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2- Value
Value is the ratio of output purchased divided by inputs used to
purchase the product or service. Customers seek value. Value can be
increased by giving the customer more for the same price, or by giving
them the same amount at a lower price:
8- Reverse Logistics
The management of products that flow backward in the supply chain,
away from the consumer and back in the direction of manufacturers.
(The management of materials moving upstream in the supply chain)
The key question for each of the four most popular modes is knowing
when each mode is most appropriate. This requires an understanding of
the strengths and weaknesses of each mode. In looking at the
comparison below, be mindful that the information relates mostly to the
United States. Each country has a different logistics infrastructure so
perceived strengths and weaknesses can vary greatly abroad.
ROAD
Primary Strengths: Fast (2nd fastest mode of transport), Cheaper than
air. High flexibility (roads are everywhere, roads can take you from one
mode to another), this is a highly competitive market so costs may be
reasonable and shippers need to be reliable to survive. Typically, a vital
component in intermodal transport. Gets your product right into the
customers hands.
Primary Weaknesses: Weather, traffic, and crime may pose dangers and
delays. Requires lots of licensed and reliable drivers. Fuel costs
fluctuations. Rules and regulations may quickly change from one region
to the next.
When to use: Road is not the fastest nor the cheapest. It is neither the
most expensive nor the slowest. Road is thus a reasonable combination
of a number of important transportation attributes. Most cargo moves
using at least a little bit of road transport. The bigger question is : When
should road be the most prevalent mode of transport? Well, if the
shipment needs to be shipped rather quickly, at a reasonable cost,
directly into the hands of a customer it would likely be a good idea to
use road transport.
RAIL
Primary Strengths: Can handle heavier loads than road. Better for longer
distances than road. Cheaper than road transport. Works well in
conjunction with intermodal ocean and/or road transport.
Primary Weaknesses: Slow. Rails are not as easily accessible and
available as roads. Loss can be higher due to vibrations during transport.
Not a very competitive industry so reliability can be low. Getting
product directly to customer using only rail is very difficult.
When to use: Good for heavy and/or bulky shipments that do not need
speedy delivery. Also good for items with low value/weight ratios. A
good intermodal option for lengthy domestic shipments where speed is
not vital.
OCEAN/WATER
Primary Strengths: Low cost per mile for large, bulky, or heavy
shipments. Almost anything can be shipped via ocean vessel. Works
well in conjunction with intermodal rail and/or road transport.
Primary Weaknesses: Very slow. Reliability of shipment can be low.
Due to lengthy shipments, more exposure to the elements, thieves, and
hazardous conditions. Getting product directly to customer using only
ocean shipment is very difficult.
When to use: Excellent for large and bulky international shipments that
require low transportation costs, but do not require quick shipment.
AIR
Primary Strengths: Fastest mode of transport. Minimal exposure to the
elements, theft, and hazardous conditions. Can work well when linked
with road transport in getting items into the hands of the customer.
Primary Weaknesses: Extremely expensive. Not easily linked with rail
and ocean. Cannot accommodate standardized containers. Requires
accommodating airports on both ends of a shipment.
When to use: An attractive option with items that have a high
value/weight ratio. Especially useful when short lead times and low
inventory levels are valued. In addition, useful when security and
damage are significant concerns.
6- Controlled Atmosphere (CA)
Often called reefers because they are refrigerated, modern CA
containers can also control humidity, composition of the air, and
pressure
7- Intermodal
When cargo is moved from one vehicle or vessel to another vehicle or
vessel without directly handling the cargo. Typically the cargo would be
stored inside of a standardized container or a truck trailer. The
standardized container can swiftly and securely be moved from a ship to
a rail car, from a rail car to a truck chassis, etc.
8- TEU
Stands for Twenty-foot Equivalent Unit. This is how containerized cargo
is measured. One 20-foot container is equal to 1 TEU. One forty-foot
container is equal to 2 TEUs. TEUs are used to measure a number of
things including:
Amount of break bulk cargo imported or exported into or out of a
country. (Not necessarily restricted to break bulk cargo.) Example: Last
year Dingo Digital imported 3500 TEUs into the USA.
