such response-based practices
are not always possible because of production technology, capacity,
resource constraints, or customer requirements. The limitations occur in
the form of facility, equipment, and labor availability.
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Activity S
3. Logistics Planning
To ensure that the supply chain is operating as efficient as possible and
generating the highest level of customer satisfaction at the lowest cost,
companies have adopted logistical planning and associated technology.
Logistical planning has three levels of activities that different parts of the
company will focus on: strategic, tactical and operational.
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Activity T
❖ What is the kind of coordination that takes place between the logistics
department and its channel partners while devising a logistical plan?
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!
Figure 4.5: Advance Planning and Scheduling Overview
• Material availability
• Machine and labour capacity
• Customer service level requirements (due dates)
• Inventory safety stock levels
• Cost
• Distribution requirements
• Sequencing for set-up efficiency
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Resource Management
The resource management component defines and coordinates supply
chain system resources and constraints. Since APS systems use the
resource and constraint information to evaluate the trade-offs associated
with supply chain decisions, information accuracy and integrity are critical
to provide optimal decisions and enhance planning system credibility.
Obviously, incorrect planning decisions not only sub-optimize supply chain
performance but also severely reduce management credibility in the
planning system itself. In addition to the requirements definition developed
by the demand management module, APS requires four other types of
information: product and customer definitions, resource definitions and
costs, system limitations, and planning objective.
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ATP is used to designate that even though actual inventory is not currently
available, it will be available for shipment or promise at a specific date in
the future. CTP is used to designate when requested product can be
promised for future delivery. ATP and CTP can dramatically enhance supply
chain performance and effectiveness by allowing commitments against
future production and capacity. The result is more rapid commitments to
customers, fewer customer surprises, and enhanced resource utilization.
Activity U
•What are the APS Systems components? Write 2-3 lines on each of their
functions.
…………………………………………………………………………………………………………………………
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First, logistics and supply chain managers have used extended lead times
and schedule freezes to plan for future supply chain activity. For example,
production would be scheduled three to four weeks into the future and
then frozen to minimize uncertainty and allow for effective resource
utilization. Long lead times and freeze periods were necessary since the
planning process was complex and required substantial analyzes. While this
approach reduced uncertainty, it also substantially reduced flexibility and
responsiveness. Today’s customer requires more responsiveness to market
needs, and demand for lower inventory levels rules out long cycle times.
Marketplace and firm changes can be quickly made in the demand
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Activity V
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Activity W
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4.9 Summary
The time has come to accept integrated logistic support as the only
definition for total logistics involving both management and technical
activities. In order to be competitive, management needs to closely
integrate all functions of the organization. Logistics in itself has no
purpose. Logistics supporting an organization in an integrated way provides
an impetus to achieving the goal, MAKING MONEY.
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7. Why does trust play such an important part between supply chain
partners?
10.What is the process that aligns raw material and production to meet
demand?
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REFERENCE MATERIAL
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! !136
GLOBAL STRATEGIC POSITIONING
Chapter 5
GLOBAL STRATEGIC POSITIONING
Objectives
Structure
5.4 Summary
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Introduction
In a global and competitive environment, supply chain relationships and
processes must be continuously integrated and aligned with strategy. The
objective should be to improve the efficiency and effectiveness of supply
chains to create value for final consumers. Global Supply Chain
Management (GSCM) focuses on planning and forecasting, purchasing,
product assembly, moving, storing, and keeping track of a product as it
flows around the world from suppliers and producers to distributors to
retailers and on to you and other consumers.
GSCM makes it possible to build and deliver products better, faster, and
cheaper. Supply chain managers have a tremendous impact on the success
of an organization. These managers are engaged in every facet of the
business process – planning, purchasing, production, transportation,
storage and distribution, customer service, and more! In short, these
managers are the "glue" that connects the different parts of the
organization. Their performance helps organizations control expenses,
boost sales, and optimize profits.
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!
Figure 5.1: Global Supply Chain Integration
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Supply chain use a combination of various modes like air, package carriers,
trucks, rails, water, pipelines and Intermodal for the transportation
purpose. Logistics firms operate with considerable specialized knowledge
on the movement of goods, the use of information, and the organization of
supply chains, all of which are particularly complex in the case of
international shipments. The logistics industry also plays a pivotal role in
the contemporary global economy by enabling cross-border coordination of
production and making possible the seamless flow of commodities globally.
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Activity A
While firms and supply chains are trying to increase product velocity in the
supply chain to lower cost by reducing product storage time and damage,
the transit times and border delays characteristic of global logistics
constrain product velocity. Extended transit times and exposures in-transit
increases the product risk for intentional or unintentional damage as well
as reducing velocity and ultimate flexibility. However, over time, business
units operating within a foreign market area will adopt local business
practices.
Activity B
❖What are the complexities involved for a company which is doing its
business overseas?
…………………………………………………………………………………………………………………………
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Managers are able to identify and evaluate alternative strategies and have
the authority for implementation. Search for alternative materials, logistics
service providers, manufacturing plants, warehouses, customer alliances,
etc. There is a need to develop and implement flexible systems and
procedures. Product sourcing and marketing decisions can be made across
a wide range of geographical alternatives. Systems and procedures are
designed to meet individual country requirements and are aggregated as
necessary to share knowledge and for financial reporting. It is actually
through the levels of global integration that the global logistics
perspectives vary.
Activity C
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overall costs. While local labor costs may be significantly lower, companies
must also focus on the costs of space, tariffs, and other expenses related
to doing business overseas. Additionally, companies need to factor in the
exchange rate. Obviously, companies must do their research and give
serious consideration to all of these different elements as part of their
global supply management approach. Time is another big issue that should
be addressed when dealing with global supply chain management. The
productivity of the overseas employees and the extended shipping times
can either positively or negatively affect the company's lead time, but
either way these times need to be figured into the overall procurement
plan. Other factors can also come into play here as well. For example, the
weather conditions on one side of the world often vary greatly from those
on the other and can impact production and shipping dramatically. Also,
customs clearance time and other governmental red tape can add further
delays that need to be planned for and figured into the big picture. Besides
contemplating these issues, a business attempting to manage its global
supply chain must also ask itself a number of other serious questions. First,
the company needs to make decisions about its overall outsourcing plan.
For whatever reason, businesses may desire to keep some aspects of
supply chain closer to home. However, these reasons are not quite as
important as other countries advance technologically. For example, some
parts of India have now become centers for high-tech outsourced services
which may once have been done in-house only out of necessity. Not only
are provided to companies by highly qualified, overseas workers, but they
are being done at a fraction of the price they could be done in the United
States or any other Western country. Another issue that must be
incorporated into a global supply chain management strategy is supplier
selection. Comparing vendor bids from within the company's parent-
country can be difficult enough but comparing bids from an array of global
suppliers can be even more complex. How to make these choices is one of
the first decisions companies must make, and it should be a decision firmly
based on research. Too often companies jump on the lowest price instead
of taking the time to factor in all of the other elements, including those
related to money and time which were discussed above. Additionally,
companies must make decisions about the number of suppliers to use.
Fewer supplies may be easier to manage but could also lead to potential
problems if one vendor is unable to deliver as expected or if one vendor
tries to leverage its supply power to obtain price concessions. Finally,
companies who choose to ship their manufacturing overseas may have to
face some additional considerations as well. Questions regarding the
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number of plants that are needed, as well as the locations for those plants
can pose difficult logistical problems for companies. However, it often helps
to examine these issues in terms of the global supply chain. For example, if
a business uses a number of vendors around Bangalore, India than it may
make sense to locate the manufacturing plant that would utilize those
supplies in or around Bangalore as well. Not only will this provide lower
employee costs, but overall shipping and tariff expenses should also be
reduced. This would then save the company’s money.
Activity D
Transportation
The procurement and distribution of goods has been significantly influenced
by the globalization and liberalization of markets. With the advent of trade
liberalization and the emergence of economies such as Brazil, Russia, and
India, global supply chains within many industries have and continue to
change drastically. Distribution and supply networks must be reconfigured
and re-optimized as a result of mergers and acquisitions taking place in
this new economic environment.
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Activity E
Operational Considerations
Operations and Supply Chain services focus on helping customers develop
integrated operations by identifying and quantifying improvements to
enable strategic change necessary to achieve competitive advantage and
value for the organization from suppliers to the customer.
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Activity F
Systems Integration
Global Supply Chain Integration is, above all, about integrating data feeds
to provide a holistic view of the system performance. The choice of a
centralized or distributed SC infrastructure should not be driven by
technology but rather by real business needs.
Alliances
A final difference in international operations is the extended role of third-
party alliances. While alliances with carriers and specialized service
suppliers are important in domestic operations, they are essential in
international commerce. Without alliances, it would be necessary for an
enterprise operating internationally to maintain contacts with retailers,
wholesalers, manufacturers, suppliers, and service providers throughout
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the world. International alliances offer market access and expertise and
reduce the inherent risk in global operations. The number of alternatives
and the complexity of the globalization require increased use of alliances.
Globalization is an evolving frontier that is increasingly demanding supply
chain integration. As the international businesses develops, the demand for
logistical competency increases due to longer supply chains, less certainty,
and more documentation. While the forces of change push toward
borderless operations, supply chain management still confronts market,
financial, and channel barriers. The barriers are exemplified by distance,
demand, diversity, and documentation. The challenge is to position an
enterprise to take advantage of the benefits of global marketing and
manufacturing by developing world-spanning logistical competency.
Activity G
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Once a firm has identified and prioritized the risks that it faces, it can
devise risk treatment plans. This includes measures to protect the supply
chain from risks, plans to respond to events that these risks may cause,
and plans to continue operations in the face of disruptions and fully
recovering from them. This may also involve determining ways to measure
risks and the effectiveness of plans to limit them or to respond to
disruptions. Enterprises must also undertake continual communication and
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Activity H
Several factors have made crafting a supply chain and sourcing strategy a
central focus for firms, including rapid changes in demand for products and
services, the globalization of the economy, and the availability of advanced
planning and communication tools for coordinating the activities of supply
chain participants.
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Although cost savings remains the top reason for companies to focus on
emerging markets and LCCR, the other reason is the competitive edge,
which these companies can enjoy. They can successfully carve substantial
markets for themselves by offering the products in the local markets as
well.
Activity I
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about potential pitfalls and the obstacles that might prevent them from
achieving the desired benefits. Major risks when sourcing in low-cost
countries are unreliability of quality and delivery. The increased
globalization of supply chains and the prevalent use of subcontract
manufacturing and offshore sourcing can potentially lengthen lead times
and hence lead to a loss of competitiveness.
Apart from the hunt for capable suppliers, a number of cultural and political
differences might keep companies away from establishing contacts in the
country they choose. Language remains a major issue and is accompanied
by the problems related to norms, standards and specifications which you
want to convey to the supplier. Labor quality, business license limitations,
project management challenges and technical capabilities in the supply
base also play an important role in determining LCC sourcing success.
Although legislations in most of these countries are evolving rapidly to
protect copyrights and patents, companies will need to be warned about
IPR (International Property Rights) risks when you are choosing vendors in
any of these nations.
Activity J
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Activity K
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5.4 Summary
Global operations are becoming more of the norm for logistics and supply
chain executives. Decisions regarding global sourcing and marketing
require more complex trade-off analyses than traditionally required for
domestic logistics. Both the quantitative and qualitative factors are more
complex. While transportation, inventory, and warehousing costs are very
substantial for global operations, other cost components, including taxes,
tariffs, duties, documentation, and import restrictions, can also have a
substantial impact on true total cost. However, in addition to the
quantitative considerations, international operations introduce a number of
other variables that are much more difficult to quantify. Many of these
variables relate directly to logistics operations. The major qualitative
considerations include relationship management, infrastructure
consistency, production and transit reliability, and security. With increased
global marketing and manufacturing operations, logistics management
needs to be more involved in developing and implementing global
strategies.
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REFERENCE MATERIAL
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Video Lecture
! !156
NETWORK INTEGRATION
Chapter 6
NETWORK INTEGRATION
Objectives
Structure
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Introduction
The supply chain is a network of suppliers, factories, warehouses,
distribution centers and retailers through which raw materials are acquired,
transformed and delivered to the customer. Supply chain management is
the strategic, tactical and operational level decision-making that optimises
supply chain performance. The strategic level defines the supply chain
network, i.e., selection of suppliers, transportation routes, manufacturing
facilities, production levels, warehouses, etc. The tactical level plans and
schedules the supply chain to meet actual demand. The operational level
executes plans. Tactical and operational level decision-making functions are
distributed across the supply chain.
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In a discrete facility location problem, the selection of the sites where new
facilities are to be established is restricted to a finite set of available
candidate locations. It refers to choosing the locations for distribution
centers, warehouses, and production facilities to facilitate logistical
effectiveness and efficiency. The major factors influencing decisions are
markets and resource availability; most facilities are located near one or
the other. Labor and transport services are two other key factors in facility
location. Also, advantages in technology and communications have had
considerable influence on locational decisions in recent years.
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Facility location has a long-term impact on the supply chain and must be
part of the firm’s strategy. Companies can locate anywhere in the world
due to increased globalization, technology infrastructure, transportation,
communications, and open markets. Location still matters as clusters in
many industries show that innovation and competition are geographically
concentrated.
Customers fell that unless a supplier maintained inventory within the local
market area it would be difficult, if not impossible, to provide consistent
delivery. This perception, commonly referred to as the local presence
paradigm, resulted in inventories being maintained in a numerous local
markets. Some firms went so far as to have full-line inventory warehouses
located near all major sales markets.
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Activity A
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Activity B
Such a life cycle focus is the result of distinct buying practices that directly
impact the nature and functionality of supply faced warehousing. Value-
added services related to procurement are increasingly being de-bundled
from the purchase price. Such de-bundling facilitates functional absorption
and spin-off between manufacturers and their suppliers. There is also a
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Activity C
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Activity D
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Activity E
Market-based ATO
Assemble-to-order is a manufacturing strategy where parts and sub-
assemblies are produced-to-stock, while the final assembly of products is
delayed until customer orders have been received. This strategy allows
manufacturers to achieve a high degree of product variety and quick
product delivery while keeping low inventories. Companies also deploy a
strategy known as forward inventory deployment, which ensures that the
SKUs (stock keeping units) that account for the majority of sales revenue
are closest to key market demand points to minimize order turnaround
time which is an important competitive advantage. In other words, if 80+
% of the sales revenue is derived from a small subset of SKUs, then
position these SKUs closest to their demand points so that customers can
be serviced as quickly as possible.
Because of the highly competitive market, performance measures such as
order service level and fill rate have become the most critical performance
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Activity F
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Activity G
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Activity H
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!
Figure 6.1: Transportation Cost as a Function of the Number of
Warehouse Locations
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Inventory refers to the stock of materials of any kind stored for future use,
mainly in the production process. Semi-finished goods, which are awaiting
use in the next process, or finished goods, which are waiting for sale, are
also included in this broad category. But these are practically idle
resources. Thus, inventories are materials/resources of any kind having
some economic value, either awaiting conversion or use in future.
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• Base stock
• Safety stock
• In-transit stock
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Activity I
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another, many times from a wholesaler to a retailer who will then resell the
items.
Activity J
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known as the consignee. The consignee is responsible for taking care of the
goods and trying to sell them to an end customer.
!
Figure 6.3
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Activity K
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"C" Category items represent 50% of actual items but only 5% of the
inventory value. Most organizations can afford a relatively relaxed
inventory process surrounding these items (Figure 6.4).
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!
Figure 6.4
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!
Figure 6.5
2*A*Cp
!
