Global Operations and Logistics

By - Philippe-Pierre Dornier, Ricardo Ernst, Michel Fender, Panos Kouvelis

Group No. 10Rahul Nair

Rahul RastogiJerry TomyNimit Shah

Chintan ShahRahul Ram Kasture

Operations and Logistics

Operations It is Physical process Accepts input and transform into valuable output To meet customer’s need

Logistics It is a management of flows It is between business functions Flows from companies to market

Direction of the Flow

Flow Management

Environmental Factors affecting Flow Management

Market – It change under the influence of several factors Competition Technology – it change logistics in the form of

manufacturing innovations, e.g. barcodes Government Regulations – environmental regulations

Basic Principles of Global Operations

Geographical IntegrationFrom Local to Worldwide logistics

Functional IntegrationFrom function-dominated logistics

to flow-dominated logistics

Sectorial IntegrationFrom a sector-based logistics

(producer/distributor) toInter-sector logistics

Global Logistics & Operations

Management

Dynamic Forces of Logistics

Resource-oriented logistics (Capital, materials and people)

Information-oriented logistics (Availability of products, time to deliver and customer needs)

User-oriented logistics (Final Customer)

Competitive Framework for Operations and Logistics

Suppliers Quality

Cost Flexibility

MyCompany

CustomersSuppliersMarket

Response

Competitors

Understanding the customer

Lot size Response time Service level Product variety Price Innovation

Why Some Organizations Fail

Too much emphasis on short-term financial performance

Failing to take advantage of strengths and opportunities

Neglecting operations strategy Failing to recognize competitive threats

Why Some Organizations Fail

Too much emphasis in product and service design and not enough on improvement

Neglecting investments in capital and human resources

Failing to establish good internal communications

Failing to consider customer wants and needs

Planning and Decision MakingMission

Goals

Organizational Strategies

Functional Goals

Finance Strategies

MarketingStrategies

OperationsStrategies

Tactics Tactics Tactics

Operatingprocedures

Operatingprocedures

Operatingprocedures

Banks, ATMsConvenienceLocation

DisneylandNordstroms

Superior customer service

Service

Burger KingSupermarkets

VarietyVolume

Flexibility

Express Mail, Fedex,One-hour photo, UPS

Rapid deliveryOn-time delivery

Time

Sony TVLexus, CadillacPepsi, Kodak, Motorola

High-performance design or high quality Consistent quality

Quality

U.S. first-class postageMotel-6, Red Roof Inns

Low CostPrice

Examples of Operations Strategies

Global Strategy

Strategic decisions must be made with respect to globalization

What works in one country may not work in another

Strategies must be changed to account for these differences

Other issues Political, social, cultural, and economic

differences

Strategic OM DecisionsDecision Area Affects

Product and service design Costs, quality liability and environmental

Capacity Cost structure, flexibility

Process selection and layout Costs, flexibility, skill level, capacity

Work design Quality of work life, employee safety, productivity

Location Costs, visibility

Quality Ability to meet or exceed customer expectations

Inventory Costs, shortages

Maintenance Costs, equipment reliability, productivity

Scheduling Flexibility, efficiency

Supply chains Costs, quality, agility, shortages, vendor relations

Projects Costs, new products, services, or operating systems

Traditional versus New Supplier Partnerships

Traditional Approach Primary emphasis on

price Short-term contracts Evaluation by bids Many suppliers

Supplier Partnerships Multiple criteria Longer term contracts Intensive and extensive

evaluation Fewer selected suppliers

Traditional versus New Supplier Partnerships (contd….)

Traditional Approach Improvement benefits

shared based on relative power

Improvement at discrete time intervals

Problems are suppliers responsibility to correct

Information is proprietary

Supplier Partnerships Improvement benefits are

shared more equitably Continuous improvement

is sought Problems are jointly solved Information is shared

Reasons for Outsourcing

Strategic Reasons Improve business focus Gain access to world class facilities Accelerate re-engineering benefits Share risks Free resources for other purposes

Reasons for Outsourcing

Tactical Reasons Reduce or control operating costs Make capital funds available Create cash infusion Compensate for lack of internal resources Improve management of difficult or out-of-

control functions

Criteria for consideration of a component for outsourcing

Which products/components should be outsourced?

What criteria should be used for supplier selection?

How might these factors change across the life of the main product?

