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Central Philippine University Mgt 49 LOGISTICS MANAGEMENT

Textbooks: 1. Meredith, Jack R. and Scott M. Shafer. (2011). Operations Management, 4 edition Inter national Student Version by John Wiley & Sons, Inc.(Asia) Pte Ltd 2. Russell, Roberta S. and Ber nard W. Taylor III. (2006). Operations Management: th Quality and Competitiveness in a Global Environment, 5 ed by John Wiley & Sons, Inc. Defi nition Logistics1. Is a field of study concerned with the transportation and distribution of goods and services in a forward or reverse flow (adapted from Russell and Taylor) 2. Is concer ned with the movement of goods, people, energy and infor mation for suppl y or distribution i n a forward or reverse flow. It is a vital sector of the s uppl y chain management (SCM) process. Suppl y chain - encompasses all activities associated with the flow and transfor mation of goods and services from the raw materials stage through to the end user (customer). 3. Comes from logosti kos (Greek) meaning one expert i n enumeration. First used in the 18th century, the word in its current meani ng became popular during W W II. a. Ar my's Field Service Regulations (1949) definition: that branch of admi nistration which embraces the management and provision of supplies, evacuation and hospitalization, transportation, and services. It envisages getting the right people and the appropriate supplies to the right place at the right ti me and in the proper condition b. Houstons definition (1966) in his book on ar my logistics: application of ti me and space factors to war and consists of the three big M's of warfare: material, movement, and mai ntenance Logistics management - the process of planning, i mplementing and controlling the efficient, effective flow and storage of goods, services, and related infor mation from poi nt of origi n to point of consumption for the purpose of confor mi ng to customer requirements
th

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= Whats it all about? CLM book - in Lambert, Stock & Ellram 1998, p.3) as cited in http://l ogmgt. nkmu.ed u.tw/news/articles/Logistics%20 ma na ge me nt%20 fro m%20a %20Co mple xity%20Perspective.pdf Review: 1. Products may be goods or services 2. Defi nition of management

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A clearer copy of the previous page is available at http:// www.supplychai nobserver.com/2012/03/18/history-of-logistics-and-suppl ychai n- management-infographic/ Importance of the Study of Logistics 1. Onset of globalization 2. Cost i mplications of logistics 3. Logistics as a competitive advantage Class Exercise: a. Divide into groups. b. Choose a leader, assistant leader and secretary c. Submi t this infor mation to the teacher Assignment: Individual assignment: Product ori gin and distribution a. Look at your cupboard and toiletry rack. b. Select 5 packaged items. c. Read the package/ label of each, note the name of product, the company name, and deter mine where the item was manufactured and if there is a listed importer and/or distributor.) d. Bring your list for discussion next meeting. Examples (theoretical): Name of Manufactured by product Delicious Ice Delicious toothpaste Products Company Close- Up Unilever toothpaste Countr y of Company Thailand Vietnam Imported by Nga Noc Distribution Company None Distributed by XYZ Distribution Company None

TRANSPORTATION Defi nitions: Transportation - movement of a product from one location to another as it makes its way to the end- use customer Freight cargo

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Ship used in logistics as another verb for transport (especially commercially) Mode manner Importa nce o f tra nsportatio n to lo gistics : 1. Transportation costs can be as much as 20% of total production costs and r un as high as 6% of revenue. (In the US, over $600 billion per year) 2. Transportation is a major deter mi nant of prompt delivery service. Principal Modes of transporta tion: 1. Railroads a. Cost-effective for transporting low value, hi gh density, bulk products e.g. raw materials, coal, minerals, sugarcane b. Operate on less flexible and slower schedules than tr ucks c. Cannot go directly from one business location to another as trucks can d. Have the worst record of quality perfor mance of all modes of freight transport, with a hi gher incidence of product damage and 10 ti mes more late deliveries than tr ucki ng 2. Air a. Most expensive and fastest mode of freight transport b. Li ghtweight, small packages <500 lbs c. High value, perishable and critical goods d. Less theft 3. Trucks a. Main mode of freight transportation in the U.S. generating over 75% of the nations total freight cost each year b. Provide flexible point-to-point service, delivering small loads over short and long distances over widely dispersed geographic areas c. Typically more reliable and less damage-prone than railroads. 4. Inter modal a. Combines several modes of shipping tr uck, water, and rail b. Key component is containers c. Truck-water-rail/truck combi nation the pri mary means of global transport

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d. Inter modal tr uck-rail shipping can be as much 40% cheaper than longhaul trucki ng Show videoclip of roro transport 5. Water a. Low-cost shipping mode b. Primary means of i nter national shipping c. Slowest shipping mode 6. Package carriers ex. UPS, FedEx, 2Go, LBC, LIBCAP a. b. c. d. Small packages Fast and reliable Increased with e-business Primary shipping mode for i nter net companies like Amazon, L.L. Bean, Dell computers

