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activities
Importance of Material handling * Impact on Quality
Objectives of material handling (system) (Opn Mgt-LCJhamb) 1. Facilitation of production 2. Movement minimization
Productivity improvement
Productivity of M/H equipment
Conveyers
EOT Cranes
HOIST
Pipe lines
Forklifts
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Sortation
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Industrial Trolleys
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Railroad cars
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Robotics
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forklift
pulley block
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conveyers
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Carousels, Racks
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Principles of material handling (System) 1. Planning - high impact on cost 2. Integration material handling decision should be part the corporate strategyfoundation, floors, layout, product 3. Standardization handling methods, equipment, software 4. Work minimum handling
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9. System integrate handling & storage (O/H tanks and pipe lines) and form Operational Material Handling System 10. Automation - need based 11. Environment - explosive?
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Signs of Poor Material Handling 1. Cluttered floor 2. Accidents 3. Excess inventory 4. High waiting time, high Through Put Time, poor flow of material 5. Excessive handling 6. Poor quality of product, high scrap
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7. Lack of standardization
8. Poor use of skilled labor
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8. Maintenance support
9. Life cycle cost
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Economic factors
1. Capital invested in equipment and interest on
capital
2. Maintenance and repairs
3. Power
4. Labour 5. Taxes, insurance and depreciation
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Palletization
Containerization
Lead-time Cost
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6. product protection is improved Examples: bottles in crates, steel sheets in coils, steel ropes in coils etc. container is an example of unit load.
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Palletization
Pallet is a Unit load platform
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Benefits of Palletization 1. Unit load is secured on a pallet, pallet provides a secure base for the unit load 2. Leads to containerization, container is a (unit
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Types of pallets 1. Wooden pallets 2. Plastic pallets 3. Composite pallets 4. Refrigerated pallets: self-contained shipping units for refrigerated materials Pallet pools central pools to collect pallets and issue pallets to global business
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Packaging What is Packaging? A function of logistical management Where is it performed? A facility a factory, warehouse When is it done? Begins immediately on production
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Why is it done? For product protection For facilitation of easy handling & movement For customer service
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How is it done?
By using packaging material, equipment,
human resource
Types packaging
1. Consumer packaging
2. Industrial packaging
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Consumer packaging
Attracts attention
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Industrial packaging
Makes logistical activities of handling, storage &
moving easy
Reduces lead-time
Enhances safety
Improves product protection
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2. Grouping goods into convenient unit for distribution mango boxes, cola bottles, cotton bales, wire rope coils
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4. Protection - physical damage, bubble pack, corrugated sheet cartons, mangos in crates
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5. Cube minimization - flattened cans, square shaped whisky bottles, soft drink concentrates, furniture in knocked down condition, buckets or containers one inside the other, plastic chairs
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7. Facilitating handling & using same package can be used for both activities: fruity packs, flexible tubes, aerosol packs
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Transportation
Transportation [Ref. Bowersox page 311] What is transportation? One of the functions(?) of Logistical Management Visibility? Contribution to Logistical costs?
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1. Product movement
What is moved? Inputs and outputs of a conversion process Raw Material Semi Finished items WIP Finished goods
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Packaging material Rejected material Movement is required up or down the supply chain
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2. Product Storage
Product is in storage (inventory, stock)
applicable
Product is in storage when
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2.
4.
To meet the customers' demand for products & services at minimum cost
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How is this done? What resources are used? Resources used by transportation Time Money Nature, environment
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Costs generated by transportation a. Time, Temporal Costs - product is locked up during transit, hence inaccessible b. Money, Financial CostsAdministration Costs, salaries, maintenance, etc Product loss and damage Cost of fuel for prime mover
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c. Nature, Environmental Costs Guzzles natural fuels India consumes about 90% of the total available and imported oil for
transportation
Transportation Creates congestion, air pollution and noise pollution. Environmental cost is tangible and substantially intangible.
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Principles of transportation
1. Economy of scale
Bulk shipping brings down per unit transportation cost 2. Economy of distance Cost per unit kilometer decreases as the distance moved increases Principles of transportation are fundamental in evaluating transportation strategies.
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Transport time
Inventory in stores Inventory in transit pipeline inventory (Transit capital) Obsolescence
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Packaging
Breakage
Insurance
air, high insurance
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1.
Terminal facilities - well maintained loading unloading facilities, space for movement of vehicles, platforms, railway yards 2. Vehicles- trucks, ships or wagons. Their size, shape & speed
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3.