Ch
Where, A = Demand for the year
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Variables
C = Carrying cost per unit per year
Calculation:
2*16,000*$50
=800 units perorder
! $2.50
Activity L
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lowest fixed and variable costs. The cost of transport is the payment for
shipment between two geographical locations and the expenses related to
maintaining in-transit inventory. Logistical systems should utilize
transportation that minimizes total system cost. This may mean that the
least expensive method of transportation may not result in the lowest total
cost of logistics.
Activity M
❖When the overall intention is to minimise costs; when are high service
costs justified?
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The threshold service resulting from the least total cost logistical design
provides a basis for sensitivity analysis. The basic service capabilities of a
network can be increased or decreased by variation in number of
warehouses, change in one or more performance cycles to increase speed
or consistency of operations, and/or change in safety stock policy.
The problem of serving the given set of customers from the chosen
warehouses is considered. The objective is to minimize the sum of fixed
charges for establishing the warehouses and transportation costs
corresponding to the supply of demands.
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!
Figure 6.6
Chopra and Meindl note that an increase in the number of facilities tends to
increase total supply chain inventory costs due to the need to increase
total system-wide safety stock in order to meet customer service level
expectations. Conversely, a reduction in the number of facilities that hold
safety stock permits a reduction in total safety stock cost as a result of the
risk-pooling benefits from aggregating safety stock in fewer locations.
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The portfolio effect can be estimated using the square root rule. The
square root rule, originally proposed by “Maister”, suggests that the safety
stock increase as a result of adding a warehouse is equal to the ratio of the
square root of the number of locations in the newly prepared network
divided by the square root of the number of existing location.
NI
SSl = ! ×SSK
• 1
• Nl = 2
• Nk =1
2 × SSK
• SSl =!
1
• So you need 1.41 the safety stock for two warehouses vs. one.
4
SSl = ! × 1000
3
SSl = 1155
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Activity N
1 97
2 141
3 173
4 200
5 224
Finally, the square root rule requires that demand for each warehouse
approximate a normal distribution. While the appropriateness of these
assumptions must be reviewed, the square root rule is a useful way to
estimate the inventory impact of adding or deleting warehouses to a
logistical network.
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Consider the long run, profit maximizing strategy of a distributor that holds
a good (good 1) in inventory for immediate delivery and that offers a
second good (good 2) for delayed delivery. When the two goods are
substitutes, an out-of-stock situation for good 1 will cause some consumers
(“walkers”) to seek the good elsewhere, other consumers (“waiters”) to
accept a rain check for later delivery of good 1, and others still
(“switchers”) to place an order for good 2. It is shown that a profit
maximizing strategy may entail setting a price for the delayed delivery
item so as to encourage switching behavior. The rationale is that the
distributor can hold a smaller inventory, thereby incurring lower holding
costs, because out-of-stock situations are less costly than they would be
without some consumers being willing to switch.
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6.13 Summary
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6. Why is it important to have the right inventory at the right place at the
right time?
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REFERENCE MATERIAL
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Summary
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Video Lecture
! !189
LOGISTICS DESIGN AND OPERATIONAL PLANNING
Chapter 7
LOGISTICS DESIGN AND OPERATIONAL
PLANNING
Objectives
Structure
7.6 Summary
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LOGISTICS DESIGN AND OPERATIONAL PLANNING
Introduction
The international economic and business environment continues to develop
at a rapid rate. Increasing interactions between economies, particularly
between Europe and Asia, has raised many important issues regarding
transport infrastructure, logistics and broader supply chain management.
This chapter introduces a systems approach to supply chain re-engineering
which is aimed at addressing the challenges which the evolving business
environment brings with it. The adoption of approaches such as that
outlined in this chapter helps to ensure that robust supply chains are
designed and implemented in practice. This facilitates an integrated
approach, with involvement of all key stakeholders throughout the design
process. In addition, the potential benefits associated with emerging
electronic commerce technologies provide the potential to simultaneously
improve customer service levels and to reduce supply chain costs. These
factors have sharpened the focus on the need for improvements in all
aspects of supply chain performance.
Any finite system will have a boundary and anything outside that boundary
can be regarded as the environment. An important aspect of the study of
systems involves examining the interaction between systems and their
environments. Indeed, the way in which a system interacts with its
environment will largely determine the usefulness or degree of success of
the system. If the supply chain under consideration is regarded as the
system, then the environment is the business environment in which that
supply chain operates. The business strategy of firms is concerned with the
interaction between supply chain companies and their business
environment (Porter, 1980). Essentially, the strategy formulation process
defines the nature of this interaction.
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LOGISTICS DESIGN AND OPERATIONAL PLANNING
!
Figure 7.1: Supply Chain as a System
The supply chain system could be regarded as shown in Figure 7.1. The
interaction of the system with its environment is represented by the
system inputs and outputs. In practice, supply chain systems can be
broken down into subsystems. This aids understanding of the operation of
the system and facilitates systems analysis. Each of the subsystems should
display the characteristics of a system; each subsystem will have inputs,
outputs and a boundary. When considering a company’s internal supply
chain, the subsystems can be regarded as the company’s business
processes (e.g., designing, buying, making, moving, and selling). These
business processes are multidisciplinary activities that cross traditional
functional department boundaries. When considering a supply chain which
comprises several companies, the subsystems can be regarded as the
individual companies or the business processes which cross company
boundaries. Traditionally, efforts at improving supply chain or
organizational effectiveness have focused on making changes within the
subsystems. This often resulted in optimal subsystems but sub-optimal
total systems.
Customer and competitor attitude keeps varying and also the market
demands, costs and service needs. Naturally, questions arise about
warehouses; their numbers and locations; about striking a balance
between inventory and service in each warehouse; material handling and
routing of vehicles etc.
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!
Figure 7.2: Generalized Planning System Illustrating Major Phases of
Work
Activity A
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LOGISTICS DESIGN AND OPERATIONAL PLANNING
Activity B
1. Situational Analysis
The purpose of the situational analysis is to provide senior management
with the best possible understanding of the strengths and weaknesses of
the existing logistics capabilities for both current and future environment.
Situational analysis is the performance of measures and characteristics
that describe the current logistics environment through:
Activity C
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LOGISTICS DESIGN AND OPERATIONAL PLANNING
…………………………………………………………………………………………………………………………
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Activity D
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Activity E
The alternatives along with being practical should also challenge the
existing practices. A recommended procedure requires the manager
responsible for evaluating the logistical strategy and to develop it with
potential benefits by underlining the most attractive strategy alternatives.
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LOGISTICS DESIGN AND OPERATIONAL PLANNING
3. Cost-Benefit Ratio
The final feasibility assessment is a preplanning estimate of the potential
benefits versus the cost of performing a logistics analysis and
implementing the recommendation. Benefits should be categorized in
terms of:
Activity F
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Activity G
❖What are the service levels that the management will always try to
achieve?
…………………………………………………………………………………………………………………………
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Activity H
Activity I
Once the feasibility assessment and project plan are completed, the next
activity focuses on data collection and analysis. This includes activities to
define assumptions, collect data, and analyze alternatives.
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LOGISTICS DESIGN AND OPERATIONAL PLANNING
Activity J
iii. Analysis assumptions define the constraints and limitations that must
be included to fit the problem to the analysis technique. These
assumptions frequently concern problem size, degree of analysis
detail and solution methodology.
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Activity K
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Activity L
Collection of Data
Once the data sources have been identified, the company can start
assimilating required data and convert that data to an appropriate format
for analysis. To avoid errors, data collection process should be properly
documented.
Validation of Data
It is important to ensure that a thorough investigation is conducted into
analytical results based on data that is sourced, and such data that might
not accurately reflect the past.
Analysis
The analyst uses the technique and data from the previous activity to
evaluate logistics strategic and tactical alternatives. The process of analysis
includes:
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Recommendations
Alternative and sensitivity analysis results are reviewed to determine
recommendations to management. There are four steps in this part of the
phase namely:
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Activity M
Implementation
The actual plan or design implementation is the final process activity. An
adequate implementation procedure is the only means to obtain a tangible
return from the planning process. This broadly includes four phases:
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Activity N
❖What is the criteria for ensuring the success of the implementation plan?
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
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A robust infrastructure plan must take into account all of the business
requirements for years to come. To optimize the plan, total supply chain
cost, customer service and strategic business initiatives are to be
considered. Through this process, the optimal infrastructure plan to
support the business operations including critical decisions related to plant,
warehouse and distribution center locations and utilization will be
determined. Some of the management questions that are raised are:
• What are the transportation modes and lanes that should be used to
move product through your network?
• Which customers should be served from each facility and by which modes
of transportation?
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Activity O
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transportation costs) versus costs that are more likely to change in a slow,
sustained manner (e.g., labor costs). Figure 7.3 illustrates the scope of
a typical supply chain design.
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Figure 7.3: Scope of Typical Supply Chain Design
Activity P
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Firms often must find the location for a new facility. Usually, this decision
follows a process of system analysis and design, wherein a determination is
made of how many facilities the firm should be operating. A growing firm
may decide that it needs a new warehouse to serve a certain region.
Several layers of analyses would be performed, each with a finer focus.
After a region was selected, then a city within the region would be chosen.
Criteria to this point would include markets, availability and wage rates of
labor, tax rates, climate, and transportation. Within that chosen city,
various sites would be examined, taking into account such factors as land-
use controls, street traffic capability, and room for expansion, soil stability,
water- and sewer-line capacity, police and fire protection, and proximity to
rail tracks. Some firms serve contracting or shrinking, markets. They must
decide which production or distribution facilities to choose, and the closure
must be scheduled in a way that reduces adverse impact upon the firm’s
overall operations.
Activity Q
Mathematical Programming
Mathematical programming is a theoretical tool of management science
and economics in which management operations are described by
mathematical equations that can be manipulated for a variety of purposes.
If the basic descriptions involved take the form of linear algebraic
equations, the technique is described as linear programming. If more
complex forms are required, the term non-linear programming is applied.
Mathematical programming is used in planning production schedules, in
transportation, in military logistics, and in calculating economic growth, by
inserting assumed values for the variables in the equations and solving for
the unknowns. Computers are widely used in obtaining solutions. The
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Simulation Techniques
Supply chain simulation efforts mainly focus on the improvement of the
performance in term of responsiveness, complexity, and inventory control.
A simulation model of a logistics network is developed to investigate the
impact of the variables associated with production schedules, customer
demand, and transportation delays. It often incorporates a geographic map
of the physical relationships among plants, terminals, warehouses, and
customers. It is suggested that all these should be modeled separately and
then integrated with the underlying logistics network.
Given the design objective, the simulation choses the best from the
maximum number of potential locations. The deletion procedure eliminates
the most costly warehouse from the remaining in-system facilities on a
marginal cost basis. The demand previously serviced by the eliminated
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Activity R
CASE STUDY
It took, IBM consultants, six weeks to set up and run the computer model
with Tesco's help. Joe Galloway, Tesco's divisional director of supply chain
information technology, reports that much of that time was spent gathering
a year's worth of detail-laden data about its distribution center operations
to input into the model. "We were looking for data on the actual orders that
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went through our supply chain by (product) line and by store," he says.
Once the data were fed into the application, it corroborated the soundness
of the model.
When Tesco executives ran the same data through the computer model to
simulate a restructured supply chain with a dedicated frozen food facility,
the results supported their assumptions. The model indicated that the food
retailer could achieve distribution savings in the range of 2% to 5%,
depending on the actual mix of frozen food products stored in the
dedicated facility. Transportation costs would drop because Tesco could
eliminate trips between distribution centers and make more direct store
deliveries. In addition to consolidating outbound trips, Tesco also
determined that it could realize some savings on the inbound haul because
it would only have to move products from suppliers to a single point rather
than to two or three warehouses.
Inventory carrying costs would decline. If all of the frozen food supplies
were stored in a dedicated facility, the model showed Tesco could actually
reduce its stock holdings or even expand its mix of frozen food products
and increase store sales in this category. Tesco also would eliminate the
need to construct more facilities in the future. Moving frozen foods out of
the distribution centers would free up warehousing space for the expansion
of chilled products. The simulation also indicated that the company might
benefit by trying some alternative approaches.
Finally, the simulation gave Tesco some insights into its current operation
that allowed it to make an immediate, money-saving change. The company
discovered that it could cut back deliveries of certain slow-moving items to
once a week and still maintain adequate stock for its stores. Although
computer simulation helped persuade the board to approve the
restructuring plan, it had another benefit as well. The simulation gave
Tesco's logistics managers a deeper insight into their own supply chain's
operation.
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Organizations use the finding to guide the investment decisions they make
to advance their success. The findings of a market analysis may motivate
an organization to change various aspects of its investment strategy.
Affected areas may include inventory levels, a workforce expansion/
contraction, facility expansion, purchases of capital equipment, and
promotional activities.
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Determining how many of each type of facility are needed, their geographic
locations, and the work to be performed at each is an important part of
network analysis. In certain situations, some of the facility operations may
be outsourced to service specialists. Regardless of who does the actual
work, all facilities must be managed as an integral part of a firm’s logistical
network. Network analysis, not only determines the number and location of
all types of facilities required to perform logistics work, but also determines
what inventory and how much to stock at each facility and where to assign
customer orders for shipment. The network of facilities including
information and transportation forms a structure from which logistical
operations such as processing of customer orders, maintaining inventory
and material handling performed. The analysis must consider geographical
variations. In context of global logistics, issues relating to network design
become increasingly more complex.
Activity S
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Variable and Fixed Costs: The final location analysis data requirements
are the variable and fixed costs associated with operating distribution
facilities. Involves such decisions as:
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Activity T
❖What are the differences between variable and fixed costs? Are
transportation costs fixed or variable?
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Traffic simulation models are the best strategies that affect traffic flow, and
can provide a relatively accurate assessment of impacts. The use of global
positioning satellites (GPS) has also facilitated determination of network
locations and possible routes with directions for locating addresses
mentioned on the packages.
Activity U
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Figure 7.4: Freight Lane Analysis
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7.6 Summary
Ad hoc tactical analyses such as freight lane balancing and ABC inventory
analysis must be completed regularly to respond to changes in
transportation rates, flows, and product demands. Regular supply chain
planning and location analysis is becoming increasingly critical to respond
to changes in global material availability, market demands, and production
resource availability. More tactical tools such as dynamic simulation and
routing and scheduling algorithms can be used to investigate and evaluate
inventory and transportation alternatives. The importance of such
comprehensive planning and analysis methods and tools is growing due to
the possible alternatives to and complexity of global supply chains.
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9. At what point in the typical analysis does the technique give way to the
managerial review and evaluation process?
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture
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LOGISTICS OUTSOURCING AND BEST PRACTICES
Chapter 8
LOGISTICS OUTSOURCING AND BEST
PRACTICES
Objectives
Structure
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Introduction
Logistics outsourcing involves a relationship between a company and an
LSP (logistics service provider), which, compared with basic logistics
services, has more customized offerings, encompasses a broad number of
service activities, is characterized by a long-term orientation, and thus has
a strategic nature. Transport and storage of materials and products may
constitute a considerable part of costs in functioning of a company.
Sometimes, it is only a precise statement of these costs that makes
companies interested in modern logistics solutions.
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Activity A
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Logistic decisions of the firm are driven and justified by various factors
including, among others, the need to achieve operational flexibility,
customer service, risk mitigation, cost reductions, operational efficiency
and access to resources and markets. It is argued that out of these many
factors, cost reduction and expectation to improve services are the most
frequently cited factors for outsourcing.
