Sr. No.

Title
1 Introduction to Logistics
2 Logistic Service Measurement
3 Transportation Management
4 Performance Cycle
5 Customer Focused Marketing
6 Order Management
7 Activity Based Costing & Channel Structures
8 Logistic Relationships
9 Third Party Logistics
10 Inventory Management
11 Inventory Management (Continued.)
12 Inventory Management (Continued.)
13 Economic Order Quantity (EOQ)
14 Inventory Calculations and Policies
15 Inventory Management Policies
16 Inventory Management Policies
17 Introduction to Transportation Management
18 Pricing of Transportation Services
19 Pricing of Transportation Services
20 Transportation Vehicle Management
21 Transportation Vehicle Management
22 Issues in Transportation management
23 Rail Car Industry
24 Airline Industry
25 Water Carrier Industry
26 Transport Planning & Strategy
27 Location Strategies
28 Transportation Competitiveness
29 Transportation Competitiveness (Continued.)
30 Transportation Competitiveness (Continued.)
31 Distribution Planning
32 Warehouse management
33 Warehouse Management (Continued.)
34 Services Management
35 Queuing
36 Queuing (Continued.)
37 Managing Distribution Channels and Services Quality
38 Transportation Risk Management
39 Outsourced Logistics
40 Outsourced Logistics (Continued.)
41 Reverse Logistics Systems
42 Integration Model for Logistics
43 Integration Model for Logistics (Continued.)
44 Distribution Networks (Continued.)
45 Procurement System
Transportation & Logistic Management is a core course in Business Administration Program. It
will give you an introduction to the functional area of Transportation & Logistic Management
as practiced in manufacturing industries and the services sector. It includes fulfilling customer
demands, ordering and managing inventory, reducing costs, saving time, controlling inbound and
outbound shipments while meeting the company overall business objectives. The course will
equip you with logistic functions as well as will let you know about different strategies and tactics
to achieve business excellence.
ABC Classification system
A method of classifying inventory items relative to their impact on total control. ABC typically uses
movement and cost data to calculate the value of stock usage over the prior period, and uses the
result as an element in ranking items under an 80/20 Pareto rule for cycle counting purposes to
focus efforts on those selected items and possible reduce the cost associated with frequent
counting of slow moving items. The group is divided into classes called A, B, and C (and
sometimes D) with The A group represents the highest value with 10 to 20% by number of items.
The B, C and D (if used) groups are each lower values but typically higher populations. Items
with higher usage value are (the 20%) are counted more frequently. Specific bars to be used in
setting ABC levels will vary by organization as they will impact the financial control applied to
inventory and the level of effort spent counting. Also see: Cycle Counting
ABC Frequency of Access
Location method where the determination of a product’s location within the warehouse, or
distribution center, is based on 1) product’s ABC Classification and 2) the number of times or rate
of which the product is accessed.
ABC Inventory Control
A method of inventory control which divides items into categories based on value of usage,
something like a Pareto division where the items which constitute the highest dollar value are
tracked more closely than those with lower value movement. In this method an item with high
volumes of movement, but low cost, such as a small cheap fastener would likely be counted less
frequently than a slower mover which has a very high cost. Items are typically divided by a
company defined set of values into “A”, “B” and “C” groups, and sometimes a “D” group. The
count frequencies are then applied to the groups. For example “A” class items may be counted
weekly, “B” monthly, “C” quarterly, etc. as a part of a cycle counting program.
ABC Model
In cost management, a representation of resource costs during a time period that is consumed
through activities and traced to products, services, and customers or to any other object that
creates a demand for the activity to be performed.
ABC System
In cost management, a system that maintains financial and operating data on an organization's
resources, activities, drivers, objects and measures. ABC models are created and maintained
within this system.
Abnormal Demand
Abnormal Demand: Demand for a product which is either greater or lower than expected by a
given percentage which is determined by the organization. When observed, it should be
determined whether it may be a one-time spike, or if the effect is part of a trend which should be
considered during future forecasts.
Absorption Costing
A cost accounting approach which captures overhead and other indirect costs as separate from
unit costs for a given period, and then applies (absorbs) those costs into unit costs at the period
end based on various factors such as movement and COGS elements
Acceptable Quality Level (AQL)
In quality assessment, acceptable quality level, also known as assured quality level, describes
the maximum number of defects acceptable during the random sampling of an inspection
Acceptable Sampling Plan
A quality management procedure which defines the sample sizes and acceptable defect levels
for validating quality of products.
Acceptance Sampling
A statistical quality control method which tests samples of products at defined points as opposed
to testing each product.
Accessibility
The ability of a carrier to provide service between an origin and a destination
Accessory
A choice or feature added to the good or service offered to the customer for customizing the end
product. An accessory enhances the capabilities of the product but is not necessary for the basic
function of the product. In many companies, an accessory means that the choice does not have
to be specified before shipment but can be added at a later date. In other companies, this choice
must be made before shipment.
Accreditation
The process in which certification of competency, authority, or credibility is presented. An
example of accreditation is the accreditation of testing laboratories and certification specialists
that are permitted to issue official certificates of compliance with established standards.
Accumulation bin
An area where item to be used in assembly of a product are staged prior to work being done.
Acquisition Cost
The net price plus other costs needed to purchase the item and get it to the point of use. These
other costs can include: the item's purchasing costs (closing, research, accounting, commissions
and legal fees), transportation, preparation and installation costs.
Action Plan
A specific method or process to achieve the results called for by one or more objectives. An
action plan may be a simpler version of a project plan.
Active Inventory
Materials held in a facility which is intended to be consumed in manufacturing / assembly, or sold
in a specified period.
Active Stock
Goods in active pick locations and ready for order filling.
Activity
Work performed by people, equipment, technologies or facilities. Activities are usually described
by the “action-verb-adjective-noun” grammar convention. Activities may occur in a linked
sequence and activity-to-activity assignments may exist
Activity Analysis
The process of identifying and cataloging activities for detailed understanding and documentation
of their characteristics. An activity analysis is accomplished by means of interviews, group
sessions, questionnaires, observations, and reviews of physical records of work
Activity Based Budgeting (ABB)
An approach to budgeting where a company uses an understanding of its activities and driver
relationships to quantitatively estimate workload and resource requirements as part of an ongoing
business plan. Budgets show the types, number of and cost of resources that activities are
expected to consume based on forecasted workloads. The budget is part of an organization’s
activity-based planning process and can be used in evaluating its success in setting and pursuing
strategic goals.
Activity Based Planning (ABP)
Activity-based planning (ABP) is an ongoing process to determine activity and resource
requirements (both financial and operational) based on the ongoing demand of products or
services by specific customer needs. Resource requirements are compared to resources
available and capacity issues are identified and managed. Activity-based budgeting (ABB) is
based on the outputs of activity-based planning
Activity-Based Management (ABM)
A discipline focusing on the management of activities within business processes as the route to
continuously improve both the value received by customers and the profit earned in providing that
value. ABM uses activity-based cost information and performance measurements to influence
management action. See also: Activity-Based Costing
Actual Demand
The known demand for a specific product based on customer orders and production orders which
are open. Once an order is shipped or production is completed, specific demand quantity will
become usage. Actual demand should be netted against any forecast for the same period,
meaning that as orders are received they are considered to be part of an earlier forecast and
forecasts should be considered as satisfied.
Actual to Theoretical Cycle Time
The ratio of the measured time required to produce a given output divided by the sum of the time
required to produce a given output based on the rated efficiency of the machinery and labor
operations.
Advance Material Request
A request for materials which is created in advance of formal need due to long lead times for
components, etc.
Advanced Planning and Scheduling (APS)
Refers to a manufacturing management process by which raw materials and production capacity
are optimally allocated to meet demand. APS is especially well-suited to environments where
simpler planning methods cannot adequately address complex trade-offs between competing
priorities.
Advanced Shipping Notice (ASN)
Detailed shipment information transmitted by the shipper to a customer or consignee in advance
of delivery, designating the contents (individual products and quantities of each) and nature of the
shipment. In EDI data standards this is referred to as an 856 transaction. May also include carrier
and shipment specifics including time of shipment and expected time of arrival. The ASN data
can be valuable in providing digital knowledge about what is in a shipment in a way that it can be
used to eliminate manual data entry of each shipment
Aftermarket
A market for parts and accessories used in the repair or enhancement of a product. A secondary
market created after the original market sales are finished.
Agency tariff
A publication of a rate bureau that contains rates for many carriers.
Agent
An enterprise authorized to transact business for, or in the name of, another enterprise.
Aggregate Inventory
The total inventory available for any given product across multiple locations and/or multiple stock-
keeping units.
Aggregate Plan
A plan for the production process, 2 to 18 months in advance to give management an idea to of
what quantity of materials and other resources are to be procured and when, so that the total cost
of operations of the organization is kept to the minimum over that period.
Aggregate Planning
An operational activity which compiles an aggregate plan for the production process.
Agile Manufacturing
Tools, techniques, and initiatives that enable a plant or company to thrive under conditions of
unpredictable change. Agile manufacturing not only enables a plant to achieve rapid response to
customer needs, but also includes the ability to quickly reconfigure operations-and strategic
alliances-to respond rapidly to unforeseen shifts in the marketplace. In some instances, it also
incorporates "mass customization" concepts to satisfy unique customer requirements. In broad
terms, it includes the ability to react quickly to technical or environmental surprises.
Air Cargo
Refers to freight that is moved via air transportation.
Air Cargo Containers
Containers designed to conform to the inside of an aircraft. There are many shapes and sizes of
containers. Air cargo containers fall into three categories: 1) air cargo pallets 2) lower deck
containers 3) box type containers.
Air Taxi
An exempt for-hire air carrier that will fly anywhere on demand: air taxis are restricted to a
maximum payload and passenger capacity per plane.
All-cargo carrier
An air carrier that transports cargo only.
American Customer Satisfaction Index (ACSI)
Released for the first time in October 1994, an economic indicator and cross industry measure of
the satisfaction of U.S. household customers with the quality of the goods and services available
to them-both those goods and services produced within the United States and those provided as
imports from foreign firms that have substantial market shares or dollar sales. The ACSI is co-
sponsored by the University of Michigan Business School, ASQ and the CFI Group.
American National Standards Institute (ANSI)
A non-profit organization chartered to develop, maintain, and promulgate voluntary U.S. national
standards in a number of areas, especially with regards to setting EDI standards. ANSI is the
U.S. representative to the International Standards Organization (ISO).
American Society for Quality (ASQ)
A professional organization with more than 100,000 members which advances learning, quality
improvement, and knowledge exchange to improve business results, and to create better
workplaces and communities worldwide.
American Society of Transportation & Logistics
A professional organization in the field of logistics.
American Trucking Association, Inc. (ATA)
A motor carrier industry association that is made up of sub conferences representing various
sectors of the motor carrier industry.
Anti-Dumping Duty
An additional import duty imposed in instances where imported goods are priced at less than the
normal price charged in the exporter's domestic market and cause material injury to domestic
industry in the importing country.
Anticipation Inventories
Extra stocks of inventory which are being held above known requirement in order to
accommodate trends or promotions. May also be used to hedge against risk of supply problems.
Appointment Freight
Shipments which are held at the carrier’s terminal to be delivered at a specific date and time.
Typically this occurs when a shipment is received by the carrier facility 1 or more days prior to the
agreed upon delivery schedule. The shipment cannot immediately be delivered and must be held
at the facility.
Assembly Line
A manufacturing process where products are completed from components as a result of a series
of continuous activities. Henry Ford is widely recognized as the father of the assembly line.
Assignment
A distribution of costs using causal relationships. Because cost causal relationships are viewed
as more relevant for management decision-making, assignment of costs is generally preferable
to allocation techniques. Synonym: Tracing Contrast with: Allocation
Available Inventory
Also called net inventory, this is the quantity of stock which is available to use after considering
allocations, reservations, backorders, and quantities set aside to compensate for quality
problems. Synonym: Net Inventory Synonym: Available-to-Promise
Available to Promise (ATP)
The quantity of a product which is or will be available to promise to a customer based on their
required shipment date. ATP is typically ‘time phased’ to allow for promising delivery at a future
date based on anticipated purchase or production receipts.
Average Annual Production Materials Related A/P (Accounts Payable)
The value of direct materials acquired in that year for which payment has not yet been made.
Production-related materials are those items classified as material purchases and included in the
Cost of Goods Sold (COGS) as raw material purchases. Calculate: Calculate: Use the 5-point
Annual Average
Back Order
Product which has been ordered by a customer but out of stock and promised to ship when the
product becomes available.
Backorder
1) The act of retaining a quantity to ship against an order when other order lines have already
been shipped. Backorders are usually caused by stock shortages. 2) The quantity remaining to
be shipped if an initial shipment(s) has been processed. Note: In some cases backorders are not
allowed, this results in a lost sale when sufficient quantities are not available to completely ship
and order or order line. See also: Balance to Ship
Back sourcing
The process of recapturing and taking responsibility internally for processes that were previously
outsourced to a contract manufacturer, fulfillment or other service provider. Back sourcing
typically involves the cancellation or expiration of an outsourcing contract and can be nearly as
complex as the original outsourcing process.
Balance to Ship (BTS)
Balance or remaining quantity of a promotion or order that has yet to ship. See also: Backorder
Bar Code
A symbol consisting of a series of printed bars representing values. A system of optical character
reading, scanning, and tracking of units by reading a series of printed bars for translation into a
numeric or alphanumeric identification code. A popular example is the UPC code used on retail
packaging.
Bar code scanner
A device to read bar codes and communicate data to computer systems.
Base Stock System
An inventory system in which a replenishment order is issued each time a withdrawal is made
and the order quantity s equal to the amount of the withdrawal. . This type of system is also
referred to as a par- stock system (bringing stock back to par level).
Batch Processing
A computer term which refers to the processing of computer information after it has been
accumulated in one group, or batch. This is the opposite of “real-time” processing where
transactions are processed in their entirety as they occur.
Belly Cargo
Air freight carried in the belly of passenger aircraft.
Benchmarking
The process of comparing performance against the practices of other leading companies for the
purpose of improving performance. Companies also benchmark internally by tracking and
comparing current performance with past performance. Benchmarking seeks to improve any
given business process by exploiting "best practices" rather than merely measuring the best
performance. Best practices are the cause of best performance. Studying best practices provides
the greatest opportunity for gaining a strategic, operational, and financial advantage.
Bill of Lading
A bill of lading that covers goods from point of origin to final destination, when interchange or
transfer from one carrier to another is necessary to complete the journey.
Bill of Lading (BOL)
A transportation document that is the contract of carriage containing the terms and conditions
between the shipper and carrier.
Bill of Material (BOM)
A structured list of all the materials or parts and quantities needed to produce a particular finished
product, assembly, subassembly, or manufactured part, whether purchased or not.
Bill of Resources
A listing of resources required by an activity. Resource attributes could include cost and volumes.
Bin
An inventory location which is typically a box or tray used to hold quantities of smaller parts.
Bin Location
A generic term which may be used to identify the actual physical location where a product is
stored. See also: Warehouse Location
Block Stacking
A storage method which uses no formal racking or shelves to contain the products. Items to be
stored (pallets, cases or cartons) are stacked upwards from the floor surface to whatever height
is practical.
Bonded Warehouse
Warehouse approved by the Customs or Treasury Department and under bond/guarantee for
observance of revenue laws. Used for storing goods until duty is paid or goods are released in
some other proper manner. In many cases the bonded warehouse is a building adjacent to the
main warehouse, or a separate secure area within the main warehouse. Incoming goods should
be received to this location as usual, but flagged as in quarantine or quality hold.
Break-Even Point
A chart which graphically represents the point at which cost or expenses and revenue are equal:
there is no net loss or gain, and one has "broken even". See also: Total Cost Curve
Bullwhip Effect
Also known as “Whiplash Effect” it is an observed phenomenon in forecast-driven distribution
channels. The oscillating demand magnification upstream a supply chain is reminiscent of a
cracking whip. The concept has its roots in J Forrester's Industrial Dynamics (1961) and thus it is
also known as the Forrester Effect.
Business Intelligence
The set of skills, technologies, applications and practices used to help a business acquire a
better understanding of its commercial context to make better business decisions.
Business Logistics
The systematic and coordinated set of activities required to provide the physical movement and
storage of goods (raw materials, parts, finished goods) from vendor/supply services through
company facilities to the customer (market) and the associated activities-packaging, order
processing, etc.-in an efficient manner necessary to enable the organization to contribute to the
explicit goals of the company.
Business Performance Measurement (BPM)
A technique which uses a system of goals and metrics to monitor performance. Analysis of these
measurements can help businesses in periodically setting business goals, and then providing
feedback to managers on progress towards those goals. A specific measure can be compared to
itself over time, compared with a preset target or evaluated along with other measures.
Capacity Management
The concept that capacity should be understood, defined, and measured for each level in the
organization to include market segments, products, processes, activities, and resources. In each
of these applications, capacity is defined in a hierarchy of idle, non-productive, and productive
views.
Cargo
Subject of a shipment. The materials being carried.
Carriage and Insurance Paid To (CIP)
This term is used primarily for multimodal moves and is the same as CPT, except the seller must
also purchase cargo insurance in the buyer's name.