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What are various features of modes or modal characteristics? How do we measure relative weight of each mode? System mileage, traffic volume, revenue, nature of traffic composition
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Railways Rail network Stands out in terms of tonne-kilometres moved 226 billion tonne-kilometres and 55.8% of total tonne-kilometers moved in 1982 in India
449 billion tonne-kilometres and 51.7% of total tonne kilometers now moved in
India
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Focus on specific products than on broad range Raw material extractive industries away from water ways.
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Unit trains
Container trains
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Road transport High flexibility and speed Ultimate mode of transport Rapid growth, post war Low capital cost as compared to Railways
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Operating costs are higher Ideal for small shipments over short distances
Labor intensive
Occasional fuel shortages Availability of good quality vehicles Availability & cost of maintenance and spares
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government
Octroi
Old MVA
Restrictive permits
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Trailers
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Water transport
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Importance of deep water vessels & deep water ports to fully realize benefits of water transport Sailing vessels for IWT Diesel towed barges, tug-barge combinations
Ferries
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Diesel towed barges- high flexibility, disadvantages are range of operation (not for long distance) and slow speed Ferries- for small water bodies like rivers and bays.
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LASH [Lighters Aboard a SHip]: when a ship is loaded on the high seas from barges, instead of loading the cargo lifted from the barge, entire barge is lifted and loaded on the ship. At the end of the voyage barge is put back on water
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LASH
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Inland water Transport is not used to its full potential in India although we have used mechanized IWT since early 1800. Main hurdles appear to be 1. Low priority in policy
2.
3. 4.
Construction of dams
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Developments in this area Construction of deep water ports: JNPT Construction of ports with private investment Port Pipavav, India's first port in the private sector is operated by APM Terminals, one of the largest operators of container terminals in the world
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Pipelines What is transported in a pipe line? Liquids - oils, crude, petroleum products In India, extensively used for transporting crude and petroleum products More than 5,000 km of pipeline exists in India for crude and petroleum products Slurries - coal slurry, iron ore, lime
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Pipelines
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Gases and vapors- natural gas, LPG, in India LPG pipe line is in existence Pulverized dry bulk material as hydraulic suspension Main features of this mode of transport Reliable all weather means of transport Low energy consumption
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Highest fixed costs, right of way and laying of pipeline, and lowest operating costs
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Rope ways
Hilly and otherwise inaccessible area Steep gradients Cause minimum ecological imbalance Point of supply and demand can be connected by shortest route Logistics of fruits in Himachal Pradesh
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Rope way
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Air transport Speed of transport is highest Fixed costs are lower than rail or road or pipe line. But operating costs are highest Air transport brings distant markets closer - perishables market in gulf countries Overcomes the hassle and cost of setting up depots and service centers overseas
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TRANSPORTATION MODES FACTORS: (MODAL CHARECTERISTICS) CAPITAL EX OPERATING COST SYSTEM KM II III 63,000 kms IV II III IV V I RAIL ROAD WATER AIR PIPE LINE I V 5000 kms
TONNE KM
70 BTKM
SPEED
III
V V
LOCATIONS]
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Rail
Road Water
Air
Pipe -line
Dependability [minimum deviation from schedule, weather, congestion& other problems] Capability [ capacity to tackle any size of the load] Frequency [quantity of scheduled movement]
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II
IV
II
III
IV
IV
II
III
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Depreciation
Insurance premium Facility for servicing, periodic maintenance etc
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Maintenance directly attributable to a particular trip breakdown Damage to the vehicle and also the cargo. Eg. hilly roads, bad roads, war effected sea routes
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1d.Vehicle utilization
Carrier likes to gain maximum mileage out of
his vehicle
Run the vehicle at top speed to cover max.
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Quote higher rates if following are not conducive to the above i. ii. Road conditions
Terminal detentions [congestion, formalities, loading/unloading etc.] iii. Obtaining a return load [market factors]
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iv. Nature of goods, hazardous, corrosive [liability, insurance] v. Density, consignment light by weight
vi. Stowability, shape and size of the product 2. Traffic Bearing Capacity
3. Government Policy
freight rates are controlled by the state (hiked or
depressed) for
Items to satisfy basic needs of common man
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4. Profit
Margin for reasonable return on investment Entrepreneurial time and efforts Funds for future development of business
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Transportation policy
Components of transportation decisions I. Mode Selection
Road - relatively quick and highly flexible but comparatively expensive Rail - An inexpensive mode for large quantities
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Cost of transportation and cost of inventory Cost of transportation and cost of customer
service
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IV. Carrier Selection 1. Constitution of the carriers organization 2. Business turn over
3.
4.
Area of operation
6.