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Activity B
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Standard 3PL providers are the most basic form of a 3PL provider.
Activities performed include the most basic functions of logistics ─ ‘picking
and packing’, warehousing, and distribution. 3PL functions are not the main
activity of these firms.
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Customer developers are the highest level 3PL provider with respect to
its processes and activities. A 3PL provider integrates its activities with the
customer and controls the entire logistics function. Extensive and detailed
tasks are performed for few providers.
Activity C
Tailored Services
Third party logistics have the ability to tailor their services to what is
required of them and can offer a range of solutions for individual
companies to reduce their overall costs and increase efficiency. They can
ensure your company needs are met using the most effective, cost and
time efficient systems.
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Up-to-date Technology
If an organization feels they do not have the expertise, manpower or
infrastructure for their warehouse, logistics or operating systems, they can
still have an effective supply chain including reverse logistics by
outsourcing to a qualified third party logistics organization (3PL). 3PLs
ultimately allow companies to keep up-to-date with ever-changing
technology without the extra costs and time involved which can then be
spent on core business functions.
Activity D
Pricing Models
3PL services promote their service as the most cost-efficient way to get
logistics done. While this may be true, contracting with such a service
means that the company is locked into the pricing model specified in the
business agreement. By handing logistics over to a 3PL service, companies
are forgoing the possibility that an in-house logistics department could
figure out a cheaper and more efficient solution.
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Dependency
Handing over logistics to a 3PL service is a large commitment. Businesses
need a reliable structure to function. Logistical downtime can translate into
large amounts of lost productivity and revenue. Consequently, while the
free market dictates that a business which is dissatisfied with its 3PL
service could always find another, or develop its own logistical
infrastructure, the reality is not so simple. Switching the nature of a
company's logistical support can cost the company a great deal in
unforeseen costs resulting from the transition. When businesses contract
with 3PL services, it creates a dependency which is no small matter to
change. This dependency puts the client company in uncomfortable
situations if pricing schemes or service reliability from the 3PL service is
not working out as expected.
Activity E
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Activity F
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Activity G
❖Can part of a logistics activity be outsourced? What are the major factors
which decide on outsourcing?
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Resources: Some organizations may just fail to take full advantage of 3PL
or 4PL outsourcing as a result of lack of necessary resources to support
real collaboration. The resources may be financial, labor or technological
resources like an adequate information system depending on the nature of
the organization. For successful outsourcing relationships, there is a need
to orchestrate necessary resources and facilitate collaboration; this has to
be done on time and at the level that matches requirements over the life of
the relationship. As we have seen, all these factors and their related
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Activity H
It became clear that companies across industries and around the globe
regard logistics and supply chain management as intrinsic to their success.
Many place a high value on their partnerships with third party logistics
(3PL) companies. They credit 3PLs with helping them to attain goals
related to service, cost, and customer satisfaction.
The factors cited by 3PL users as contributing to this success can help
others maximize the benefits they receive from 3PLs:
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The takeaway: Setting, and then driving toward, a commonly held set of
expectations is an essential element of success. Interestingly, larger the
revenue group, the more importance 3PL users place on a carefully
designed and signed contract that supports innovative arrangements
between a 3PL and a customer. One plausible explanation is that higher-
revenue companies may be more sensitive about carefully drafted
contracts, as they may have more at stake financially and otherwise. Also,
higher-revenue companies may have policies and procedures in place that
require use of a more formal agreement or contract that includes a
commensurate level of detail.
Activity I
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“4PL supply chain outsourcing has undergone a paradigm shift from a cost
centre to a revenue generating opportunity. It has leveraged logistics to
improve the service level to customers, accelerate the speed of launching
new products and stimulate market penetration.” Accordingly, 4PL’s main
competency lies in sustaining long-term investment and ongoing benefits
once initial cost savings are achieved.
Activity J
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With all the array of 3PLs and 4PLs in the supply market, the challenge of
identifying and collaborating with the best service provider is left with the
firm that seek to outsource their logistics functions. This becomes even
harder when most providers claim to position themselves as having the
necessary capabilities to meet customer needs. How an outsourcing firm
determines whether its logistics providers have these capabilities is an
important parameter in determining its success in 3PL/4PL outsourcing.
While first 8 steps make a framework for initial screening, the final
selection of provider in this model is determined in the last step. This is
where the ANP methodology is actually applied by comparing shortlisted
providers based on dimensions, determinants and enablers and
interdependence among them.
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Activity K
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8.14 Summary
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture
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WAREHOUSING
Chapter 9
WAREHOUSING
Objectives
Structure
9.1 Definition
9.2 Concept of Warehousing
9.3 Importance of Warehousing in Wholesale and Retail
9.4 Functions and Importance of Warehousing
9.5 Economic Benefits of Warehousing
9.6 Types of Storage
9.7 Types of Warehouses
9.8 Warehouse Design
9.9 Warehouse Layout
9.10 Product Mix Analysis
9.11 Material Handling
9.12 WMS
9.13 Safety and Security
9.14 Summary
9.15 Self Assessment Questions
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Introduction
Warehousing is an integral part of every supply chain system. It plays a
vital role in providing a desired level of customer service at the lowest
possible total cost. Warehousing is a link between producers and
customers. A warehouse is typically viewed as a place to hold or store
inventory. While effective logistics systems should not be designed to hold
inventory for extended times, there are occasions when inventory storage
is justified on the basis of cost and service.
9.1 Definition
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Activity A
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Activity B
!
Figure 9.1
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• Packing and shipping: The final stage before shipment of orders, which
include checking for completeness, containerization, documentation,
weighing, accumulating orders for outbound carrier, and loading of
trucks.
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Activity C
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A break bulk operation receives a single large shipment and arranges for
delivery to multiple destinations. Economy of scale is achieved by
transporting the larger consolidated shipment. The break bulk warehouse
or terminal sorts or splits out individual orders and arranges local delivery.
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!
Activity D
Sorting
The basic benefit of sorting is to reconfigure freight as it flows from origin
to destination. Three types of assortment — cross-docking, mixing, and
assembly — are widely performed in logistical systems.
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!
Figure 9.3
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Activity E
Product Mixing
Product mixing for customer order means mixing products from multiple
supplier/production facilities to shipment to a single customer. Example:
meeting customer's order.
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!
Figure 9.4
Seasonal Storage
For companies that experience seasonal demand for their products, the
supply of temporary building structures can be a cost-effective, flexible
method of storage to cope with the peaks in business.
Likewise, businesses that need additional space to protect goods over the
winter or require extra space for short periods of time, also find that
temporary on-site buildings can provide a perfect stopgap – and with no
large capital outlay or permanent build costs the expense can be kept to a
minimum.
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• Resell – where the product is resold in a secondary market “as is.” Some
logistics companies have found a niche in matching sellers with buyers in
secondary markets and say that there is a market for virtually anything.
• Junk – where the item is sent to a landfill, which can be a far more
expensive choice than most organizations realize due to landfill fees,
transportation costs, and the value of the impaired assets that are being
thrown away.
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Activity F
Randomized storage: Each unit from any SKU can be stored in any
available location.
Storage
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1. Determine fast, medium and slow movers and place them in the
appropriate storage medium (i.e., pallet flow, carton flow, shelving, etc.)
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Activity G
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Warehouses may also retain products for an extended basis when they are
purchased on a speculative basis. The magnitude of speculative buying
depends upon the specific materials and industries involved, but it is very
common in marketing of commodities and seasonal items. For example, if
a price increase for an item is expected, it is not uncommon for a firm to
buy ahead at the current price and warehouse the product for later use. In
this case, the discount or savings have to be traded off against extended
storage and inventory carrying cost. Commodities such as grains, oil, and
lumber may be purchased and stored for speculative reasons.
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during a specific time of the year. Under such conditions, the warehouse is
expected to hold inventory in excess of active storage. Manufacturers of
fertilizer, toys, and lawn furniture often attempt to shift the warehousing
burden to customers by offering offseason warehouse storage allowances.
Activity H
Private Warehousing
A private warehouse is typically operated by the firm owning the product.
The building, however, may be owned or leased. The decision concerning
ownership or lease is essentially financial. Sometimes it is not possible to
find a warehouse for lease that fits specialized logistical requirements; for
example, the physical nature of an available building may not be conducive
for efficient materials handling, such as buildings with inappropriate
storage racks or with shipping/receiving dock or support column
constraints. The only suitable course of action may then be to design and
arrange for new construction.
The major benefits of Private Warehousing are control, flexibility, cost, and
a range of intangibles. Private warehouses offer substantial control since
management has authority to prioritize activities. Such control should
facilitate integration of warehouse operations with the balance of a firm’s
logistics operations.
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Activity I
Public Warehousing
Public warehouses are used extensively in logistical systems. Almost any
combination of services can be arranged on a for-hire basis for either short
or long term. Public warehouses have traditionally been classified based on
operational specialization such as: (1) general merchandise, (2)
refrigerated, (3) special commodity, (4) bonded, and (5) household goods
and furniture.
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Public warehousing can also have the potential to share scale economies
since the combined requirements of users can be leveraged. Such leverage
spreads fixed costs and may justify investment in state-of-the-art handling
equipment. A public warehouse may also leverage transportation by
providing consolidation of multiple client freight. For example, rather than
require both supplier A and supplier B to deliver to a retail store from its
own warehouse, a public warehouse serving both clients could arrange
combined delivery, thus providing reduced transportation cost for the
customer.
Activity J
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Contract Warehousing
Contract warehousing combines characteristics of private and public
operations. A long- term contractual relationship will typically result in
lower total cost than a public warehouse. At the same time, contract
warehouse operations can provide benefits of expertise, flexibility,
scalability, and economies of scale by sharing management, labor,
equipment, and information resources across multiple clients.
Activity K
❖Which amongst the three warehouses – private, public and contract – are
best suited for companies?
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The ideal warehouse design is a one-floor building that eliminates the need
to move product vertically. The use of vertical handling devices, such as
elevators and conveyors, to move product from one floor to the next
requires time and energy, and typically creates handling bottlenecks. So,
while it is not always possible, particularly in business districts where land
is restricted or expensive, as a general rule distribution warehouses should
be designed as one-floor operations to facilitate materials handling.
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Figure 9.6
Activity L
There are five areas which are necessary to the functionality of the
Warehouse:
1. Receiving: Usually, the dock area where inventory will arrive, be signed
for by County personnel, and be counted for entry into the inventory
management system.
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Depending on the facility being utilized, these areas may be either right
next to each other or on opposite ends of the building. The Material Unit
Leader is the staff member who will decide where these areas will be and
will relay that information to the Host Warehouse staff.
!
Figure 9.7: Warehousing Layout
Activity M
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9.12 (WMS)
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After the successful launch of the WMS system, many businesses will find
that the resources required to operate the system is greater than prior to
the implementation. This is primarily due to the data intensive nature of
the software and the fact that warehouses are in a state of flux; racks are
moved, placement and removal strategies changed, new items added, new
processes developed. Warehouse accuracy is paramount for the software to
operate and to do this data will need to be entered accurately and in a
timely fashion. Although most WMS implementations will reduce labor
costs in the placement and removal of materials, there is often an added
warehouse management function required just to operate the software.
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!
Figure 9.8
Activity N
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• Make sure that stacked loads are straight and even, to prevent them
from toppling over.
• Keep the aisles and areas surrounding your shelf systems free from
obstruction.
Forklift Safety
• Never allow anyone who is under the age of 18 and/or not specifically
trained in forklift operation to operate a forklift.
• Make sure that aisles and loading docks that are traversed by forklifts are
kept clear, allowing plenty of space for a forklift to safely maneuver
through.
Damage
The moment a lift truck handles the product. The entire process of
reducing damage and how companies do it is interconnected with every
stop a product makes in the supply chain. Load damages represent the
largest cause of delivery exception in a supply chain. Communicating
changes in product case size along the supply chain is essential. A good
idea is to store product as much as possible off the floor, and using pallet
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flow rails reduces damage from fork trucks and helps keep staged product
organized.
One of the most common causes of load damage is the result of the jolts
that occur to the load when the forklifts are crossing the dock levelers from
the dock to the trailers. Moving the loads from the dock floor to the trailer
floor causes the trailer to bounce during loading and this creates instability
in the lading process. A well-developed loading/unloading system will
enable the smooth, continuous flow of material into, through, and out of
the warehouse. The operating improvements achieved will more than
compensate for the initial cost of upgrading warehouse and loading dock
equipment.
Activity O
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9.14 Summary
Warehousing facilities play a vital role in the overall supply chain process.
This chapter addressed “back to the basics” that are fundamental for
warehouses to achieve both efficiency and effectiveness in supply chains,
and provide some perspective on current challenges and the future. It is
evident that continuing globalization and changes/challenges occurring in
such areas as reverse logistics, environmental sustainability, information
technology, and overall supply chain integration are further evolving the
strategies, roles, and responsibilities for warehouses.
In fact, the term “distribution center (DC)” may be much more appropriate
in representing the broad range of activities that now occur in modern
warehouses that go beyond filling customer orders to provide an ever
expanding array of value-added services.
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4. What is the concept of market presence, and how does it relate to the
functionality of warehousing?
10.What are some of the hazards you might come across in a warehouse?
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
! !277
PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Chapter 10
PACKAGING, MATERIAL HANDLING AND
STORAGE SYSTEMS
Objectives
Structure
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Introduction
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Activity A
10.4 Unitization/Containerization
Unitization is the process of grouping master cartons into one physical unit
for materials handling or transport. The concept of containerization
includes all forms of unitization, from taping two master cartons together
to the use of specialized transportation equipment. The master carton and
the unitized load become basic handling units for logistical operations. The
weight, cube, and damage potential of the master carton determines
transportation and materials handling requirements. If the package is not
designed for efficient logistical processing, overall system performance
suffers.
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Rigid Devices
These are packaging devices formed of substantially rigid material,
comprising a container, such as a cardboard carton, with a sheet of
substantially rigid material, such as a cardboard.
Activity B
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Flexible Devices
As the name implies, flexible devices do not protect a product by complete
enclosure. The most common type of non-rigid unitization is stacked
master cartons on either pallets or slipsheets. A pallet is a flat transport
structure that supports goods in a stable fashion while being lifted by a
forklift, pallet jack, front loader, work saver or other jacking device. A
pallet is the structural foundation of a unit load which allows handling and
storage efficiencies. Goods or shipping containers are often placed on a
pallet secured with strapping, stretch wrap or shrink wrap and shipped. A
hardwood pallet is illustrated in Figure 10.2.
!
Figure 10.2: Hardwood Four Way Entry Pallet
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
!
Figure 10.3: Basic Pallet Master Carton Stacking Patterns
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Activity C
❖What are the limitations of pallet packaging? How can they be overcome?
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Product Code
!
Figure 10.4: Identification Displays
Communication
The third important logistical packaging function is communication or
information transfer. This function is becoming increasingly critical to
provide: (1) content identification, (2) tracking, and (3) handling
instructions.
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
Activity D
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PACKAGING, MATERIAL HANDLING AND STORAGE SYSTEMS
• Manually
• Using non-powered or powered hand trucks
• Using powered industrial trucks (i.e., a fork truck)
• Overhead cranes
In the last several years, material handling has become a new, complex,
and rapidly evolving science. For moving material in and out of warehouse,
many types of equipment and system are in use, depending on the type of
products and volume to be handled. The equipment is used, in loading and
unloading operations, for movement of goods over short distances. The
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A good material handling system will enhance the speed and throughput of
material movement through the supply chain.