Size of a container ship. Example: That ship that just docked is
American President Lines 14000 TEU container ship.
The amount of cargo that enters or leaves a shipping port. Example: In
2011 the Port of Dubai handled over 13 million TEUs.
Since a majority of the containers on earth are actually 40-foot
containers, some logisticians choose to use FEU, which of course stands
for forty-foot equivalent unit.
2- Planogram
A map of where every product goes on a retail store shelf. (See picture
that follows)
Explained: Rather than have each store manager figure out which items
go on which shelf, chains can develop planograms for each product
category. This creates incredible efficiencies and also creates continuity
for the customer experience from one store in that chain to another. So,
while shampoo may be in a different part of Wal-Mart from one location
to the next, the shampoo shelves will likely look identical at each of the
similarly sized locations.
3- Balking When a potential customer sees the line, but never joins
the line because they think it looks too long and/or too slow.
4- Reneging When a customer joins the line, gets frustrated and
leaves the line
5- Last mile
In supply chain the last mile typically refers to the portion of the supply
chain between the final inventory holding facility and the end consumer.
6- Omni-channel Retailing
Retailers that are fully committed to engaging customers via catalogs,
phone calls, websites, email, internet chatrooms, social media sites or
mobile apps, and of course also in stores. True omni-channel retail
readiness would require companies to have a very strong presence in the
many channels they choose to meet customers.
2- Pull System
A system that is activated by consumer demand. As a result a supply
chain will not make and store finished goods inventory. Instead, the
supply chain will wait for the consumer to place a specific order and
only then will the supply chain react by perhaps buying raw materials
and/or parts, and then assembling the desired goods, before quickly
delivering them to the consumer. Inventory is pulled by the consumer
by communicating a specific desire to those in the supply chain.
Explained: This system works well when products innovate at a fast
pace or consumer desires are not standardized. The more variation in
consumer demand, the more likely an organization might be to adopt a
pull strategy. Using the example provided in the opening (Casual Dining
Restaurant), an example of an item likely produced using a pull strategy
would be the filet mignon. While the raw steak was likely available in
inventory, the steak was not cooked until the specific order was placed.
Only then could the steak be served fresh and to the specific desires of
the consumer.
Here an organization would likely carry raw materials inventory that
might be used to produce a range of finished goods. Perhaps the steak
could be served as the main part of a steak dish; perhaps it could be used
on a steak sandwich, or perhaps even as a topping on a steak salad. The
key element here is customization. The customer gets what they desire
and the raw material is used to satisfy a specific customer order.
Characteristics of this system might include:
3- Postponement
A system that combines push and pull - pushing product elements that
are considered standard and then allowing customers to pull product
elements that can be customized. Those product elements that are
standard will be produced in advanced, and then final production will be
delayed (postponed) until the consumer places an order that specifies the
customized elements.
Explained: Subway Sandwiches is a good example of a company that
takes advantage of postponement. This organization bakes sandwich
bread long before customers arrive. In addition, meats, cheese, and
vegetables have been pre-cut and pre-sliced. Thus when customers
arrive they nearly need to ask for the appropriate sandwich items to get
put together.
In this example, the baking of bread, and slicing of meats, cheeses and
vegetables are all push elements of the system. Since Subway knew
customers would want some combination of those times on many
sandwiches they were prepared in advance. This allows for speed in the
system (ingredients ready before customer even arrives) and also some
economies of scale (large batches of bread produced at the same time),
in addition to opportunities for quantity discounts.
The pull elements all occur when the customer places the order The
customer can have a sandwich built to their exact specifications quickly
and while still allowing for a reasonable level of quality consistency for
all orders.
Companies are free to decide how much push or pull to introduce into
their system. Some companies may only choose to allow product color
as a postponed option (a very push-oriented system). Other companies
may allow for 5, 10, or more customizable options (a very pull oriented
system).
4- Bullwhip Effect
The bullwhip effect is a supply chain phenomenon where fairly stable
demand results in a proliferation in the amount of inventory that is
carried as one travels upstream in the supply chain. Distribution carries
more inventory than retail. Manufacturing carries more inventory than
distribution. Suppliers carry more inventory than manufacturers. And so
on, and so on.