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DIRECT SHIPMENT
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Direct shipment network Features: 1. Warehouses are eliminated 2. Long route, hence low cost
3. Simplicity of operation
4. Time of transportation is short 5. Decision points are quantity and mode
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All shipments via Central Distribution Center suppliers to Distribution center and Distribution center to retailers Features: 1. Supply chain costs reduction when distances are large. 2. DC stores inventory and acts like a transfer point
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Shipping via Distribution Center Using Milk Runs small lot sizes to large number of retailers from DC. Features: 1. Consolidation of small lots - reduction of outbound transportation cost
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Tailored Network
Tailor made to the company needs Features: 1. Matches the needs of the company 2. Coordination is complex
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NETWORK STRUCTURE DIRECT SHIPPING DIRECT SHIPPING WITH MILK RUNS ALL SHIPMENTS VIA DC WITH INVENTORY STORAGE ALL SHIPMENTS VIA DC WITH CROSSDOCK ALL SHIPMENTS VIA DC WITH MILK RUNS TAILORED NETWORK
PROS NO DC COORDINATI ON EASY LOWER TRANSP COSTS SMALLER INVENTORY MOVEMENT COSOLIDATI ON LOW INVENTORY MOVEMENT COSOLIDATI ON LOWER OUTBOUND TRANSORTA TION COSTS TRANSPORT ATON SUITES TO INDIVIDUAL NEEDS
CONS HIGH INVENTORY SIGNIFICANT RECEIVING EXPENSE INCREASED COORDINATION COMPLEXITY INVENTORY COSTS INCREASED HANDLING INCREASED COORDINATION COMPLEXITY INCREASED COORDINATION COMPLEXITY INCREASED COORDINATION COMPLEXITY STILL HIGER COORDINATION COMPLEXITY
Fig.no.22
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VI. Inter-modal transportation Intermodal Transportation Intermodal movements combine the cost and/or service advantages of two or more modes in a single product movement The more popular combinations are TOFC [Trailer On Flat Car] and COFC [Container On Flat Car].
Benefits of long haul, short time & flexibility are optimized for achieving overall cost
reduction
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Co-ordination of different modes of transport to avoid wasteful competition Single window service to the customers Encouraging containerization both for internal as well as import/export cargo
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RAIL
ROAD
COMMON, CONTRACT, EXEMPT, PRIVATE COMMON, CONTRACT, EXEMPT, PRIVATE COMMON, CONTRACT, EXEMPT, PRIVATE
FISHY BACK
WATER
TRAIN SHIP
AIR
WATER OR AIR
WATER OR AIR
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C O F C
COFC
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TOFC
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TOFC
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Roll On/Roll Off ferries [RORO]: the truck rolls on to the and rolls off at the end of the voyage
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LANDBRIDGE
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VII. Transshipment
Transportation goods and materials to the destination using one or more intermediate destinations A technological requirement Air travel to US
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Customs duty & transshipment Cargo cannot be moved without payment of duty Leads to congestion at gateway ports Customs Act provides a facility of transshipment of cargo without payment of duty.
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Nodal points
Railways network Growth of economy is the responsibility of state Movement of bulk materials for industrial growth and movement of essential commodities to PDS outlets is important for a prosperous and peaceful society
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Hence the responsibility for logistics of those items falls on the state.
State owns the net work of railways, net work that is the cheapest mode of transport for
bulk. Nodal points in the value chain of such commodities can enable movement consolidation. State owned rail net work can link these nodes to the best advantage of state and thereby to that of national economy.
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Some characteristics of nodal points are as under 1. Nodal points are part of railways logistical infrastructure
2.
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Warehousing What is a warehouse? Traditional concept of warehouse Store or godown Place where unneeded items are stored A place where things are dumped Modern concept of warehouse A facility where value addition takes place
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Modern warehouse
integral part
Warehousing Costs
responsibility
2. Identifying goods place, label, color code
updated
8. Dispatching goods- consolidated order is
replenishment requirements
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Economic and service benefits of Warehouses Economic benefits - Consolidation, Break bulk, Cross Dock, processing postponement, stock piling[seasonal storage] Service benefits - spot stocking, Assortment, mixing, production support, market presence
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Economic benefits
Consolidation warehouse
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Plant A [Product A] For W, X, Z Plant B [Product B] For W,X,Y,Z Plant C [Product C] For W, Y, Z
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Customer W [A+B+C]
Customer Z A+ C
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Service benefits
Customer X Products A+ B+ C In transit mixing Warehouse [transit mixing point, mix & make product C] Customer Y Products A+B
Plant A [Product A]
Plant B [Product B]
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Vendor C [part C]
Assembly Line X
Vendor A [part A]
Manufacturing Warehouse
Assembly Line Y
Vendor B [part B]
Assembly Line Z
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Operating principles of Warehouse/warehouse design 1. Design criteria product flow, ware house should be designed round material handling flow
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No of stories, one is ideal as against limitations of space, cost of land Height utilization, principle of cubic space, principle of go vertical, limitation on height utilization due to fire safety and insurance regulations
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2. Handling Technology
Movement continuity
Reducing runs
Reducing short runs with intermediate stops Ensuring longer runs
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3. Storage Plan
Characteristics of product
Open air storage for bulky products
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Warehousing alternatives 1. Private Warehouses Owned or leased by the product owner Control is fully with the product owner Changes can be made to integrate the warehouse with rest of the logistical system Provides market presence to the product owner There is no profit to be added to the cost
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2. Public Warehouses
base
As warehousing is their core business public
Significant scale economies, several users and resultant volume, benefits in transportation costs
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3. Contract warehouses
Contract warehouse operators take over logistics
Expertise of management
Shared resources with several clients
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1. General merchandise
2. Refrigerated
3. Special commodity
4. Bonded
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Warehousing strategy
Where? How many? Of what type?