Activity E
Material handling function helps reduce the number of staff required for
managing inventory and reduce dangers of obsolescence. This, in turn,
helps reduce total cost. The need for material handling at various stages in
production and distribution has always existed. The cost of such activities
can represent anything up to 50% of total production cost of the product.
Logistics while stressing upon this activity, aims at reducing this cost
through development in material handling techniques. This activity centre
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Material handling equipment can be used to move and lift heavy loads and
stack it, the movement of load can be done safely, etc. The use of material
handling equipment also results in higher productivity resulting in higher
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Activity F
The planner should select methods and equipment that can perform a
variety of tasks under a variety of operating conditions and in anticipation
of changing future requirements.
• Order Picking
• Batch Picking
• Bulk Picking
Order Picking: Of all warehouse processes, order picking tends to get the
most attention. It is just the nature of distribution and fulfillment that you
generally have more outbound transactions than inbound transactions, and
the labor associated with the outbound transactions is likely a big piece of
the total warehouse labor budget. Another reason for the high level of
importance placed on order picking operations is its direct connection to
customer satisfaction. The ability to quickly and accurately process
customer orders has become an essential part of doing business.
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The methods for order picking vary greatly and the level of difficulty in
choosing the best method for your operation will depend on the type of
operation you have.
Cycle Time: Cycle time is the amount of time it takes to get an order from
order entry to the shipping dock.
Activity G
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!
Figure 10.5
Bulk Picking: Bulk picking has around for a while and has been improved
since the original release. In a nutshell, this allows you to combine multiple
picks across several sales orders into one consolidated pick task. The
picker is then directed to drop this off to multiple destination locators. This
saves a significant time at picking – instead of executing 10 different pick
tasks for the same item, the picker is simply directed to execute one.
Activity H
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Handling
Advancements in handling technology and equipment offer the potential to
substantially improve logistics productivity. Handling processes and
technologies impact productivity by influencing personnel, space, and
capital equipment requirements. Handling is a key logistics activity. While
the technical details of handling technology are beyond the scope of this
discussion, the following section reviews some basic handling
considerations and alternative system solutions.
Activity I
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Lift Trucks
Lift trucks, also called forklifts, can move loads of master cartons both
horizontally and vertically but are limited to handling unit loads. Skids,
boxes, or containers may also be transported, depending upon the nature
of the product.
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Many types of lift trucks are available. High-stacking trucks are capable of
up to 40 feet of vertical movement. These new advances are discussed
under semi-automated handling systems. Conventional lift trucks are
utilized in shipping and receiving operations and to place merchandise in
high cube storage. The two most common power sources for lift trucks are
propane gas and battery.
Towlines
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Tractor Trailer
Tractor trailers consist of a driver-guided power unit towing one or more
four-wheel trailers.
The tractor in combination with trailer, like a towline, is used during order
selection. The main advantage of a tow tractor with trailers is flexibility. It
is not as economical as the towline because each tow unit requires a driver.
Conveyors
Conveyors are used widely in shipping and receiving operations and serve
as the basic handling device for a number of order selection systems.
Conveyors are classified according to power, gravity, and roller or belt
movement. In power configurations, the conveyor is driven by a chain.
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Carousels
A carousel operates on a different concept than most other mechanized
handling equipment. Rather than requiring the order selector to go to the
inventory storage location, the carousel moves inventory to the order
selector. A carousel consists of a series of bins mounted on an oval track or
rack. There may be multiple track levels, allowing for very high-density
carousel storage. The entire carousel rotates moving the storage bin to a
stationary product selection position.
Most systems combine different handling devices. For example, lift trucks
may be used for vertical movements while tow tractor with trailers or rider
trucks are the primary methods of horizontal transfer.
Semi-automated Systems
Mechanized handling is often supplemented by semi-automatic equipment.
Typical equipment utilized in semi-automated handling includes automated
guided vehicle systems, computerized sortation, robotics, and various
forms of live racks.
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Activity J
Robotics
One of the fastest growing methods of materials handling is the use of
robots. The robot is a machine that can be programmed to perform one or
more handling activities without the intervention of an attendant or driver.
The primary use of robotics today is materials handling in both
manufacturing and warehouse operating environments.
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Live Racks
Live racks commonly used to reduce manual labor in warehouses is a
storage rack design in which product automatically flows to the desired
selection position. The use of the live rack reduces the need to use lift
trucks to transfer unit loads. The advantage of live rack storage is the
potential for automatic rotation of product as a result of rear loading.
The rear of the rack is elevated higher than the front, causing a gravity
flow toward the front. When cartons or unit loads are removed from the
front, all other cartons or loads in that specific rack flow forward. For
example, live racks are typically utilized to sequence palletized fresh bread
for shipping from bakeries.
Potential to Automate
The appeal of automation is that it substitutes capital equipment for labor.
In addition to requiring less direct labor, an automated system has the
potential to operate faster and more accurately with less product damage
than its mechanized counterpart.
To date, most automated systems have been designed and constructed for
specific handling applications. For example, storage equipment in an
automated system is an integral part of the handling capability and can
represent as much as 50 per cent of the total investment.
Order Selection
Initially, automation was focused on master carton selection and order
assembly in the warehouse. Because of high labor intensity in order
selection, the basic objective was to integrate mechanized, semi-
automated, and automated handling into a system that offers the
advantages of high productivity and accuracy while using minimal labor.
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Information-directed Systems
The concept of information-directed handling is relatively new and the
subject of a great deal of research and development. Information-directed
systems use mechanized handling controlled by information technology.
There are two common examples of information-directed material handling
systems – RF Wireless (Wi-Fi) and Pick-to-Light
RF Wireless (Wi-Fi)
The basic use of Wi-Fi to instruct movement of lift trucks is expanded in an
information-directed application to become a highly integrated materials
handling system. The main advantage of RF is to improve speed and
flexibility of lift truck operations. RF technology provides real-time
communication to central data processing systems.
Pick-to-Light
Pick-to-light is a carousel system variation that is becoming increasingly
common. In these systems, order selectors pick designated items directly
into cartons or onto conveyors from lighted carousel locations or storage
bins.
Activity K
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E-Fulfillment
Logistical support of Internet sales places some special demands on a
firm’s warehousing and handling. Both e-tailers and brick-and-mortar
retailers moving into the e-tail marketing space have been forced to adapt
their order processing procedures to meet the specific needs of this
marketplace. Specific considerations that influence warehousing and
handling in an e-fulfillment environment are order volume, small
shipments, and tracking.
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Introduction
Storage is an essential function in an automation system. The material
storage system allows materials to be stocked for a specified period of
time, before they are re-introduced, or are introduced for the first time,
into the automation system. The sorts of stored material are related to the
product (e.g., raw materials, purchased parts, work-in-process, finished
products, and scrap and rework), the process (e.g., process refuse, such as
process waste products; and tooling), and the overall support functions in
the factory (e.g., maintenance spare parts, office supplies, and plant
records). Each of these material types is typically stored under different
conditions and controls.
Storage Systems
Storage systems are used to store materials related to the product (e.g.,
raw materials, purchased parts, work-in-process, finished products, and
scrap and rework), and the overall support functions in the factory (e.g.,
maintenance spare parts, office supplies, and plant records). Storage
systems can be classified into conventional storage systems and automated
storage systems.
Conventional Systems
Conventional systems are ideal for storing loads of varying sizes, shapes
and weights on the same rack. Item access is direct without having to
displace or move other stored items for easy, safe and cost-effective
warehousing.
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!
Figure 10.6(a)
!
Figure 10.5(b)
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Advantages
5. Tracking where products are stocked, which suppliers they come from,
and the length of time they are stored. By analyzing such data,
companies can control inventory levels and maximize the use of
warehouse space. Furthermore, firms are more prepared for the
demands and supplies of the market, especially during special
circumstances such as a peak season on a particular month. Through
the reports generated by an AS/RS system, firms are also able to gather
important data that may be put in a model for it to be analyzed.
Activity L
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10.18 Summary
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture
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COLD CHAIN MANAGEMENT
Chapter 11
COLD CHAIN MANAGEMENT
Objectives
Structure
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COLD CHAIN MANAGEMENT
Introduction
The transportation and delivery of temperature-controlled pharmaceutical
products and medical devices is a fast-growing part of the overall
healthcare logistics industry. There are three reasons for this:
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A pharmaceutical product usually does not lose its potency the moment its
temperature goes outside a specified range. Traditionally, pharmaceutical
companies (and the US FDA approval process) allowed for “excursions” of
certain duration – 4, 6, 24 hours or others depending upon the
manufacturer’s specifications and specialized mean temperatures – to
occur prior to administration.
But this allowance presents problems for ensuring safe delivery of products
unless the excursions are tracked to determine the length of the excursion
and analyze whether the excursion remains within the tolerance spectrum.
A regulator could legitimately ask a manufacturer (or its agent) to prove
that the cumulative amount of time a shipment has been out of range
remains below the maximum specified by the product label of the
shipment.
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Activity A
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Activity B
• Training personnel
• Transport and storage equipment
• Efficient management procedures
Training Personnel
All new staff that handle or administer vaccines should be trained in proper
vaccine storage and handling practices. All other new staff should be
trained to have an understanding of the importance of cold chain
maintenance and basic practices so they are aware of their responsibilities
to the cold chain. A refresher training session should be held annually for
all staff. Staff who monitor and record vaccine storage unit temperatures
should immediately report inappropriate storage conditions (including
exposure to inappropriate temperature or light exposures) to the
designated vaccine coordinator.
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The location of each specific vaccine inside the storage unit should be
clearly labeled. Storing each vaccine in its own specifically labeled section
of the refrigerator or freezer helps decrease the chance that someone will
mistakenly select the wrong vaccine.
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Activity C
Packaging
The vial or bottle that contains pharmaceutical tablets or liquids is the
“primary” packaging. The (typical) paperboard carton that contains the
bottle and medical information sheets is the “secondary “packaging. The
corrugated (or other material) box; complete with insulation, refrigerative
gel packs, and other protections is the “tertiary” or “shipping” packaging.
Generally speaking, manufacturers design their primary and secondary
packaging – and review it with the FDA – themselves. They sometimes
design their own tertiary packaging, but many work with packaging
vendors or with logistics providers to finalize the tertiary design.
One of the most critical design elements for tertiary packaging – and for
the overall cold chain system is the interplay between the longevity of the
packaging and the transportation mode. Many packages are designed to
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Activity D
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The cold chain is a shared responsibility between the manufacturer and the
transporter that begins from the time a vaccine is manufactured, and ends
when the vaccine is administered to the recipient. The cold chain
distribution process is an extension of the good manufacturing practice
(GMP) environment that all drugs and biological products are required to
adhere to, enforced by the various health regulatory bodies. As such, the
distribution process must be validated to ensure that there is no negative
impact to the safety, efficacy or quality of the drug substance. The GMP
environment requires that all processes that might impact the safety,
efficacy or quality of the drug substance must be validated, including
storage and distribution of the drug substance.
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Guidelines
The facility standard operating procedure should specify that the vaccines
are:
Moving a shipment across the supply chain without suffering any setbacks
or temperature anomalies requires the establishment of a comprehensive
logistical process to maintain the shipment integrity. This process concerns
several phases ranging from the preparation of the shipments to final
verification of the integrity of the shipment at the delivery point:
• Modal choice. Several key factors play into how the shipment will be
moved. Distance between the origin and the final destination (which
often includes a set of intermediary locations), the size and weight of the
shipment, the required exterior temperature environment and any time
restrictions (perishability) of the product all effect the available
transportation options. Short distances can be handled with a van or a
truck, while a longer trip may require an airplane or a container ship. In
this case, the cost/perishability ratio becomes a factor in modal choice.
• Custom procedures. If the freight crosses boundaries, custom
procedures can become very important, since cold chain products tend to
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• The "Last Mile". The last stage is the actual delivery of the shipment to
its destination, which in logistics is often known as the "last mile". Key
considerations when arranging a final delivery concern not only the
destination, but the timing. Trucks and vans, the primary modes of
transportation for this stage, must meet the specifications necessary to
transfer the cold chain shipment. Also important is the final transfer of
the shipment into the cold storage facilities as there is potential for a
breach of integrity.
Activity E
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1. Data Loggers
Digital data loggers are miniature, battery-powered, stand-alone
temperature monitors that record hundreds or thousands of temperature
readings. These are the ideal temperature monitors because they can
indicate when the exposure occurred and how long the vaccines were
exposed to the min/max temperatures. Data loggers may be single use and
used only in transport, or they may be multiple use. Single-use data
loggers have external lights (or symbols) that alert the user to out-of-
range temperature events; a green light indicates the cold chain was
properly maintained and a red light indicates inappropriate temperature
exposure occurred. If a red light is seen, the vaccine shipment must await
approval for use, and the device must be sent back to the manufacturer to
interpret the temperature data.
2. RFID
Radio frequency identification (RFID) is the wireless non-contact use of
radio frequency electromagnetic fields to transfer data, for the purposes of
automatically identifying and tracking tags attached to objects. The tags
contain electronically stored information. Logistics and transportation are
major areas of implementation for RFID technology. Yard management,
shipping and freight and distribution centers use RFID tracking technology.
In the railroad industry, RFID tags mounted on locomotives and rolling
stock identify the owner, identification number and type of equipment and
its characteristics. This can be used with a database to identify the lading,
origin, destination, etc. of the commodities being carried. (Detailed note in
Chapter 14)
3. Strip Monitors
Strip monitors are battery-powered single-use units that record continuous
temperature readings on a paper strip and may be used to monitor vaccine
temperatures during transport.
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4. Chart Recorders
Chart recorders consist of a graph wheel with replaceable graph paper and
ink pens. The pens mark the temperature on the graph paper as the wheel
turns. Temperatures are recorded continuously, 24 hours a day. The graph
paper has a Fahrenheit or Celsius scale on it, and the temperature is read
where the ink line falls on the scale. The graph paper must be changed
when it completes a full circle, usually weekly. Record the date on the
graph paper when it is fitted and when you remove or change the graph
paper. Keep old graphs as a permanent record of the performance of the
vaccine storage unit. As with other thermometers, temperature readings
should be checked and recorded at least twice daily.
6. Digital Thermometers
Digital thermometers have a screen in which the temperature is displayed
in Fahrenheit and/or Celsius. Some models have a temperature probe and
an alarm that can be set to ring at a specified temperature. Digital
thermometers with a min/max feature are easy to read because they
display a number indicating the temperature and do not require
interpretation. Temperature fluctuations outside the recommended range
can be detected by referring to the minimum and maximum temperature
readings. The digital thermometer must be reset regularly (after properly
recording temperatures) for meaningful readings.
Activity F
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A cold chain breach (CCB) occurs when the temperature falls outside of the
recommended +2° to +8°C temperature range at any point during the cold
chain process. Instances where changes occur in the Cold Chain Monitor
will affect vaccine efficacy and the shelf life of the vaccine. Common breaks
in the cold chain occur through refrigeration failure, power outage,
overheating of vaccines during transportation, and freezing of vaccines.
Temperature variations outside the +2° to +8°C temperature range can
result in loss of efficacy to the vaccine.
• Immediately isolate the vaccines within the refrigerator and label do not
use
Activity G
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Reefer trucks and containers for ocean borne freight are available, narrow
body and wide body aircraft, along with the ULDs (unit load device) that
can be carried by wide body aircraft (or trucks for that matter). As part of
their quality and control systems, carriers should have a predefined
process for checking the integrity of the equipment, and maintaining it, on
a regular basis, and these processes can be part of the overall service
agreement between the manufacturer and the carrier.
!
Reefer Truck
!
UCD (Unit Load Device)
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! !