7. Pipeline a. Transport oil and products in liquid for m b. High capital cost, economical use c. Long life and low operating cost d. They can be laid on land or under water. The longest gas pipeline links Alberta to Sarnia (Canada), which is 2,911 km in length. The longest oil pipeline is the Transiberian, extendi ng over 9,344 km from the Russian arctic oilfields in eastern Siberia to Western Europe. 8. Telecommunications a. Routes are practically unli mited with ver y low constraints, which may incl ude the physiography and oceanic masses that may i mpair the setting of cables. b. Provide for the instantaneous movement of infor mation (speed of light in theory). c. High network costs and low distribution d. Can provide a substitution for personal movements in some economic sectors. Note: For US, greatest volume (about 1/3 of total) is transported by railroad, followed by trucki ng, pipeline, and inland waterways

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Transshipment the passing of goods from one transportation to another Transshipment point or transshipping poi nt location where transshipment takes place (between sources and desti nations). An example is a distribution center or warehouse located between plants and stores. Major transshippi ng points in Asia incl ude Singapore (places 2 worldwide in World Economic For ums logistics perfor mance index) and HongKong Refer to short video clip on Hong Kong container terminal
nd

Vietnams Physical Infrastr ucture

From a report by the Italian Institute for Foreign Trade (ICE, also known as Italian Trade Commission) of Ho Chi Minh City:

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Vietnam: - located in the south-eastern end of the Indo-Chinese peninsula - with land area of 331,688 square kilometers - north-to-south distance: 1,650 kilometers - about 50 kilometers wide at the narrowest point - shares boundaries with Laos, Cambodia on the west and Chi na in the north. - has 58 provinces and five big cities - geographical topography: tropical lowlands, deltas, hills and densely forested hi ghlands - major geographic regions: hi ghlands and the Red River Delta in the north, the Highlands in the central region and the coastal lowlands and the Mekong Delta in the south - a population of more than 85 million Factors that led to the growth of foreign direct i nvestment and more privatelyowned Vietnamese enterprises: 1. Inter national economic integration: a. for ming of bilateral trade agreements b. membership in the ASEAN Free Trade Area (AFTA) c. accession to the World Trade Organi zation (WTO) 2. favorable government policies for industrial activities 3. relatively low cost of labor 4. strategic location i n a fast- growing region of the world Busi ness growth = demand for logistics services Major transportation modes i n Vietnam: 1. Air a. operates under the Civil Aviation Admi nistration of Vietnam (CAAV) b. names of 3 international airports: , c. 19 minor airports for serving the major airports: and

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d. major international airport: capacity in ter ms of number of passengers: capacity in ter ms of number of airplanes: e. names of two principal airlines operating i n Vietnam: Show figure with increasing freight volume by air 2. Water a. Accounts for 25 30% of total transport volume for Vietnam b. Vietnams coastline = 3,260 km coastline c. Number of ports of Vietnam = 127 ports, of which handle ocean car go d. Five main locations that receive regular contai ner services in Vietnam are: (handles 72% of total cargo throughput), , and e. Lar gest local operator is the National Shipping Li nes and

Show figure with increasing freight traffic by river 3. Trucks a. As of 2007, about 210,000 km roads and 17,300 km national highway b. National Master Plan for Transport incl udes road improvements up to 2020 c. In 2009 there were over 1,050 enterprises registered in the road transport business. Ver y few foreign invested companies are present. Most road transport companies are of small and medium scale. Each company owns about 50 vehicles, on average d. Road transport accounts for around 60% mar ket share of domestic cargo. This is also increasing. 4. Railroad a. Vietnams rail network = about 2,600km (excl uding sidings) b. Principal axis - Hanoi-Ho Chi Mi nh City (1,726 km) which connects the pri me economic zones in the north and south. It connects to Chinas railways. c. Sole operator: Vietnam Railway Corporation ( VRC) d. Focus: passenger traffic e. Growing trend i n freight traffic but not as fast as other modes Assignment: Bring news articles about the transportation sector in Vietnam.