Carriage Paid To (CPT)
Similar to CIF, except that the buyer pays for insurance. The seller, however, is responsible for
export clearance.
Carrier
A firm which transports goods or people via land, sea or air
Catalog Channel
A call center or order processing facility that receives orders directly from the customer based on
defined catalog offerings and ships directly to the customer.
Certified Supplier
A supplier, who has demonstrated the ability to consistently meet established quality, cost,
delivery, financial, and count objectives, and has therefore been awarded the “certified”
designation. Suppliers in this group may be able to bypass incoming quality inspection.
Collaborative Planning, Forecasting and Replenishment (CPFR)
A concept that aims to enhance supply chain integration by supporting and assisting joint
practices. CPFR seeks cooperative management of inventory through joint visibility and
replenishment of products throughout the supply chain. Information shared between suppliers
and retailers aids in planning and satisfying customer demands through a supportive system of
shared information. This allows for continuous updating of inventory and upcoming requirements,
essentially making the end-to-end supply chain process more efficient. Efficiency is also created
through the decrease expenditures for merchandising, inventory, logistics, and transportation
across all trading partners.
Collect Freight
Freight payable to the carrier at the port of discharge or ultimate destination. The consignee does
not pay the freight charge if the cargo does not arrive at the destination.
Commercial Invoice
A document created by the seller. It is an official document which is used to indicate, among
other things, the name and address of the buyer and seller, the product(s) being shipped, and
their value for customs, insurance, or other purposes.
Common Carrier
Any carrier engaged in the interstate transportation of persons/property on a regular schedule at
published rates, whose services are for hire to the general public.
Competitive Benchmarking
The practice of comparing and rating a company’s products or services against those of
competitors.
Complete Manufacture to Ship Time
Average time from when a unit is declared shippable by manufacturing until the unit actually
ships to a customer.
Computer-Aided engineering (CAE)
The use of computers to model design options to stimulate their performance.
Computer-Aided Manufacturing (CAM)
Computerized systems in which manufacturing instructions are downloaded to automated
equipment or to operator workstations.
Computer-Integrated Manufacturing (CIM)
A variety of approaches in which computer systems communicate or interoperate over a local-
area network. Typically, CIM systems link management functions with engineering,
manufacturing, and support operations. In the factory, CIM systems may control the sequencing
of production operations, control operation of automated equipment and conveyor systems,
transmit manufacturing instructions, capture data at various stages of the manufacturing or
assembly process, facilitate tracking and analysis of test results and operating parameters, or a
combination of these.
Configuration Excellence
Focuses on establishing and maintaining consistency of a product or service’s performance. It
also looks at the functional and physical attributes of a product with its requirements, design, and
operational information throughout the product’s life.
Confirming Order
A document similar to, or same as a purchase order, which is provided to a supplier as
confirmation of a previous verbal purchase request.
Consignee
The party to whom goods are shipped and delivered. The receiver of a freight shipment.
Consignment
The act of consigning—placing a person or thing in the possession of another, but retaining
ownership until the goods are sold. This may apply to shipping or sale in a store (i.e., a
consignment shop). See also: Consignment Inventor
Consignment Inventory
Goods or product that is paid for when they are sold by the reseller, not at the time they are
shipped to the reseller. 2) Goods or products which are owned by the vendor until they are sold
to the consumer.
Consignor
The party who originates a shipment of goods (shipper). The sender of a freight shipment, usually
the seller.
Consular Invoice
A document, required by some foreign countries, describing a shipment of goods and showing
information such as the consignor, consignee, and value of the shipment. Certified by a consular
official of the foreign country, it is used by the country's custom
Consumer Packaged Goods (CPG)
Consumable goods such as food and beverages, footwear and apparel, tobacco, and cleaning
products. In general, CPGs are things that get used up and have to be replaced frequently, in
contrast to items that people usually keep for a long time, such as cars and furniture.
Container
A "box," typically 10 to 40 feet long, which is primarily used for ocean freight shipments. For travel
to and from ports, containers are loaded onto truck chassis or on railroad flatcars. 2) The
packaging, such as a carton, case, box, bucket, drum, bin, bottle, bundle, or bag, that an item is
packed and shipped in.
Continuous Flow Manufacturing
A production system organized and sequenced according to the steps involved in the
manufacturing process where the product moves seamlessly and continuously through the entire
manufacturing process.
Continuous Improvement (CI)
A structured measurement driven process that continually reviews and improves performance.
Continuous Order Release
A process for releasing orders as soon an order is available, versus releasing all orders in
batches at specific times.
Continuous Replenishment
Continuous Replenishment is the practice of partnering between distribution channel members
that changes the traditional replenishment process from distributor-generated purchase orders,
based on economic order quantities, to the replenishment of products based on actual and
forecasted product demand.
Continuous Replenishment Planning (CRP)
A program that triggers the manufacturing and movement of product through the supply chain
when the identical product is purchased by an end user
Contract Carrier
Carrier engaged in interstate transportation of persons/property by motor vehicle on a for-hire
basis, but under continuing contract with one or a limited number of customers to meet specific
needs.
Contract Line Items Number (CLIN)
Specific items or services separately priced under a contract.
Contract Manufacturing
A relationship where a third party manufactures products that are packaged under another
company's label.
Contract Provisions
Stipulations typically located at the end of the contract document, specifying how the parties to
the contract should govern their relationship and administer the contract.
Contractor
One that agrees to furnish materials or services at a specified price
Contractor Logistics Support (CLS)
A term in performance based logistics which refers to support in which maintenance operations
for a particular military system are performed exclusively by contract support personnel.
Controllable Returns
These are errors or problems caused by the company or a member of the company’s supply
chain and often can be resolved by the company. Example of errors or problems are picking and
packing errors, improper forecasting, product handling, poor quality control and lack of
communication with customers.
Coordinated transportation
Two or more carriers of different modes transporting a shipment.
Costs per Unit Moved
A measure to calculate the cost of moving one unit of product. Calculation [Total Costs to Move
Units] / [Total Number of Units Moved]
Gross Inventory
Value of inventory at standard cost before any reserves for excess and obsolete items are taken.
Gross Margin
The amount of contribution to the business enterprise, after paying for direct-fixed and direct-
variable unit costs, required to cover overheads (fixed commitments) and provide a buffer for
unknown items. It expresses the relationship between gross profit and sales revenue.
Gross National Product (GNP)
A measure of a nation's output; the total value of all final goods and services produced during a
period of time.
Handling Costs
The cost involved in moving, transferring, preparing, and otherwise handling inventory.
Inbound logistics
The management of materials from suppliers and vendors into production processes or storage
facilities.
Less-Than-Truckload (LTL)
Trucking companies that consolidate and transport smaller (less than truckload) shipments of
freight by utilizing a network of terminals and relay points.
Logistics
The process of planning, implementing, and controlling procedures for the efficient and effective
storage of goods, services, and related information from the point of origin to the point of
consumption for the purpose of conforming to customer requirements. This definition includes
inbound, outbound, internal, and external movements.
Logistics Channel
The network of supply chain participants engaged in storage, handling, transfer, transportation,
and communications functions that contribute to the efficient flow of goods
Production Lead Time
The time taken to manufacture or produce an item after an external order has been received until
the item is available for packing.
Reorder Costs
The total cost of placing a repeat order for an item either externally on a supplier or for internal
manufacture. The costs may include elements to cover: order preparation, administration, IT
overheads, correspondence, telephone, transportation, goods inward processing, inspection and
for manufacture, batch set up costs and other production overheads
Reverse logistics
Reverse logistics is for all operations related to the reuse of products and materials. It is "the
process of moving goods from their typical final destination for the purpose of capturing value, or
proper disposal.
Routing
A process of optimizing transport delivery routes to make better use of time and capacity to
reduce overall costs. This type of fleet optimization is generally supported with specialist software
tools
Safety Stock
Safety stock is an additional quantity of an item held in the inventory in order to reduce the risk
that the item will be out of stock, safety stock act as a buffer stock in case the sales are greater
than planned and/or the supplier is unable to deliver the additional units at the expected time.
Sales forecasting
Sales forecasting is the process of estimating future sales. Accurate sales forecasts enable
companies to make informed business decisions and predict short-term and long-term
performance. Companies can base their forecasts on past sales data, industry-wide
comparisons, and economic trends.
Transit Time
The time taken to move goods physically between different locations in a supply chain or laterally
to another facility.
What are Inbound Transportation and its process?
Inbound Transportation - You should choose a logistics management service provider who will
give out quotes for the inbound transportation costs of components - This might include the
delivery of individual components to your production line - For a better price comparison, you
may also ask if they can deal with clients who buy some or all of their components from a
particular supplier - You can look for cost and time frame quotations that you can use to consider
the service provider that is most cost-effective.
What is Out-bound transportation and how it is managed?
Outbound transportation refers to the carriers who meet the customer's needs. Different clients
need various freight and carrier services, and a logistics management service provider should be
able to provide these individual needs. The deal can either be on an over-all operational basis, or
on a per-shipment basis. This provides a comprehensive solution for a company's primary need
for logistics. Choose a logistics management service provider who will provide rate comparisons
from different couriers to meet and handle the customer's goals. The main point here is that you
need to have somebody to handle and ship out your main products in a safe and timely manner.
What are consequences for an organization for NOT having a sound logistic system?
Without great logistic management, your customers might not receive their orders on time. Worse
yet, they might receive the wrong order, due to accounting or tracking errors. All of these
mistakes damage your reputation and a company with a history of poor logistics rarely lasts long.
When you’re competing in a specific niche area, this is a stigma that you simply cannot risk
getting associated with your brand.
What is Logistics Management?
Logistics Management is a component of supply chain management that deals with meeting
customer demands through planning, controlling and implementing efficient movement and
storage of relevant information, goods & services from origin of production to final destination.
What is transportation management?
The transportation management deals with operations related to transportation like tracking and
managing vehicle maintenance, warehousing, fuel management, communications, routing,
mapping, cargo handling and selection activities.
What benefits can be reaped after studying this course?
After studying this course, the students will be able to understand about different functional areas
of Transportation & Logistic Management which are being practiced in manufacturing industries
and the services sector. It includes fulfilling customer demands, ordering and managing
inventory, reducing costs, saving time, controlling inbound and outbound shipments while
meeting the company overall business objectives. The course will equip you with logistic
functions as well as will let you know about different strategies and tactics to achieve business
excellence.
Please tell me what this entire course is about?
This course will give you a comprehensive view of different elements of Transportation & Logistic
Management like physical distribution, inventory management, warehouse management, order
fulfillment, material handling, packaging, customer service, bar codes and transportation modes
will also be discussed in this course.
Constraints and Strengths
 Large carrying
capacity (few size
or weight
constraints).
 Capable of handling
almost any type of
cargo.
 Railroads assume
liability for loss &
damage.
Constraints and Strengths
 Fixed rights-of-way
impedes door-to-
door service.
 Through service
prone to delays in
delivery.
 Relatively high
percentage of
goods damaged in
transit..
Equipment – Types of Rail Car
 Boxcar:
Standardized
roofed freight car
with sliding doors
on the side used for
general
commodities
(plain);
Equipment – Types of Rail Car
 It can be specially
modified
(equipped) for
specialized
merchandise, such
as automobile
parts.
Equipment – Types of Rail Car
 Hopper car: A
freight car with the
floor sloping to one
or more hinged
doors used for
discharging bulk
materials.
Equipment – Types of Rail Car
 Covered hopper: A
hopper car with a
roof designed to
transport bulk
commodities that
need protection
from the elements.
Equipment – Types of Rail Car
 Flatcar:A freight
car with no top or
sides used primarily
for TOFC service,
and movements of
machinery and
building materials.
Equipment – Types of Rail Car
 Refrigerated car: A
freight car with
refrigeration
equipment for
temperature
control.
Equipment – Types of Rail Car
 Gondola: A freight
car with a flat
bottom, fixed sides,
and no top used
primarily for hauling
bulk commodities.
Equipment – Types of Rail Car
 Tank car:
Specialized car used
for the transport of
liquids and gases..
Intermodal Services
 Designed to
increase service
levels to intermodal
customers.
Intermodal Services
 Largely segregated
from regular
freight, with
dedicated
intermodal trains
running on
regularly scheduled
departures and
priority operating
schedules.
Intermodal Services
 Directed to non-
bulk, manufactured
products.
 Competes directly
with truckload (TL)
service, but some
TL carriers are also
major customers.
Intermodal Services
Trailer on Flatcar
 Transports highway
trailers on railroad
flatcars.
 Combines line-haul
efficiencies of rail
with the flexibility
of motor transport.
Intermodal Services
 On-time deliveries,
regularly scheduled
departures, and
fuel efficiency
major reasons for
growth.
Intermodal Services
Container on Flatcar
 Transports shipping
containers on
railroad flatcars.
 Land-bridge
operations key
component of
international trade.
Intermodal Services
 Double-stack
container trains
greatly improves
rail equipment and
train productivity…
Unit Train Services
 Specialized, one
commodity trains
used frequently for
coal and grain
shipments.
 Run on priority
service schedules
from origin to
destination, with no
stops in-transit.
Unit Train Services
 Shippers often own
rail cars.
 Advantage:
Improved overall
car utilization
 Disadvantage:
Empty backhauls
Unit Train Services
 Improved
suspension system
 End-of-car
cushioning devices
 In-car force
instrumentation
packages
 Quality certification
program
Unit Train Services
 Terminal
improvements
 Equipment redesign
 Right-of-way
improvements
 Microprocessors for
communications
and signaling
Unit Train Services
 Elaborate
information and
communication
systems for car
ordering , billing,
and car tracking…
Cost structures: Rail Industry
 Fixed Cost:
 High proportion of
fixed costs
 Right of way
ownerships
 Terminal facilities
(e.g. freight yards,
terminal areas and
sidings)
Cost structures: Rail Industry
 Equipment
(especially
locomotives) and
various types of
rolling stock
Cost structures: Rail Industry
 Semi- Variable Cost:
 Include
maintenance of
rights-of-way,
structures &
equipment
Cost structures: Rail Industry
 Include
maintenance of
rights-of-way,
structures &
equipment
 Necessitated by
exposure to
weather rather
than use.
 Often deferred
during financial
difficulties.
Cost structures: Rail Industry
 Variable Cost:
 Vary substantially
with traffic volume
 Labor cost
 Largest element
 Multiple labor
unions
Cost structures: Rail Industry
 Outdated work
rules
 Fuel and power
costs
 Second largest
 More productive &
fuel efficient
locomotive…
Current Issues
 Given the high fixed
costs, railroads
operate under
conditions of
increasing returns
until capacity is
reached. Per-unit
costs decline as
fixed costs are
spread out over an
increased number
of units.
 Current Issues
 Nature of
railroad work
 Scarce (long hours,
availability 5 away from
 High rates of home & low
Substanc
services supervision)
 Additional
Local e Abuse
 Employee
transit time Drayage 1 assistance
4 programs
 Cost (EAPs)
 Large
disadvantage
 Usually not Small Energy element of
unionized variable
Railroads
 Financial
costs
assistance 2  Important
from local Technolog enablers of
and state
3 y services and
governments operations
Current Issues
 Substance abuse,
energy, technology,
small railroads, and
local drayage…
Development of Airline Industry
 Today, airline travel
is a common form
of transportation
for long-distance
passenger and
 freight travel,
especially when
time is of the
essence.
Development of Airline Industry
 93.1 billion revenue
ton-miles
transported by air
carriers between
June 2013 and May
2014.
 589,151 people
employed in the air
carrier industry in
June 2014.
Development of Airline Industry
 99.2 percent of
total operating
revenue miles came
from passenger
transportation
during August 2013
to July 2014.
 $199.7 billion of
operating revenues
generated by for-
hire air carriers in
2013…
Market Structure of Airline Industry
 A relatively large
number of airline
companies exist,
but a small number
(10) account for
more than 90 % of
the total revenue.
Market Structure of Airline Industry
 Intermodal
Competition
 Limited
competition from
other modes for
long distance (800+
miles) trips in both
passengers and
freight markets.
Market Structure of Airline Industry
 Intramodal
Competition
 Intense
competition among
air carriers in terms
of rates and service
as driven by:
Market Structure of Airline Industry
 New entrants in
selected routes
(markets)
 Market coverage
expansion
 Excess capacity..
Service and Cargo Competition
 Service
Competition
 The frequency and
timing of flights on
a route primary
service
competition.
Service and Cargo Competition
 Advertising used to
differentiate
services (e.g.
amenities, frequent
flyer programs).
 No-frills service
Service and Cargo Competition
 Cargo Competition
 Low transit time
emphasis
 Door-to-door
service through
contracts with
motor carriers, or
through own fleets
of delivery vehicles.
.
Service and Cargo Competition
 Increased
competition from
surface carriers
entering air cargo
business.
 Reduced passenger
travel creates
excess capacity and
increased
competition in
cargo business…
Constraints and Strengths
 High terminal-to-
terminal speed
 Reliability (low
transit time
variation)
 Low rates of
damages
Constraints and Strengths
 Limited
accessibility.
 Reduced frequency
of flights.
 High service rates.
 Added access and
terminal time and
cost significant for
short distances
(under 800 miles)…
Utility of Air carriers
 There are several
different sizes of
airplanes in use,
from small
commuter planes to
huge, wide-body,
four-engine planes
used by the
nationals.
 Example: Delta
Airlines Fleet
Utility of Air carriers
 Government (state
and local) invest
and operate
airports and
airways.
 Certain airports in
the carriers’ scope
of operation
become hubs,
similar to the motor
carrier’s break-bulk
terminal.
Utility of Air carriers
 Air carriers pay for
the use of the
airport through:
 Landing fees
 Rent and lease
payments for space
 Taxes on fuel and
airline tickets
 Aircraft registration
taxes
Utility of Air carriers
 Airport terminals
provide services to
passengers, such as
restaurants,
banking centers,
souvenir and gift
shops, and snack
bars.
 Users pay a tax on
airline tickets and
air freight charges.
Cost Structure for Airline Industry
 Airport and airways
usage fees are
variable in nature.
 Fuel costs (34%) and
labor costs (25%)
are major elements
of operating costs.
 Operating costs
vary by different
types of aircraft
used.
Cost Structure for Airline Industry
 Low fixed-cost
structure is
attributable to
publicly provided
airways and
terminals.
 Cost Structure for Airline Industry

Short-run economies of plane size and utilization are

significant in the air carrier industry.

