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MIM 524 Class Six. Agenda - Logistics Defined -Logistics as a strategy -Logistics as a system...
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Transcript of MIM 524 Class Six. Agenda - Logistics Defined -Logistics as a strategy -Logistics as a system...
MIM 524Class Six
Agenda- Logistics Defined- Logistics as a strategy- Logistics as a system- Logistics Metrics- Modes and types of carriers- 3PL providers- Negotiations & partnerships- Genchev article questions
Logistics defined
“That which plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and information between the point of origin and the points of consumption.”
Quote from: Council of Supply Chain Management Professionals
Logistics as a strategy- In this course, “logistics” will concentrate
on carrier selection & inventory MGMT, not warehouse management or cost accounting variances- Cycle counting, physical inventories, receiving
functions are important, but not necessarily part of a sourcing strategy.
- Logistics can be a profit center for outbound materials or a loss on reverse logistics or continuity of supply / inventory.
Logistics as a strategy - Data- Council of Supply Chain Management
Professionals (CSCMP) Data 2010- 2009 logistics costs as % of GDP 7.7%,
down from 9.3% in 2008- Inventory carrying costs fell 4.6%- Transportation costs were down 20.2%
- These due to interest rate declines and recession
- What has changed in 2011? Oil prices!
Logistics Strategies Include….Uninterrupted Supply of Inbound Material
Supplier SelectionForecasting of SupplyInformation SharingInbound Transportation
Facility Numbers and LocationsLocal WarehousesDistribution Centers
Inventory Quantities and LocationsTimely Distribution of Necessary Materials
Forecasting of DemandOutbound Transportation
Key Logistics System FeaturesCycle Time / Lead TimeConsistency of CyclesOrder AccuracyConsolidationProblem
Notification/ResolutionCustomer
Satisfaction/FeedbackFlexibility / ResponsivenessCost
Logistics Measurements- Total Costs: Inventory, warehousing,
buffer stock, broker fees, insurance, customs, etc.
- Speed: metric is time when shipment released at supplier to receipt by buyer
- Reliability or fill rate: On-Time-Delivery- Capability: ability to move specific
materials- Accessibility: Carrier capable to door-to-
door service
Transportation Modes
- Motor: Highly flexible, limited to domestic service
- Rail: Low cost, limited to long lead-times & less flexible
- Air: Quick, very high cost- Water: Good for bulk, seasonal and slow
Logistics terms- FOB Destination: supplier owns until buyer takes
ownership (owns freight cost & liability)- FOB Origin: Supplier relinquishes ownership at
shipment (UCC 2-401)- CIF Incoterms (International commercial terms):
Cost ,insurance, & Freight in one shipping price; supplier can arrange, (easy to hide costs)
- FOB Incoterms: transfer of title negotiated- Rotterdam rules: Liability can now be negotiated
Types of carriers
Common: Serves general publicContract: Serves a buyer under negotiated
termsPrivate: owns own equipment, limited to
capacity availableExempt: free of regulation, limited to specific
freight
Top Ten International Logistics Companies- UPS: 1.8M customers & 6M destinations / day;
USA: 89% revenue- FedEX: USA: 76% revenue, air ops 83%- DHL: 49% EU revenue- AP Moeller: shipping mainly, 250 vessels- Nippon Express: 93% from Japan- Ryder: USA: 82% of revenue, leading 3PL- TNT Post: EU 85% of revenue- Expeditors: customs services & distribution- Panalpina: world’s largest “footprint” shipping
group; 52% revenue from EU & Africa- Excel: Primarily UK
Third party Service providers- 3PL – outsource logistics, from inventory
warehousing to inbound / outbound freight.
- Good solution for smaller businesses- UPS supply chain and FedEX participate- Very important if packaging or
postponement is part of your sourcing strategy, especially globally in an MNC.