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DISTRIBUTION Distribution - all of the channels, processes and functions i ncludi ng warehousi ng and transportation, that a product passes through on its way to the fi nal customer (end user) Four decisions to be made by managers of market logistics: 1. 2. 3. 4. How should orders be handled? (order processing) Where should stocks be located? (warehousing) How much stock should be held? (inventory) How should goods be shipped? (transportation)

Marketing channels (also called trade channels or distribution channels) inter mediaries who bring producers products to the mar ket Stern and El-Ansarys defi nition: - Sets of i nterdependent organi zations involved in the process of maki ng a product or service available for use or consumption Why Marketing or Distribution Inter mediaries are needed: 1. Most producers lack the fi nancial resources to carry out direct mar keti ng or distribution. 2. In some cases, direct mar keti ng is not feasible 3. Investment in main busi ness often ear ns greater retur n that by establishing own channel. Thus i nter mediaries are needed because of their greater efficiency

Channel Functions: 1. 2. 3. 4. 5. 6. 7. Collection and dissemination of mar keti ng research infor mation Promotion of the product or service Negotiation on price and other ter ms Ordering from the manufacturer Financing of inventories Risk taki ng Physical possession of physical products

Channel levels: 1. Zero- level channel (direct mar keti ng channel) 2. One-level channel (i.e. one-level inter mediary e.g. retailer)

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3. Two level channel (in consumer mar kets, typically wholesaler and retailer) 4. Three-level channel (e.g. in meatpacking i ndustr y, wholesalers sell to jobbers, who sell to small retailers) 5. Multi-level channel Steps for deciding w hich channel to use: 1. Anal yzing customer needs 2. Establishing channel objectives 3. Identifyi ng and evaluati ng the major channel alternatives includi ng types and numbers of inter mediaries that will be involved in the channel (including excl usivity ter ms i f any) Retailing i ncludes all the activities involved in selling goods or services directly to fi nal consumers for their personal, nonbusiness use Major retailer types: a. b. c. d. e. f. Specialty stores Department stores Super mar kets Convenience stores Discount stores Off- price retailers (factory outlets, indendent off-price retailers, warehouse clubs) g. Superstores (combi nation stores, hyper markets) h. Catalog showrooms Wholesaling i ncludes all the activities involved in selling goods or services to those who buy for resale or business use. Physical distribution the process of getting goods to customers Suppl y chain a ter m that has superseded physical distribution Re ading assig nme nt: Read on how some companies distribute their products in Vietnam, especially the products i n the first assignment. Explore the channels utilized.

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FLEET MANAGEMENT Defi nition of Ter ms Fleet a number of vessels (ships) or vehicles in a company Fleet management management of the fleet of vehicles of an or ganization rd 3 party logistics - outsourced logistics service/s rd 3 party logistics provider a company that provides logistics services for part, or all, of the supply chai n functions of another company Challenges of Fleet Management 1. Good customer service considering delivery windows 2. Efficient operations: cost-efficiency, capacity utilization, customers served/ day, vehicles used/ day, drive time, fuel consumption, extension of useful life of vehicles, growth in size of fleet, 3. Retention of good-perfor mi ng employees 4. Environmental responsibility 5. Compliance to laws and regulations Fleet Management strategies: 1. 2. 3. 4. 5. 6. 7. 8. 9. Opti mal route scheduling Load balanci ng Fleet visibility Control of critical fleet resources Real-time feedback Provision of 3rd party logistics services Vehicle replacement program (considering age, usage and mai ntenance costs) Fuel card system Global positioning system

Technologies utilized by some fleet managers are for: 1. 2. 3. 4. 5. Tracking vehicle movements throughout the day Capturing stop ti mes and duration, and re-estimates ti me of arrival at next location Alerting dispatchers to potentially late or missed deliveries Monitoring of engine idling and perfor mance of other major vehicle systems Identifyi ng instances of harsh braking, speeding, and other unsafe driving practices

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ETHICS IN LOGISTICS Ethics - a set of moral principles : a theory or system of moral values (http://www.merriam-webster.com/dictionary/ethic)

Code of Ethics INTERNATIONAL SOCIETY OF LOGISTICS Preamble The Logistician, i n consonance with the highest standards of ethical conduct will:

Accept a personal obligation to the public, employers, clients and the logistics profession to serve them with honest and competent professional effort. Act i mpartially and vi gorously to advance the digni ty and the integrity of the logistics profession. Share personal knowledge, skill and experience with others for the improvement of human environment and welfare. Support the human rights of all and discourage any for m of discrimination because of sex, race, creed, age, political affiliation, or natural origin. Maintain hi gh standards of excellence in professional performance, personal conduct and good citi zenship.