Explained: In business, dealing with uncertainty is a constant challenge.
One of the more common tools supply chain managers utilize to battle
uncertainty is inventory.
Is there a chance of theft? Damage? Loss?
Is there a chance my sales forecast might be wrong?
In all of these cases and in many others an easy way to try and minimize
the impact of these uncertainties is to carry extra inventory. A retail store
has uncertainty about consumer demand. Thats one level of uncertainty
so they need some safety stock. Distribution, though, has to deal with
both the uncertainties related to consumer behavior and also the
uncertainties with behaviors at all of their retail stores. Thats two levels
of uncertainty, thus they need more inventory. Manufactures have three
levels of uncertainty in front of them: distribution, retail, and consumer
uncertainties. Thus, they need even more inventory. This constant
amplification of inventory from one supply chain level to the next is the
bullwhip effect.
5- Causes of the Bullwhip Effect
If the bullwhip effect is caused by uncertainty then very likely. most
causes of the bullwhip effect are related to poor observations, poor
supply chain practices, and poor communication. The following are just
a few key causes of the bullwhip effect:
Order Batching When companies place large and infrequent orders
from their suppliers. Typically this is done to take advantage of quantity
discounts and economies of scale in purchasing and delivery. The
problem is that the infrequent orders leave large communication gaps
(uncertainty) for suppliers and it may also require suppliers to carry
large amounts of inventory so they can be prepared when those large
orders are actually placed.
Forward Buying This is the result of suppliers offering sales. Buyers
are motivated to buy in large quantities to take advantage of low prices.
Buyers are not buying based on demand, but rather on price. Therefore,
true demand is unknown by sellers (uncertainty). Sellers experience the
uncertainty of demand due to their own short-term drops in price for
their customers.
Rationing Sometimes, despite their best efforts, suppliers do not have
enough inventory to satisfy the demand of all of their customers. If this
is the case, suppliers may ration their inventory and send each of their
customers only a fraction of the inventory that was ordered. For
example, if a company receives orders for 1,000 total units from their
customers, but only has 800 units of inventory available, that company
might only send each of their customers 80% of their orders. These
smaller than expected deliveries introduce doubt into the system and
thus may trigger negative behaviors in the future.
Shortage Gaming Rationing can often lead to shortage gaming. In
rationing, customers only receive a fraction of their placed order. This
leaves the customer short of their desired inventory level. If customers
feel that this rationing may occur again, customers may try to game
the system by placing an order larger than their expected demand. For
example, if their demand is 80 units, they may place an order 100 units
instead of the 80 units needed. The rationale is that when the supplier
sends them only 80% of their placed order, they will get exactly the
demand needed.
This is can cause so many types of problems. This would include the
possibility that the supplier has enough inventory to fulfill the 100 unit
order. In this case the customer now has more inventory than needed. On
the other hand, if the supplier does need to ration deliveries, they will
still feel as though the customer wanted more. This may cause suppliers
to inflate inventory levels in subsequent periods in an effort to meet the
large, but false, demand of their customers.
6- Lean Manufacturing
A production philosophy that strives to meet consumer demand and
desires but with minimal inventory levels and minimal supply chain
waste.
(In the past some people referred to Lean Manufacturing as Just-in-time
(JIT) and/or the Toyota Production system (TPS). Some will argue they
are different, some will say there is no significant difference. For this
module we will assume there is no difference between lean
manufacturing, JIT, and TPS.)
Explained: First, it is important to remember that consumer desires are
constantly evolving. Even if a company meets consumer demand and
desires today, this does not guarantee that they will continue to satisfy
consumers into the future.
This brings us to the second important point, since consumers demand
and desires are moving targets; there is no single set of business
practices that will guarantee success. Lean Manufacturing is a
philosophy or set of values that can guide a company toward good
decision making in their supply chains. Nonetheless, as companies strive
to provide consumers value they seek to do so by maximizing
productivity. Therefore, all supply chain decisions driven to provide
consumers with value need to also be weighed against the types of waste
that might be produced for the company: Waiting time, transportation,
stored inventory, defects, motion, unnecessary work, inventory
produced
7- Keys to Lean Manufacturing
By no means is the following a complete list of the issues a company
should consider when trying to be lean, but these are some of the most
common elements of developing a lean philosophy.