Economies
of large-scale Economies
Economies
operations of Density
of Scale

 Economies of scale for aircrafts and integrated  Achieved from having

communication network. significant volume between
 The inability to inventory unused seats indicates an origin–destination pair.
existence of economies of scale for aircraft.
 Sufficient demand must exist.
Cost Structure for Airline Industry
 Revenue
management !
Rates for Airline Industry
 Discount Pricing.
The price of seats
on different flights
and the price of the
same seat on a
particular flight can
vary due to:
Rates for Airline Industry
 Competition
 Time and day of
departure/return
 Level of service
(e.g. first class,
coach)
 Advance ticket
purchase
Rates for Airline Industry
 Cargo pricing is
dependent mainly
on weight and/or
cubic dimensions.
Other factors
affecting cargo
rates:
Rates for Airline Industry
 Over-dimensional
charge for low-
density cargo (< 8
cubic ft.)
 Special services
(e.g. armed guards)
Rates for Airline Industry
 Major and national
airlines use a hub
approach to their
service, which
contributes to
operating
efficiency.
Rates for Airline Industry
 Important
measures of
operating efficiency
 Operating ratio =
(Operating Expense
/Operating
Revenue) *100
 Load factor =
(Number of
passengers /Total
number of seats) *
100..
Current Issues for Airline Industry
 Accident rates
 Substance abuse
 Sophisticated
equipment and
programs facilitate
high speed
transport
Current Issues for Airline Industry
 Automated
information
processing
programs
 Air traffic control
system
Current Issues for Airline Industry
 Passenger &
luggage screening,
carry-on limitations,
and screening of
freight carried on
passenger airlines..
Water Carriers Industry
 The first principle
form of long
distance freight and
people transport,
played an
important role in
the early
development of the
United States and
settlements.
Water Carriers Industry
 Continued to be the
most important
and efficient form
of transportation
available until the
railroads were
developed in the
mid-18th century.
Water Carriers Industry
 Today, water
transport remains
viable for the
movement of basic
raw materials, and
plays a primary role
in global commerce
transportation.
 Water Carriers Industry

 The relative importance of water carriers’ in

the US transportation system declined
somewhat over the past decade due to shift
from manufacturing- to a service-based
economy, and a supply chain emphasis on
speed..
Water Carriers Industry
Overview Water Carriers Industry
 Great Lakes
Carriers
 Provide services
between ports on
Great Lakes.
 Lake ships tend to
remain on lakes…
Overview Water Carriers Industry
 Lake ships can
access Atlantic and
Gulf coast ports via
St. Lawrence
Seaway (classified
as a coastal
operation).
Overview Water Carriers Industry
 Coastal Carriers
 Operate ocean-
going ships and
barges along
Atlantic, Pacific, and
Gulf of Mexico
coasts…
Overview Water Carriers Industry
 Move large
quantities of crude
oil from Alaska
ports to refineries
along the Pacific
Coast.
Overview Water Carriers Industry
 Inter-coastal
Carriers
 Operate ocean-
going ships and
barges between
East Coast and
West Coast ports
via the Panama
Canal…
Overview Water Carriers Industry
 Move large
quantities of
petroleum, crude &
refined between
the Atlantic and
Gulf of Mexico.
 Overview Water Carriers Industry

Water Carriers

For-Hire Private

Excempt Regulated

Common Contract
Overview Water Carriers Industry
Water Carriers Industry Market Structure
 The domestic for-
hire water carrier
industry consists of
a limited number of
relatively small
firms.
Water Carriers Industry Market Structure

Rank by Operating Revenues for Hauling Domestic

Freight
Inland (rivers and canals)
1
Coastal
2
Great Lakes
3
Water Carriers Industry Market Structure
 Intermodal
Competition
 Railroad
 Dry bulk
commodities (grain,
ores, coal)
 Focused around
central US river
system and the
Great Lakes
Water Carriers Industry Market Structure
 Pipeline
 Bulk liquids
(petroleum,
chemicals)
 Focused along the
Gulf, Atlantic, and
Pacific coasts.
Water Carriers Industry Market Structure
 Intra-modal
Competition
 Limited degree of
competition
between water
carriers due to the
relatively small
number of carriers
in the industry.
Strength and Constraints
 Strengths:
 Low cost transport
service for large
volumes over
medium to long
distances
 Relatively large
carrying capacity
 Fuel efficient
Strength and Constraints
 Constraints:
 Speed of service
(slowest mode for
dry cargoes)
 Vulnerable to ice,
flood, and drought
conditions
 Accessibility
limitations…
Strength and Constraints
 Packaging
requirements for
high-value goods..
Terminals for Water Carriers
 Ship terminals
require significant
capital investment.
 Most ports and
terminals are
publicly provided
and operated.
Terminals for Water Carriers
 Large bulk
commodity
shippers may own
and operate private
terminals.
 Recent
improvements
focus on the
mechanization of
materials-handling
systems.
Terminals for Water Carriers

Functions

1 Facilitate ship loading and unloading.

2 Facilitate intermodal transfers.

3 Provide temporary storage in port area.

Terminals for Water Carriers
 User charges (lock
fees, dock fees, and
fuel taxes) are
variable in nature.
 Not labor-intensive.
 Major variable
expenses are line-
operating costs,
operating rents,
and maintenance.
Terminals for Water Carriers
 Low fixed-cost
structure can be
attributed in part to
public aid in
construction &
maintenance of
waterways.
 Fixed costs include
depreciation &
amortization and
general expenses..
Transportation Planning and Strategy
 In most
organizations,
responsibility for
transportation
decisions falls to
one or more of the
following
departments:
logistics,
procurement, and
marketing.
Transportation Planning and Strategy
 Inbound
transportation
typically controlled
by the purchasing
department
 Outbound
transportation
typically controlled
by marketing or
logistics
Transportation Planning and Strategy
 Often, this decision-
making structure
leads to missed
opportunities to
generate
transportation
efficiencies and
service
improvements.
Transportation Planning and Strategy
 Terms of sale clarify
the delivery and
payment terms
agreed upon by a
seller and buyer.
Wise selection of
these terms is…
Transportation Planning and Strategy
 critical as the
decision determines
where the buyer’s
responsibilities
begin and where
the seller’s
responsibilities end.
Transportation Planning and Strategy
Transportation Planning and Strategy
Decision to Outsource Transportation
 The organization
with FOB freight
control and
procurement
responsibility must
analyze and choose
between using a…
Decision to Outsource Transportation
 private fleet (the
“make” option) and
using external
service providers to
move freight (the
“buy” option).
Decision to Outsource Transportation
 Private fleet
 A well-run private
fleet can operate at
costs competitive
with for-hire
carriers while
providing greater
scheduling
flexibility and
control over transit
time.
Decision to Outsource Transportation
 Intangible benefits:
Promotional impact
and prestige of
having highly visible
company trucks on
the road
Decision to Outsource Transportation
 For-hire carriers.
Using for-hire
carriers avoids large
capital cost of
starting a private
fleet, time needed
to build
transportation
expertise, and
challenges inherent
in operating a
private fleet.
Decision to Outsource Transportation
 3PLs. Provide a
wide array of
transportation
services: (1)
dedicated contract
carriage, (2) traffic
management…
Decision to Outsource Transportation
 (3) specialized
international freight
3PLs, notably
International
Freight Forwarders
(IFF), Non Vessel-
owning Common
Carriers (NVOCC),
and Customs
Brokers
Decision to Outsource Transportation
Decision to Outsource Transportation
Modal and Carrier Selection
 Carrier Selection
Factors:
 Geographic
coverage
 Transit time
average and
reliability…
Modal and Carrier Selection
 Freight rates
 Equipment
availability and
capacity
 Product protection
 Modal and Carrier Selection

Mode of Transportation
Truck Air Rail Water Pipeline
Accessibility* 1 3 2 4 5

Transit time* 2 1 3 4 5

Reliability* 2 3 4 5 1

Security* 3 2 4 5 1

Cost** 4 5 3 2 1
Modal and Carrier Selection

Modal Selection vs. Carrier Selection

Modal selection
More options Carrier selection
Fewer options

Number of options available

Modal selection
More long-range Carrier selection
More active &
frequent
Frequency of the decision
Modal and Carrier Selection
 Core carrier
strategy.
 Carrier selection
strategy commonly
focuses on
concentrating the
transportation buy
with a limited …
Modal and Carrier Selection
 number of quality
carriers, while
striving to be
carrier-friendly
shippers.
Modal and Carrier Selection
 Advantages
 Helps the
organization
leverage its
purchasing dollars
for lower overall
rates.
 Allows the
company to focus
its attention on
other supply chain
issues.
Modal and Carrier Selection
 Promotes strong
relationships with
the carriers that
produce mutual
understanding of
requirements,
coordination of
processes, and
service
improvement…
Modal and Carrier Selection
 Give a company
priority access to
the carriers’ limited
capacity..
Transportation Control
 Adversarial
Approach
 Seeks to minimize
transportation cost
regardless of the
impact on carrier
financial
performance or
long-term viability
Transportation Control
 Collaborative
Approach
 Focuses on
developing
contracts with
carriers for a
tailored set of
transportation
services at rates
that fairly
compensate the
carriers.
 Transportation Control

Shipment Preparation

Freight Documentation

Maintain In-Transit Visibility

Transportation Metrics

Monitor Service Quality

 Transportation Control

Metric Formula Typical Target

Total on-time deliveries / Total
On-time Delivery > 95%
deliveries
Sum of transit times / Total Low variation
Transit Time Average
deliveries around goal
Total units damaged / Total units
Damage Rate < 1%
shipped
Total units lost or stolen / Total
Shortage Rate < 1%
units shipped
Total accurate freight bills / Total
Billing accuracy > 99%
freight bills
On-Time % × Damage-Free % ×
Perfect Delivery Index > 95%
Billing Accuracy %
Transportation Control
Transportation Control
 Key negotiation
issues: Volume
commitments,
shipment
frequencies, origin–
destination
combinations,
freight
characteristics, and
related cost issues..
Transportation Management System
 Transportation
buyers and
managers leverage
a variety of tools
and technologies to
support supply
chain success. The
carrier community
relies on
technology to
coordinate the flow
of customer freight.
Transportation Management System
 Individual
applications e.g.
load planning
optimization,
freight rating, and
load tendering…
Transportation Management System
 Integrated supply
chain tools e.g.
global trade
management
software, and
transportation
management
systems (TMS)
Transportation Management System
 Routing and load
planning tools
promoting
optimization of
pickup, linehaul,
and delivery…
Transportation Management System
 Dispatching
software facilitating
management of
drivers, in-transit
visibility, &
regulatory
compliance…
Transportation Management System
 Brokerage solutions
helping to match
loads with available
capacity and
transaction
financial manage…
Transportation Management System
 Tracking and
communication
technology
supporting visibility
and control of
freight
 Others e.g. pricing
strategy,
documentation..
Shipment Preparation
 Last-minute, cost-
saving decisions
 consolidate freight
 coordinate
shipment deliveries
 take full advantage
of container
capacity
 an accurate freight
count should be
taken
Shipment Preparation
 Bill of lading
 originates the
shipment
 provides all the
information the
carrier needs
 stipulates the
contract terms,
including carrier’s
liability for loss and
damage
Shipment Preparation
 acts as a receipt for
the goods the
shipper tenders to
the carrier
 in some cases,
shows certificate of
title to the goods
Shipment Preparation
 Freight bill
 carrier’s invoice for
carrier charges
listing:
 shipment
 origin and
destination
 consignee
 items
 total weight
 total charges
Global Location Strategies
 Facility location
affects the
efficiency and
effectiveness of
managing supply
chains & a firm’s
overall competitive
advantage.
Global Location Strategies
 Companies can
locate anywhere in
the world due to
increased
globalization,
technology, faster
transportation,
improved
communication &
open markets.
Global Location Strategies
 Location still
matters- industry
clusters show that
innovation &
competition are
geographically
concentrated.
Global Location Strategies
 Global location
decisions involve
location of the
facility, defining its
strategic role &
identifying the
markets it serves.
Global Location Strategies
 Global location
decisions should
optimize the
performance of the
supply chain and be
consistent with the
firm’s competitive
strategy.
Global Location Strategies
 A firm competing
on cost is likely to
select a location
that provides a cost
advantage.
 A firm that
competes on speed
of delivery, such as
the FedEx Corp.,
uses the hub and
spoke approach to
determine location.
Global Location Strategies
 To get the most out
of foreign-based
facilities, managers
must treat these
plants as having a
strategic role to
perform..
Typical Location Strategies
 Dr. Kasra Ferdows
suggests 6 location
types:
 Offshore factory -
low cost
investment & labor
costs.
Typical Location Strategies
 Source factory -
plant management
involved in supplier
selection &
production
planning.
Typical Location Strategies
 Server factory -
firm uses
government
incentives & low
exchange risk &
tariff barriers to
reduce taxes &
logistics costs.
Typical Location Strategies
 Contributor factory
- firm involved in
product
development,
production
planning,
procurement
decisions, &
developing
suppliers.
Typical Location Strategies
 Outpost factory -
embedded network
of suppliers,
competitors,
research facilities
for materials,
components,
technology &
products.
Typical Location Strategies
 Lead factory - firm
is source of
innovation &
competitive
advantage of the
organization..
Critical Location Factors
 Regional Trade
Agreements (RTA)
& WTO
 World Trade
Organization (WTO)
successor to the
General Agreement
on Tariffs/Trade
(GATT)…
Critical Location Factors
 Only global
international
organization which
deals with the rules
of trade between
nations…
Critical Location Factors
 Goal is to help
producers of goods
and services,
exporters, and
importers conduct
their business
 Has 159 members..
Critical Location Factors
 World Trade
Organization
functions include:
 Administering
agreements
 Forum for trade
negotiations
 Trade disputes…
Critical Location Factors
 Monitor trade
policies
 Aid for developing
countries
 Cooperating with
other International
organizations.
Critical Location Factors
Critical Location Factors
Strategic Network Design
 In the short run, a
firm’s
logistics/supply
chain network and
the locations of its
key facilities are
fixed…
Strategic Network Design
 Site availability,
leases, contracts,
and investments
make changing
facility locations
impractical in the
short run. In the
long run, however,
the design of the
overall network
must be thought of
as variable
Strategic Network Design
Strategic Network Design
 Step 1: Define the
logistics / supply
chain design
process.
 Step 2: Perform a
logistics / supply
chain audit.
 Step 3: Examine
the logistics / supply
chain network
alternatives.
Strategic Network Design
 Step 4: Conduct a
facility location
analysis.
 Step 5: Make
decisions regarding
network and facility
location.
 Step 6: Develop an
implementation
plan.
Pillars of Competitiveness
 Institutions
 Infrastructure
 Macroeconomic
stability
 Health & primary
education
 Higher education &
training
 Goods market
efficiency
Pillars of Competitiveness
 Labor market
efficiency
 Financial market
sophistication
 Technological
readiness
 Market size
 Business
sophistication
 Innovation
Pillars of Competitiveness
 Government Taxes
& Incentives
 Several levels of
government must
be considered
when evaluating
potential locations.
 Countries with high
tariffs discourage
importing goods
into the country.
Pillars of Competitiveness
 High tariffs
encourage
multinational
corporations to
produce locally.
 Many countries
have foreign trade
zones (FTZs) where
materials are
imported duty-free
as inputs to
production.
Pillars of Competitiveness
 Currency Stability
 Impacts business
costs &
consequently
location decisions
Pillars of Competitiveness
 Environmental
Issues
 Environmental
cooperation with
 Global warming, air
pollution, acid rain,
carbon footprint, &
cradle-to-grave
analysis of how
products and
services affect the
environment.
Pillars of Competitiveness
 Access & Proximity
to Markets
 Relocation to China
not just for cheap
labor but for access
to the market
 In the service
industry, proximity
to customers is
even more critical…
Pillars of Competitiveness
 Convenience is a
factor in consumer
choice
 Labor Issues
 Labor availability,
productivity, & skill
 Unemployment &
underemployment
rates…
Pillars of Competitiveness
 Wage rates;
turnover rates;
labor force
competitors
 Employment
trends.
Pillars of Competitiveness
 Access to Suppliers
& Cost
 Supplier proximity
influences the
delivery of
materials &
effectiveness of the
supply chain.
Pillars of Competitiveness
 Utility Availability
& Cost
 Supply of electricity
has not kept pace
with the high speed
of development.
 In heavy industries
the availability &
cost of energy are
critical
considerations..
The Weighted-Factor Rating Model
 Compares the
attractiveness of
several locations
along a number of
quantitative &
qualitative
dimensions. Steps:
 Identify the factors
The Weighted-Factor Rating Model
 Assign weights to
each factor. The
weights sum to 1.
 Determine a score
for each factor.
 Multiply the factor
score by the
weight, then sum
the weighted
scores
The Weighted-Factor Rating Model
 The location with
the highest total
weighted score is
the recommended
location.
The Weighted-Factor Rating Model
The Weighted-Factor Rating Model
Break Even Model
 Useful location
analysis technique
when fixed &
variable costs can
be determined
 Identify the
locations to be
considered.
Break Even Model
 Determine the fixed
cost of land,
property taxes,
insurance,
equipment, &
buildings.
 Determine the unit
variable cost,
materials, utilities,
& transportation
costs.
Break Even Model
 Construct the total
cost lines.
 Determine the
break-even points
on the graph.
 Identify the range
over which each
location has the
lower cost.
Break Even Model
 Three locations
have been
identified as
suitable candidates
for building a new
factory. The fixed
and unit variable
costs for each…
Break Even Model
 of three potential
locations have been
estimated and are
shown in the
following table.
 Break Even Model