Cold Box Cold Room
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Activity H
The initial focus of cold chain management should be the development and
implementation of the cold chain shipment conformance process and the
cold chain management processes (quality system) necessary to meet
product and regulatory requirements. Unlike product storage in qualified
temperature-controlled facilities, product shipping, even in qualified
temperature-controlled shipping systems, is subject to a greater number of
temperature excursions due to transportation process variability (ambient
temperature, route, mode, transit time and in-transit handling).
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Activity I
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• Carriers and logistics providers can assist shippers. These providers have
the technical ability to link with airlines for real-time status, generate
web-based export documentation and provide electronic tracking.
• Temperature data loggers and RFID tags help monitor the temperature
history of the truck, warehouse, etc. and the temperature history of the
product being shipped. They also can help determine the remaining shelf
life.
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Activity J
Refrigerated foods are one of the fastest growing sectors of the grocery
and food service industries. Continued success relies upon effective
management of the ‘cold chain’, a term used to describe the series of
interdependent operations in the production, distribution, storage and
retailing of chilled and frozen foods. Control of the cold chain is vital to
preserve the safety and quality of refrigerated foods and comply with
legislative directives and industry ‘codes of practice’. Unique to fresh
produce cargoes, the cold chain requires to additionally maintain produce
specific environment parameters which include air quality levels (carbon
dioxide, oxygen, humidity and others), which makes this the most
complicated cold chain to operate.
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COLD CHAIN MANAGEMENT
warmer than –12°C. Consideration should also be made for the likely
temperatures experienced by the foods within domestic freezers – this is
dependent upon the ‘star rating’ of the freezer; a three-star freezer is
capable of temperatures below –18°C, a two-star freezer of temperatures
below –12°C, and a one-star freezer of temperatures below –6°C. In the
latter, the practical storage time for frozen products is limited to just a few
days.
Food safety and quality are drivers: Two issues that continue to drive
best practices for managing the cold chain are food safety and food quality.
Carriers, likewise, are also responsible for the quality and the condition of
the trailers and equipment that are used during the transportation of food
products.
The receiving party, too, has equally rigorous requirements and SOPs
(standard operating processes) for inspection of food shipments. For
produce deliveries, that could include physical inspection of the product as
well as the boxes and cartons. Wet or weakened packaging may indicate
that there was a breach in temperature during transportation. It is also
increasingly common for the receiving party to rely on temperature
recording devices that have been installed on the trailer, which can alert
them to any deviations from the required temperature range.
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!
Figure 11.1: A Typical Cold Chain
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COLD CHAIN MANAGEMENT
What is the required temperature range and likely operating temperature range
for the instrument?
What shape of probe is required? A long flat probe to reach between packages?
Activity K
Why is the food cold chain considered to be the “most complicated” chain
to operate?
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
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The primary function of food packaging is to protect the food from external
hazards. Similarly, the package itself should not affect the food in any
way, as indicated by European Directives on food contact materials,
including migration limits.
Package barrier properties protect the food from ingress of gas, light, and
water vapour, each of which can result in deterioration of colors, oxidation
of lipids and unsaturated fats, denaturation of proteins and a general loss
of characteristic sensory qualities. Ventilation allows cooling and product
respiration. Similarly, barrier properties protect against the loss of moisture
from the food to the external environment thereby eliminating dehydration
and weight loss.
Activity L
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11.15 Summary
The major items of cold chain equipment are refrigerators, freezers and
transport boxes. Temperature monitors are essential during storage and
transportation, and alarms are fitted to storage equipment to alert users
should the temperature deviate from the acceptable range. There are many
other cold chain devices and accessories such as standby generators and
voltage regulators.
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6. What are the requirements for the storage and distribution of drug
products?
11.How can the packaging used during the transportation of drugs ensure
the temperature uniformity within the container?
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture
! !336
RELATIONSHIP DEVELOPMENT AND MANAGEMENT
Chapter 12
RELATIONSHIP DEVELOPMENT AND
MANAGEMENT
Objectives
Structure
12.8 Summary
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RELATIONSHIP DEVELOPMENT AND MANAGEMENT
Introduction
Among topics in logistics, few hold more leadership interest than
development and management of organizational relationships. For most of
business history, emphasis has been devoted to developing and
implementing an appropriate internal structure to effectively and efficiently
perform the essential work of logistics. In more recent times, increased
attention has focused on logistics organizational integration with other
functions, especially customer relationship management, manufacturing,
and procurement. The information technology success, increasing global
engagements, and the focus on inter-organizational supply chain
integration are compelling senior management to rethink nearly every
aspect of traditional organizational strategy and to broaden their thinking
about collaborative relationships with suppliers and customers. The
essence of supply chain management is the ability to coordinate internally
collaborative relationships cross-functionally within their enterprises and
externally with supply chain partners.
Logistical Organization
Internal logistics is one of the most important sections within enterprises,
especially in the large manufacturing companies. It manages, arranges,
plans and delivers the finished products. Internal Logistics also entails
purchase planning, specification development, supplier research, and
contract administration and quotations, ordering and inventory control.
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!
Figure 12.1: Traditional Organizations of Logistically Related Functions
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!
Figure 12.2: Illustration of High Functional Aggregation in Logistics
Organization
Activity A
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Measuring the outputs of any business can be done only if these can be in
terms of customer satisfaction achieved at a profit. These outputs can be
realized only when there is coordination and cooperation horizontally
across the organization. The materials and information flows, which
connect the customers with business and suppliers, have horizontal
linkages, which mirror these. These are basically the core processes of the
business.
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Process Structure
An organization might be structured around the eight supply chain
processes. Each key process is led by a process manager who manages a
team of members drawn from the critical functional areas that impact
process performance.
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• All skills necessary to complete the work must be available to the process
owner
• Critical skills not shared can disrupt workflow and create “bottlenecks”
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Activity B
!
Figure 12.5: The Great Divide Reflects an Organizational Gap in
Achieving End-to-end Integration
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Activity C
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Activity D
Risk
Supply chain management incorporates a wide range of very significant
and inherent risks and opportunities. These risks and opportunities apply to
activities within the company’s organization as well as outside the
organization at suppliers, at the suppliers’ suppliers, and outward at the
organization’s customers and customers’ customers. In other words, these
risks and opportunities can affect the entire chain. For most organizations,
it is clear that supply chain management processes can greatly influence
the organization’s performance and the predictability of that performance.
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Organizations of all sizes have recognized the need to put strategies and
capabilities in place to identify, prioritize, and manage risks and
opportunities across their entire supply chains and within and across their
internal supply chain processes.
Power
Dominance in the supply chain has shifted throughout history. Dominance
or power in supply chains concern the extent of influence one participant in
the chain has over one or more participants. The recognition of such
dominance in any industry has long been recognized. Emerson (1962)
defined power as the ability of one firm (the source) to influence the
intentions and actions of another firm (the target). Whilst Butaney and
Wortzel (1988) related power to supply chains by demonstrating that
distributors have power in supply chains when industry sales are
approximately equally distributed among manufacturers and the overall
competition within the industry is strong. Since these early days, it appears
that all participants along the supply chain including their second and third
tier suppliers within a network, can hold some extent of dominance over
some or all participants within the supply chain.
The extent of product brand power along the total supply chain will depend
on the type of power the dominant player exerts. The degree to which
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Leadership
Just as individual organizations need leaders, so do supply chains. In many
situations, specific firms are thrust into a leadership position purely as a
result of their size, economic power, customer patronage, or
comprehensive product portfolio. In other arrangements, for less obvious
reasons, there is a clear presence of leadership on the part of one
enterprise, which is acknowledged in the form of mutual dependency and
respect on the part of other participating supply chain members.
Activity E
You are looking at the range of dependency in the supply chain relationship
which goes from limited to extensive.
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!
Figure 12.6
Contracting
Contracting with a supplier or customer introduces a time dimension to
traditional buying/selling, e.g., price, service and performance expectations
over specific period. A manufacturer may make a contract with a material
or parts supplier to purchase particular items for a specific period for a
specific price.
Outsourcing
Shifts focus from buying materials to performing a specific service or
activity. Typical outsourced activities range from manufacturing to logistics
activities such as transportation and warehousing. Firms that outsource
functions must maintain cordial relations with the service suppliers and
vice versa.
Administered
• Dominate firm governs by command and control
• Limited sharing of strategic information and limited joint planning
• Relationship has no specific termination or rebid time frame
• Alliance (e.g., Wal-Mart & Bharti Enterprises, Dell & Suppliers)
• Governed by desire to voluntarily work together both intellectually and
operationally
• Voluntary integration of human, financial, operational and technical
resources
• Extensive joint planning and expectations of ongoing relationship
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Enterprise Extension
It represents the extreme interdependence and information sharing to the
extent that can be viewed as a single entity. In such instances, two or
more firms willingly integrate to the extent of collaborative planning,
forecasting and replenishment (CPFR).
Activity F
Framework Constructs
The supply chain collaborative framework illustrated in Figure 12.8
encompasses a broad range of capabilities and competencies. The
framework serves to facilitate operations into a supply chain context by
integrating basic work, functions, capabilities, and competencies.
A job or basic work, such as order picking or truck driving, is the most
visible part of the logistical operations. Jobs are often industry or firm-
specific in content; however, they are usually grouped into organizational
units to facilitate control. For example, all the jobs related to warehousing
are often grouped. Another common grouping is to organize all jobs related
to transport into a transportation department.
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!
Figure 12.8: Integrative Framework Showing Supply Chain Flows,
Competencies and Context
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!
Figure 12.9
Activity G
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Activity H
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Activity I
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It is clear that trust has more than one dimension. While several types of
trust exist, a meaningful way to understand trust in supply chain
collaboration is to distinguish between reliability-based trust and character-
based trust.
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12.8 Summary
The second key requirement for building trust is full and frank sharing of all
information necessary for the effective functioning of the relationship. In
fact, information sharing and communication have been stressed
throughout this text as the foundation for effective collaboration.
Companies that hoard information or fail to disclose vital facts are not
likely to be trusted.
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1. What are the challenges the logistics official faces while developing
logistic functions?
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OPERATIONAL, FINANCIAL AND SOCIAL PERFORMANCE
Chapter 13
OPERATIONAL, FINANCIAL AND SOCIAL
PERFORMANCE
Objectives
Structure
13.9 Summary
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Introduction
In a highly competitive business environment, logistical competency is
critical to the survival and growth of the organization. Logistical resources
are scarce and right allocation of such resources is vital. Performance
measurement is widely considered in the literature to be one of the key
points for facilitating the success of any organization as it produces
essential knowledge about performance for enabling competitive results to
be achieved. At the same time, the growing trend towards outsourcing
makes it increasingly necessary for the focus of performance measurement
to take into account the fact that companies are part of supply chains
rather than consider them as separate entities.
Activity A
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gathered is about fill rates and on-time deliveries and for logistics costs
such as transportation and warehousing.
Activity B
Balanced Scorecard
The Balanced Scorecard is a framework for performance measurement
developed by Kaplan and Norton (Figure 13.1). As a structure, balanced
scorecard methodology breaks broad goals down successively into vision,
strategies, tactical activities, and metrics. As an example of how the
methodology might work, an organization might include in its mission
statement a goal of maintaining employee satisfaction. This would be the
organization's vision. Strategies for achieving that vision might include
approaches such as increasing employee-management communication.
Tactical activities undertaken to implement the strategy could include, for
example, regularly scheduled meetings with employees. Finally, metrics
could include quantifications of employee suggestions or employee surveys.
A balanced scorecard incorporates measures from four different
perspectives.
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Activity C
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Activity D
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The two types of measures developed are activity based and process
based. Activity based measures measure performance at individual
activity level. These activities are small tasks performed to execute
customer orders. Activity based performance measures indicate efficiency
and effectiveness of first level efforts in the process of customer
satisfaction.
It should be pointed out that measures such as those listed in Table 13.1
are supplemental rather than substitutes for the more traditional five
categories of measuring logistics performance that are discussed later in
this chapter. In combination, metrics related to both functional and process
activity need to be combined to evaluate the effectiveness and efficiency of
overall logistics performance. To quote an old adage, "If you can't measure
it, you can't manage it." Firms who achieve world-class status are almost
compulsive when it comes to all facets of measurement.
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Activity E
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Functional Perspectives
While many different classifications of logistics functional measures exist,
research over a period of years suggests five categories: (1) cost, (2)
customer service, (3) quality, (4) productivity, and (5) asset management.
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Activity F
Productivity Measures
The productivity of the logistical system is judged by its output with
respect to the input into the system. For example, if one more salesperson
is recruited in the sales team, then he should bring in additional revenue
proportionately which justifies his recruitment. Productivity measures are
normally easily understood and extensively used although sometimes it
may become difficult to obtain all relevant details. These measure gives an
indication of resource utilization. Productivity measures are static, dynamic
and surrogate. Static measures take all factors of output and input into
account. This is also called total productivity. As the measurement is across
only one span of time, it is called static productivity measure.
Surrogate Measures take into account such factors not normally included
in productivity calculations but correlated with the concept. For example,
customer satisfaction, profit, effectiveness, quality, efficiency etc. Some of
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Activity G
❖What are the five internal performance measures? Elaborate on any one.
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
Asset Management
Asset management is concerned with the utilization of the organization’s
mobile equipment (e.g., vehicles and handling equipment), durable
installed and stationary assets (e.g., workshop equipment), and current
assets in the form of inventory (i.e., merchandise). The following measures
were indicated as being the most important:
ii. Fixed-asset time utilization ratio = Actual working time ÷ Total number
of hours available (Downtime ratio = 1 – Fixed-asset time utilization)
iii. Inventory turnover (A) = Units sold in a period ÷ Average units in stock
during the period
vi. * Is generally applied when dealing with finished goods (which are time-
sensitive) and
vii. Is in general applied when dealing with raw materials and semi-finished
goods (which can often be stockpiled).
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Activity H
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
Quality
‘Perfect order’ is treated as a concept for assessing quality of logistics.
Features of a perfect order are complete delivery of all items requested and
“One-time Delivery” with a mutually acceptable tolerance [of one day],
complete and correct documentation, product faultlessly installed.
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Activity I
1. The first hierarchy relates the sales order to the actual shipment and
ultimate receipt by the customer.
3. The third hierarchy relates the customer purchase order (primarily price,
quantity, date, and terms) to the customer payment of the invoice.
The hierarchies provide a robust way to define, measure, and analyze the
customer facing attribute of ‘delivery reliability’. This helps an organization
provide more flexibility for business units to define the metric in line with
how their customers measure them. Below are two metric examples under
the delivery category from two business units within the same company
serving two different markets:
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Processes and roles in the supply chain need to be mapped to key metrics
to determine performance. There must also be a mechanism in place to
periodically review actual supply chain performance and redefine
performance measures in the changing business context. Specific
measures to consider are cash-to-cash conversion time, supply chain
inventory days of supply, dwell time, on-shelf in-stock percentage, total
supply chain cost, and supply chain response time.
Cash-to-Cash Conversion
It is a measure of an organization’s effective use of cash. Cash-to-cash
cycle time is the time required to convert a dollar spent on inventory into a
dollar collected from sales revenue. It can be measured by adding a firm’s
days of supply of inventory and its days of accounts receivable
outstanding, subtracting the days of trade accounts payable outstanding. A
good cash-to-cash cycle, contrary to most other financial metrics, is as low
as possible. It means that the company is efficiently using cash and not
holding excess inventory, or allowing excessively lenient payables or
receivables terms.