3PL services
- Custom brokers- Freight brokerage- Warehouse / distribution center- Delivery- Packaging- SCM planning
3PL advantages / disadvantagesAdvantages-Econ of scale-Release capital-Allows core competency focus-VMI-Spares-postponement
Disadvantages-Relinquish control-Loss of integration-Service / flexibility-Information flow to customers-Direct shipment limits
Services Provided By 3PL’s
Transportation Mgt21%
Private Fleets7%
Intermodal4%
Warehousing21%
Value Added20%
International9%
Integrated9%
Other5%
Lead Logistics4%
Contract negotiations
- Freight carriers have a brutal business model- Competitive bidding common- Gas prices fluctuate, Container costs
rising- Port-to-port different than hub & spoke- Thus the 3PL model to expand business
Inventory Management
- We will talk about this key part of sourcing strategies in weeks 7 & 8 regarding SKU growth and e-procurement
- VMI – Vendor managed inventory- JIT – Stresses the relationship pending life
cycles and negotiated terms
Just-in-time management (JIT)Conditions for low inventories:The consumption of the component at hand is fairly stableThe consumption of the component is evenly spread over the course of
timeThe delivery time of the product is fixed and not due to fluctuationThe ordering costs per order are fixedThe inventory carrying costs do not depend on the ordered quantity (not
based on EOQ)
JIT basically challenges each of these assumptions. E.g.
order-related costs are analyzed in terms of costs related to:
Negotiations with the supplier: EOL & freight provisionsAdministrative processing: Kan Ban or RFID trackingFollow-up and expediting of orders: postponement or safety stockIncoming and quality inspections: zero defect capability
Disadvantages of JIT for a supplierIt may result in a pyramid shaped structure with a strong
hierarchy in the different links of the supply chain. The large manufacturers at the top of the pyramid impose their demands ruthlessly on the often smaller first tier suppliers aka: DELL
It takes time (and money) to deliver at zero defects or to produce zero defects. These investments come at the expense of the supplier
Supplier can become very dependent on only one manufacturer. This can become a threat to its continuity.
Consequences for suppliers
Consequences for Buyer
Disadvantages of JIT for a buyerLends itself to single sourcing strategy, it is
hard to split the business and trackCalls for the need for inventory ownership up
stream and must be trackedObsolescence in the chain must be managed
downwardSystems must be developed and investedHigh volumes, little flexibility
Rabinovich & Knemeyer- What are LSPs / VARs, why are they
important?- Why care about internet resellers?- What is their IP?
- Time- Service
- Customer focus versus delivery focus?- DFX in packaging important?
3M – What do we know?
- Heathcare in Canada is rising ~10% annually- Government is targeting new logistics methods,
dealing direct, and reducing disti- 3M Canada has over 10K SKUs- Sales to hospitals are $46.8 annually, 90% thru
VARS (value added resellers) to 350 hospitals- VARS – AP/AR, warehousing, inventory- VARS had IT / EDI integrated with 3M- Uses 3PL for balance
3M - Questions• What value do VARs provide in healthcare supply chains?
How much money can be saved by adopting a direct business model? How would the translate internationally?
• Does it make sense for 3M to eliminate VARs and increase its logistics organization?
• Why are hospitals pressuring 3M to adopt a direct business model?
• What are the long term trends in healthcare and how will VARs be affected?
• Should 3M hire a 3PL to handle distribution?• How does 3M’s distribution network help position the
company against the competition?
What should 3M do?- Currently has $4.5M in inventory- If direct, inventory rises $800K- Storage goes up $14K- Picking costs increase $720K- Transport increases $850K- Service / Order Admin increases $450K- Total - $1.6-$2.0M- Less than 10% sales, more in the 3.5%- But….
What should 3M do?- Start-up costs? – IT, return of inventory?- CRM? Order admin services, expediting,
etc…- Relationships with VARS – Market issues?- Core competence? – become a logistics
provider?- How about reducing the cost, reducign the
number of VARS, or 3PL?
CLSC – Reverse Flow is critical
Genchev Article – Reverse Logistics- In your mind does reverse logistics matter
as a coursing strategy? Why?- How does this play into a closed loop
quality system?- How would inventory management be
affected?- How would you disposition the product in
your company & is this a consideration for start-up organizations?