Location Annual Fixed Cost Unit Variable Cost

A $500,000 $300
B $750,000 $200
C $900,000 $100
Break Even Model
 Given a forecasted
demand of 3,000
units per year, the
best location can be
found by first,
plotting the three
total cost curves,
represented by
Break Even Model
 TCA = 500,000 +
300Q
 TCB = 750,000 +
200Q
 TCC = 900,000 +
100Q
Break Even Model
Break Even Model
 Next, the break-
even point between
Location A and
Location B is
determined:
 TCA = TCB
 500,000 + 300Q =
750,000 + 200Q
 100Q = 250,000
and then Q = 2,500
units
Break Even Model
 This indicates that
producing less than
2,500 units per year
would be cheaper
at Location A (when
the lower fixed cost
predominates)…
Break Even Model
 while producing
more than 2,500
units per year
would be cheaper
at Location B (when
the lower variable
cost predominates).
Break Even Model
 Next, the break-
even point between
Location B and
Location C is
determined:
 TCB = TCC
 750,000 + 200Q =
900,000 + 100Q
 100Q = 150,000
and then Q = 1,500
units.
Break Even Model
 This indicates that
producing less than
1,500 units per year
would be cheaper
at Location B, while
producing more
than 1,500 units per
year would be
cheaper at Location
C.
Break Even Model
 Finally, the break-
even point between
Location A and
Location C is
determined:
 TCA = TCC
 500,000 + 300Q =
900,000 + 100Q
 200Q = 400,000
and then Q = 2,000
units.
Break Even Model
 This indicates that
producing less than
2,000 units per year
would be cheaper
at Location A, while
producing more
than 2,000 units per
year would be
cheaper at Location
C.
Break Even Model
 Based on the cost
curves shown in
Figure, Location C
has the lowest total
cost when
producing the
forecasted quantity
of 3,000 units per
year.
Break Even Model
 If, however, the
annual demand
forecast was 1,000
units, then Location
A would be
preferred….
Break Even Model
 Location B would
never be the
preferred location
when comparing
the costs of all
three sites
simultaneously..
Business Clusters
 Geographic
concentrations of
interconnected
companies &
institutions in a
particular field.
 Research parks &
special
economic/industrial
zones serve as
magnets for
business clusters.
Business Clusters
 Reasons for
success-
 close cooperation,
coordination, &
trust among
clustered
companies
 fierce competition
among rival
companies…
Business Clusters
 companies recruit
from local skilled
workers
 competitive
environment that
promotes
increasing
innovation and
profitability..
Heuristic Approach: The Grid Technique
 Compute this
concept
mathematically,
finding the ton-mile
center, or center of
mass, as follows:
Heuristic Approach: The Grid Technique
Heuristic Approach: The Grid Technique
 Incorporate the
transportation rates
of different
products, using this
modification as
follows:
Heuristic Approach: The Grid Technique
Heuristic Approach: The Grid Technique
 Advantages
 The grid
technique’s
strengths are in its
simplicity and its
ability to provide a
starting point for
location analysis.
Heuristic Approach: The Grid Technique
 The grid technique
also provides a
starting point for
making a location
decision.
 Limitations
 It is a static
approach, and the
solution is optimum
for only one point
in time.
Heuristic Approach: The Grid Technique
 The technique
assumes linear
transportation
rates, whereas
actual
transportation rates
increase with
distance but less
than
proportionally…
Heuristic Approach: The Grid Technique

 The technique does

not consider the
topographic
conditions..
The Grid Technique Example
The Grid Technique Example
The Grid Technique Example
The Grid Technique Example
The Grid Technique Example
The Grid Technique Example
Guidelines for Heuristic Approach
 Typical of many
single truck routing
problems from a
single depot.
 Mathematically, a
complex problem
to solve efficiently.
Guidelines for Heuristic Approach

 However, good
routes can be found
by forming a route
pattern where the
paths do not cross -
a "tear drop"
pattern
Guidelines for Heuristic Approach

D D
Depot Depot
(a) Poor routing-- (b) Good routing--
paths cross no paths cross
 Guidelines for Heuristic Approach

2. Stops on different days should be arranged to

produce tight clusters

F T F T
F T T T F F T T
F F
F T T T
F T F F
F T
Stop T T
F F
D D
Depot Depot
(a) Weak clustering-- (b) Better clustering
routes cross
Guidelines for Heuristic Approach

 3. Build routes
beginning with the
farthest stop from
the depot
 4. The stop
sequence on a
route should form a
teardrop pattern
(without time
windows)
Guidelines for Heuristic Approach
 5. The most
efficient routes are
built using the
largest vehicles
available first
 6. Pickups should
be mixed into
delivery routes
rather than
assigned to the end
of the routes
Guidelines for Heuristic Approach
 7. A stop that is
greatly removed
from a route cluster
is a good
candidate for an
alternate means of
delivery
 8. Narrow stop time
window restrictions
should be avoided
(relaxed)
Guidelines for Heuristic Approach

 A problem similar
to the single-vehicle
routing problem
except that a
number of
restrictions are
placed on the
problem. Chief
among these are:
Guidelines for Heuristic Approach

 A mixture of
vehicles with
different capacities
 Time windows on
the stops
 Pickups combined
with deliveries
 Total travel time for
a vehicle
Guidelines for Heuristic Approach
 Heuristic solution
“Sweep” Method
 “Savings” Method
“Sweep” Method for VRP
 Example A trucking
company has
10,000-unit vans for
merchandise pickup
to be consolidated
into larger loads for
moving over long
distances…
“Sweep” Method for VRP
 A day’s pickups are
shown in the figure.
How should the
routes be designed
for minimal total
travel distance?
 “Sweep” Method for VRP

Geographical Pickup
region 1,000
points
4,000
2,000
3,000
2,000

3,000 3,000

2,000 Depot
1,000
2,000
2,000
2,000
 “Sweep” Method for VRP
Sweep direction
is arbitrary
Route #3
Route #1 1,000 8,000 units
10,000 units
4,000
2,000
3,000
2,000
3,000 3,000

2,000 Depot
1,000
2,000
2,000
2,000
Route #2
9,000 units
“Sweep” Method for VRP
The “Savings” Method for VRP
 The points that
offer the greatest
savings when
combined on the
same route are
those that are
farthest from the
depot and that are
closest to each
other.
 The “Savings” Method for VRP
Stop
dA,0
A d0,A
A
d0,A dA,B
0 d0,B 0
Depot Depot dB,0 B
dB,0 B

Stop

(a) Initial routing (b) Combining two stops on a route

Route distance = d0,A +dA,0 +d 0,B + dB,0 Route distance = d 0,A +dA,B +dB,0

“Savings” is better than “Sweep”

method—has lower average error
The “Savings” Method for VRP
 This is a good
principle
 for constructing
multiple-stop
Routes..
Route Sequencing in VRP
 Combine small
shipments into
larger ones
 A problem of
balancing cost
savings against
customer service
reductions
Route Sequencing in VRP
 An important area
for cost reduction
in many firms
 Based on the rate-
shipment size
relationship for for-
hire carriers
Route Sequencing in VRP
 An important area
for cost reduction
in many firms
 Based on the rate-
shipment size
relationship for for-
hire carriers
 Route Sequencing in VRP

AM PM
8 9 10 11 12 1 2 3 4 5 6
Route #1 Route #10 Route #6
Truck #1

Route #9 Route #4
Truck #2

Route #5 Route #8
Truck #3

Route #2 Route #7
Truck #4

Route #3
Truck #5
Minimize number of trucks
by maximizing number of routes
handled by a single truck
Route Sequencing in VRP
Freight Consolidation Analysis
 Suppose we have
the following
orders for the next
three days.
 Consider shipping
these orders each
day or
consolidating them
into one shipment.
Suppose that we
know the transport
rates.
 Freight Consolidation Analysis

From:
Ft Worth Day 1 Day 2 Day 3
To: Topeka 5,000 lb. 25,000 lb. 18,000 lb.
Kansas City 7,000 12,000 21,000
Wichita 42,000 38,000 61,000
 Freight Consolidation Analysis

Day 1 Day 2
Rate x volume = cost Rate x volume = cost
Topeka 3.42 x 50 = $171.00 1.14 x 250 = $285.00
Kansas City 3.60 x 70 = 252.00 1.44 x 120 = 172.80
a
Wichita 0.68 x 420 = 285.60 0.68 x 400 = 272.00
Total $708.60 Total $729.80
a Ship 380 cwt., as if full truckload of 400 cwt.
Day 3
Rate x volume = cost Totals
Topeka 1.36 x 180 = $244.80 $700.80
Kansas City 1.20 x 210 = 252.00 676.80
Wichita 0.68 x 610 = 414.80 972.40
Total $911.60 $2,350.00
 Freight Consolidation Analysis

Consolidated shipment
Day 3
Rate x volume = cost
a
Topeka 0.82 x 480 = $393.60
Kansas City 0.86 x 400 = 344.00
Wichita 0.68 x 1410 = 958.80
Total $1,696.40
a 480 = 50 + 250 + 180
Cheaper, but what about
the service effects of holding
early orders for a longer time
to accumulate larger shipment
sizes?
Freight Consolidation Analysis
Minimum Spanning Tree
 This problem arises
when all the nodes
of a given network
must be connected
to one another,
without any loop.
Minimum Spanning Tree
 The minimal
spanning tree
approach is
appropriate for
problems for which
redundancy is
expensive, or the
flow along the arcs
is considered
instantaneous.
 Minimum Spanning Tree

North University
3 50
Side 5
Business
District 39
West 3 4
Side 4 45
1
8
35
City 2 6 East
41 Shopping
Center Side
Center

7 South
Side
 Minimum Spanning Tree

50 University
3 5
North Side Business
District 39
34 4
West Side
45
1
8
35
City 2 6
Shopping East Side
Center 41
Center

Total Cost = $236 million

7 South Side
Minimum Spanning Tree
Distribution Functionality
 Distribution Facility
Functionality
 Accumulation
 Sortation
 Allocation
 Assortment
Distribution Functionality
 Distribution
Tradeoffs
 Cost of distribution
centers and
inventory vs. cost
of transportation
 Cost of additional
facilities vs. level of
customer service
 Space vs.
equipment
Distribution Functionality
 Equipment vs.
people
 People vs. space
Distribution Functionality
Distribution Functionality
Distribution Functionality
Value Adding Role of Distribution Operations
 Light assembly
services
 Inventory
management and
visibility
 Product kitting,
bundling, and
unbundling
 Product
postponement
Value Adding Role of Distribution Operations
 Production
sequencing
 Quality control
 Recycling, repair,
and returns
management
Value Adding Role of Distribution Operations
Value Adding Role of Distribution Operations
Key Distribution Tradeoffs
 Functional
Tradeoffs
 How to best
balance customer
service and costs.
 Warehouse
 Transportation
 Inventory
 Customer service
Key Distribution Tradeoffs
 Facility-Level
Tradeoffs
 How to best
balance financial
and performance.
 Space
 Equipment
 People
Key Distribution Tradeoffs
Key Distribution Tradeoffs
 Space vs.
Equipment.
 The larger the
facility and the
more space used
for distribution
operations, the
more equipment
will be needed in
the facility.
Key Distribution Tradeoffs
 People vs. Space.
The larger the
facility workforce,
the larger the
facility size and
throughput
possible.
Key Distribution Tradeoffs
 Equipment vs.
People.
 The greater the use
of equipment to
automate materials
handling and
distribution activity,
the lower the labor
requirements of a
facility..
Distribution Challenges
 Labor availability
 Nature of DC
operations work
creates ongoing
turnover challenge
 Smaller labor pool
due to aging
demographic trend
in Europe and the
United States. ..
Distribution Challenges
 Solution: DC
automation
Distribution Challenges
 Demand variation
 Seasonal demand
creates challenges
in effectively
utilizing the space
and equipment
resources and
retaining labor
throughout the
year.
Distribution Challenges
 Solution: Balancing
the DC
requirements of
seasonal products
with products that
have alternate
primary selling
seasons and/or
stable year-round
demand products.
Distribution Challenges
 Increasing
customer
requirements
 Growth in
additional
capabilities and
services. ..
Distribution Challenges
 Lean strategies
creating
expectation of
smaller, more
frequent, and faster
fulfillment of
orders.
 Solution: Flexible
fulfillment
processes..
Distribution Planning and Strategy
 Distribution
strategies should
tailor to products
being handled,
customer
requirements, and
available internal
expertise and
resources…
Distribution Planning and Strategy
 A series of
interrelated
planning decisions
must be made to
ensure that the
strategy can be
executed at a
reasonable cost
while supporting
supply chain
demands.
 Distribution Planning and Strategy

Network Design
• Product Issues • Size of operations
attributes • Interior layout
• Flow • Inventory positioning
• Product location
requirements • Number of facilities
• Roles to be • Location of facilities
fulfilled • Facility ownership
Capability Facility
Requirements Considerations

Strategic Tactical
Planning Planning
Distribution Planning and Strategy
 Capability
requirements
 Product
characteristics e.g.,
product value,
durability,
sensitivity,
obsolescence, and
volume must drive
the design of the
distribution
process.
Distribution Planning and Strategy
 Two options for
product flow:
 Direct shipment of
goods
 from the
manufacturer to
retailer
 from the retailer to
consumer…
Distribution Planning and Strategy
 Movement of
goods through
distribution
facilities to
customers…
Distribution Planning and Strategy
 Must analyze the
inventory,
transportation, and
service trade offs
before choosing
between direct
shipping and the
use of distribution
facilities..
Distribution Design Issue
 Inventory
positioning focuses
on the issue of
where inventory is
located within the
supply chain
 Single location
 Multiple customer-
facing positions
Distribution Design Issue
 Inventory
positioning focuses
on the issue of
where inventory is
located within the
supply chain
 Single location
 Multiple customer-
facing positions.
Distribution Design Issue
 Number of facilities
needed for a supply
chain involves the
evaluation of cost
tradeoffs with
other functional
areas:
Distribution Design Issue
 Transportation
costs
 Cost of lost sales
 Warehousing costs
 Inventory costs
Distribution Design Issue
 Own or contract?
 Private DCs are
internal facilities
owned by the
organization
 Public warehousing
is the traditional
external
distribution
option…
Distribution Design Issue
 Contract
warehousing is a
customized version
of public
warehousing in
which an external
company provides a
combination of
distribution…
Distribution Design Issue
 Facility
Considerations
 First facility
consideration is to
determine the size
of each operation
within the
network…
Distribution Design Issue
 An area may be
needed for
processing rework
and returns
 Office space is
needed for
administrative and
clerical activities
 Space must be
planned for
miscellaneous
requirements..
Distribution Tradeoffs
Distribution Tradeoffs
Distribution Tradeoffs
Distribution Tradeoffs
Distribution Tradeoffs
Distribution Tradeoffs
Distribution Layout Principles
 Product-Handling
Functions
 Receiving –
transferring goods
into facility
 Put away – moving
goods into storage
locations…
Distribution Layout Principles
 Order picking –
selecting goods for
customers
 Replenishment –
moving product
from storage
locations to picking
slots…
Distribution Layout Principles
 Shipping – loading
goods for delivery
 Support Functions
 Inventory control
 Safety,
maintenance, and
sanitation.
Distribution Layout Principles
 Support Functions,
Security
 Performance
analysis
 Information
technology
Distribution Layout Principles
Distribution Layout Principles
Distribution Metrics
 Customer Facing
Measures
 Order accuracy and
order completeness
 Customers want to
receive the exact
products and
quantities that
they…
Distribution Metrics
 ordered, not
substitute items,
incorrectly shipped
items, or wrong
quantities
 Timeliness is a
critical component
of customer
service…
Distribution Metrics
 Perfect order index
(POI)
 Perfect order index
(POI)
 Delivered to the
right place
 at the right time…
Distribution Metrics
 in defect-free
condition
 with the correct
documentation,
pricing, and
invoicing.
Distribution Metrics
 Internal Measures
 Distribution cost
efficiency
 Aggregate cost
efficiency
 Total distribution
spending versus
goal or budget…
Distribution Metrics
 Asset utilization
 Resource
productivity
 Distribution costs
averaging nearly 10
percent of a sales
dollar
 Resource efficiency.
Distribution Metrics
 Asset utilization
 Resource
productivity
 Distribution costs
averaging nearly 10
percent of a sales
dollar
 Resource efficiency.
Distribution Metrics
Distribution Metrics
Distribution Metrics
Warehousing
 Part of firms
logistics system
that stores
products at and
between point of
origin and point of
consumption…
Warehousing
 Term
“Warehousing” is
referred as
transportation at
zero miles per hour
Warehousing
 Warehousing
provides time and
place utility for raw
materials, industrial
goods, and finished
products, allowing
firms to use
customer service as
a dynamic value-
adding competitive
tool.
Warehousing
 The warehouse is
where the supply
chain holds or
stores goods.
 Functions of
warehousing
include:
Warehousing
 Transportation
consolidation
 Product mixing
 Docking
 Service
 Protection against
contingencies..
Warehouse Management Systems
 Software control
system that
improves product
movement and
storage operations
 Value-added
capabilities
 Generate
performance
reports…
Warehouse Management Systems
 Support paperless
processes
 Enable integration
of materials
handling equipment
 Picking systems
 Sorting systems
 Leverage wireless
communication.
Warehouse Management Systems
 Automatic
Identification Tools
 Technologies
helping machines
identify objects.
 Barcode scanners
 Mobile computers
 Wireless local area
networks (LAN)
 RFID
Warehouse Management Systems
 Fulfillment support
functions provide
coordination
between key
processes and
across the supply
chain,…
Warehouse Management Systems
 protect the
organization’s
inventory
investment, and
improve working
conditions within
the facility..
TYPE OF WAREHOUSING
 Public Warehousing
 Private
Warehousing
 Contract
Warehousing
 Multi-client
Warehousing
 TYPE OF WAREHOUSING
RECEIVING
INPUT •Schedule Carrier
•Unload Vehicle
•Inspect for damage