4- Contract Manufacturers
A company that produces goods on behalf of another organization.
Explained: Apple designs numerous digital devices but they outsource
manufacturing to companies like Foxconn and Pegatron. Foxconn and
Pegatron would therefore be considered Apples contract manufacturers.
5- Near-sourcing
While this term does not have a consistent definition in the world of
supply chain management, it often refers to a type of offshoring or
offshoring and outsourcing where the location of the manufacturing
facility is relatively close to the location of the consumer.
Typically, it refers to a shift in strategy, where a company used to
manufacture goods very far away (example: 8,000 miles away) from the
home market, but then shifts to manufacturing in a country that is much
closer (example: 750 miles away) to the home market.
Explained: The key words in the definition provided are relatively
close.
Consider Company X, an American company, that sells their products in
the US, but manufactures its products in China because of the relatively
low Chinese labor costs. Now suppose that ocean port strikes become
routine in the United States, and/or perhaps oil prices are volatile very
high one month, very low the next. What might Company X do?
Company X may not want to manufacture in the United States, but they
may consider manufacturing in Mexico. Labor costs will likely be
significantly higher, but the lower risk of late shipments and high
transportation costs may make near-sourcing in Mexico a more viable
option.
Note: Near-sourcing can be used to describe both near-source offshoring
and also near-source offshoring and outsourcing strategies.
8- Freight forwarder
A contractor (company or person) that helps companies organize the
efficient and effective shipment of goods from one point in the supply
chain to another. Freight forwarders do not actually transport the goods,
instead they negotiate and arrange for one or more logistics companies
to prepare, secure, store, track, and move the cargo.
Explained: If you didnt know how to move your cargo youd likely
want to contact a freight forwarder. Effectively, they act as your logistics
manager, finding logistics partners that can aid in all logistical aspects.
For this logistics management service they would charge you a fee on
top of the fees required to pay the logistics contractors they hire on your
behalf.
While they can be beneficial for any type of domestic shipment, they can
be particularly useful in helping your company export your products.
9- Customs house broker
A contractor (company or person) that helps a clients goods clear
customs in a foreign country.
Explained: When goods are shipped abroad, they must be inspected by a
customs official before they are cleared to enter the country. A customs
house broker acts as your agent in this process. They take over the
responsibilities of importing that occur before the goods reach the
border: presentation of documents, issuing inspection.
10- Third-Party Logistics company (3PL)
A contractor that performs one or more logistics functions for their client
in an effort to facilitate effective and efficient movement in the supply
chain. This third-party contractor can neither be the buyer nor the seller
of the items being moved.
Explained: Basically, this is can be any company that helps supply chain
partners with any logistical needs. Actually, in some cases, 3PLs may
actually offer services that may fall outside of the realm of logistics
(procurement, assembly, etc.). Below is a short list of the types of
services that might be performed by a 3PL:
Arranging shipping itineraries, in some cases taking over all the
clients logistics responsibilities
Aiding in the import and/or export process
Warehousing, Distribution, Picking and Packing
Containerization and Transportation
Packaging
Documentation
Product tracking, Logistics data and information management
Logistics specific financial services
Management of digital marketplaces for logistics services
As can be seen, there are few boundaries in the 3PL industry; almost any
logistics related company could conceivably call themselves a 3PL
Module 8
1- Social Responsibility in Business
In the world of business social responsibility often means that an
organization values three things:
Legal and Ethical Behavior Acting within the law in all of the nations
in which they conduct business. It might also include treating
stakeholders well - employees, business partners, and customers.
Sustainability Earth-friendly business practices. Having business
practices, products, and services that do not harm the environment in the
present nor in the future.
Commitment to the Community Investing in the well-being of the
communities in which the business operates as well as the greater world.
Explained: The concept may seem simple, but in fact it can very easily
become manipulated or confused. All three categories are so broad and
general that different parties can interpret them in different ways
Companies may use the term to seek a competitive advantage. Special
interests groups may create radical interpretations of the concept in order
to attack companies