Private Market Presence Industry synergies Operating flexibility Location flexibility Scale economies Contract Public
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Site selection
Location considerations
cost
3. Competition, presence of others
7. Customer expectation of D
8. Company specific commitments
9. Local taxation
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10. Community attitude Restrictions associated with warehouses Future expansion Cost of land Topography and soil condition Possibility of title change to the land
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Ideal warehouse location 1. Protection of stock against moisture, insects, dust, fumes, pests, thieves, fire etc. 2. Provides facilities for ware housing activities 3. Economics of operation 4. Offers water for drinking and fire fighting 5. Away from sources of detrimental conditions 6. Easy access, proximity to A customers
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7. No geographic barriers
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R/W -2
R/W -1
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Inventory at various locations, the square root law Inventory reduction and customer service How much to hold and in how many locations to hold? The square root law X2 =[X1] [n2/n1] X1 = total inventory in existing facilities X2 = total inventory in future facilities
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If a company distributes 40,000 units using 8 existing facilities and plans to reduce the inventory in their future facilities to 20,000 units, then what should be the number of facilities in their future network without compromising the customer service? If we use the square root formula, the answer is 2 facilities
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Containerization
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Containers were introduced in US during 1955 and in India during 1960 Features of a container: 1. Robust but still light for inter modal transportation 2. Equipped with fittings to facilitate safe and easy handling 3. Easily be stuffed or unstuffed in a short time
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4. Water tight and air tight outer shell 5. Internal lining that doesnt buckle under temperature and can be easily cleaned 6. Watertight flooring, air tight door seals and locks 7. Insulation to protect refrigerated cargo. Interior washable to required hygienic standard 8. Construction to allow circulation of air around
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cargo
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Dry or cube containers are front loaded, completely enclosed and suitable for generalpurpose transportation.
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Insulated Containers are available in 20 and 40 foot lengths, and contain a layer of foam insulation between the interior and exterior surfaces of the walls, floor and roof.
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An insulated container with a built-in refrigeration unit, the Reefer container maintains a set temperature and stabilizes the environment within the container to prolong the life of the cargo in the most arduous of environments.
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Flatrack Containers: Flatrack containers are used for heavy and oversized cargo, which cannot be loaded into container with fixed walls and needs loading from top or side. Can be delivered with both fixed and collapsible end walls.
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Open top containers are shaped like a box and loaded from either the top or end. They are designed to carry heavy, tall or hard to load materials such as coal or grain
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Tank containers are built to the same standard dimensions as other ISO containers, but are cylindrical vessels mounted in a rectangular steel framework. Typically, these containers are used to transport liquid or bulk materials.
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Major benefits of containerization to business 1. Integration of various modes of transport 2. Reduction in handling time and thereby turn around time of vehicles 3. Standardized size of containers reduces capital as well as operational costs
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Infrastructure for Containerization 1. Deep water ports 2. Mechanized handling equipmentEquipment used to load and unload are container cranes called straddle carriers, side loader forklifts. Obviously this equipment is very expensive 3. Inland container depots
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Container ships
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ships] to hinterland
facilitate customs clearance, export import
formalities
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ICD to be located after ascertaining export import potential and good road net work Serve as consolidation facility and should have handling equipment. Facility to group small consignments goods transfer from road to rail and otherwise Increase the export potential of industries in the hinterland
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CONCOR Set up in March 1988 under the Companies Act, to profitably satisfy our customer's needs for high quality, cost effective logistics services Commenced operation from November 1989 taking over the existing network of 7 ICDs from the Indian Railways A network of more than 40 terminals, offering scheduled and on demand rapid rail and road services between the hinterland and ports, and between major metros.