Put-away
WAREHOUSE PROCESS Storage
•Equipment
•Identify Product
•Stock Location
•Identify Product Location
– Popularity
•Move Products
– Unit Size
•Update Records
– Cube
Shipping Preparation Order Picking
•Packing •Information
•Labeling •Walk & Pick
•Stacking •Batch Picking

Shipping
•Schedule Carrier
•Load Vehicle OUTPUT
•Bill of Loading
•Record Update
TYPE OF WAREHOUSING
 Provide timely
customer service.
 Keep track of items
so they can be
found readily &
correctly.
TYPE OF WAREHOUSING
 Minimize the total
physical effort &
thus the cost of
moving goods into
& out of storage.
 Provide
communication
links with
customers..
Design Consideration
 Provide timely
customer service.
 Keep track of items
so they can be
found readily &
correctly…
Design Consideration
 Minimize the total
physical effort &
thus the cost of
moving goods into
& out of storage.
 Provide
communication
links with
customers…
Design Consideration
Design Consideration
Design Consideration

Use one-story facilities

Move goods in a straight

line

Use efficient materials-

handling equipment

Use an effective storage

plan

Minimize aisle space

Use maximum height of

the building
Design Consideration
Warehouse Activities
 Receive goods
 Identify the goods
 Dispatch goods to
storage
 Hold goods
 Pick goods
 Marshal shipment
 Dispatch shipment
 Operate an
information system
Warehouse Activities
 Receive goods
 Accepts goods from
 Outside
transportation or
attached factory &
accepts
responsibility…
Warehouse Activities
 Check the goods
against an order &
the bill of loading
 Check the
quantities
 Check for damage
& fill out damage
reports if necessary
 Inspect goods if
required
Warehouse Activities
 Identify the goods
 items are identified
with the
appropriate stock-
keeping unit (SKU)
number (part
number) & the
quantity received
recorded
Warehouse Activities
 Dispatch goods to
storage
 goods are sorted &
put away
 Hold goods
 goods are kept in
storage & under
proper protection
until needed
Warehouse Activities
 Pick goods
 goods are sorted &
put away
 Marshal the
shipment
 goods are kept in
storage & under
proper protection
until needed
Warehouse Activities
 Pick goods
 goods are sorted &
put away
 Marshal the
shipment
 goods are kept in
storage & under
proper protection
until needed..
Public Warehouses
 Breakbulk -
shipments are
broken down &
items are combined
into specific
customer orders.
 Repackaging
 Assembly
 Incoming &
outgoing quality
inspections.
Public Warehouses
 Material handling,
equipment
maintenance, &
documentation
services
 Short and long-term
storage
Public Warehouses
 Pro- Provides
flexibility &
investment cost
savings
 Con- Lack of
control..
Private Warehouses
 Advantages
 Reduces the
purchasing and
transportation cost
 Offers greater
control of service
 Provides better
workforce
utilization
Private Warehouses
 Take advantage of
cheaper sources of
supply or labor
 Can generate
income & tax
advantages
through leasing of
excess capacity
&/or asset
depreciation
Private Warehouses
 Disadvantages
 Financial risk & loss
of flexibility
 Binds firms to
locations that may
not prove optimal
 Insurance
companies do not
like insuring goods
in private
warehouses..
Risk Pooling & Warehouse Location
 As number of
warehouses
increases, system
becomes more
decentralized.
Responsiveness &
delivery service
increase
Risk Pooling & Warehouse Location
 Warehousing
operating &
inventory costs also
increase. Trade-off
between costs &
customer service
must be considered
Risk Pooling & Warehouse Location
 Risk Pooling
 Describes the
relationship
between the # of
warehouses,
inventory, &
customer service
 Risk pooling is
estimated by
square-root rule
 Risk Pooling & Warehouse Location

– square-root rule
N1
S2  * S1
N2

Where: S1 = Total system stock for the N1 warehouses

S2 = Total system stock for the N2 warehouses
N1 = # of warehouses in the existing system
N2 = # of warehouses in the proposed system
Risk Pooling & Warehouse Location
Warehouse Centralization
 Safety stocks and
average inventory
levels decrease.
 Delivery lead times
increase, increasing
the risk of late
deliveries to
customers.
Warehouse Centralization
 Customer service
levels provided by
the warehouses’
suppliers are likely
to increase,
reducing the
likelihood of
stockout.
Warehouse Centralization
 Outbound
transportation
costs increase, as
LTL shipments must
travel farther to
reach customers.
Inbound
transportation
costs decrease.
 Warehouse capital
and operating costs
decrease.
Warehouse Centralization
 Market-positioned
strategy -
warehouses close
to customers to
maximize
distribution services
& improve transp.
economies of scale
Warehouse Centralization
 Product positioned
strategy - close to
supply source for
firm to collect
goods &
consolidate…
Warehouse Centralization
 Intermediately
positioned strategy
- midway between
supply source &
customers when
distribution
requirements are
high & product
comes from various
locations..
Lean Warehousing
 Emphasis on
warehousing to
support responsive
operations:
 Commitment to
customers & service
quality
Lean Warehousing
 Reduced lot sizes &
shipping quantities
 Emphasis on cross
docking
 Increased
automation
 Increased assembly
operations
 Tendency to be
green..
Third Party Logistics (3PL)
 Provide reliable &
timely delivery
required by SCM
 Used to move items
into foreign
locations effectively
 Favored by small
businesses
Third Party Logistics (3PL)
 Some firms
outsource all of
their logistics needs
to a lead logistics
provider or fourth
party logistics
provider (4PL)
Third Party Logistics (3PL)
 Provide services,
including network
optimization, light
manufacturing, and
other value-added
services…
Third Party Logistics (3PL)
 Many firms
outsource logistics
needs to allow
more attention
placed on core
competencies
 Demand for 3PL
services is growing
rapidly..
Other Intermediaries
 Freight forwarder –
consolidate LTL
shipments into FTL
 Freight,
transportation, or
logistic brokers
bring shippers and
carriers together
Other Intermediaries
 Shippers’
associations –
nonprofit
cooperatives which
arrange for
members’ shipping
Other Intermediaries
 Intermodal
marketing
companies –
purchase blocks of
rail capacity and sell
it to shippers..
Environmental Sustainability in Logistics
 Reduction of empty
miles to reduce
carbon emissions
by ensuring trucks
move loaded rather
than empty.
Environmental Sustainability in Logistics
 SmartWay
certification
program reduces
transportation
emissions and
improves supply
chain efficiency.
Environmental Sustainability in Logistics
 The Coalition for
Responsible
Transportation
(CRT), work in
partnership with
U.S. ports to
implement clean
truck programs that
are environmentally
and economically
sustainable..
Reverse Logistics
 Backwards flow of
goods from
customers in SC
when goods are
returned by a
customer in the
supply chain
 Retail returns range
6% to 10% of sales.
Reverse Logistics
 Online returns
range 20% to 30% of
sales
 Returns are
increasing, because
of the growth of
online shopping…
Reverse Logistics
 Returns can have a
direct negative
impact on the
environment,
customer service,
the firm’s
reputation, and
profitability
Reverse Logistics
 Impact of Reverse
Logistics on the
Supply Chain
 Poor reverse
logistics system can
affect the entire
supply chain
financially
Reverse Logistics
 Can have a large
impact on how
consumers view a
product brand
 Problems include:
 inability of systems
to handle returns…
Reverse Logistics
 lack of worker
training in reverse
logistics procedures
 little or no
identification on
returned
packages…
Reverse Logistics
 inadequate
inspection and
testing of returns
 placing of
potentially
damaged returned
products into sales
stocks..
Reverse Logistics
 Green reverse
logistics programs -
These programs
reduce
environmental
impact on landfills
& deal with
dangerous
contaminants…
Reverse Logistics
 Reverse logistics
can have a positive
impact on the
environment
through activities
such as recycling,
reusing materials
and products, or
refurbishing used
products..
Overview of Service Response Logistics
 Many services are
pure services,
offering few or no
tangible products
to customers (e.g.,
lawyers &
entertainers)
Overview of Service Response Logistics
 Others may have
end products with a
larger tangible
component (e.g.,
restaurants & repair
facilities)
 Customers are
often involved in
the production of
the service
Overview of Service Response Logistics
 Services may
provide state utility
- they do something
to things owned by
the customer (e.g.,
store supplies &
provide healthcare)
Overview of Service Response Logistics
 Developed
countries are
become
increasingly service
oriented
 The important role
services play in the
global economy is
becoming more
evident today
Overview of Service Response Logistics
 Services cannot be
inventoried
 Services are often
unique (e.g.,
Insurance policies &
legal services
Overview of Service Response Logistics
 Services have high
customer-service
interaction
 Services are
decentralized due
to inability to
inventory &
transport service
products..
Service Productivity
 The following
formula shows the
basic measure of
productivity:

Productivity =
• Outputs produced/ Inputs
used
Service Productivity
 Outputs produced
(ex. sales amount)
 Inputs (single factor
productivity) (ex.
labor hours)
 Inputs (multiple-
factor productivity)
(ex. labor, material,
energy, & capital)
Service Productivity
 Baumol’s disease –
productivity growth
in services is low
Service Productivity
 The Walmart Effect
– the booming
growth in
information
technology has
allowed many big-
box retailers to
realize large
productivity growth
rates
Service Productivity
 Improving service
productivity is
challenging due to –
 High labor content
 Individual
customized services
 Difficulty of
automating services
 Problem of
assessing service
quality
Global Services Issues
 Global services are
increasing all over
the world and
managing them
involves a number
of issues –
Global Services Issues
 Labor, facilities, &
infrastructure
support
 Legal & political
issues: Laws may
restrict foreign
competitors…
Global Services Issues
 Domestic
competitors & the
economic climate:
Managers must be
aware of local
competition and
current state of the
economy
 Identifying global
customers..
Service Strategy Development
 Cost Leadership
Strategy
 Requires large
capital investment
in state-of-the art
equipment &
significant efforts
to control & reduce
costs
Service Strategy Development
 Differentiation
Strategy
 Unique service is
created as
companies listen to
customers
 Focus Strategy
 Serve a narrow
niche better than
other firms
Service Strategy Development
 Bundle of
attributes (the
combination of) –
 Explicit services (ex.
storage & use of
your money)
 Supporting facility
(ex. bank w/drive-
up tellers)…
Service Strategy Development
 Facilitating goods
(ex. deposit forms,
monthly
statements),
 Implicit services
(ex. security
provided, the
atmosphere in the
bank, privacy, &
convenience…
Service Strategy Development
 Service delivery
systems (a
continuum) with
mass produced,
low-customer
contact systems at
one end & highly
customized, high-
customer-contact
systems at the
other…
Service Strategy Development
 Front-of-the-house
staff tend to be
customer centric
 Back-of-the-house
staff generally do
not contact
customers
 The service system
should be audited
often to assess
performance..
Service Location & Layout Strategies
 Location Strategies
 Have significance
on customer visits
& long term
monetary impact
on the company
Service Location & Layout Strategies
 Viewed as a
moderate- to long-
term decision
because of high
costs of
construction,
remodeling, and
relocation
 Decision should
consider relevant
factors & reduce
intuitive decisions
Service Location & Layout Strategies
 Layout Strategies –
 Service layout
strategies tend to
be
departmentalized
to allow specialists
to share
resources…
Service Location & Layout Strategies
 Departmental
Layouts to Reduce
Distance Traveled –
ex. A health care
clinic…
Service Location & Layout Strategies
 Departmental
Layouts to
Maximize Closeness
Desirability - A
closeness
desirability rating
between
departments used
to design a layout
that maximizes a
rating for the entire
office..
Service Location Example
Service Location Example
 Service Location Example

To analyze the existing layout, the total distance traveled

per day is calculated as follows:

Total distance traveled =

Where n = number of departments

i,j = individual departments
Tij = number of trips between departments i and j
Dij = distance from department i to department j

The objective is to find the layout resulting in the

lowest total distance travelled per day.
 Service Location Example
For the layout shown on prior slide, we find:
Total distance traveled per day = 55(20) + 50(60) + 40(20)
+ 15(20) + 40(40) + 15(10) + 60(20) + 10(20) + 30(20) +
18(10) = 9,130 meters

The nursing station should be closer to the lobby and

waiting area, exam rooms, doctors’ offices. Need to
switch departments E and D (nurses and lab/x-ray).

This creates a trade-off, since departments C, B and A will

be farther from department D. To calculate the new total
distance travelled per day, the distance table must be
modified. The asterisks denote changes made to the
table.
Service Location Example
 Service Location Example

The new total distance can then be calculated as

follows:
Total distance traveled per day = 55(20) + 50(40) +
40(20) + 15(40) + 40(20) + 15(20) + 60(10) + 10(20) +
30(20) + 18(20) = 7,360 meters

This is a better layout (not necessarily the best) and

only one of a large number of potential layouts.
Service Location Example
Service Location Another Example
Service Location Another Example
 Service Location Another Example
The desirability ratings are based on a (–1 to 3)
scale, where –1=undesirable, 0=unimportant,
1=slightly important, 2=moderately important and
3=very important.
To calculate the score for the layout on the prior
slide, we count the closeness desirability score only
when departments are adjacent to each other.
For existing layout:
Closeness desirability score = (A/B:2) + (A/H:-1) +
(A/G:3) + (B/C:0) + (B/H:3) + (C/F:0) + (C/D:2) +
(D/E:1) + (D/H:3) + (E/F:3) + (G/H:0) = 16 points
 Service Location Another Example
To find a better layout, place the department pairs with
a rating of 3 adjacent to each other, and place adjacent
pairs with a rating of –1 such that they are not adjacent.
For instance, the file room (F) could be moved adjacent
to the copy room (G), and the conference room (H)
could be moved farther away from the secretary and
waiting area (A).
 Service Location Another Example

The closeness desirability score for the new layout shown

above would then be:
= (A/B:2) + (A/F:2) + (A/G:3) + (B/C:0) + (B/H:3) + (B/F:1) + (C/D:2)
+ (C/E:2) + (C/H:1) + (D/E:1) + (E/H:2) + (H/F:1) + (F/G:3) = 23
points. On the basis of this analysis, it can be concluded that
the second layout is better.
Service Location Another Example
 Service firms
interact closely with
their customers..
Service Quality and Customers
 The perceived level
of quality a
customer
experiences with
regard to the
service is of
paramount concern
to most services.
Service Quality and Customers
 Today elements of
service quality may
include
sustainability. Being
”green” allows a
firm to stand out.
Service Quality and Customers
Service Quality and Customers
Service Response Logistics (SRL)
 The management
and coordination of
the organization’s
service activities
 The four primary
activities of SRL –
Service Response Logistics (SRL)
 Managing Service
Capacity
 Managing Queue
Times
 Managing
Distribution
Channels
 Managing Service
Quality..
Managing Service Capacity
 Service capacity is
the number of
customers per day
the firm’s service
system is designed
to serve
Managing Service Capacity
 When demand
exceeds capacity,
firms turn away
customers, create
wait line, or hire
personnel
 Hiring, training,
supervising, &
equipping
personnel is costly
(≈ 75% of ops.
costs)…
Managing Service Capacity
 Therefore, service
managers must
forecast demand &
provide capacity to
meet the forecast
demand.
Managing Service Capacity
Managing Service Capacity
 Optimal capacity
utilization should
be about 75%
 This leaves some
level of capacity
unutilized..
Service Capacity Strategies
 Two most basic
strategies for
managing capacity
 Level demand
strategy
 Capacity remains
constant regardless
of demand….
Service Capacity Strategies
 When demand
exceeds capacity,
queue management
tactics deal with
excess customers
 Chase demand
strategy
 Capacity varies with
demand
Service Capacity Strategies
 Capacity
Management when
Demand exceeds
Capacity
 To minimize the
cost of hiring and
laying off
employees, the
following strategies
deal with periods of
high demand…
Service Capacity Strategies
 Cross-Training &
Sharing Employees
 Using part-Time
Employees
 Using Customers-
Self-service
 Using Technology…
Service Capacity Strategies
 Using Employee
Scheduling Policies
 Using demand
management
techniques to
smooth or shift
demand
Service Capacity Strategies
 Capacity
Management when
Available Service
Capacity exceeds
Demand
 Instead of disposing
of excess capacity,
the following
strategies deal with
low demand…
Service Capacity Strategies
 Finding other uses
for service capacity
 Using demand
management
techniques –
(stimulate demand)
Managing Queue Times
 Consists of the
management of
actual waiting time
& perceived waiting
time
 What is the average
arrival rate of the
customers?
 In what order will
customers be
serviced?
Managing Queue Times
 What is the average
service rate of
providers?
 How are customer
arrival & service
times distributed?
 How long will
customers wait
before they either
leave or lower their
perceptions of
service quality?
Managing Queue Times
 How can customers
wait even longer
without lowering
their perceptions of
service quality?
 Managing Queue Times