Part 2 -- The Logistician will avoid activity or employment which could compromise moral and professional judgement or create a conflict of interest with employers or clients. The Logistician will: 1. Accept no contribution, honorary position or reward from another or gani zation or individual for work done for an employer or client without their consent to such acceptance. 2. Accept no for m of compensation from two sources for the same or similar effort unless both sources are in agreement. 3. Infor m an employer or client of any business or fi nancial connections or interests which could infl uence, or give the appearance of influenci ng, individual professional judgement or job perfor mance. 4. Refrain from accepting, from any source, gifts or emoluments that could influence, or appear to infl uence professional perfor mance. 5. Accept no work from an employer or client

SECTION I - Obligations to t he Public Part 1 -- The Logistician, in all professional efforts, will exercise proper regard to assure the safety, welfare, and health of the public. The

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Logistician will: 1. Maintain a principal commitment to the public welfare and to national ideals. 2. Act to i nfor m the proper authorities of conditions or activities contrary to the public welfare. 3. Serve the public constr uctively through participation in civic affairs in which professional ability can contribute to social and economic progress. 4. Practice no discriminatio n because of sex, race, creed, age, political affiliation, or national origin and discourage such discrimination by others. 5. Where human health and safety are involved, with-hold approval of plans or operations that do not meet accepted professional standards and state clearly the consequences to be expected if these standards are not met. Part 2 -- The Logistician will strive to enhance the public awareness and knowledge of logistics and protect the logistics profession from misrepresentation. The Logistician will: 1. Vol unteer to speak or write about logistics systems, their contributions to the public good, and the effects of logistics on the life of every citizen. 2. Assist in dissemi nating i nfor mation regarding logistics activities that have contributed to the public safety, health, or welfare. 3. Encourage the founding and perpetuation of logistics education i n all pertinent programs and institutions and volunteer to help identify

if the work cannot be fufilled without compromisi ng the interests of employer or client. 6. Avoid the use of privileged infor mation from an employer or client to create unfair trade or employment practices. SECTION III -- Obligat ions to the Logistics Profession and SOLEThe Internat ional Society of Logistics Part 1 -- The Logistician will avoid all conduct or behavior which may discredit the logistics profession or SOLE-The Inter national Society of Logistics. The Logistician will: 1. Abstain from the exaggeration of professional qualifications or associations in seeking employment offering or services. 2. Refrain from competing unfairly with other logisticians by taki ng an undue advantage, being personally critical, or by other i mproper or questionable methods. 3. Seek no i mproper private advantage through the use of professional affiliations and refrain from any promotion of personal interests at the expense of the digni ty and public acceptance of the logistics profession. 4. Refuse to engage or cooperate in any practice that unfairly restricts the professi onal job opportunities of others. Part 2 -- The Logistician will not allow the use of his or her name or professional reputation i n any effort or endeavor of questionable integrity or character. Part 3 -- The Logistician will recognize the

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competent faculty or speakers. 4. Strive to further personal education and professional competence and to encourage others to do the same. SECTION II -- Obligations to Business and Governme nt Associates Part 1 -- The Logistician will observe the hi ghest standards of integrity in all personal, business and government relations with, or on behalf of, employers, employees, suppliers, clients and customers. The Logistician will: 1. Protect and keep the confidences of employers, employees, suppliers and clients and not use such confidence, privileged infor mation, trade secrets, or proprietary data for personal gain or for any other unethical or unauthorized use. Act forthrightl y and honestl y in making reports and statements to, or on behalf of, employers, employees, suppliers and clients. Represent professional qualifications and capabilities truthfully so that employers and clients will know how best to employ the Logistician's services. Accept responsibility for errors of commission or ommission i n the service of employers and clients.

proprietary and professional interests of others and will give proper credit to those to whom credit is due. Part 4 -- The Logistician will accept the obligation to promote logistics management improvements and the intelligent use of physical and human resources through study, research, and effective action i n logistics planni ng and operation. Part 5 -- The Logistician will encourage the professional development of his or her contemporaries through membership in SOLE-The International Society of Logistics, participation in technical meetings, and conti nui ng education activities.

Discussion by group: 1. Which specific area or form of logistics would you li ke to be a part of, i f given the choice to have a business? Describe your dream busi ness. 2. What i mprovements would you like to make in this area? 3. What are the possible ethical issues here? How do you propose to handle those?

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SUPPLY CHAIN STRATEGIES SUPPLY CHAIN encompasses all activities associated with the flow and transfor mation of goods and services from the raw materials stage through to the end user (customer) In addition, SUPPLY CHAIN is all the assets, infor mation, processes that provide suppl y. Upstream are the suppliers and downstream are the distributors, warehouses and lastl y end- use customers May be very si mple or complicated