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Dwell Time
It is another metric reflecting overall supply chain performance in
managing assets. It is the ratio of the days inventory sits idle in the supply
chain to the days it is being productively used or positioned. While it is
sometimes necessary for inventory to sit idle for reasons of quality control
or to buffer uncertainty, extended dwell time reflects the potential
magnitude of non-productive inventory. Assets that sit idle are not
contributing to productivity in the supply chain.
Activity J
Figure 13.2 illustrates the fact that total supply chain cost is the aggregate
of costs across all firms in the supply chain, not an individual organization.
!
Figure 13.2
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Grouping these costs into these categories will help us understand the
source of these costs, but also provide an understanding of how to
measure them and how to optimize them to make the supply chain more
efficient and cost-effective. In doing so, though one must use caution, as a
single-minded focus on cost alone may not be the most optimal supply
chain strategy. Since supply chains must address the twin objectives of
cost and flexibility (or responsiveness), supply chain performance must be
measured using metrics that allow capturing both of these aspects.
Activity K
❖What care must be taken while calculating total costs in a supply chain?
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
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Activity L
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Activity M
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Activity N
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Activity based costing identifies cost drivers (activities that cause costs)
that were not previously accounted for by the costing system. A cost driver
refers to any activity that causes a cost. It can be anything from machine
hours, labor hours, or number of machine setups, to the number of parts in
a product. Once known, the production managers can control costs by
managing these cost drivers. Furthermore, by providing marketing
managers with more accurate product costs, they can make informed
decisions about pricing.
In case of logistics, the key event is a customer order and related activities
and relevant costs that reflect the work required to fulfill the order. In other
words, logistical activity based costing must provide managers the insights
needed to determine if a specific customer, product, order, or service is
profitable. This requires matching specific revenue with specific costs. The
guiding criteria for effective logistical activity based costing are relevancy
and consistency. Relevancy is important in the sense that the costs
assignment helps managers to better understand the major factors
affecting logistics expenses. Consistency is important in terms of
comparing related activities over time. In the final analysis, a logistical
costing system has to make sense only to the managers who are using it
as a guide to decision-making.
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Activity O
13.9 Summary
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2. How does the balanced scorecard concept help guide logistics managers
in the development of a performance measurement system?
6. What are the cost drivers associated with Activity Based Costing?
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REFERENCE MATERIAL
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! !386
IT IN LOGISTICS
Chapter 14
IT IN LOGISTICS
Objectives
Structure
14.5 Strategy-Structure-Process-Performance
14.10 Summary
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IT IN LOGISTICS
Introduction
A well-designed information system is a key element of logistics in the
chain of managing, organizing and operating in both profit and non-profit
organizations. The advantages of applying strategic management in the
development of information technologies contribute to positive
development of logistics functions in an organization or institution as a
whole. A prerequisite for successful logistics management is systematic
gathering of required business information. Today, it is no longer possible
to run a successful operation without a working information system. A fully
constructed information system contributes essentially to an organization's
competitive advantage. These advantages are reflected in creating new,
competitive positions, in cost reduction and achieving a certain dependency
differentiation in operations, as well as in achieving better results of all the
logistics functions within the organization. The basic goal of an information
system within logistics management is to make successful connections
between suppliers, consumers, and competitors.
Companies today are under pressure to better manage the supply chain
and to improve efficiency and logistics operations while remaining
responsive to changing market conditions and customer demands. As a
result, organizations need to adopt IT to support their supply chains and
increase their efficiency by achieving tighter cooperation over the supply
chain.
Importers and exporters need to know where their product is. Lenders
need to know when and how to pay for it. Innovative companies have
sprung up to harness the power of the IT, making it easier than ever for
logistics managers to track and manage international shipments, and to
serve their changing needs as they reach ever further across the globe to
source goods. Companies such as Home Depot, Xerox and Sears already
use on-demand, web-based data hubs to identify where their goods are in
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IT IN LOGISTICS
real time, and if delays along the way should be corrected to avoid broader
supply chain disruptions and expensive recovery work.
Activity A
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!
Figure 14.1: Type of IT Use for Optimizing SCM
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Case Study
Business Benefits
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Activity B
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Cost Reductions
In these uncertain times, with many economic challenges ahead, the need
to contain costs across the business is as strong as ever. There still
remains one last major opportunity to take out costs – not from inside the
business per se but rather from the interfaces with other partners in the
supply chain. The rationale behind this assertion is that for most of their
existence firms have focused on seeking internal efficiency improvements
and have often failed to recognize the significant layer of cost that exists at
supply chain interfaces – a cost that is there because those interfaces have
not been well managed in the past.
There are three key drivers of costs, albeit related, at most supply chain
interfaces – all of which can be eliminated, by collaborative working. These
costs might be labeled:
1. Transaction costs
2. Process costs
3. Uncertainty costs
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and not easy to quantify and yet they can be significant. However, in
many cases, they can be dramatically reduced by the adoption of
collaborative working arrangements supported by modern B2B e-
commerce tools.
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or the size of that order. At the same time, the customer is holding
inventory of exactly the same material/product because they know from
past experience that they cannot always rely on the supplier to deliver
what they want, when they want it, etc.
Activity C
14.5 STRATEGY-STRUCTURE-PROCESS-PERFORMANCE
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Activity D
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Advanced information system is vital to ensure that the managers have the
timely information necessary to cope with growing changes in the
processes and product design to fulfill the customer requirements and
manage these tasks effectively. The special benefit of advanced information
technology is to make real-time data extensively available through such
tools as Enterprise Resource Planning (ERP), Electronic Data Interchange
(EDI) and customer relationship management and the ability to link one
activity with another. These tools not only improve the business processes
but also build infrastructure for automated information exchange between
suppliers and customers that is linked with increased customer
profitability/satisfaction.
Activity E
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EDI reduces the number of human work steps. A fixed structure for the
transmitted data is laid down by the system. The prepared data are
presented to a human user only after an application system has integrated
the information sent by EDI, for instance within the framework of
enterprise resource planning (ERP).
The term “EDI” is used only when at least two different partners are
involved in the process – data interchange. Enterprise Application
Integration (EAI). Once different partners become involved within the
framework of EDI, a contractual arrangement becomes necessary. Among
other factors, the contract’s complexity is related to the number of contract
parties – such as external IT companies – and the different characteristics
among the participating companies.
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!
Figure 14.2: Enterprise Operations Modules Support Day-to-day Supply
Chain Operations
1. CRM systems are relatively new applications designed to facilitate
information sharing between customers, sales force, and operations
management.
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Activity F
!
Figure 14.3: Enterprise Planning and Monitoring
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Bar Coding
Bar Coding is a series of parallel vertical lines (bars and space), that can be
read by bar code scanners. It is used worldwide as part of product
packages, as price tags, carton labels, on invoices even in credit card bills.
It facilitates unique product identification through using international
symbologies/numbering system, promotes brand image and enables timely
and accurate capture of product information. This results in wide-ranging
benefits including lowering of inventory costs, lower overall supply chain
costs and hence reduced costs for products, increasing efficiency of
industry and adherence to stringent quality assurance norms through
product traceability.
RFID
Radio frequency identification (RFID) is a wireless Automatic Identification
and Data Capture (AIDC) technology in identification and automated data
collection systems. An RFID tag attached to an automobile during
production can be used to track its progress through the assembly line.
Pharmaceuticals can be tracked through warehouses. The technology is
superior compared to the limitations of traditional ADC technologies such
as barcode technology. Barcode and vision systems rely on optics and
require a relatively clean and moisture-free environment. Touch memory
does not use optics but does require a relatively clean environment
because contact must be made to read the tag.
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• Its brains are a tiny embedded digital memory chip, currently about the
size of a pinhead.
• One of its most promising attributes is its ability to have the data in its
memory change as it moves along the supply chain from manufacturer to
end consumer.
• Current developments that will see the light of day in the next few years
are likely to drastically reduce the production price, allowing for far
greater commercial penetration of RFID technology.
RFID tags allow you to scan and keep track of items from the factory to the
consumer; identify merchandise authenticity; trace items of inventory;
help to prevent theft and piracy; and act to monitor product environmental
conditions.
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2. Decreased Cycle Time and Taking Costs Out: RFID scanning is not a
serial process, like traditional Barcode scanning, so the business can
perform identical tasks much more quickly. This means processes
moving goods through a supply chain are more efficient leading to a
reduction in the need for larger inventories.
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14.10 Summary
The application of information technology is gradually spreading in most
areas of the companies especially to the logistics process. Information
Technology is a vital element for third party logistics performance because
the integration of logistics provider systems with its clients is must.
Information Technology links members of a supply chain, such as
transportation firms, distributors, manufacturers, and retailers, as it
automates some components of the logistics workload, such as order
status inquires, shipment tracking, inventory management and order
processing. Transactions costs can be decreased and supply chain
participants can also manage the increased complications if considerable
Information Technology improvements are made. Therefore, Information
Technology in 3PL firms plays vital role to synchronize complex supply
chain activities across logistics users and their customers, and works as a
bridge of connecting customers in supply chain and logistics users.
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1. How 3PL providers with advanced IT are integrating the supply chain?
3. Where precisely do these cost reduction opportunities lie and how can
they be exploited?
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! !407
CONTAINERIZATION
Chapter 15
CONTAINERIZATION
Objectives
Structure
15.1 Definition
15.9 Summary
! !408
CONTAINERIZATION
Introduction
After the World War II, the economies of developed countries were marked
by the progress of mass production and mass consumption centering on
consumer goods. Shipping lines were faced with an expansion of world
trade together with bottlenecks at ports. A system was required to
accommodate the needs of physical distribution, from manufacturer to final
destination, eliminating costly and complicated transshipment operations at
ports. As a result of this, containerization was developed, a new concept,
which involved a combined transport operation to and from the port,
involving highway and rail services. In this new system, there was less
physical handling, breakage and pilfering of cargo. The basic difference of
containerization was the movement of goods under continuous supervision
ensuring an integrated transport process between the consignor and
consignee. A container could be moved on the basis of one or several
unimodal transport contracts or on the basis of a multimodal transport
contract.
15.1 Definition
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CONTAINERIZATION
Activity A
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CONTAINERIZATION
depends on container status as FCL (Full Container Load), LCL (Less than
Container Load), Empty, and Transit.
! !411
CONTAINERIZATION
Activity B
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CONTAINERIZATION
Essentially, there are five main lengths of containers; they are: 20 ft, 40 ft,
45 ft, 48 ft and 53 ft.
Most containers today are of the 40-ft (12.2 m) variety and are known as
40-foot containers. This is equivalent to 2 TEU. 45-foot (13.7 m) containers
are also designated 2 TEU. Two TEUs are equivalent to one forty-foot
equivalent unit (FEU). The 20 ft, 40 ft and 45 ft containers are common in
trade throughout the world, with the first two being the most common.
General Cargo Container: This container is packed with all general type
of cargo that does not require any specific temperature control. Today,
most of the containers that are in use are overwhelmingly the general
cargo type.
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CONTAINERIZATION
special material that has low heat transfer such as polystyrene foam.
Thermal containers are further classified into three types:
1. Refrigerated containers meant for food items that require cold storage
facility, e.g., meat, fish etc.
2. Insulated containers for fruits, vegetables etc. Here, dry ice is used as
cooling medium.
Bulk Containers: These are basically large sized containers, which have
manholes in them. Manholes are openings or holes at the top of the
container similar to what we see in petrol or water tankers. Such manholes
facilitate the loading of bulk cargo using gravity.
Gas Containers: These are specialized containers that have fixture fittings
which help to fill or empty liquefied gas, e.g., Liquid Oxygen. They have
thick walls and are made of high quality stainless steel. This is required for
safe transport of liquid gas.
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CONTAINERIZATION
Warehousing. The container limits damage risks for the goods it carries
because it is resistant to shocks and weather conditions. The packaging of
goods it contains is therefore simpler, less expensive and can occupy less
volume. This reduces insurance costs since cargo is less prone to be
damaged during transport. Besides, containers fit together permitting
stacking on ships, trains (double stacking) and on the ground. It is possible
to superimpose three loaded and six empty containers on the ground. The
container is consequently its own warehouse.
Activity C
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CONTAINERIZATION
Thefts and losses. While many theft issues have been addressed because
of the freight anonymity a container confers, it remains an issue for
movements outside terminals where the contents of the container can be
assessed based upon its final destination. It is estimated that about 10,000
containers per year (27 per day) are lost at sea when they fall overboard
containerships. Rough weather is the major cause, but improper container
stacking also plays a role (distribution of heavy containers). Yet, the loss
rate remains very low since 5 to 6 million containers are being transported
at any given time.
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CONTAINERIZATION
Activity D
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CONTAINERIZATION
15.9 Summary
1. What is Containerization?
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CONTAINERIZATION
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! !420
REVERSE LOGISTICS
Chapter 16
REVERSE LOGISTICS
Objectives
Structure
16.1 Definition
16.10 Summary
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REVERSE LOGISTICS
Introduction
In today’s globalized and fast paced economy, competition is driving
companies to address the importance and impact of the reverse logistics
processes on firm performance. Customers expect more from
manufacturers, retailers, and service providers in regard to return policies,
and companies are seeking to attain as much value out of any returned
product. Customers can return products for any number of reasons and the
firm must be prepared to handle and process the return in a timely manner
to ensure they are maintaining adequate customer satisfaction levels and
increase the likelihood of future transactions. The reasons for return can
range from shipping the wrong product or quantity, goods damaged in
shipping, receiving and repairing products for resale, or environmental
issues.
A key factor firms need to focus resources on the reverse logistics process
is that it can have a dramatic monetary impact on the bottom line of the
organization. It is estimated that approximately 4.5% of all logistics costs
within the United States stem from reverse logistics activities.
16.1 Definition
Activity A
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REVERSE LOGISTICS
system so that fewer materials flow back, and to ensure the possible reuse
and recycling of materials. (Figure 16.1).
Returns can affect every channel member from consumers, retailers and
wholesalers to manufacturers. Returns are caused for different reasons
depending on who initiates them – end consumer, wholesaler or retailer
and manufacturer – and on the nature of the materials involved –
packaging or products. Reusable packaging is becoming more and more
common, especially in Europe where manufacturers are required to take
back packaging materials.
Businesses know that if they are unable to get products to market they will
be unable to complete sales. Most distribution networks are designed to
quickly move merchandise from factories or suppliers to the customer.
However, products sometimes need to be removed from shelves and
warehouses.
!
Figure 16.1
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REVERSE LOGISTICS
Activity B
Warranty Claims
Defective products or parts can be sent back to retailers or the
manufacturer for repair. Products might either be dead on arrival, not
working according to specifications or cosmetically damaged. This could
happen either to the retailer or the end consumer. Alternatively, products
might break down during the course of their life cycle. If the product is still
within the warranty period extended by the manufacturer, customers might
return their product to the manufacturer or if that period has expired,
customers could take up other options such as taking the product to a
specialist repair center.
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Retail Overstock
Manufacturers can provide resellers with the luxury of returning unsold
stock. This is a common practice in the book industry, for example.
Retailers that need to make their accounting figures look good for the end
of quarter or month will sometimes send significant amounts of unsold
stock back for credits, only to reorder it again after the end of a financial
period.
Seasonal Products
There are many organizations that depend on a particular season to drive
sales. They often provide special packaging to promote their products and
plan on repackaging any unsold inventories for sale in the following season.
Unsold items are recalled by either the original manufacturer or the
wholesaler as stipulated in the original sales agreement.