Queuing System Design – The input process

–Poisson distribution is often used to model
customer arrival

Where λ = average customer arrivals in time period T

e = 2.71828 (natural log base)
x = number of arrivals
Managing Queue Times
Managing Queue Times Example
 Jay’s Quick Lube
Shop can service an
average of four cars
per hour with a
partial crew of
three employees,
and the owner Jay
is interested in
calculating the…
Managing Queue Times Example
 probability they can
handle all the
customers on
Saturdays with the
partial crew,
instead of his usual
full crew of five.
Managing Queue Times Example
 Given an average
arrival rate of three
customers per hour
on Saturdays, he
uses the Poisson
distribution to
calculate the
probabilities of
various customer
arrivals per hour,
Managing Queue Times Example
Managing Queue Times Example
 By summing the
probabilities for
each of the arrival
levels, Jay figures
that he can handle
the demand per
hour approximately
82% of the time.
Managing Queue Times Example
 Conversely, he
figures that
approximately 18%
of the time,
demand per hour
will be greater than
four customers,
causing queues to
develop..
Queuing System Design
 Queue
Characteristics
 Queuing models
assume infinite
length of a queue
 Queuing
configuration can
contain single or
multiple lines
Queuing System Design
 Queue discipline
describes the order
in which customers
are served
 Virtual queues -
Customers’ places
in queue are
tracked by a…
Queuing System Design
 computerized
system allowing
them to roam the
premises until
signaled by a device
Queuing System Design
 computerized
system allowing
them to roam the
premises until
signaled by a device
Queuing System Design
 Service
Characteristics
 Provided either by
single server or by
multiple servers
who act in series or
in parallel
Queuing System Design
 Multiple servers
acting in parallel is
referred to as a
multiple channel
queuing system
 Multiple servers
acting in series is
referred to as a
multiple phase
queuing system
Queuing System Design
 The single channel,
single phase
configuration is the
most basic
 Another
characteristic of the
service is the time
required to
complete each of
the services
provided
Queuing System Design
Queuing System Design
Managing Queue Times
 Probability that
service time t will
be less than or
equal to a specified
time T
 P(t ≤ T) = 1 – e –μT
 Managing Queue Times

Jay’s Quick Lube Shop can service an average of

four customers per hour, or one customer every
fifteen minutes, with a crew of three service
personnel. The average customer arrival rate on
Saturdays is three customers per hour, or one
customer every twenty minutes. Jay is interested
in calculating the probability that actual service
time, t, will be within a specific time period, T, and
he develops a chart showing these probabilities
below, using the negative exponential
distribution.
 Managing Queue Times

Jay thinks that almost 75 percent of the time, they

will be able to service a customer in less than or
equal to twenty minutes.
Managing Queue Times
Queuing System Applications
 The Single-Channel,
Single-Phase
Queuing Model
 The most widely
used & simplest of
all queuing models
 Queuing System Applications

λ – average arrival rate

μ= average service rate
ρ= average server utilization = λ/μ
Ls = expected customers in system = λ/(μ-λ)
Lq = expected customers in queue = λ2/[μ(μ -λ) = Ls - λ/μ
Ws = expected waiting time in system = l(μ-λ) = Ls/ λ
Wq = expected waiting time in queue = λ/[μ(μ - λ )] = Lq/λ
Pn = probability of n units in the queuing system
= (λ/μ)n(1 - λ/μ)
Queuing System Applications
Queuing System Example
 The Single-
Channel, Single-
Phase Queuing
Model
 Queuing System Example
Operating Characteristics for Kathy’s Sewing Shop
Kathy’s Sewing Shop can serve about five customers per hour. For the
past two weeks Kathy has kept track of the customer arrival rate, and
the average has been four customers per hour. Kathy is interested in
calculating the operating characteristics for her store. So she asks one
of her customers, a business student at the local university, to help her.
The student provides the following information:

λ = 4 customers per hour Ls = λ/(μ–λ) = 4/(5–4) = 4 customers

μ = 5 customers per hour Lq = Ls – λ/μ = 4 – 4/5 = 3.2 customers
ρ = 4/5 = 0.8 or 80% utilization Ws = Ls/λ = 4/4 = 1 hour = 60 minutes
Wq = Lq/λ = 3.2/4 = 0.8 hours = 48 mins
 Queuing System Example
Kathy also wants to know how likely it will be that more than four
customers will be in her shop at one time. So the student thinks
about this and decides to determine the probabilities of zero, one,
two, three and four customers in the shop, and then subtract their
sum from 1. She provides the following information:

For n=0 P0 = (4/5)0(1–4/5) = 0.200

n=1 P1 = (4/5)1(1–4/5) = 0.160
n=2 P2 = (4/5)2(1–4/5) = 0.128
n=3 P3 = (4/5)3(1–4/5) = 0.102
n=4 P4 = (4/5)4(1–4/5) = 0.082
For n>4 Pn>4 = 1– (P0+P1+P2+P3+P4)
= 1– (.2+.16+.128+.102+.082) = 1– .672 = 0.328
 Queuing System Example

Kathy can expect that there will be more than four

people in her shop about 33 percent of the time.
She can also purchase a barcode scanner with an
automated cash register that will increase her service
rate to ten customers per hour. She wants to know how
this will change the average wait time in the queue and
in the system. The student then shows her the very
significant change this will make:
Ls = λ/(μ–λ) = 4/(10–4) = 0.67 customers
Wq = λ/[μ(μ–λ)] = 4/[10(6)] = 0.067 hours = 4 minutes
Ws = 1/(μ–λ) = 1/6 hour = 10 minutes
Queuing System Example
multiple-channel, single-phase queuing
 With a multiple-
channel, single-
phase queuing
system application
the number of
servers is now
greater than one.
The operating
characteristics of
this queuing
system are as
follows:
multiple-channel, single-phase queuing

λ = average arrival rate

sμ = average service rate, where s = number
of service channels
ρ = average server utilization = λ/sμ
P0 = probability of zero customers in the
system
multiple-channel, single-phase queuing

Pn = probability of n customers in the system

Lq = expected number of customers in queue

multiple-channel, single-phase queuing

Ls = expected number of customers in system

= Lq + λ/μ
Wq = expected waiting time in queue = Lq/λ
Ws = expected waiting time in the system = Wq
+ 1/μ
multiple-channel, single-phase queuing
Managing Queue Times Rules
 Managing
Perceived Waiting
Times
 Often, demand
exceeds
expectations &
capacity
 First & Second
Laws of Service
Managing Queue Times Rules
 Rule 1: Satisfaction
= perception –
expectation
 Rule 2: It is hard to
play catch-up ball
 Waiting time
management
techniques
 Keep Customers
Occupied
Managing Queue Times Rules
 Start the Service
Quickly
 Relieve Customer
Anxiety
 Keep Customers
Informed
 Group Customers
Together
 Design a Fair
Waiting System..
Managing Distribution Channels

 Distribution
channels involve
traditional
methods & new
channels that
incorporate new
Internet
technologies
Managing Distribution Channels

 Eatertainment
combines
restaurant &
entertainment
elements
 Entertailing entails
retail locations
with
entertainment
elements
Managing Distribution Channels

 Edutainment
(infotainment)
combines learning
with
entertainment to
appeal to
customers looking
for substance
along with play
Managing Distribution Channels

 Franchising
 expand quickly in
dispersed
geographic
markets
 protect existing
markets
 build market share
& when owners
have limited
financial resources
Managing Distribution Channels

 micro franchising
is a concept that
offers ready-made,
low-risk starter
jobs for people
with little or no
education and little
available capital
Managing Distribution Channels

 International
Expansion
 Operate/partner
with firms familiar
with the region’s
markets, suppliers,
infrastructure,
government
regulations, &
customers
Managing Distribution Channels
 Foreign currency
exchange rate
fluctuations can
pose a problem
 Must address
language &
cultural barriers...
Managing Distribution Channels

 Internet
Distribution
Strategies
 Internet retailing is
growing faster
than traditional
retailing
Managing Distribution Channels

 Primary
advantages of the
Internet - ability to
offer convenient
sources of real-
time information,
integration,
feedback, &
comparison
shopping
Managing Distribution Channels

 Many retailers
today sell products
exclusively over
the Internet (a
pure strategy),
while others use it
as a supplemental
distribution
channel (a mixed
strategy)
Managing Distribution Channels
 Internet
Distribution
Strategies
 Advantages of
pure Internet
distribution
strategy
 Internet
companies are
more centralized,
Managing Distribution Channels

 Reduced labor,
capital & inventory
costs
 Decentralized
marketing efforts
reach a vastly
distributed
audience
Managing Distribution Channels
 Today the mixed
Internet
distribution
strategy of
combining
traditional retailing
with Internet
retailing seems to
be emerging as the
stronger business
model..
Managing Service Quality
 Customer
satisfaction with
the service
depends not only
on the ability of
the firm to deliver
what customers
want, but on the
customers’
perceptions of the
quality of the
service received
Managing Service Quality

 Service quality
depends on the
firm’s employees
to satisfy
customers varying
expectations
Managing Service Quality

 The Five
Dimensions of
Service Quality
 Reliability -
consistently
performing the
service correctly &
dependably
 Responsiveness -
promptly & timely
service
Managing Service Quality

 Assurance - ability
to convey trust &
confidence to
customers
 Empathy -
providing caring
attention to
customers
Managing Service Quality

 Tangibles - the
physical
characteristics of
the service
including e.g.
facilities, servers,
equip., & other
customers..
Managing Service Quality Example

 Recovering from
Poor Service
Quality
 Keeping
customers loyal &
coming back
serves as good
word-of-mouth
advertising
Managing Service Quality Example

 Service Recovery
Systems require –
 Developing
recovery
procedures
 Training
employees in these
procedures
 Empowering
employees to
remedy customer
problems
 Managing Service Quality Example
Examples of Service Quality Criteria
Service Quality Dimensions Criteria

Reliability  billing accuracy

 order accuracy
 on-time completion
 promises kept
Responsiveness  on-time appointment
 timely callback
 timely confirmation of order
Assurance  skills of employees
 training provided to employees
 honesty of employees
 reputation of firm
Empathy  customized service capabilities
 customer recognition
 degree of server-customer contact
 knowledge of the customer
Tangibles  appearance of the employees
 appearance of the facility
 appearance of customers
 quality of equipment and other goods used
Transportation Risk Management

 The nature of
transportation risk
and disruptions
 The concept of
risk management
 Transportation risk
management
process and
techniques
 Transportation Risk Management

Exposure to the Disturbance or

chance of injury problems that
or loss interrupt event,
Risk Disruption
activity, process
Freight
movement with
probability of Interruption
occurrence & in trade flow
potential Transportation Transportation caused by
nature & human-
impacts on Risk Disruption
supply chain caused incidents

Identify &
Identify, assess, develop
and avoid/ Business procedures to
Risk
minimize/ Continuity ensure
Management operational
eliminate risks Planning
continuity
Transportation Risk Management

6
Develop
Allocate common
capital more
efficiently
understanding 1
of risk
5
Cost savings Build
through capabilities to
management Objectives respond
of internal effectively to
resources risks

Build safeguards Achieve a 2

4 against earnings
-related
better
understanding
surprises of risk

3
Transportation Risk Management
Process & Techniques
 Process & Techniques

 Determine the  Evaluate the

potential likelihood and
transportation impact of each
disruptions 1 2 disruption

Identify Analyze

4 3
 Monitor and Review Manage  Apply risk
update the plan, management and
identify new risks mitigation
strategies
Process & Techniques
Risk Identification

 Product loss
includes any type
of action or
negligence that
leads to product
not reaching the
intended buyer.
 Risk Identification

Product Pilferage Shipment Jettison Piracy & Hijacking

 The theft of  All or part of a  Financial losses

individual items ship’s cargo for companies
from a shipping casted  Safety risk for
package overboard to ship crews and
 Particular save the ship, truck drivers
challenge with crew, and other  Strategic
smart phones, cargo from perils security concern
pharmaceutical, for countries
designer clothes
and other easily-
concealed & sold
high-value goods
Risk Identification

 Product damage
can result from a
wide array of
actions or
inactions on the
part of equipment
operators and
freight handlers.
 Risk Identification

Equipment Poor Freight Improper

Accidents Handling Equipment Loading
 Number of  Failure to use  Freight damage
accidents caution when risks are high if
involving moving product the load is not
commercial in/out of properly secured
vehicles is equipment. and stacked.
declining.  Particular
 The cost of such challenge with
accidents is high long distance
(averaging movement via
$74,500 per rail and ocean
incident). modes.
Risk Identification

 A particular risk to
food,
pharmaceutical
goods, and other
consumables that
increases along
with trip distance
and time in transit.
( Contamination)
 Risk Identification
Climate Control Exposure to
Product Tampering
Failure Contaminants
 Failure to provide a  Deliberate  Risk of freight
stable climate contamination of coming in contact
inside the goods after they with undesirable
container during have been substance
transit. manufactured. (physical,
 Particular challenge  Remote but chemical,
with fruit, potentially biological).
vegetables, devastating risks  Exposure through
electronics, (e.g. threat of products and
biomedical lawsuits, brand equipments.
samples, and damage).
chemicals.
Risk Identification

 Companies that
rely upon just-in-
time delivery of
inventory, or
sourcing goods
from low-cost
manufacturers in
the Far East are at
high risks if
delivery delay
occurs.
 ( Delivery Delay)
 Risk Identification

Equipment
Congestion Poor Weather
Malfunction
 Overburdened  Particular  Two types of
roadways, challenge in in malfunctions:
railways, and port areas of extreme 4 Mechanical
facilities impede climate breakdowns of
product flows and conditions delivery
create (frequent cold, vehicles
bottlenecks in the snow and ice 4 Problems with
supply chain. conditions, freight handling
hurricane zones). equipment at
transfer
facilities
Risk Identification

 Supply chain
interruptions
caused by poor
execution of day-
to-day operations,
and transport-
related forces
outside the control
of the company.
 Risk Identification

Industry
Labor Disruptions Capacity Shortages
Consolidation
 Occur in times of  Occur in times of  Occur during
slack volume or work-related peak economic
high energy disputes, notably growth
prices. when rely on  Impacts on
 Result in unionized labor. customers
changing market  Predictable vs. 4 Increased
structure that “wild cat” strikes rates or peak
causes capacity season
and cost surcharges
challenges for 4 Risk of service
customers. quality failures
Risk Identification

 Failures to protect
freight in-transit
against terrorist
attacks, organized
crime activity, and
illegal immigration
lead to time-
consuming freight
inspections and
costly
countermeasures.
 (Security Risk)
 Risk Identification

Lax Security Unprotected Shipment Control

Processes Transfer Facilities Failures
 Failure to  Ease of facility  Lack of freight
establish strong entry and access visibility and
security practices promotes access control
product theft, required to
deliberate protect in-transit
contamination, goods from
or catastrophic harm.
disruptions.
Risk Identification
Risk Assessment

 Objectives
 To evaluate the
seriousness of
each risk identified
in step 1.
 To focus resources
on relevant risk
management and
mitigation
strategies.
Risk Assessment

 Assessment
parameters
 Probability—the
likelihood of the
risk occurring
 Impact—the
consequences if
the risk does occur
 Proximity—the
anticipated timing
of the risk
Risk Assessment

 Qualitative
Analysis
 Provides a
baseline evaluation
of risks.
 Classifies each risk
as low, medium, or
high on two
dimensions –
probability and
impact.
 Rapid and cost
Risk Assessment

 Quantitative
Analysis
 Builds on the
foundation created
by qualitative
analysis (e.g. major
risks)…
Risk Assessment

 Incorporates
numerical
estimates of
frequency or
probability and
consequence.
 Required data are
expensive to
acquire or may not
be available.
 Risk Assessment
IMPACT
Low Medium High
PROBABILITY

Packaging
High

failures

Chargebacks Border delays Theft

Medium

Port congestion Unauthorized

channels

Product freezing Tsunami

Low

Piracy

Risk Level: Minor Moderate Major

Risk Assessment
Risk Management Strategy Development

 Mitigation
Strategy
Objective: To
create a coherent
strategy to lower
the probability of
risk occurrence
and/or minimize
the negative
impact if the risk
occurs.
Risk Management Strategy Development

 Consistent with
overall supply
chain and
corporate
strategies.
 Focus on high
priority risks.
 Cost-effective and
time-effective.
Risk Management Strategy Development

 Produce an action
plan – Role,
resources,
timeliness
 Use standardized
process.
Risk Management Strategy Development

1
4 Eliminate risk by not performing
activity associated with the risk.