Example: Criteria used by Bose Corporation

A mature, trusting relationship exists with the best supplier in the category

The supplier has a good engineering capability The volume in the product category exceeds $1

million The product category involves many transactions,

creating a need for an in-plant representative The technology in the category is not changing at a

revolutionary pace The category does not involve proprietary or core

technologies

The Strategic Importance and Criticality Matrix

NOVELTY(Outsource/In-

house)Technology

QualityService

PROPRIETARY

(In-house)Technology

Quality

COMMODITY

(Outsource)Price

UTILITY(Outsource)

Co-operation

Service

High

High

Low

Low

Strategic value of the part in isolation

Criticality of the part to final assembly

Dynamic Evolution with the Product Life Cycle

Resource capability factors Service factors Price factors Environmental factors

Dynamic Evolution with the Product Life Cycle

Stage i

Stage ii

Stage iii

Resource capability Service Price

Product Life cycle

Raw Material

Intermediateproducts

FinalProducts

Delivery to Customers

Activities

Purchase

Manufacture

Logistics

Distribution

Transport

Linear Supply Chain

Supplier

Manufacturer

Wholesale

r

Retailer

Bullwhip or Whiplash Effect

Perceived demand seasonality and forecast error can increase as we proceed upstream in the supply chain. This phenomenon is known as Bullwhip or Whiplash effect.

X

Y

Z

Customer

Effects of Bullwhip Effect

InefficiencyExcessive InventoryDissatisfied CustomersLost RevenueIneffective Production Schedules

Behavioral causes of Bullwhip

Individual Decisions

Types of Incentive

Non-Behavioral causes of Bullwhip

Demand Forecast Updating

Order Batching

Price Fluctuation

Rationing & Shortage Gaming

Remedies Information sharing across supply chain

linksLead time reductionBetter product allocation facilitiesPenalties on order cancellationReduction in processing costsContinuous Replenishment Programs

Uncertainties in Global Supply Chain

Substantial Geographic DistanceForecasting Difficulties &InaccuraciesExchange Rate UncertaintiesInfrastructural InadequaciesExplosive Dimensions of Product

Risk Management in Global Operations

Jerry Tomy(161)

Exchange Rate Exposure36

Degree of Exposure to Exchange rate

Source of firm’s inputs, including financing Location of the firm’s final markets Location of production

Global operations and logistics Text and cases

Types of Foreign exchange exposure37

Characteristics Transactions/Translational Operating

Nature of exposure Contractual/ Accounting Future operating cash flows and competitive

Financial items considered

Contractual and asset valuation: Debt, payables, receivables

Non contractual :Revenues, costs and profits

Inputs to measure exposure

Accounting statements/ contracts

Future operating cash flows and competitive position

Exchange rates that affect profit

Nominal Real

Global operations and logistics Text and cases

Types of foreign exchange exposure Transaction exposure Translational exposure Operating exposure

Factors complicating the estimation of operating exposure

1. Customer Reactions2. Competitor Reactions3. Supplier Reactions4. Government Reactions

Global operations and logistics Text and cases

38

Managing Operating Exposure

Development of a global network of production facilities with excess capacity

Development of a portfolio of global suppliers

Design of flexible, creative and fast product development processes

Ability to select and expand product line for various markets

Global operations and logistics Text and cases

39

Managing Operating Exposure (contd…)

Development of flexibly structured supplier and the distribution channel selection

Pricing strategies for exporting firms Exchange rate pass-through pricing policies Pricing adjustments to preserve market share

Use of operational flexibility to minimize operating exposure

Global operations and logistics Text and cases

40

Strategies for managing exchange rate risk

Forward contracts

Futures contracts

Options

Global operations and logistics Text and cases

41

INFORMATION MANAGEMENT FOR GLOBAL LOGISTICS

INTRODUCTION

• Physical flow of Information – An Important Logistics Management Tool

•USES1.Forecast, Anticipate & Plan2. Operations traced in time – Product location 3.Control & Report

•Trend to invest in : Data Processing Information system Telecommunication Resources

to manage Physical flow

• Customer satisfaction through: Info about the physical distribution or supply operation Ability to transmit that Information

ROLE OF INFORMATION

• FOR CUSTOMER SATISFACTION- location of goods

•FOR PROPER UTILISATION OF RESOURCES- time & place utility

• FOR SHARED PLANNING- various functions related

•TO REDUCE SHORTAGES- forecast demand

•TO SPEED UP THE AVAILABILITY OF NEW PRODUCTS- JIT

•FOR PRODUCT RANGE OPTIMIZATION- supply as per outlet turnover

•EVALUATION INFORMATION- success or failure of product to avoid stocking

LOGISTICS INFO & TELECOM SYSTEM (LITS)

It is the centerpiece of the LIS for global operations. It is a critical factor for the internal efficiency of the operations & logistics organization & for the overall services provided by logistics. It plays an important part in firms sales & productionIt encompasses flow monitoring across the full chain of logistics activity.