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Logistics parks All logistical services under one roof Situated along DFCs and G/Q To fully utilize DFCs for promoting trade and business in India Railway ministry & State governments to jointly set up multi-modal logistics parks (MMLPs) along the dedicated freight corridors
Net work Analysis (or Location Analysis) What is a network? Location of facilities and routes or links What is network analysis? Study of the locations & links for minimizing logistical costs and or maximizing customer service
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2. Their locations
3. Communication systems
facilities?)
2. Size of the facility, how big?
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Factors to be considered in deciding the size 1. Fixed as against random access storage 2. Horizontal versus high rise layout 3. Order picking (large inventory) versus stock replenishment (small inventory) activities 4. Multi-dock versus single dock layout
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Importance of network analysis & design Decisions of N/W Analysis are taken to ensure 1. Prompt response to market dynamics What are market dynamics?
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DIRECT SHIPMENT
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Amount of transshipment
Number of locations and volume of inventory
The square root law X2 =[X1] [n2/n1] X1 = total inventory in existing facilities X2 = total inventory in future facilities
n1 = number of existing facilities [warehouses]
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Location of facilities
Some models for facility location
Gravity model
Analytical models
Ton-mile center
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Milk run
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What is logistical performance measurement? Measurement of performance of logistical functions Assessment of logistical performance Auditing logistical performance An activity of Logistical Management
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Why logistical performance measurement is done? To improve level of logistical competency To gain competitive edge in business
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When is it done?
Measurement/Assessment/Auditing is an on going
scheduled activity
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Why logistical performance measurement is important? Logistical competency is crucial Logistical resources are scarce Measurement is important for achieving objectives direct, control, monitor, measure Measurement leads to improved performance-periodic tests
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measurement system
Measurement system is a set of
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measurement systems
Monitoring: tracking historical performance
employees
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Directing measures
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Types of measures based on perspective of measurement Activity based & process based Activity based measures measure first level efforts in performance at individual activity level No of trucks loaded per day Orders booked per day Delivery time per order Delivery time per product
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Types of measures based on availability of information Internal Performance Measurement & External Performance Measurement Internal Performance Measures Measurement is done inside the organization
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Cost
Customer service
Service
expectations
examples: Fill rates, Stock outs, Shipping errors,
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Productivity
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Static productivity measures are calculated across one span of time, example: total factor productivity Dynamic productivity measures compare one static measure against another representing another span of time.
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Asset Management
indicate management performance of fixed as
companys assets
Examples: inventory turns, inventory carrying costs, inventory levels, return on investment
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Logistical Quality
Perfect Order
Complete delivery of all items requested
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Obstacles in delivering Perfect Order order entry errors, incomplete information, damaged shipment, invoice error, problems in installation. Examples: number of customer returns, rupee
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External performance measures Customer perception Bench marking Customer perception measurement Surveys and polls sponsored by firm or industry Done by the firm, by consultant
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Product availability
Performance cycle time Information availability Problem resolution Product support
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Best practice bench marking As a tool to calibrate logistical operations Bench mark a comparable organization Bench mark a competitor company Analyze the competitors product Attract competitors resources
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Bench-marking a non competitor company Comprehensive study being bilateral Proprietary knowledge adds value mutually
Systems
Practices
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Bench-marking methods
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Vendors
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Characteristics of an ideal measurement system Cost/Service Reconciliation: An ideal measurement system should reconcile cost and service [eg. freight bill and shipment] Time separation Cause/effect relationship
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Logistical Reports
Logistical reports
Status report
Trend report
Ad hoc report
Diagnostic report
Position paper
Policy report
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Report Structures
Reports are generated from information
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Status Reports Information in detail to ascertain current situation of a chosen aspect like inventory or material handling etc Trend Reports Required at a higher level, indicates trend in
Ad hoc Reports Specifically ordered for decision making Information in detail on specific areas of performance Ad hoc Reports are diagnostic report, position paper and policy report Diagnostic report detailed information about some phase of logistical performance like backorders
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Position paper
Prepared by lower levels of management for
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What is logistical performance measurement? Measurement of performance of logistical functions Assessment of logistical performance Auditing logistical performance An activity of Logistical Management
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Why logistical performance measurement is done? To improve level of logistical competency To gain competitive edge in business
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When is it done?