Risk Risk
retention avoidance
2 Reduce likelihood of risk or
mitigate severity of financial loss
– Hedging, Postponement,
1 Buffering

3 3 Transfer financial risk to a 3rd

party – Insurance, Use of third-
Risk Risk party logistics providers (3PLs)
reduction transfer
4 Retain risks when risks are minor,

2 cost of mitigating outweigh

benefits, catastrophic risks
deemed not reasonable to
mitigate or insure against.
Risk Management Strategy Development
Risk Management Strategy Development
Risk Management Strategy Development
Risk Review and Monitoring

 Risk environment
is not static,
requiring regular
review of risks and
update of action
plan. The goal is to
establish a
repeatable,
measurable,
verifiable
validation process.
 Risk Review and Monitoring

Risk
Review & Risk
Test of
Monitoring Monitoring
Action Plan

 To validate the process and its  Regularly reassess likelihood

ability to reduce or eliminate and expected impact of risks.
unacceptable risks.  Keep abreast of changes in risk
 Testing program simulates profiles and new risks.
disruptions and defines benchmarks  Update mitigation strategies
for recovery processes. and action plan.
 Separate test plans for each
disruption scenario.
Risk Review and Monitoring
Global Supply Chain Risks

 Inherent Physical
Risks
 Global supply
chain is more
susceptible to loss,
damage, and delay
problems.
 Longer distances
Global Supply Chain Risks

 Greater product
handling
 Multiple border
crossings
 More
intermediaries
Global Supply Chain Risks

 Human-caused
Security Risks
 Human-caused
risks are motivated
by political,
ideological, or
criminal intent.
 Theft
 Nuclear, chemical,
biological,
radiological & high
explosive
Global Supply Chain Risks

 Nuclear, chemical,
biological,
radiological & high
explosive weapons
 Illicit trade of
drugs
 Currency
laundering
 Illegal entry of
stowaways..
Role of Outsourced Logistics Providers
 Role of Outsourced Logistics Providers

1PL • Shipper or consignee

2PL • Individual, asset-based provider of logistics services

3PL • Firm that manages and/or provides multiple logistics

services for use by customers

4PL • Firm that provides broader scope of services to help

manage elements of supply chain
• Companies that aggregate demands of 3PLs into bulk
5PL volumes to negotiate better rates with airlines and
shipping companies

LSP • Logistics service providers can refer to any or all of the

above
Role of Outsourced Logistics Providers
Role of Outsourced Logistics Providers
Types of 3PLs

 Asset Based
 Owns assets and
labor force needed
to run transport
and logistics
activities
 Examples: UPS, J.B.
Hunt, Exel, Ryder,
FedEx
Types of 3PLs

 Advantages: readily
available capacity,
permanent
employees, and
direct control of the
customers’ freight.
Types of 3PLs

 User concerns:
potential for bias
toward 3PL own
internal resources
in developing
solutions for
customers.
Types of 3PLs

 Non-asset Based
 Contracts with
other firms to
provide services
rather than owning
required assets
 Examples: C.H.
Robinson, XPO
Logistics,
Capgemini, KPMG
Types of 3PLs

 Advantages: more
flexible vs. asset-
based 3PLs,
unbiased in decision
making
Types of 3PLs

 User concerns:
subject to
competition for
capacity from
external providers,
more intensive
relationship
management
required..
Primary Services of 3PLs
 Primary Services of 3PLs

5 1
 Business origin in freight
Transport
movement
Information based
based 1  Examples of 3PLs: UPS Supply
Chain Solutions, FedEx Trade
4 Networks, Schneider Logistics
Distribution Services, Damco (Maersk
Financial
base
based Group), BNSF Logistics
 Examples of services: move
Forwarder
2 freight, manage transportation
3 based operations, operate fulfillment
centers, develop logistics
solutions
 Primary Services of 3PLs

2  Business origin in the public or

Distribution
contract warehousing
Information base
based  Examples of 3PLs: Exel, Saddle
Creek, UTi Worldwide, Neovia
Logistics Services (by Caterpillar
Inc.), Intral (by Gillette Company)
 Examples of services: Focus on
inventory management,
warehousing, and order
fulfillment, but may also provide
transportation services
 Primary Services of 3PLs

3  Includes freight forwarders,

brokers, and agents that primary
facilitate the flow of goods on
Forwarder behalf of customers
based  Examples of 3PLs: C.H. Robinson
Worldwide Inc., Hub Group Inc.,
Kuehne + Nagel Inc.
 Examples of services: arrange
transportation services for LTL
shipments, air cargo, and ocean
freight; facilitate international
freight movements
 Primary Services of 3PLs

4  Specialize in monetary issues and

financial flows in the supply chain
 Examples of 3PLs: Cass
Financial based Information Systems, CT Logistics,
US Bank (Syncada), enVista,
TranzAct Technologies, GE Capital
 Examples of services: freight
rating, freight payment, freight bill
auditing, accounting , electronic
payment, carrier compliance
reporting, freight claims
 Primary Services of 3PLs

5  Digitized activities that were

previously performed manually or
required the use of licensed software
Information  Examples of 3PLs: Descartes Systems
based Group, Transplace, MercuryGate
 Examples of services: online freight
brokerage services, cargo planning,
routing & scheduling; internet access
(pay per use) to TMS, WMS,
performance management tools
Primary Services of 3PLs
Primary Types of 3PLs Services
 Primary Types of 3PLs Services

 For hire carriage  Carrier selection, routing, &

 Contract carriage scheduling
 Expedited service  Contract compliance
 Time definite service  Performance analysis
 Intermodal service  Freight bill auditing & payment
 Transportation management
Freight Movement Freight Management
systems

 Surface forwarding  Dedicated contract carriage

 Air forwarding  Drayage
 Freight brokerage  Pool distribution
 Intermodal marketing  Merge in transit
 Shippers associations  Last mile delivery
Intermediary Services Specialty Services
Primary Types of 3PLs Services

 Intermediaries
Services
 Surface forwarding
– Pick up, assemble
& consolidate
shipments, then
hire carriers to
transport & deliver
the consolidated
shipments.
Primary Types of 3PLs Services

 Air forwarding –
Consolidate small
shipments for long-
haul movement,
primarily using
major passenger
and freight airlines.
Primary Types of 3PLs Services

 Freight brokerage –
Represent carrier
seeking freight or
shipper seeking
capacity.
 Intermodal
marketing – Act as
facilitators or
arrangers of rail
transportation
service.
Primary Types of 3PLs Services

 Shippers
associations –
Nonprofit
transportation
membership
cooperatives
arrange for the
domestic or
international
shipment of
members’ cargo.
Primary Types of 3PLs Services

 Dedicated contract
carriage – Serve as
a customer’s
private fleet with a
customized turnkey
solution.
Primary Types of 3PLs Services

 Drayage –
Specialize in short-
haul movement of
intermodal
containers from
origin to ocean
ports and rail yards
and from these
facilities to their
ultimate
destination.
Primary Types of 3PLs Services

 Specialized
Services
 Pool distribution –
Move a large
quantity of product
in bulk to a specific
market or regional
terminal, to be
offloaded, sorted
by customer.
Primary Types of 3PLs Services

 Merge in transit –
Unite shipments
from multiple
suppliers at a
specified merge
point located close
to the end
customer.
Primary Types of 3PLs Services

 Last mile delivery –

A new breed of last
mile service
providers, covering
the final dock-to-
door or store-to-
door delivery with
value-added
services such as
inside delivery,
product assembly,
and testing..
Outsource vs. In-house Logistics
 Outsource vs. In-house Logistics
USING 3PL SERVICES AGAINST USING 3PL SERVICES
Opportunity for cost reductions Logistics is a core competency of company
Ability to focus on core competencies Cost reductions would not be experienced
Opportunity to improve customer service Control over outsourced function would
diminish
Improve return on assets Service level commitments would not be
realized
Increase in inventory turns Company has more expertise than 3PL
providers
Productivity improvement opportunities Logistics is too important to consider
outsourcing
Generate logistics process flexibility Outsourcing is not a corporate philosophy
Access to emerging technology Global capabilities of 3PL need
improvement
Expansion to unfamiliar markets Inability of 3PLs to form meaningful
relationships
Ability to divert capital investments Issues related to security of shipments
Outsource vs. In-house Logistics
Primary Activities Outsourced

 Transportation
management is the
most frequently
used 3PL service,
with outsourced
services overall
remaining
“tactical” (vs.
“strategic”) in
nature.
Primary Activities Outsourced

 Domestic
transportation
(80%)
 International
transportation
(70%)
 Warehousing (67%)
 Customs brokerage
(53%)
 Freight forwarding
(51%)..
3PL Relationship Development Process
 Focuses on
understanding
transportation and
logistics needs and
the overall business
strategies.
3PL Relationship Development Process
 Overall role of
transportation and
logistics in
supporting business
goals and
objectives
 Transportation and
logistics needs
assessment
3PL Relationship Development Process
 Strategic
environmental
factors and industry
trends
 Current logistics
network and the
firm’s positioning in
supply chains
3PL Relationship Development Process
 Key performance
measurements,
target, and current
vs. desired
performance gap
3PL Relationship Development Process
3PL Relationship Development Process
 Decision to Form
Relationship
 Evaluate whether
transportation and
logistics is core
competency in
terms of expertise,
…
3PL Relationship Development Process
 strategic fit, and
ability to invest.
The absence of any
of these may
suggest that the
use of 3PL services
is appropriate.
3PL Relationship Development Process
 strategic fit, and
ability to invest.
The absence of any
of these may
suggest that the
use of 3PL services
is appropriate.
3PL Relationship Development Process
 Drivers –
Compelling reasons
to partner
 Asset/Cost
efficiency
 Customer service
 Marketing
advantage
 Profit stability/Grow
3PL Relationship Development Process
 Facilitators –
Supportive
corporate
environmental
factors
 Corporate
compatibility
3PL Relationship Development Process
 Management
philosophy and
techniques
 Mutuality of
commitment to
relationship
 Symmetry on key
factors
3PL Relationship Development Process
 Evaluate
Alternatives
 Uses drivers and
facilitators to
identify the most
appropriate type of
3PL relationship.
3PL Relationship Development Process
 Transactional or
“arm’s length”
relationships
 Drivers not present
 Facilitating factors
not present
3PL Relationship Development Process
 Structured, formal
relationship
 Share common
drivers
 Facilitating factors
present
3PL Relationship Development Process
 Select Partners
Partner should be
selected only after
close consideration
of the credentials of
the top candidate
3PLs is made.
 Interact with the
final candidates on
a professionally
intimate basis.
3PL Relationship Development Process
 Achieve consensus
on the final
selection from all
involved
executives.
 Establish consistent
understanding of
the final selection
and what is
expected from the
chosen service
provider.
3PL Relationship Development Process
 Structure
Operating Model
 Clarify each party’s
responsibilities,
activities,
processes, and
priorities that will
drive day-to-day
operations.
3PL Relationship Development Process
 Suggested
operating model
elements
 Planning
 Joint operating
controls
 Communication
3PL Relationship Development Process
 Risk/Reward
sharing
 Trust and
commitment
 Contract style
 Scope of the
relationship
 Financial
investment
3PL Relationship Development Process
 Implementation &
Continuous
Improvement
 Duration of the
overall
implementation
process depends on
the complexity of…
3PL Relationship Development Process
 the new
relationship, and
continuous
improvement is key
to the future
success of the
relationship.
3PL Relationship Development Process
3PL Relationship Development Process
Strategic Needs of 3PL Users
The ultimate goal of
the development
and implementation
of 3PL relationship
process is to
develop outstanding
customer service
capabilities and
cost-efficient
operations.
Strategic Needs of 3PL Users

7
Future Strategic
requirement innovation
1
6
Sustain- Techno-
ability logical
expertise strength
2
5 Omni- Capacity
channel access
agility Talent

4
availability 3
Strategic Needs of 3PL Users
Transportation infrastructure issues
Transportation infrastructure issues

Transportation Supply Chain

Infrastructure Technology

Sustainability Fuel Cost

 Transportation infrastructure issues

Collaboration is a powerful tactic or strategy that has led to

many improvements in supply chain performance.

Supply
Tactical or Chain
Collaboration Strategic
Operational

 Reduce loading & unloading times  Vendor-managed-inventory (VMI)

at shipping and receiving facilities.  Electronic Data Interchange (EDI)
 Increase hours of operation for  Radio Frequency Identification
drop yards and warehouse facilities (RFID)
 Allow faster payment for carriers  Global Positioning System (GPS)
 Reduce driver-assist times  Mobile communication
 Share capacity forecasts with technologies
carriers  Intelligent Robotics
 Transportation infrastructure issues

Green Supply Chain and Transportation

 Consolidation  Market-oriented  Improve fuel efficiency

 Packaging locations  Clean fuel
 Product design  Network mileage
optimization
 The Smart-Way
Transport Partnership

Don’t ship Green transport

Don’t ship air
water
Transportation infrastructure issues
Supply chain Sustainability
 Appreciate the
importance of
sustainable supply
chains for the
protection of the
ecology of the
planet.
Supply chain Sustainability
 Understand how
effective logistics
management can
contribute to
sustainability.
Supply chain Sustainability
 Understand how
effective logistics
management can
contribute to
sustainability.
 Understand the
established
frameworks for
sustainable supply
chains.
Supply chain Sustainability
 Discuss the
importance and
challenges of
reverse flows in
supply chains.
Supply chain Sustainability
 Understand why
there has been a
significant increase
in the number and
volume of items
moving in reverse
flows and supply
chains.
Supply chain Sustainability
Supply chain Sustainability
Supply chain Sustainability
Reverse Logistics Systems
 Reverse flows are
goods and
materials moving
upstream in the
supply chain.
 Reverse flows were
traditionally
ignored, but
regulation and
economics have
increased attention
on them.
Reverse Logistics Systems
 Estimates are that
returns range from
3 – 50% depending
on the product.
 Retailers lose 3 to
5% of gross sales to
returns accounting
for about 4.5% of
the cost of logistics.
Reverse Logistics Systems
 Internet returns are
about double the
counter sale
returns..
Categories of reverse flows
 Products that have
failed; are
unwanted,
damaged, or
defective; but can
be repaired or
remanufactured
and resold.
Eight categories of reverse flows
 Products that are
unsold from
retailers, usually
referred to as
overstocks that
have resale value.
 Products being
recalled due to a
safety or quality
defect that may be
repaired or
salvaged.
Eight categories of reverse flows
 Products needing
“pull and replace”
repair before being
put back in service.
 Products that can
be recycled such as
pallets, containers,
computer inkjet
cartridges, etc.
Eight categories of reverse flows
 Products or parts
that can be
remanufactured
and resold.
 Scrap metal that
can be recovered
and used as a raw
material for further
manufacturing..
Reverse Logistics Systems vs. Closed Loops
 Reverse logistics—
The process of
moving or
transporting goods
from their final
destination for the
purpose of
capturing value or
for proper disposal.
Reverse Logistics Systems vs. Closed Loops
 Reserve logistics
involves the
processes for
sending new or
used products
“back up stream”
for repair, reuse,
refurbishing, resale,
recycling, or
scrap/salvage.
Reverse Logistics Systems vs. Closed Loops
 Closed loop supply
chains—Designed
and managed to
explicitly consider
both forward and
reverse flows
activities in a supply
chain.
 Explicitly designed
and managed for
both flows.
Reverse Logistics Systems vs. Closed Loops
 Customer Returns
 A variety of reasons
for customer
returns can be
given (as indicated
previously)
including defective
or unwanted items,
warranty problems,
recalls, and miss-
shipments.
Reverse Logistics Systems vs. Closed Loops
 Environmental
Challenges
 Recycling and
environmental
concerns are
frequently viewed
simultaneously
because of their
association with
regulatory policy at
the local, state,
and/or federal level.
Reverse Logistics Systems vs. Closed Loops
 Economic Value
 Value has become
an important for
businesses and
even some
nonprofit
organizations.
 Making reverse
flows profitable is a
challenge as well as
an opportunity..
Achieving a Value Stream for Reverse Flows
 Barriers to
implementing a
reverse flows
program may be
internal or external
and may including
the following:
 Priority relative to
other issues and
potential projects
or programs in the
organization
Achieving a Value Stream for Reverse Flows
 Inattention or lack
of “buy-in” from
top level
management in the
organization
 Financial resources
necessary for
operations and
asset infrastructure
Achieving a Value Stream for Reverse Flows
 Personnel
resources required
to develop and
implement the
reverse flows
program
 Adequacy of
material and
information
systems to support
the returns
program
Achieving a Value Stream for Reverse Flows
 Personnel
resources required
to develop and
implement the
reverse flows
program
 Adequacy of
material and
information
systems to support
the returns
program..
Managing Reverse Flows
 The Reverse
Logistics
Educational Council
recommends
consideration of
the following:
Managing Reverse Flows
 Avoidance—
Producing high-
quality products
and developing
processes to
minimize or
eliminate returns
Managing Reverse Flows
 Gatekeeping—
Checking and
screening
merchandise at the
entry point into the
reverse flows
process to
eliminate
unnecessary
returns or minimize
handling
Managing Reverse Flows
 Reducing reverse
cycle times—
Analyzing
processes to enable
and facilitate
compression of
time for returns to
enhance value
recapture
Managing Reverse Flows
 Information
systems—
Developing
effective
information
systems to improve
product visibility,
reduce uncertainty,
and maximize
economies of scale.
Managing Reverse Flows
 Returns centers—
Developing
optimum locations
and facility layouts
for returns centers
to facilitate
network flow
Managing Reverse Flows
 Asset recovery—
Classifying and
disposing of
returned items,
surplus, scrap, and
obsolete items to
maximize returns
and minimize cost
Managing Reverse Flows
 Pricing—
Negotiating the
best price for
products being
returned and resold
Managing Reverse Flows
 Outsourcing—
Considering a
relationship with a
third-party
organization to
handle and manage
reverse flows in
cases where
existing
personnel,…
Managing Reverse Flows
 infrastructure,
experience, and/or
capital may not be
adequate to
implement a
successful program
Managing Reverse Flows
 Zero returns—
Developing a policy
to exclude returns
by giving a returns
allowance and/or
“destroying” the
product in the field
 Managing Reverse Flows