ROLE:

1. Disseminating logistics info across-• multiple geographical sites• different functions• various sectors

2. Monitoring & informing about • Efficiency of logistics operation• Quality of production• Quality of logistics services

PROCESSCapture the basic Data

Transfer data to handling & processing centers

Stores the basic data as necessary

Processes the data into usable info

Stores the info as necessary

Transfers the info to users

Looks after all the processing steps for flow of products within the constraints of service level & costs

• Cost reduction in mgmt of materials flow cycle• Efficient flow of products

Makes database & implements decision support tools to manage resources

• Optimize the physical resources put in place all along the logistics chain• Maximum efficiency

Provides feedback to logistic performance control

• Follow up operational performances

Provide decision-making tools for management

• Saving of time & money

FUNCTIONS & USES OF LITS

CHARACTERISTICS OF LITS

1. VISION FOR THE CUSTOMER Customer service neglected to optimize cost- Provide all indicators needed to know how the logistics process works per

customer .

2. ACCURACY OF DATA Data chosen should capture reality

3. RELEVANCE OF DATA OVER TIME Synchronize data

4. ADAPTED TO DIVERSITY OF PHYSICAL FLOWS Different solutions for different customers, products, markets, etc

5. CAPABILITY FOR MOBILITY Change with geographies or technology

FUNCTIONAL DIMENSION OF LITS

FUNCTIONS INFO REQUIRED PURPOSE

Finance Purchase, sale & inventory in transit

To provide for finances

Production Stock with various intermediaries

To evaluate demand & then produce

Sales & distribution

Tracking of goods

Place & time utility

LITS RELATED TO USERS

USERS FUNCTION INFO REQUIRED

Top level logistics mgmt

Strategy & monitoring Aggregate data

Operational mid-level mgmt

Short-term planning & operational control of

activities

Data for specific activities

local logistics level

mid-term monitoring (1.5 yr)

Data for managing activities for a small period

of time

Basic logistics operation

Data entry, transfer & transmission Detailed data-all

Outsider Individualistic As per their requirement

TRANSFER OF INFO UNDER LITS

CATERGORIES INFO REQUIRED PURPOSE

Suppliers Requirements of manufacturer

Delivery of material

Manufacturers Status of raw material & demand for goods

Plan manufacturing

DistributorsRe-placing

ordersDemand & sale

Logistics service providers

Timely delivery orders, documentation ,etc

Clearing & delivery orders

customer Availability of products-place & time

Customer satisfaction

USING NEW TECHNOLOGY-LITS

• It helps in overcoming the challenges in integrating the 3 dimensions- functional, geographical &sectorial .

•Only facilitates operations but not sufficient to set up a global logistics organization

• Helps in listing, storing, transferring & transforming data & information.

• Technologies supporting LITS:Code barsCD-ROMSGlobal Positioning System (GPS)Electronic Data Interchange (EDI), etc

•ADVANTAGES: Info more reliable Industrialize processingSpeed up info transfer

Performance Measurement and Evaluation in Global Logistics

The Relationship Between Desired Level of Service

Minimization of Logistics Costs

Monitor the Cost Elements

Procurement costs for raw materials, components, and subunits

Purchase cost for raw material, components, and subunits.

Production costs Sales price of finished goods

Types of Logistics Responsibility Center

Production Cost Center Discretionary Cost Center Income Center Investment Center. Profit Center

Cost Accounting Methods in Logistics

Total Cost Method Direct cost method Standard cost method

Measuring Performance in Functional Integration

Length of the operation The sum of quantities ordered The number consumed The number broken, creating loss The number left over, extra logistic cost The number of days blocked The number of extra days necessary for

selling excess inventory

Metrics for measuring performance

Efficiency of the managerial function involved

Adaptability to customer requirements. Adaptability to market requirements

Objective of Metrics

Measuring the volume and logistics performance

Setting goals and comparing situations Following a market plan Determining the leavers Revealing the degree of flexibility Leading mobilizing and managing personnel

Principles of Metrics Design

Arranging indicators by priorityBased on importance and performance

Segmenting the metricsClassify according to constraints, product types, market types

Visualizing the function content Clarifying objectives of the function Selecting indicators that deal with quality Formatting the metrics effectively

Measuring Performance in Sectorial Integration

Timeliness of Project steps Effective Consumer Response Introduction of promotions Improved use of shelf space Adapting packaging facilities

Performance Measurement of Logistics Service Companies and Third-Party Logistics

Develop Monitor Indicators of performance Data Collection

Organizational structure for Global excellence

Centralization Formalization Specialization/Differentiation