Measurement/Assessment/Auditing is an on going
scheduled activity
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Why logistical performance measurement is important? Logistical competency is crucial Logistical resources are scarce Measurement is important for achieving objectives direct, control, monitor, measure Measurement leads to improved performance-periodic tests
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measurement system
Measurement system is a set of
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measurement systems
Monitoring: tracking historical performance
employees
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Directing measures
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Types of measures based on perspective of measurement Activity based & process based Activity based measures measure first level efforts in performance at individual activity level No of trucks loaded per day Orders booked per day Delivery time per order Delivery time per product
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Types of measures based on availability of information Internal Performance Measurement & External Performance Measurement Internal Performance Measures Measurement is done inside the organization
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Cost
Customer service
Service
expectations
examples: Fill rates, Stock outs, Shipping errors,
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Productivity
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Static productivity measures are calculated across one span of time, example: total factor productivity Dynamic productivity measures compare one static measure against another representing another span of time.
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Asset Management
indicate management performance of fixed as
companys assets
Examples: inventory turns, inventory carrying costs, inventory levels, return on investment
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Logistical Quality
Perfect Order
Complete delivery of all items requested
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Obstacles in delivering Perfect Order order entry errors, incomplete information, damaged shipment, invoice error, problems in installation. Examples: number of customer returns, rupee
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External performance measures Customer perception Bench marking Customer perception measurement Surveys and polls sponsored by firm or industry Done by the firm, by consultant
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Product availability
Performance cycle time Information availability Problem resolution Product support
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Best practice bench marking As a tool to calibrate logistical operations Bench mark a comparable organization Bench mark a competitor company Analyze the competitors product Attract competitors resources
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Bench-marking a non competitor company Comprehensive study being bilateral Proprietary knowledge adds value mutually
Systems
Practices
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Bench-marking methods
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Vendors
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Characteristics of an ideal measurement system Cost/Service Reconciliation: An ideal measurement system should reconcile cost and service [eg. freight bill and shipment] Time separation Cause/effect relationship
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Logistical Reports
Logistical reports
Status report
Trend report
Ad hoc report
Diagnostic report
Position paper
Policy report
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Report Structures
Reports are generated from information
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Status Reports Information in detail to ascertain current situation of a chosen aspect like inventory or material handling etc Trend Reports Required at a higher level, indicates trend in
Ad hoc Reports Specifically ordered for decision making Information in detail on specific areas of performance Ad hoc Reports are diagnostic report, position paper and policy report Diagnostic report detailed information about some phase of logistical performance like backorders
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Position paper
Prepared by lower levels of management for
information system
Does production scheduling and materials
planning
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Net requirements for each inventory item Time-phase them Determine their proper coverage
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MAJOR ASSEMBLY
SUB ASSEMBLY II
A1 A2 B1
C1 C2 C3 D1 D2
A3 A4 C4 D3 D4
C5 B2 A5 D5
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Objectives Ensure the availability of materials (components & products) for planned production and customer delivery Maintain the lowest possible inventory level Plan
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Scope MRP System covers inbound logistical area Key elements of MRP system Master Production Schedule Bill of Materials Inventory Status Files MRP Program Outputs & Reports
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Requirement Planning]
Second phase is called MRP II [Manufacturing
Resources Planning]
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resource only
Process of MRP I
MRPI starts with, customers demand [independent demand] and explodes the time and need for components based on the demand for end product
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inventory transactions
Customers orders
Forecasts
Engineering changes
Master production schedule [which product to produce, in what quantity & when]
MRP I SYSTEM
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Advantages of MRP I
1. Improved business results [ROI, profits]
4. Less inventory
5. Time phased ordering of materials 6. Less materials obsolescence
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Disadvantages of MRP I 1. Due to small lot purchases high material acquisition costs and high ordering costs 2. Stock out costs are more as safety stock
protection is low
3. A limitation of software as adapting to specific
Resource requirements planning Master production scheduling Materials requirement planning [MRP I] Shop floor control Purchasing
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Bill of materials
Inventory records
Material requirement planning [MRP] Capacity requirement planning [CRP] No Realistic? yes Execute capacity plans Execute materials plan
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Benefits of MRP II Inventory reductions of one fourth to one third Higher inventory turn over Improved consistency in on-time customer delivery Reduction in purchasing costs due to less urgent purchases Minimization of workforce overtime