Strategy program or means to meet objectives or goals Distribution centers are physical facilities involved in warehousi ng and storage of products for distribution. Activities that take place in a distribution center a re receiving, handling, storage, packagi ng, and dispatchi ng of products So me S upply C hain S trate gies (for efficienc y in cost a nd c usto mer response): 1. Warehouse management system (WMS) is an automated system that runs the day- to -day operations of a distribution center. Due to its cost, WMS is onl y for big, complex, data-intensive operations. 2. Vendor- managed inventory a busi ness model in which the supplier takes full responsibility for maintaini ng an agreed inventory of materials 3. e-procurement- is an electronic transaction or system of purchasing w hich can be in the for m of business to business (B2B), business to customer (B2C) or business to gover nment (B2G). E-procurement makes use of internet. 4. Outsourcing getting the services of another logistics provider to provide part or all of the services that an organi zation needs to provide to its customers (example: rd outsourcing of trucks from a 3 party provider) Third party logistics (3PL) defi nition - all the logistics service arrangements under those three headings (partnerships, third party agreements, integrated service agreements), although third party arrangements can vary over ti me, between countries, and in the level of integration between the partners. (Skjoett- Larsen) 4PL - a supply chain manager, a coordinating inter mediary between the

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shipper and 3PLs, and as an upgraded 3PL 5. Cross-docking refer to previous notes on this topic 6. Just-in- ti me (JIT) inventor y system - original name of the Toyota Production System (TPS). Toyota's system is widely known as the most efficient manufacturi ng system i n the world. It emphasized mi ni mizi ng inventory and smoothi ng the flow of materials so that material arrived just as it was needed or just-in-ti me. Later the ter m lean production became more widely used and is used interchangeably with JIT. JIT Promotes the Prevention of Waste ( Muda) in Operations. Waste may be i n the for m of: 1. 2. 3. 4. 5. 6. 7. 8. Overproduction produci ng items we cannot i mmediately use or sell Waiting for parts, machines and downstream operations Transporting moving items needlessly Processing unnecessary steps that do not add value Inventor y sorting, retrieving, counti ng, insuring, taking up space and money Movement searching for tools, parts, instr uctions, approval Defects rework and scrap Under utilization of talent and skills of worker

Discussion: Identify some waste in an operation or in your lifestyle MEASUREMENT OF LOGISTICS PERFORMANCE Importance of Measurement: 1. Serves as a basis for improvement What you cannot measure, you cannot improve 2. Helps track progress 3. May serve as one of the bases for review of personnel or group i ncentives Key perfor mance indicators (KPI) metrics used to measure suppl y chai n perfor mance; must be tied to the objectives and tar gets of the or ganization Some KPIs in logistics: 1. Inventor y tur nover (or tur ns)

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= Cost of goods sold / Average aggregate value of inventory Average aggregate value of i nventor y = ( Average inventory for item i) x unit 1. Val ue of item i Cost of goods sold (or COGS) is onl y for finished goods, valued at cost, not the final sale price (which might incl ude discounts or mar kups)

2. Days of supply = Average aggregate value of inventory / (Cost of goods sold/ 365) 3. Fill rate = fraction of orders filled by a distribution center withi n a specific ti me period Monitoring of Perfor mance: 1. Monitoring has to be done regularly. 2. Monitoring results have to be documented and reported. 3. Responsibilities and authority for monitoring must be made clear. 4. There must be commitment to conti nual improvement. The most important factors in logistics are speed and accuracy.

LOGISTICS SYSTEM DESIGN System a group of i nterrelated processes. Thus the logistics system of a company may include various transportation and distribution processes. One of the key areas in logistics system design is the design of the warehouse. Vogt, Piernaar and de Wit (2005) present the following as the initial requirements for the design: 1. Purpose of facility whether the facility is to be a storage facility, a distribution facility, or combi nations of any or all of these and w hether the service promised is next-day or same-day delivery.

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2. Growth forecast For example: If it is foreseen that in the future, the volume handled by the warehouse would be quadruple, this forecast should be considered in the current design. Although some logistics organizations will not have the flexibility of desi gning their own warehouses from scratch, they will still need to consider above factors even if they are just renti ng a warehouse. Other factors that infl uence warehouse design: 1. 2. 3. 4. Method of goods receiving Equipment to be used Picking capability Requirements of the principals (in the case of distribution

business) Processes in a warehouse: 1. Order processing 2. Picking 3. Inbound transport arrival 4. Delivery 5. Return of unwanted goods 6. Stock count 7. Transfer into storage 8. Preparation/ inspection o f proof of delivery and billing 9. Stock purchasing 10. Write off of stock 11. Pick face replenishment and letdown Sizing the warehouse: Rule of thumb-the building itself should occupy onl y 40 to 50 percent of the land, with the remainder used for transport maneuvering, parki ng and access Floor and roof account for 80 percent of the building cost Design Process: 1. Deter mine product-process categor y (PPC). 2. Consider storage, receiving and dispatch areas and iterate the process till an opti mal solution is reached. 3. Combine the requirements for each PPC into a common facility that is efficient and cost-effective