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REVERSE LOGISTICS
Other Complications
Electronic Commerce
The emergence of selling via the Internet has led to many companies
focusing on their reverse logistics capability. With the rise of electronic
business channels, there has been a significant increase in consumer
returns. Some electronic retailers estimate that up to 50% of their goods
sold on the Internet are returned. E-commerce has propelled the amount
of returned products to levels which demand every executive’s attention.
Activity C
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REVERSE LOGISTICS
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REVERSE LOGISTICS
Activity D
Many companies outsource reverse logistics because they do not have the
expertise within their management ranks to run the area, or they would
rather put their resources toward manufacturing or customer service.
Manufacturers want their top talent running manufacturing plants, working
with customers, managing imports, parts or just about anything other than
focusing on returns. With a 3PL provider, manufacturers receive the focus,
motivation, experience, existing technology, capital resources and staff to
hit the ground running.
Companies also outsource to cap and control other risks and liabilities such
as inventory shrinkage, workers compensation expenses, medical benefit
costs and other “non-controllable” expenses. Companies protect
themselves by either negotiating a fixed fee arrangement for multiple years
! !428
REVERSE LOGISTICS
or with some form of variable pricing. This enables companies to limit risks
by negotiating cost caps as a part of their outsourcing agreement.
• Can they help improve the product flow upstream so companies can
process more efficiently and maximize the value of the returned assets
downstream?
Activity E
! !429
REVERSE LOGISTICS
The volume and the method of processing returns drive the total cost of
returns. Companies can reduce the costs associated with returns
considerably through a number of different ways and even use their
capabilities as a competitive weapon. The average return rate on sales is
8% but the return rate within subcategories can range from 4% to 15%.
This equates to $14 billion in annual returns, and many of these products
are not defective at all. Years of testing returned consumer electronics
have established that the non-defective rate for consumer electronics
hovers around 65% of total goods returned, meaning only 35% are
actually defective.
Products returned for repairs are often treated as inbound shipments, but
they are not the same as receiving raw materials or components. Repairs
often go into a completely separate workflow, requiring parts, personnel
and processes that differ from new products.
The most important levers an organization can use to make their returns
work best are outlined below. Companies can change the way they are
organized to manage returns, alter the way they process returns, use
advanced technology to process more efficiently and to prevent returns or
ultimately outsource their entire returns supply chain.
Activity F
! !430
REVERSE LOGISTICS
Local Screening
Local screening is done at the point of collection of the returned products.
Often products enter the supply chain that should not enter in the first
place and cause unnecessary transportation, administration and handling
costs. In an ideal reverse supply chain, products are screened at the point
of collection according to specifications of the manufacturer.
Collection
There are many different ways to collect the products that are destined to
enter the reverse supply chain. Retailers often have to send their return
products back to their suppliers’ different warehouses throughout the
country. Different processes need to be set up to facilitate timely
processing of these returns. This can often be very complicated and
confusing for both retailers and manufacturers as they are dealing with
multiple parties, many of whom are concentrating on getting products out
to the customer, rather than back to the source.
Sorting
Sorting is a crucial step in the reverse logistics process because employees
make decisions on what ultimately happens to the returned product.
Complex business rules underlying these decisions need to be updated
continuously and designed so that employees can implement the rules
easily. Use of bar code scanners connected to a database that contains
those business rules speeds up the process and avoids judgmental errors.
Information technology is a key in this process. Use of radio frequency
(RFID) tags can automate this process even further. RFID tags are already
used on expensive products; however their current price does not yet allow
them to be applied to mass consumer goods.
Disposal
Disposal should maximize the value of reclaimed goods or dispose of the
goods in the most cost-effective way. Three ways to dispose of product can
be distinguished:
! !431
REVERSE LOGISTICS
1. Sell as-is,
2. Repair or reuse (part of it) and
3. Ultimately dispose of the product.
1. Sell as-is-where-is:
2. Repair or reuse:
• Repair
• Refurbish or remanufacture
• Modify and recycle
3. Dispose:
• Scrap
• Donate (to charity)
• Dispose in secure manner (for example, certain drugs)
e-auction
To obtain the highest prices for returned items, some service providers
have set up capabilities to coordinate returns and help manufacturers
! !432
REVERSE LOGISTICS
Activity G
! !433
REVERSE LOGISTICS
! !434
REVERSE LOGISTICS
16.10 Summary
! !435
REVERSE LOGISTICS
3. What are the reasons when you have a spike (sudden increase) in
returns?
7. What are the terms and conditions for both customer returns and
recalls?
! !436
REVERSE LOGISTICS
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture
! !437
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Chapter 17
INTERNATIONAL LOGISTICS AND
INTERMODAL TRANSPORTATION
Objectives
Structure
17.9 TOFC/COFC
17.10 Containership
17.12 Summary
! !438
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Introduction
International logistics involves movements across borders, and these
movements are considered more complex for several reasons. First, there
are delays at the border. Goods must be inspected, and often import
duties, or charges, are assessed. Additional inspections at the border may
be conducted to determine whether the goods meet that nation’s health,
safety, environmental protection, and labeling standards. Most nations of
the world — although not the United States — insist that metric
measurements be used. Many documents are required for international
shipments, and often the logistic efforts involved in assembling the
documents are more challenging than those in moving the product.
Usually, all documents must be present at the point where the goods are
passing through the importing nation’s customs and inspection posts. Many
international movements go aboard ship, and the process of moving
through ports and being at sea is more time-consuming. Differences
between time zones limit the hours when communications can take place.
Logistics functions are same domestically and globally but differ in four Ds,
i.e., distance, documents, diversity in culture and demand of customer. In
international logistics, distances are longer, documentation is more
extensive, and customer demand varies to satisfy cultural differences
within both countries and regions. Developing strategies to respond to the
4D environment is the global challenge for logistics management.
Firstly, the fundamental concepts are functions are the same, however:
! !439
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
1. Part of international logistics systems where the flow of network ties one
nation to another. The differences in this system can be classified as
basic differences, which include:
a. Physical distance
b. Currency variation and exchange rate differences
c. Border-crossing regulations and documentation
d. Transportation modes
! !440
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
a. Intermediaries vary
b. Reliability of carriers may be different
c. Computation of freight rates may be different
d. Packaging and labeling requirements differ
Activity A
! !441
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Data integration and big data is another key area impacting logistics. The
sheer amount and spread of data that organizations are expected to
capture, interpret, hold, and represent and make available to customers is
a major impact.The cloud, the internet, machine-to-machine stuff, impacts
how companies do things and manage logistics. Along with this
requirement, shipment reliability is becoming a key area. With the need for
increased productivity and increased flexibility, it has become a more
important approach to drive solutions that are end to end.
3. International Trade
• Divergent currencies and exchange rates, complex documentation
and terms of sale, more intermediaries
! !442
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
6. Differences in Infrastructure:
• Size of ports, roads, railways, railcars, warehouses
Activity B
• The logistics systems have had the effect of shrinking the world,
empowering competitive trade.
! !443
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
• The longer the supply chain, the more cooperation and coordination is
required between production, marketing, purchasing and the logistics
management.
• Product life cycles shorten, sometimes to less than one year (cars 5, PCs
3, Clothing 1 season).
Activity C
! !444
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
External costs are also continuing to rise. Inputs such as fuel, labor and
real estate show no signs of falling in price. Supply and demand curves,
tight schedules and capacity levels for ocean shipping place upward
pressure on costs. Given the impact of these internal and external factors,
it just makes sense to develop an overall strategic approach to leverage
economies of scale, improve import decision support and increase lane
densities.
While it was easier to create and operate unique regional strategies, the
resulting duplication often resulted in loss of economies of scale and poor
asset utilization. While regionalization remains viable for some firms, those
desiring to grow and prosper must face the challenges of designing and
operating a globally integrated enterprise. Strategic business initiatives
must change as a firm and its supply chain become progressively more
global.
Activity D
! !445
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
!
Figure 17.1: Goods (Trading) and Transport Channels in Parallel
• The elements that match buyers and sellers and mediate the transactions
among them.
! !446
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
• Working with intermediaries can be rewarding but there are also some
things to be careful about.
!
Figure 17.2: Parallel Goods and Transport Channels with Intermediaries
! !447
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
• Production
• Product logistics
• Support logistics
• Customer contact
• Transaction processing
• Local knowledge
• Cheap labour
• Risk management
3. Offers the firm more than it can achieve on its own through the
intermediaries: contacts, experience, specialization and scale of
operation.
! !448
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
• They play a strategic role for new and established players enter into
global market.
Activity E
! !449
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
!
Figure 17.3: Relationship between Trading and Logistics Channels
Including Classes of Functions
! !450
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
The four classes of task primarily performed for the shippers are:
(Figure 17.3):
1. Transport services
2. Logistics centre services (warehouse design, outsourcing, etc.)
3. Information processing services
4. Professional advice and support
The three classes of task performed for the carriers are: (Figure
17.3):
1. Marketing services
2. Asset holding
3. Assortment and volume convenience
! !451
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
! !452
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Activity F
“The movement of goods (containers) in one and the same loading unit or
vehicle which uses successively several modes of transport without
handling of the goods themselves in changing modes of transport.”
! !453
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Activity G
! !454
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Advantages
Intermodal freight transportation gives you flexibility with how you want to
move your freight. Additionally, you have the opportunity to be creative in
finding the most efficient way to move your freight. Generally, this process
involves at least two modes of transportation. The more efficiently you
plan, the more money you will save.
Disadvantages
Intermodal freight transportation may be costly depending on the number
of modes of transportation. Some downfalls to intermodal freight
transportation involve the high costs that are associated with moving
freight by using several types of modes of transportation. Lack of
communication and idle time of equipment will increase transportation
costs. Similarly, equipment that moves from one location to another empty
also adds to the costs.
I. Appropriate Technology
II. Adequate Organizational Structures
III. Government Support
Activity H
! !455
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
17.9 TOFC/COFC
The best known and most widely used intermodal systems are the trailer
on a flatcar (TOFC) and container on a flatcar (COFC). Containers are the
boxes utilized for intermodal product storage and movement between
motor freight, railroads, and water transportation. Containers are typically
8 feet wide, 8 feet high, and 20 or 40 feet long, and do not have highway
wheels. Trailers, on the other hand, are of similar width and height but can
be as long as 53 feet and have highway wheels. As the name implies, a
trailer or container is placed on a railroad flatcar for some portion of the
intercity line-haul and pulled by a truck at origin and to the final
destination. Line-haul cost is the expense to move railcars or trucks
between cities. Since the original development of TOFC, various
combinations of trailer or container on flatcar — double-stack, for instance
— have increased significantly. (Figure 17.4).
!
Figure 17.4
While the TOFC concept facilitates direct transfer between rail and motor
carriage, it also has several technical limitations. The placement of a trailer
with highway wheels attached, transferred to a railcar, can lead to wind
resistance, damage, and weight problems. The use of containers reduces
these potential problems, as they can be double stacked and are easily
transferred to water carriers. They require special equipment for over-the-
road delivery or pickup.
! !456
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
17.10 Containership
!
Figure 17.5 Containerships are Oldest Form of Intermodal Transport
A variant of this intermodal option is the land bridge concept that moves
containers in a combination of sea and rail transport. The land bridge is
commonly used for containers moving between Europe and the Pacific
Rim* to reduce the time and expense of all-water transport. For example,
containers are shipped to the West Coast of North America from the Pacific
Rim, loaded onto railcars for movement to the East Coast, and then
reloaded onto ships for movement to Europe. The land bridge concept is
based on the benefit of ocean and rail combinations that utilize a single
tariff, which is lower than the combined total cost of two separate rates.
*The Pacific Rim is made up of the countries that ring the Pacific Ocean,
from Oceania and Asia to the Americas. All of these countries, due to their
location, have undergone huge economic changes, and there are numerous
! !457
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
imports between the states of the Pacific Rim. Four Pacific Rim countries
have been coined "economic tigers" because of their economic policies –-
Hong Kong, Singapore, Taiwan and South Korea. Together, the four
countries have challenged Japan as the dominant force in the Asian
economy.
Customers will also have more access to information through the use of
information communications capabilities only dreamt of in the past, and
that information will drive higher expectations of performance as well as
provide the foundation for alternatives, options, and continued change.
Finally, customers and supply chain operators will want all of this done
more cheaply, or in a more appropriate perspective, more profitably.
Therefore, evaluating the life cycle cost of prospective technology
applications is essential.
! !458
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
Activity I
! !459
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
17.12 Summary
Global operations are becoming more of the norm for logistics and supply
chain executives. Decisions regarding global sourcing and marketing
require more complex trade-off analyses than traditionally required for
domestic logistics. Both the quantitative and qualitative factors are more
complex. While transportation, inventory, and warehousing costs are very
substantial for global operations, other cost components, including taxes,
tariffs, duties, and documentation, and import restrictions, can also have a
substantial impact on true total cost. However, in addition to the
quantitative considerations, international operations introduce a number of
other variables that are much more difficult to quantify. Many of these
variables relate directly to logistics operations. The major qualitative
considerations include relationship management, infrastructure
consistency, production and transit reliability, and security. With increased
global marketing and manufacturing operations, logistics management
needs to be more involved in developing and implementing global
strategies.
! !460
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
! !461
INTERNATIONAL LOGISTICS AND INTERMODAL TRANSPORTATION
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
! !462
INCOTERMS
Chapter 18
INCOTERMS
Objectives
Structure
18.4 Summary
! !463
INCOTERMS
Introduction
International commercial terms or Incoterms are a series of sales terms
that are used by businesses throughout the world formulated by the
International Chamber of Commerce. Incoterms are used to make
international trade easier. They are used to divide transaction costs and
responsibilities between buyer and seller. Incoterms were introduced in
1936 and they have been updated six times to reflect the developments in
international trade. The latest revisions are sometimes referred to as
Incoterms 2000. There are thirteen Incoterms that are used by businesses
and are used in four different areas.
• Incoterms can be modified as long as the Buyer and Seller agree and it is
documented
• Effective date of January 1st, 2011 does not invalidate older versions;
they can still be used as long as the Buyer and Seller agree on the
version used
! !464
INCOTERMS
• Container arrival costs (i.e., THC and other destination charges) are not
expressed
• DAT is the only term that specifically tasks the seller with unloading
Incoterms do not…
! !465
INCOTERMS
1. Ex W
"Ex works" means the seller's only responsibility is to make the goods
available at the seller's premises, i.e., the works or factory. The seller is not
responsible for loading the goods on the vehicle provided by the buyer
unless otherwise agreed. The buyer bears the full costs and risk involved in
bringing the goods from there to the desired destination, e.g., works
represents the minimum obligation of the seller.
3. F.O.R or F.O.T
"F.O.R." and "F.O.T." mean "free on rail" or "free on truck." Both refer to
goods being carried by rail and should only be used when the goods are
carried by rail. The risk of loss or damage is transferred when the goods
are loaded onto the rail.
4. F.A.S.
"F.A.S." or "free alongside ship" requires the seller to deliver the goods
alongside the ship on the quay. From that point on, the buyer bears all
costs and risks of loss and damage to the goods. Unlike F.O.B., F.A.S.
requires the buyer to clear the goods for export and pay the cost of loading
the goods.
! !466
INCOTERMS
5. F.O.B.
Under "F.O.B." or "free on board," the goods are placed on board the ship
by the seller at a port of shipment named in the sales agreement. The risk
of loss of or damage to the goods is transferred to the buyer when the
goods pass the ship's rail (i.e., off the dock and placed on the ship). The
seller pays the cost of loading the goods.
6. F.O.B. Airport
This term is very similar to the ordinary F.O.B. term. The seller fulfills its
obligation by delivering the goods to the air carrier at the airport of
departure. The risk of loss is transferred from the seller to the buyer at
such time.