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DRP is a technique of Distribution Management DRP concept has evolved in two phases, DRPI (Distribution Requirement Planning) & DRP II (Distribution Resources Planning) DRP I deals with inventory planning
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Warehouse space Man power levels Transport capacity [eg. trucks, rail cars] Financial flows
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DRP I Applicable to outbound logistics Determination of inventory requirement at points of consumption for short spans of time Plan to move inventory in the distribution channel in response to the above It is a time phased plan, dynamic and flexible in nature
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Customer dependent planning, depends on the changing market environment Not organization dependent Coordination responsibility once the finished goods are produced Planning is realistic as it is closer to real time Overall inventory levels are low Response time to real time market requirement is low
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DRP II Distribution Resource Planning [DRP II ]is an extension of DRP I DRP II applies the time phased logic of DRP I to replenish inventories in multi echelon warehousing systems
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DRP II extends DRP I to include the planning of key resources in a distribution system ware house space, man power levels, transport capacity [eg. trucks, rail cars] and financial flows
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Marketing benefits Increased service levels - improved OTD, reduced Customer Complaints Effective new product introduction plans Ability to anticipate shortages Improved inventory coordination
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Logistics benefits Reduced distribution costs Reduced inventory levels Decreased warehouse space requirement as
Constraints Needs accurate forecast Sources of errors in the system Inaccuracy in forecast quantity Inaccuracy in forecast location Inaccuracy in forecast time Variable performance cycles
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Uncertainty buffers
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DRP & MRP LINK DISTRIBUTION CENTER I LEAD TIME IS 2 WEEKS, SAFETY STOCK IS 55, ORDER QUANTITY 500 WEEKS DETAILS WEEKLY REQ STOCK WHEN & HOW MUCH? 0 1 50 2 50 3 60 4 70 5 80 6 70 7 60 8 50
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302
252
192 500
122
542 500
472
412
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DISTRIBUTION CENTER II LEAD TIME IS 2 WEEKS, SAFETY STOCK IS 40, ORDER QUANTITY 150
WEEKS
DETAILS
WEEKLY REQ
20
25
15
20
30
25
15
30
STOCK
140
120
95
80
60
180
135
145
110
150
150
DISTRIBUTION CENTER III LEAD TIME IS 2 WEEKS, SAFETY STOCK IS 115, ORDER QUANTITY 800
DETAILS
WEEKS
0
1020
1
115 905
2
115 790
3
120 670
4
120 550
5
125 425
6
125 300
7
125 175
8
120 855
800
800
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LEAD TIME IS 3 WEEKS, SAFETY STOCK IS 287, ORDER QUANTITY 2200 CENTRAL SUPPLY FACILITY From I & II From III
1250
1250
1250
650 600
600
600
800 2000
2000
2000
2200
2200
TO MRP SCHEDULE
FROM PRODUCTION
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Reactive methods (Pull methods) Planning methods (Push methods) Other methods (Modern methods)
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Reactive methods or pull systems Reactive methods or systems respond to customers pull
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Inventory valuation
During a certain span of time, goods are received
FIFO (First In First Out) When the goods move out, the cost of the goods first in, is attached for valuation. The balance stock left out is valued as per the cost of items last to come in
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LIFO (Last In First Out) When the goods go out the price of latest to enter is attached. Inventory is valued as per the price of the goods first to arrive.
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Average cost method Total volume of goods received and balance stock is found out. Total price paid is calculated and
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Limitations
Smooth demand patterns are assumed Unlimited production & supply facilities Inability to handle multiple facilities Needs manual intervention to prevent
shortages
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DISTRIBUTION CENTER
WHOLESALER B
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Current stock
Minimum inventory level at the plant
warehouse.
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Then a common days supply, DS, for distribution center inventories is, A + I DS = -------------D 500 + 50 + 100 + 75 DS = -------------------------10+50+15 = 9.67days. Now amount of inventory allocated to distribution center 1 is [9.67 50/10]X10 = 4.67X10 = 46.7 units, say 47 units. Similarly we can find allocations for distribution centers 2 & 3
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Just In Time [Bowersox pages 490.] The time based approach - Toyota Motors
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Kanban is conceptually a two bin system leading to concept of stockless production JIT embraced a variety of manufacturing concepts like SMED, group technology, TPM and quality circles
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COMP STORE
VENDORS
STATION II
F/G
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performance.
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Automatic or profile Replenishment (AR) Supplier anticipates the customers requirement for making replenishment The responsibility for inventory management is
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Inventory
Customers order position
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What is Inventory?
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working capital
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Importance of Inventory
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Facilitates production
Protects the conversion process from
uncertainties of market
Measure of managerial performance
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Objectives of Inventory Management To increase corporate profitability To anticipate impact of corporate policies on inventory levels and act proactively To minimize logistical costs while meeting customer service requirement
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Functions of Inventory [Rationale for Inventory] Overcomes geographical separation Decoupling internal process reducing dependence Balancing supply and demand
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Types of Inventory Location inventory-Inventory at a fixed location In transit inventory[pipeline inventory]-Being transported and or waiting to be transported Manufacturing inventory R/M, components, WIP, F/G, MRO [Maintenance, repairs and operating supplies] Risk due to commitment of resource to manufacturing is deep and long.