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4. Design storage as to whether block stacki ng, racki ng (various for ms with different pallet handling), drive-in racking, and mobile racking. The higher the racks or the smaller the aisle, the greater is the density of storage. 5. Design the receiving area based on the size of the largest truck commonl y received. 6. Design the picki ng area according to equipment that will be provided for picking. 7. Design the assembly/ dispatch areas according to largest tr uck capacity and the number of routes of delivery at a ti me (which will determine the number of bays) 8. Design the movement zones according to w hether traffic inside the warehouse is one - way or two-way, and the sizes of the equipment. 9. The flows of each new PPC must be charted and the best areas allocated for storage, dispatch assembl y, receiving areas and for movement aisles. 10. The loading doors must be easily accessible for transport and must have a dock leveller on it to match the level of the floor of the warehouse with the level of the floor of the truck. A canopy may be installed as needed. 11. Design the roadway based on the length of the tr uck and trailer from the door, tur ning circle, and boundar y area. 12. Include provisions for fi ze safety, security and li ghti ng. Selection of Equipment: Deter mine w hether equipment is a prerequisite, required but not a prerequisite, or liked but not required. Storage Methods and Equipment 1. Storage for small items a. Shelving b. Bins c. Live storage or case flow rack d. Mobile shelving e. Carousels f. Storage cabinets 2. Pallets and storage a. Block stacking b. General pallet storage racks c. Static storage racks d. Narrow aisle racks e. Drive-in and drive-through racks f. Mobile racks

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g. Live storage racks or pallet flow racks View some video clips 3. Moving loads a. Manual and powered pallet trucks b. Forklift or counterbalance tr uck c. Reach trucks d. Turret trucks, narrow aisle trucks and cranes 4. Moving and sorti ng a. Conveyors: belt and roller bed b. Accelerator belts c. Merge systems d. In-line barcode scanner a. In-line weighi ng and measuring b. Diverters and sorters 5. Containers can be 20footer or 40 footer 6. Container-handling equipment a. Spreader and twistlocks b. Reach stackers c. Straddle carriers and straddle cranes Some problems identified in warehousing (partial list): 1. 2. 3. 4. 5. Product contami nation Theft Unauthorized entr y Product deterioration Pest (note previous discussions on types of pests and how to control

them) Software selection criteria: 1. 2. 3. 4. 5. Need of the or ganization Cost Capability to handle the functions required by the or gani zation (e.g. discounti ng) Cost of software, its implementation and annual mai ntenance Resources (e.g. manpower, ti me) needed to i mplement and mai ntai n

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6. Track record of the supplier and software implementation 7. Availability of local support Assignment: Present on SAP, BPCS, Oracle and JD Edwards software

PROCUREMENT Inventor y stock of items kept by an or ganization to meet i nternal or external customer demand. It is one of the most expensive assets of many companies, representi ng as much as 40% of i nvested capital. Various For ms of Inventor y: 1. 2. 3. 4. 5. 6. Finished goods Raw materials Purchased parts and supplies Wor k-in-process (i.e. partially completed) products (WIP) Items bei ng transported or in transit MROs

Inventor y management is concerned with the amount of inventor y to keep in stock (how much and w hen to order). An or ganization can never achieve a low -cost strategy without good i nventor y management. Specific reasons (or drivers) for having inventories: 1. To provide a stock of goods that will provide a selection for customers 2. To meet variations in product demand 3. To meet demand that is seasonal or cyclical Ex: Toy manufacturers produce when demand is low (summer and fall) to meet hi gh seasonal demand during Christmas season. This allows them to have smooth flow of operations throughout the year. 4. To meet variations in supplier deliveries 5. To take advantage of price discounts or product sale

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6. 7. 8. 9.

To hedge against anticipated price increases To get a lower price by purchasi ng in vol ume To lower ordering cost (when ordering cost is higher than carryi ng cost) To provide independence between stages of the production process, thus, to avoid work stoppage or delays