 Financial management—Developing
guidelines and financial procedures to
properly account…
Managing Reverse Flows
 for charges against
sales and related
financial issues
when items are
returned by
customers..
Integration Model for Logistics
 Firms in the supply
chain must
integrate processes
to create value for
the services and
products provided
to end customers.
Integration Model for Logistics
 Process integration
means sharing
information and
coordinating
resources to jointly
manage a process
or processes.
Integration Model for Logistics
 The benefits of
collaboration and
information sharing
between trading
partners can be
significant.
Integration Model for Logistics
Integration Model for Logistics
 Identify Critical SC
Trading Partners
 Sell & deliver
products to final
customers
 Identifying primary
trading partners
allows the firm to
concentrate on
managing links with
these companies
Integration Model for Logistics
 Review & Establish
SC Strategies for:
 Parts purchased &
suppliers
 Manufacturing
processes
 Design of the
products
manufactured…
Integration Model for Logistics
 Mode of
transportation
 Warranty & return
services
 Outsourcing
 Sustainability..
Aligning SC Strategies
 Lambert et al.
identified 8 key SC
processes:
 Customer
relationship
management
 Customer service
management
 Demand
management
Aligning SC Strategies
 Order fulfillment
 Manufacturing flow
management
 Supplier
relationship
management
 Product
development &
commercialization
 Returns
management..
Key Supply Chain Business Processes -I
 Customer
Relationship
Management
 Tailoring product
and service
agreements to
meet customer
needs
Key Supply Chain Business Processes -I
 Measuring
customer
profitability and
firm’s impact on
customers
Key Supply Chain Business Processes -I
 Monitor the impact
of customer
relationship
management
(CRM) efforts in
terms of both the
financial impact and
customer
satisfaction
Key Supply Chain Business Processes -I
 Customer Service
Management
 Providing
information to
customers such as
product availability,
shipping dates and
order status
Key Supply Chain Business Processes -I
 Administering
product and service
agreements
 Monitoring and
reporting customer
service
performance
Key Supply Chain Business Processes -I
 Demand
Management
 Balancing customer
demand with the
firm’s output
capacity
 Forecasting
demand and
coordinating with
production,
purchasing and
distribution
Key Supply Chain Business Processes -I
 Increase the
accuracy of
forecasts
 To track the success
of various demand
management
activity
implementations
Key Supply Chain Business Processes -I
 Order Fulfillment
 Meeting customer
requirements by
synchronizing the
firm’s marketing,
production and
distribution plans
 Location of
suppliers,
production facilities
and distribution
centers
Key Supply Chain Business Processes -I
 Modes of inbound
and outbound
transportation used
 System used for
entering,
processing,
communicating,
picking, delivering
and documenting
customer orders..
Key Supply Chain Business Processes -II
 Manufacturing
Flow Management
 Determining
manufacturing
process
requirements to
enable the right mix
of flexibility and
velocity to satisfy
demand
Key Supply Chain Business Processes -II
 A good set of
performance
metrics to track the
capability of the
manufacturing flow
process to satisfy
demand
Key Supply Chain Business Processes -II
 Supplier
Relationship
Management
 Screening and
selecting suppliers
 Developing close
working
relationships with
key suppliers
Key Supply Chain Business Processes -II
 Negotiating
product and service
agreements
 Managing suppliers
 Monitoring supplier
performance and
improvement.
Key Supply Chain Business Processes -II
 Product
Development and
Commercialization
 Selecting new
product ideas
 Developing new
products and
getting them to
market quickly and
effectively
Key Supply Chain Business Processes -II
 Assessing the
success of each
new product
 Developing
customer feedback
mechanisms
Key Supply Chain Business Processes -II
 Returns
Management
 Managing used
product disposition,
product recalls, and
packaging
requirements
 Environmental
compliance with
substance disposal
and recycling
Key Supply Chain Business Processes -II
 Collecting returns
data
 Minimizing future
returns..
The Integration Model Continued
 Develop Internal
Performance
Measures for Key
Processes
 Performance
should be
continuously
measured
The Integration Model Continued
 Create a consistent
emphasis on the
overall supply chain
strategy
 Firm is able to track
progress in each
key processes.
The Integration Model Continued
 Assess & Improve
Internal Integration
of Key SC Processes
 Formation of cross-
functional teams
 Management
support &
resources
 ERP system
The Integration Model Continued
 Develop an
understanding of
the internal supply
chain
The Integration Model Continued
 Develop SC
Performance
Measures for Key
Processes
 Monitor links
w/trading partners
in key SCM
processes.
The Integration Model Continued
 Trading partners
should monitor
measures across
member firms for
each of the SC
processes.
The Integration Model Continued
 Assess & Improve
External Process
Integration &
Performance
 Build, maintain &
strengthen
relationships
 Share knowledge
management
solutions, such as
forecast …
The Integration Model Continued
 information, new
products, &
expansion plans.
 knowledge
management
solutions enable
real-time
collaboration and
flow of information
between supply
chain partners
The Integration Model Continued
 Extend Process
Integration to 2nd
Tier SC Partners
 Integrate process
to 2nd-tier partners
& beyond
 Radio-frequency
identification
(RFID) tag- relays
product’s location
as it moves through
the supply chain.
The Integration Model Continued
 Passive RFID tags
don’t contain
internal power.
Active RFID tags
use battery power
& are very
expensive.
The Integration Model Continued
 Reevaluate the
Integration Model
Annually
 Trading partners
should revisit the
integration model
annually for
changes within
supply chains
The Integration Model Continued
 … (ex. new
suppliers entering
market, foreign
markets opening).
 Assess the impact
of changes on
integration efforts..
Obstacles to Integration
 The Silo Mentality
 “I win, you lose”
 Using the cheapest
suppliers.
 Ignoring customers.
 Assigning few
resources to new
product & service
design
Obstacles to Integration
 Firm must strive to
align SC goals & the
goals & incentives
of the firm
 Performance
reviews of
managers must
include their ability
to integrate
processes internally
& externally
Obstacles to Integration
 Managers must
educate suppliers
and customers
regarding the
overall impact of
their actions on the
SC
Obstacles to Integration
 Lack of Supply
Chain Visibility
 Information
visibility is
particularly
important in global
supply chains
 Without visibility,
extra time must be
spent to update…
Obstacles to Integration
 data causing higher
inventory cost and
longer response
times
 Becoming easier
with use of cloud-
based
communication
platforms
Obstacles to Integration
 RFID technology
promises to add
real-time
information
visibility to supply
chains.
Obstacles to Integration
 Lack of Trust –
Successful process
integration requires
trust and trust is
earned over time
 Collaboration &
trust are based on –
 Start small – small
scale
Obstacles to Integration
 Look inward –
establish trust
internally
 Gather ‘round &
meet face-to-face
 Go for the win-win
– optimize business
for all members
Obstacles to Integration
 Do not give away
the store: Some
information should
remain proprietary
 Just do it: Simple
start - sharing
information.
Obstacles to Integration
 Lack of Knowledge
 In the past few
years technology
has caught up,
enabling process
integration across
extended supply
chains
Obstacles to Integration
 Firms successfully
managing their
supply chains must
spend significant
time influencing &
increasing the
capabilities of
themselves & their
partners.
Obstacles to Integration
 Training of supply
chain partner
employees is also
known as
collaborative
education, and can
result in more
successful supply
chains..
Activities Causing the Bullwhip Effect
 Forecasts & their
corresponding
orders along the
supply chain can
become amplified
and accumulate,
causing the
bullwhip effect
Activities Causing the Bullwhip Effect
 Variations in
demand lead to
problems in
capacity planning,
inventory control,
workforce &
production
scheduling resulting
in reduced…
Activities Causing the Bullwhip Effect
 customer service,
increased safety
stock, and higher
SC costs
Activities Causing the Bullwhip Effect
 Demand Forecast
Updating
 Make actual
demand data
available to
suppliers.
 Vendor-managed
inventory (VMI)
Activities Causing the Bullwhip Effect
 Reduce the length
of the supply chain.
 Reduce the lead
times from order to
delivery
Activities Causing the Bullwhip Effect
 Order Batching
 Order batching
occurs when sales
reps fill end-of-
period sales quotas,
or when buyers
spend end-of-year
budgets
Activities Causing the Bullwhip Effect
 Solution is to use
frequent & smaller
order sizes. Firms
can order smaller
quantities of a
variety of items
from a supplier or
use a freight
forwarder to
consolidate small
shipments
Activities Causing the Bullwhip Effect
 Can use automated
order systems to
order more
frequently
Activities Causing the Bullwhip Effect
 Price Fluctuations
 Reduce price
fluctuations
through forward
buying activities to
take advantage of
the low price offers
between:
 retailers &
consumers…
Activities Causing the Bullwhip Effect
 Distributors &
retailers.
 manufacturers &
distribution.
 Eliminate price
discounting. Many
retailers have
adopted everyday
low prices (EDLP)
Activities Causing the Bullwhip Effect
 Rationing &
Shortage Gaming
 Rationing- When
demand exceeds
the availability,
supplier provides
partial supply to
customers, who
also tend to inflate
orders.
Activities Causing the Bullwhip Effect
 Shortage gaming-
When production
capacity equals
demand, demand
then drops, as the
buyers try to unload
excess inventories.
Activities Causing the Bullwhip Effect
 Solution: sellers
should allocate
short supplies
based on the
demand histories of
their customers.
Sharing future
order plans with
suppliers allows
suppliers to
increase capacity if
needed..
DISTRIBUTION NETWORK DESIGN
 The development
of a distribution
network involves a
variety of strategic
logistic modeling
decisions with
regard to a series of
distribution
activities. The
activities include:
DISTRIBUTION NETWORK DESIGN
 transportation,
transshipment, and
maintenance of the
inventory; the
assembly or
reconditioning of
products and
contingency plans
to cope with
disruptions.
DISTRIBUTION NETWORK DESIGN
 Based on these
activities,
distribution and
planning comprises
 four categories of
interrelated
decisions as
follows:
DISTRIBUTION NETWORK DESIGN
 1. Location and
quantity of
warehouses and
plants, warehouse
and plant capacity
load ratio,
assignment of
customer demands
to open…
DISTRIBUTION NETWORK DESIGN
 warehouses, and
assignment of open
warehouses to
open plants, among
others.
DISTRIBUTION NETWORK DESIGN
 2. Choice of
transportation
modes (rail, truck,
air, ship), choice of
type of carriage
(common, contract,
private), other
decisions such as…
DISTRIBUTION NETWORK DESIGN
 the size or
frequency of
shipments, and
assignment of loads
to vehicles.
DISTRIBUTION NETWORK DESIGN
 3. Inventory
decisions, total
inventory level in
the system, location
of inventories, and
levels of cycle stock
at various locations.
DISTRIBUTION NETWORK DESIGN
 4. Distribution
channel
optimization:
finding an optimal
channel mix,
creating synergies
across channels,
building strategic
alliances, …
DISTRIBUTION NETWORK DESIGN
 creating sustainable
competitive
advantages,
managing more
complex supply
chains..
Stages for Distribution Network
 Mourits and Evers
(1996) identify four
stages in the
process of designing
distribution
networks:
Stages for Distribution Network
 The arrangement
stage, focusing on
geographical
arrangement or
layout of the
distribution
network…
Stages for Distribution Network
 The required
number, location,
and size of facilities
and the assignment
of customers and
suppliers to
warehouses are
determined.
Stages for Distribution Network
 The deployment
stage, finding an
optimal distribution
of inventory and
final assembly
activities among
the available
facilities…
Stages for Distribution Network
 Each product type
is designated to
one or more
locations where it
should be kept in
stock and
assembled.
Stages for Distribution Network
 The flow stage,
determining the
required inventory
levels, safety
stocks,
replenishment
batch sizes, and
order frequencies.
Stages for Distribution Network
 The operations
stage, entailing the
determination of
ordering
procedures,
detailed vehicle
routing algorithms,
or customer
delivery scheduling
algorithms..
Traditional vs. Reverse Supply chains
 Kongar 2004
Traditional vs. Reverse Supply chains
Traditional vs. Reverse Supply chains
Overview of Procurement System
 Procurement is a
purposeful set of
activities
(processes) to
obtain goods and
services for specific
production or
service needs…
Overview of Procurement System
 From the strategic
standpoint,
procurement
involves several
major elements:
Overview of Procurement System
 Supplier selection is
based on
researching and
gathering
information about
prospective
suppliers, and on
their background
analysis.
Overview of Procurement System
 Supplier contacts
are used to send
supplier-related
requirements to
appropriate
suppliers. It includes
request for
information (RFI),
request for proposal
(RFP), or request for
quote (RFQ).
Overview of Procurement System
 Contract
negotiation and
renewal involve a
legal process of
negotiating and
using the terms of
relationships with
suppliers.
Overview of Procurement System
 Supplier
relationships are
based on managing
and updating
supplier
information,
measuring supplier
performance
results, and
maintaining
relations with
suppliers
Overview of Procurement System
 Procurement
process is
characterized by
operational
activities of
acquiring material
supplies and
fulfilling services for
a company.
Overview of Procurement System
 Procurement
process is
characterized by
operational
activities of
acquiring material
supplies and
fulfilling services for
a company..
Procurement Process
 A requester creates
a purchase
requisition to buy
specific materials.
The requisition may
require an approval
from the immediate
supervisor/departm
ent manager.
Procurement Process
 The requisition is
reviewed and
approved by the
purchasing
department. It may
also require an
approval from the
finance department.
Procurement Process
 The requisition
information is used
to create a purchase
order (PO) that is
sent to the supplier
usually via e-mail or
fax.
Procurement Process
 The supplier
receives and
acknowledges the
PO, and then
prepares for the
delivery of the items
according to the PO.
Procurement Process
 The supplier
delivers the items
that are ordered by
the customer.
Procurement Process
 A three-way
matching process is
carried out—-that is,
the information
from the PO, the
received order, and
the supplier’s
invoice should
match.
Procurement Process
 After approval from
the required
authority, the
payment is made to
the supplier..
Problems with Traditional Procurement
 Manual data entry
using an extensive
amount of
paperwork and
utilizing fax or e-
mail. With the
existence of
numerous processes
and sub processes,
there are multiple
points of failure.
Problems with Traditional Procurement
 Maverick
purchasing, which is
a process of
acquiring goods and
services from
suppliers that are
outside of a
preferred supplier
list..
What is E-Procurement
 Electronic
procurement or e-
procurement is a
growing area of e-
commerce models.
It provides direct
and efficient…
What is E-Procurement
 purchasing process
linkages between
the customers
(buyers) and
suppliers, based on
a new class of
Internet enabled
solutions.
What is E-Procurement
 E-procurement
fundamentally
restructures the
way organizations
perform traditional
procurement
activities by…
What is E-Procurement
 automating and
simplifying many of
these activities (i.e.,
sourcing, contract
negotiation,
requisition,
purchase orders,
catalogs, and
others).
What is E-Procurement
 E-procurement is
expected to help
the participating
organizations
control inventory
more effectively,
lower procurement
and inventory costs,
…
What is E-Procurement
 reduce purchasing
personnel and
improve efficiency
of purchasing
processes..
How E-Procurement Works
 E-procurement,
providing direct and
efficient
procurement
linkages between
business customers
(buyers) and
suppliers, is based
on a group of
Internet-enabled
models.
How E-Procurement Works
 Many-to-one
(company-centric)
relationships are
based on a single
buyer's initiative to
establish an online
procurement site to
deal with suppliers.
How E-Procurement Works
 Many-to-many
relationships are
organized by several
buying
organizations
(customers) that
establish
relationships with
suppliers via an
online exchange..
E-Procurement Models
 Based on
procurement
elements and their
functionality, there
are two main types
of e-procurement
models:
E-Procurement Models
 E-sourcing is used
for online strategic
sourcing and
selection of
suppliers, including
identifying and
comparing
prospective
suppliers, selecting
suppliers, and
negotiating contract
terms with them.
E-Procurement Models
 Electronic reverse
auction (e-RA) is a
common type of e-
procurement model.
According to this
model, a buyer
(buying
organization)
creates a request
for quote (RFQ) and
invites potential …
E-Procurement Models
 suppliers to submit
bids, and then, using
the online auction
process, selects
usually the lowest-
price bidder. The
price during the
auction process is
dynamically
changing in
descending…
E-Procurement Models
 …(reverse) order
until the lowest
supplier price wins
the auction..
E-Sourcing
 E-sourcing is defined
as the use of Web-
based applications,
decision-support
tools, and
associated services
to identify, evaluate,
negotiate, and…
E-Sourcing
 configure purchases
and supplier
relationships that
will effectively
support supply
chain and other
business operations
E-Sourcing
 Negotiation—-
providing various
negotiation tools
like auctioning,
request for proposal
(RFP), request for
quote (RFQ),
request for
information (RFI),
bid-ask, weighted
scores, and others.
E-Sourcing
 Collaboration—-
incorporating
collaborative tools
like messaging, net
meetings,
collaborative
workspaces, and
portals that enable
effective interaction
among buyers,
sourcing teams, and
suppliers.
E-Sourcing
 Project
management—-
identifying activities,
time, and resources
for e-sourcing
projects; tracking e-
sourcing project
completion; and
developing ways to
optimize project
performance.
E-Sourcing
 Knowledge
management—-
maintaining a data
repository of all
product
specifications and
changes, sourcing
activities,
 and external market
information.
E-Sourcing
 Document
management—-
utilizing an online
exchange of all
documents related
to sourcing
decisions. These
documents may
include bill of
materials, CAD
drawings and charts
E-Sourcing
 Analytics—-
providing
quantitative and
statistical tools to
identify and analyze
performance results
of various steps of
e-sourcing..