7. C & F
"C & F" or "cost and freight" (also abbreviated CFR) requires the seller to
pay the costs and freight necessary to bring the goods to the named
destination, but the risk of loss or damage to the goods, as well as any
cost increases, are transferred from the seller to the buyer when the goods
pass the ship's rail in the port of shipment. Insurance is the buyer's
responsibility.
8. CI.F.
"C.I.F." meaning "cost, insurance, and freight" – is C & F with the additional
requirement that the seller procure transport insurance against the risk of
loss or damage to goods. The seller must contract with the insurer and pay
the insurance premium. Insurance is generally more important in
international shipping than domestic shipping, because U S laws generally
hold a common carrier to be liable for lost or damaged goods.
! !467
INCOTERMS
! !468
INCOTERMS
18.4 Summary
! !469
INCOTERMS
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture
! !470
LOGISTICS VOCABULARY
LOGISTICS VOCABULARY
Continuous review policy: An inventory management policy which
assumes a capability of continuous review of inventory position.
Economic lot size model: Also called EOQ model as introduced in the
text. It decides the order quantity for inventory replenishment.
F.O.B. origin: A special terms of sales. The seller agrees to deliver the
goods to the point of origin. The buyer assumes all responsibility and risk
thereafter. FOB refers to free on board.
! !471
LOGISTICS VOCABULARY
Inventory in-transit: Inventory that has been ordered, but has not
arrived at the warehouse yet.
Lead time: The time interval from order placing to order arrival.
Order cycle: The time from an order is received to its actual delivery.
Another definition from the order fulfiller’s perspective is the time from
order received to order assembled.
! !472
LOGISTICS VOCABULARY
Per diem: A payment rate one railroad makes to use another’s car.
Port of entry: A port at which foreign goods are admitted into the
receiving country.
! !473
LOGISTICS VOCABULARY
Rail waybill: The bill of lading issued by rail carriers to their customers.
Stock keeping unit: Also called SKU. The unit in which a product is kept
in stock.
! !474
LOGISTICS VOCABULARY
TEU: Twenty foot equivalent unit. The basic size used to measure container
traffic volume.
Transit privilege: A carrier service that permits the shipper to stop the
shipment in transit to perform a function that changes the commodity’s
physical characteristics, but to still pay the through rate. It was a railroad
practice before, and is rarely used now.
Unit train: A train that repeatedly runs between the same pair of origin
and destination without car switching or locomotive changes.
! !475
LOGISTICS VOCABULARY
! !476
SELF ASSESSMENT QUESTIONS
3. What does the following definition refer to: an organization which uses
communications technology to allow it to operate without clearly define
physical boundaries between different functions?
a. E-organization
b. Virtual organization
c. Base-free organization
d. Cloud organization
! !477
SELF ASSESSMENT QUESTIONS
a. Information
b. Intangible needs
c. Fulfilled needs
d. Materials
a. Inputs to operations usually come from only one place and take one
form
b. Operations activities are usually independent of other business
activities such as engineering and marketing
c. The availability of inputs usually has little impact on the operations
function
d. Operations are highly dependent on the quality of inputs
! !478
SELF ASSESSMENT QUESTIONS
9. Which of these is NOT a flow that moves up and down the supply chain?
a. Physical
b. Information
c. Monetary
d. Procedural
10.Which area of the SCOR model includes the activities that are necessary
to handle warranty repairs and exchanges or shipments in excess of
what is needed at a retail location?
a. Delivery
b. Source
c. Return
d. Planning
a. Analyst
b. Logistics and Material Planner
c. International logistics manager
d. Sourcing manager
a. People
b. Technology
c. Regulations
d. Systems
! !479
SELF ASSESSMENT QUESTIONS
a. APICS
b. ASQ
c. CSCMP
d. ISM
16.The capacity planning function is closely linked with which two key
inter-organizational supply chain participants?
! !480
SELF ASSESSMENT QUESTIONS
a. True
b. False
a. True
b. False
20.Supply chain with multiple sites, each site will often have its fairly
autonomous management team.
a. True
b. False
Logistics Management
a. customer
b. retailer's creditor
c. producer
d. reseller
! !481
SELF ASSESSMENT QUESTIONS
d. channel of distribution
a. marketing decision
b. customer's choices
c. employee in the channel
d. channel member
a. distributors
b. manufacturers
c. consumers
d. marketers
a. negotiation
b. negotiation
c. financing
d. promotion
a. depth
b. length
c. complexity
d. width
! !482
SELF ASSESSMENT QUESTIONS
a. informational role
b. time-saving part
c. decisional role
d. specialized role
11.A corporate VMS has the advantage of controlling the entire distribution
chain under ____________
a. little control
b. a few intermediaries
c. single ownership
d. mass distribution
! !483
SELF ASSESSMENT QUESTIONS
b. oral agreements
c. contractual agreements
d. working partnerships
a. True
b. False
a. True
b. False
! !484
SELF ASSESSMENT QUESTIONS
18.The Supply Chain concept should be seen as a whole, that is, the entire
system from the origin of procurement to the final consumption of
____________
a. goods or customer
b. costumer or services
c. goods or services
d. None of these
a. True
b. False
a. Logistic Coordination:
b. Logistic operation
c. Both (a) and (b)
d. None of these
a. several external
b. several internal
c. several internal and external
d. None of these
! !485
SELF ASSESSMENT QUESTIONS
a. selection management
b. materials management
c. Both (a) and (b)
d. None of these
a. True
b. False
a. insourced operation
b. outsourced operation
c. not outsourced operation
d. None of these
a. quality benchmarks
b. global competition
c. Both (a) and (b)
d. None of these
a. Purchase Requisition
b. Decision of Purchase
c. Study of Market Conditions
d. None of these
! !486
SELF ASSESSMENT QUESTIONS
9. Monitoring is ____________
10.Resourcing is ____________
a. Employee ownership
! !487
SELF ASSESSMENT QUESTIONS
a. Prototyping.
b. Active involvement by senior staff.
c. Education and training.
d. None of these
15.When the district is able to purchase a single item in mass, vendors are
often willing to provide a discount.
a. Warehouse
b. Volume Purchasing
c. Save time in Researching Products
d. None of these
a. True
b. False
! !488
SELF ASSESSMENT QUESTIONS
a. True
b. False
a. True
b. False
a. True
b. False
Inventory Management
2. Which of the following would not generally be a motive for a firm to hold
inventories?
! !489
SELF ASSESSMENT QUESTIONS
3. All of the following statements about ABC analysis are true except
____________
a. item quality
b. unit price
c. annual demand
d. annual dollar volume
! !490
SELF ASSESSMENT QUESTIONS
a. True
b. False
a. True
b. False
12.In the basic EOQ model, if the cost of placing an order doubles, and all
other values remain constant, the EOQ will ____________
! !491
SELF ASSESSMENT QUESTIONS
a. True
b. False
14.Which of the following statements about the basic EOQ model is true?
15. Which of the following statements about the basic EOQ model is false?
a. True
b. False
a. unchanged
b. increased by less than 50%
c. increased by 50%
d. increased by more than 50%
18.The Economic Order Quantity (EOQ) is not the number of units that a
company should add to inventory with each order to minimize the total
! !492
SELF ASSESSMENT QUESTIONS
a. True
b. False
a. True
b. False
a. one-to-one
b. one-to-two
c. one-to-more
d. None of these
! !493
SELF ASSESSMENT QUESTIONS
a. True
b. False
a. Supply
b. Production
c. Distribution of products to the customer
d. All of these
a. True
b. False
a. producer
b. reseller
c. customer
d. wholesaler
a. supply chain
b. supply and demand chain
c. demand chain
d. value delivery network
a. marketing decision
! !494
SELF ASSESSMENT QUESTIONS
b. customer's choices
c. employee in the channel
d. channel member
a. consumers
b. distributors
c. manufacturers
d. marketers
a. financing
b. negotiation
c. promotion
d. negotiation
a. length
b. width
c. complexity
d. involvement
! !495
SELF ASSESSMENT QUESTIONS
! !496
SELF ASSESSMENT QUESTIONS
a. inefficiency
b. fewer domestic sales
c. greater conflict
d. less net profit
18.In services such as retail stores or a delivery service like UPS or Federal
Express, the supply chain reduces to problem if distribution logistics,
where the start point is the finished product has to be delivered to the
client in a timely manner.
a. True
b. False
a. short-term
b. long-term
c. Both (a) and (b)
d. None of these
a. True
b. False
! !497
SELF ASSESSMENT QUESTIONS
a. define the boundaries within which the supply chain must compete
b. have little impact on how the supply chain must compete
c. are irrelevant regarding how the supply chain will compete
d. are the only consideration regarding how the supply chain will compete
! !498
SELF ASSESSMENT QUESTIONS
d. None of these
! !499
SELF ASSESSMENT QUESTIONS
9. A firm may choose to build a flexible global supply chain even in the
presence of little demand or supply uncertainty if ____________
10.The present value of a future stream of cash flows is what that stream
13.The discount factor used to obtain the present value of money in the
next period where k represents the rate of return is ____________
a. k
b. 1+k
c. 1/(1+k)
d. k /(1+k)
! !500
SELF ASSESSMENT QUESTIONS
a. discount rate.
b. hurdle rate.
c. opportunity cost of capital.
d. All of these
15.A negative NPV (net present value) for an option indicates that the
option will
16.The decision with the highest NPV (net present value) will provide a
supply chain with ____________
17.The multiplicative binomial can be used for factors like demand, price,
and exchange rates that cannot become negative because it
____________
18.A logical objection to both the multiplicative and additive binomial is the
fact that the underlying factor ____________
a. takes on only one of two possible values at the end of each period
b. takes on two values at the end of each period
c. takes on one of many possible values at the end of each period
d. takes on several of many possible values at the end of each period
! !501
SELF ASSESSMENT QUESTIONS
a. True
b. False
20.The supply chain management model should also perform the task of
managing and coordinating activities upstream and downstream in the
supply chain.
a. True
b. False
a. non-logistics operations
b. logistics operations
c. Both (a) and (b)
d. None of these
a. Cost management
b. Price management
c. Materials management
d. None of these
! !502
SELF ASSESSMENT QUESTIONS
a. fixed cost
b. variable cost
c. Both (a) and (b)
d. None of these
a. True
b. False
5. Water transport ranks between rail and motor carrier in respect to fixed
cost.
a. True
b. False
8. The variable operating cost is extremely low once the pipeline has been
constructed.
! !503
SELF ASSESSMENT QUESTIONS
a. True
b. False
11.According to Lord Sieff of Marks and Spencer, what are the three most
important things in retailing?
! !504
SELF ASSESSMENT QUESTIONS
18.The motive power utilized for the internal handling of vehicles and
transportation to destinations is another important component of the
total movement system.
! !505
SELF ASSESSMENT QUESTIONS
a. True
b. False
a. True
b. False
a. True
b. False
a. True
! !506
SELF ASSESSMENT QUESTIONS
b. False
3. Outsourcing not only brings ____________ but can also improve the
efficiency of business operations.
a. price advantages
b. sales advantages
c. cost advantages
d. None of these
a. Insourcing
b. Outsourcing
c. External sourcing
d. None of these
a. True
b. False
a. decreased control
b. increased control
c. increased and decreased control
d. None of these
a. Insourcing
b. outsourcing
c. insourcing and outsourcing
d. None of these
! !507
SELF ASSESSMENT QUESTIONS
a. lowest-cost factor
b. cost factor
c. highest-cost factor
d. None of these
a. True
b. False
a. customer program
b. consumer program
c. management program
d. None of these
a. performance in time
b. performance time
c. performance over time
d. None of these
! !508
SELF ASSESSMENT QUESTIONS
15.The rationale for this approach stems from the fact that the supply
chain as a whole has to efficient and ____________
a. price effective
b. sales effective
c. cost effective
d. None of these
a. True
b. False
a. SC
b. TQM
c. Both (a) and (b)
d. None of these
! !509
SELF ASSESSMENT QUESTIONS
a. True
b. False
a. True
b. False
1. In order to better serve its customers, a retail store will need to have
information on the ____________
! !510
SELF ASSESSMENT QUESTIONS
! !511
SELF ASSESSMENT QUESTIONS
a. True
b. False
a. strategic level
b. tactical level
c. operational level
d. both strategic, tactical and operational level
! !512
SELF ASSESSMENT QUESTIONS
12.Which of the following does not fall under supply chain measurement
metrics?
a. True
b. False
a. Phased approach
b. Pilot approach
c. Parallel approach
d. Big bang or cold turkey approach
! !513
SELF ASSESSMENT QUESTIONS
17.This relationship between the number of suppliers and the use of IT for
transaction processing is in line with the identified drivers.
a. True
b. False
a. True
b. False
19.Operational CRM is not the aspect of CRM dealing with the automation
of customer facing, or “front office,” processes.
a. True
b. False
a. True
b. False
! !514
SELF ASSESSMENT QUESTIONS
a. TQM
b. Supply chain
c. Supply chain management
d. None of these
a. decreasing complexity
b. increasing complexity
c. complexity
d. None of these
a. True
b. False
! !515
SELF ASSESSMENT QUESTIONS
a. increases
b. decreases
c. Both (a) and (b)
d. None of these
a. True
b. False
a. True
b. False
a. Resources
b. Constraints
c. Opportunities
d. All of these
! !516
SELF ASSESSMENT QUESTIONS
a. Out of Stock
b. Stock Variations
c. Speculative Stock
d. None of these
a. True
b. False
13.The system must report the same information to both the supplier and
the customer so that the process is ____________
a. low transparent
b. highly transparent
c. Both (a) and (b)
d. None of these
a. True
b. False
a. Forecasting
b. Low transparent
c. Highly transparent
d. None of these
a. old product
b. new products
c. Both (a) and (b)
d. None of these
! !517
SELF ASSESSMENT QUESTIONS
a. True
b. False
a. True
b. False
a. job
b. skills
c. knowledge
d. None of these
a. True
b. False
! !518
SELF ASSESSMENT QUESTIONS
a. customer
b. suppliers
c. customer and suppliers
d. None of these
a. market analysis
b. market requirements
c. market structure
d. None of these
a. static environments
b. dynamic environments
c. Both (a) and (b)
d. None of these
a. Planning
b. Schedulable
c. Both (a) and (b)
d. None of these
6. The data regarding current and planned operations can also be used to
provide realistic estimates of the ability to meet a new customer order
request.
a. True
! !519
SELF ASSESSMENT QUESTIONS
b. False
8. The output from the planning process is not feasible plan, which
provides release and completion times for every demand.
a. True
b. False
a. True
b. False
a. specific dynamic
b. not specific order
c. specific order
d. None of these
11.The sequential approach decouples the plans from each other and
cohesion can only be preserved by constantly repeating the planning
process.
a. True
b. False
! !520
SELF ASSESSMENT QUESTIONS
a. short-term decisions
b. long-term decisions
c. long decisions
d. None of these
15.Supply planning tools develop daily or weekly supply plans that satisfy
customer demand based on the supply chain model developed in the
network design and a combination of the forecast from demand
planning and true customer demand.
a. True
b. False
a. Row resources
b. Pricing resources
c. manufacturing resources
d. None of these
! !521
SELF ASSESSMENT QUESTIONS
a. True
b. False
18.Network Optimization tools typically model the entire supply chain and
include
a. forecast information
b. product and facility information
c. manufacturing
d. All of these
a. supply chain
b. supply chain management
c. supply process
d. None of these
a. True
b. False
! !522