Note that reasons center around customer service and inventor y cost or investment. Customer demand the starting poi nt for the management of i nventor y Three basic costs associated with inventor y: 1. Carrying or holding costs costs of holdi ng or keeping i tems in i nventor y. The greater the level of inventor y over a period of time, the higher is the carrying cost. In general: any cost that grows linearly with the no. of units in stock is a carrying cost . Included are: facility storage (rent, depreciation, power, heat, cooling, lighting, security, refrigeration, taxes, i nsurance, etc), material handling (equipment), labor, recordkeeping, borrowing to purchase inventor y (interest on loans, taxes, insurance), product deterioration/ spoilage/ breakage/ obsolescence/ pilferage. Carrying costs are generally expressed in either of these two ways: a. Total carrying costs = sum of all individual costs expressed on a per -unit basis per ti me period, such as a month or year, e.g. Php10 / box / year b. As a percentage of average inventor y value e.g. 10 to 40% of the value of the manufactured item. 2. Ordering costs costs associated with replenishi ng the stock of inventor y being held. Usually expressed in Php/ order and are independent of order size. In general: any cost that increases linearly with the order is an ordering cost. Included are costs of: a. requisition and purchase orders b. transportation and shipping c. receiving d. inspection e. handling f. accounti ng g. auditi ng Ordering costs react i nversely to carrying costs. In general: as the order size increases, ordering costs decrease and carrying costs increase.

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If items are manufactured inter nally, ordering costs = setup cost (cost to prepare a machi ne or process for manufacturing an order; incl udes ti me and labor to clean and change tools or holders). It is hi ghly correlated with setup ti me. 3. Shortage or stockout costs occur when customer demand cannot be met because of insufficient i nventor y. Shortages can also cause any or a combination of the following: a. customer dissatisfaction b. a loss of goodwill c. penalties in the for m o f price discounts or rebates d. work stoppages Shortage costs are usually esti mated only. In general: As the amount of inventory on hand increases, the carrying cost increases while shortage cost decreases. Inventor y Control Systems 1. Classification : ABC anal ysis Based on the Pareto Pri nciple or 80/20 rule: critical few, trivial many Exercise: Pareto Principle for household items 2. Ordering System, which maybe either: a. Continuous Inventor y System b. Periodic System 3. Record Accuracy Cycle counti ng: Begi nning i nventor y + Purchased inventor y+ Retur ns = Ending i nventor y Continuous Inventor y System or perpetual or fi xed order quantity system; w hen inventory reaches a specific level (referred to as the reorder point), a fixed amount is ordered. Economic Order Quantity (EOQ) Model most widely used and traditional means for deter mini ng how much to order in a conti nuous system. This model traces its roots to Ford Harris, an employee at Westinghouse (around 1915).

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deter mines the opti mal order size that mi ni mizes total inventor y costs.

Production Quant ity Model


-

a variation of the EOQ Model also called gradual usage and non- instantaneous receipt model

Reorder point point at which a new order is placed Note the following from previous discussions: Just-in- ti me System Vendor- managed inventory

OUTSOURCING OF LOGISTICS SERVICES Due to the need to focus on core functions of the organi zation, many resort to outsourci ng some or all of their logistics needs. Impor tant poi nts: a. Differentiate 1 party from 2 party from 3 party b. Frequentl y outsourced logistics services: procurement of materials and components, transport, warehousing, i nventor y control c. Finding the Ri ght Logistics Company i. Get list of clients. Ask for referrals from current clients ii. Compare quotations e.g, for tr ucking: for truckload and less than truck load iii. Insurance coverage (could be one of the items required for logistics service provider accredtitation) for lost/ damaged products, etc iv. % on ti me deliveries v. Freight delivery perfor mance (e.g. care taken i n handling goods, on-ti me delivery, flexibility in adj usti ng to reasonable changes, d. Logistics Service Provider Accreditation: request for legal documents (e.g. mayors permit) e. Monitoring and Eval uation of Logistics Service Provider
st nd rd

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REVERSE LOGISTICS Review: Logistics is concerned with the transportation and distribution of goods and services in a forward or reverse flow.

Reverse logistics is a field of logistics that is concer ned only with reverse or backward flow o f goods and services from trade (consumer or end user). It is thus concer ned with product retur ns or rejected services.

Common Product Defects For physical products, there are various product defects depending on the kind of product. For example: dents, pinholes, leaks, rust, scratches, cracks, tor n (e.g. label), holes, pest infestation. Related to product shel f-life: expiry The gover nment requires declaration of expiry date on food and dr ugs ( medicines). Production and Expiry Date Declaration on Some Products 1. Military Ti me 2. Julian Calendar 3. Gregorian Calendar Related to primar y or secondar y packagi ng: Dents on cans, torn boxes, mislabelling (label and product do not match), Best Practices Logistics in Reverse

a. Senior management oversight of reverse logistics b. Clearly laid-out retur n policies c. Automation of reverse logistics (e.g. tracki ng of warranties to confirm that the product was sold by the organi zation, monitori ng of ti me for check-up up to sendi ng back to customer, linki ng data to fi nancial statements refer to problem by Overstock) d. Classification of parts as to value (thus those with low or no value may no longer be retur ned to manufacturer) e. Use of returns management authorization (RMA) or similar for m to track retur n all through the various steps