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Wholesale inventory
Stock of large quantities and sold in small
quantities to retailers
Retailers inventory
Variety of products to satisfy demand
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Average inventory
Average level of inventory in the organization R/M, parts, WIP, finished goods Following inventory concepts are used in calculating average inventory 1. Cycle inventory: result of replenishment process, also known as base stock or lot size stock, Q/2
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continuous
2. Lead time is known and constant
EOQ derivation
All assumptions in tact
EOQ=2AD/h
Relax instantaneous replenishment
EOQ=2AD/h(1-D/P)
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be disastrous
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Adjustments to EOQ
EOQ model does not consider economics of
transportation
Transportation costs are sensitive to weight of
consignment
Quantity discount-Quantity discounts can upset
Other EOQ adjustments Production lot size: Mismatch between buyers EOQ and suppliers EBQ. Some adjustment is needed.
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Significant role of budgetary allocation Budget has to satisfy the requirement of entire
product line
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Private trucking
Getting a full truck (FTL) becomes significant from cost perspective as against EOQ Standard package Available standard package and EOQ
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Inventory Classification * Ranking of Inventory to facilitate selective management control * Dates back to 1951- GE * Paretos rule: 80-20 rule, separate vital few from trivial many * ABC Analysis
Vital few Trivial many 20% 80% 80% 20% Inventory Items Inventory Value
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*An example of ABC analysis Logistics Perspective of selective management control ABC analysis has one chosen parameter like cost or value in focus A category is priority from the perspective of this particular parameter
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VED Analysis
FSN Analysis
HML
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SDE [Scarce, Difficult to procure, Easy to procure] SOS [Seasonal Off Seasonal] GOLF [Government, Open market, Local & Foreign Source] XYZ analysis
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Quadrant Technique
Distinctives High risk, low value items: customized items not expensive but not available easily, single supplier and long leadtime Generics Low value easily available items, standard items Criticals High value customized items not available easily
Commodities High value standard items, basic production items, standard packaging items
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Fundamental approaches to managing inventory Traditional approach has been deciding when to order? But challenge of today - to find answers to the questions where to stock the material?, how much? and when? Modern challenge is high customer satisfaction at minimum inventory
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already)
When to order is decided by Re Order Level
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D Q ROL
LEAD TIME CONSUMPTION INV
Lead Time
Lead Time
Lead Time
Q - MODEL
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Stock depletion is at a specific rate D during replenishment cycle. In reality stock depletions can be steep & high Min-Max Approach a modification to EOQ model Order is released when ROL is reached
D Q ROL
LEAD TIME CONSUMPTION INV ACTUAL INV LEVEL
Lead Time
Lead Time
Lead Time
Q - MODEL Q = EOQ + (ROL ACTUAL) = 2AD/h + (ROL ACTUAL) ROL = LEAD TIME CONSUMPTION
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Fixed Order Quantity Approach (condition of uncertainty) When demand and lead time vary
D Q ROL
LEAD TIME CONSUMPTION INV
Q - MODEL
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S MAX STOCK
(S I1) =
INV
Lead Time
Lead Time
Lead Time
P - MODEL
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one order
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Inventory
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Inventory Strategy a long term plan to control inventory What is controlled? Selective management control, quadrant approach When do we move inventory? Kanban system in JIT, DRP, MRP
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Where and at how many places? Centralized or decentralized? Warehouse location, square root law Why? Customer satisfaction at minimum cost How do we manage? Inventory approaches, push
1. Inventory and Inventory management 2. Lead time 3. Reserve stock and safety stock 4. Reorder level 5. Economic order quantity 6. Trade off between total costs of inventory and order quantity 7. Customer Service levels 8. Average inventory 9. Selective Inventory Control 10. Paretos rule
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11. Quadrant technique 12. Non-Performing Asset 13. ABC analysis 14. Vendor managed Inventory 15. Inventory Turn Over Ratio 16. Review Period
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Logistical Information
Importance of information
Logistical Decisions
Information functionality
Order entry
Inventory assignment
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Receives logistical information Stores logistical information Organizes it in appropriate form Integrates the logistical operating system Enables logistical decision making
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Customer queries
Management decisions
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Exception-based LIS
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Flexibility
Ability to handle diverse informational needs of
organization
Appropriate format
Right structure and sequence
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Order management
Order processing
Matching customer requirement Allocation of inventory Order selection [to direct distribution to draw
the inventory from a specific DC]
Distribution operation
Directing all activities in a distribution center to
activities like
Shipment planning & Scheduling Shipment consolidation Shipment notification Document generation Carrier management
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Procurement
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