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f. Use of learnings from retur ns to i mprove product or service g. Communication to customer about retur ns (to ensure repeat purchase, to update about status of refund i f any) 1. Orient customers at point of sale (POS) 2. Give customers a number to call before they make a retur n h. Established guidelines as to what to do with returns: e.g. refurbished, repackaged and retur ned to i nventor y. It may be repaired or mined for parts or sent to a secondar y mar ket for resell. If sent for disposal, environmental compliance issues may come i nto play. In any case, speed is important i n order to realize the maxi mum value from the asset. i. Separate monitori ng (includi ng profit and loss statement) and location for retur ns Discussions: Product recall, causes, implications, preventive and corrective action

GREEN LOGISTICS There is greater consciousness about environmental issues due to global warming. More consumers are thus asking about how suppliers are recycling their products, More and more consumers and or ganizations have thus i ncluded environmental considerations in their operations. In logistics, this gave rise to the concept of Green Logistics. The practice of green logistics is expected to infl uence various processes involved in transportation and distribution. Profiting from Green Logistics Organizations from profited from green logistics through the use of reusable contai ners, palletizing systems that maxi mi ze loading, waste segregation, green building technology, and other si milar practices. Results of green logistics: 1. Lower waste disposal costs 2. Compliance with environmental laws and regulations 3. Lower material costs

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INFORMATION MANAGEMENT

SYSTEMS

FOR

LOGISTICS

AND

SUPPLY

CHAIN

Enterprise Resource Planni ng a software that helps integrate the components of a company, includi ng most of the suppl y chain processes, by shari ng and or ganizi ng infor mation and data among suppl y chain members. Discuss interaction of sales data with manufacturi ng, inventory, procurement, i nvoicing, distribution, accounti ng, and on supplies. SAP -1 ERP software provider and is the largest Warehouse Management System ( WMS) may be a stand-alone system to manage the warehouse or warehouses. Could also be one of the ERP modules.
st

An automated system that r uns the day-to-day operations of a distribution center and keep track of i nventories. It places an item in storage at a specific location (putaway), locates and takes an item out of storage (a pick), packs the item, and ships it via a carrier.

Group Assignment: a. Report on general attitude and culture with regards to work of the following1. Americans 2. Filipinos 3. Ger mans 4. Japanese 5. Chi nese b. Report to: 1. 2. 3. on attitude and practices of assigned group with regards colors handshakes food

HUMAN RESOURCE CONSIDERATIONS IN LOGISTICS MANAGEMENT Motivation willingness by an employee to work hard to achieve the companys goals

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Abraham Maslows Pyramid of Human Needs - gave rise to Douglas Mc Gregors Theory X and Theor y Y which then gave rise to Frederick Herzbergs Hygiene/ Motivation Theories Herzbergs Theories: o Hygiene Factors: company policies, supervision, working conditions, interpersonal relations, salary, status, security o Motivation Factors: achievement, recognition, job interest, responsibility, growth, advancement Job performance a function of motivation combi ned with ability Ability depends on education, experience, and training, and its i mprovement can follow a slow but clearly defined process Basic elements in job design and management that have been shown to i mprove motivation: 1. Positive reinforcement and feedback 2. Effective organization and discipline 3. Fair treatment of people 4. Satisfaction of employee needs 5. Setti ng of work-related goals 6. Design of jobs to fit the employee 7. Wor k responsibility 8. Empowerment 9. Restructuring of jobs when necessary 10. Rewards based on company as well as individual performance 11. Achievement of company goals Contemporary Trends i n Human Resources Mana gement: 1. Job training two of Demi ngs 14 points refer to education and traing 2. Cross training an employee learns more than one job 3. Job enrichment a. Ver tical job enlargement allows employees control over their work b. Horizontal job enlargement an employee is assigned a complete unit of wor k with defi ned start and end 4. Empowerment giving employees the responsibility and authority to make decisions Teams or Groups help in the realization of empowerment and employee i nvolvement

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Flexible work schedules or flexti me or flexiti me part of a daily work schedule in which employees can choose ti me of arrival and departure Alternative workplace a non-traditional work location Telecommuti ng employees work electronically from a location they choose Types of Pay: a. Hourl y wage b. Individual incentive or piece rate c. Straight salary most common for m of payment for management d. Commissions usually for people in sales Gainsharing an incentive plan joins employees in a common effort to ac hieve company goals, who share in gai n Profit sharing sets aside a portion of profits for employees at years end Managing diversity i n the workplace may be done through: 1. 2. 3. 4. 5. Education Awareness Communication Fairness Commi tment

Discussion: Global diversity issues Schedule of Fi nal Exam:

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