View
228
Download
0
Category
Preview:
Citation preview
8/11/2019 SCM-Notes (Mod 7 & 8)
1/36
MODULE-7
DIMENSIONS OF LOGISTICS
Introduction. A Macro, Micro Dimension.
Logistics interfaces with other areas. Approach to anal!ing logistics sstems.
Logistics and sstems analsis.
"actors affecting cost and important of logistics.
Introduction
#ood logistics is $usiness power, %er appropriate $ecause it helps
$uild competiti%e ad%antage. At the end of the da, if ou can&t deli%er our
products to our customers, ou will not sta in $usiness %er long. 'hat
doesn&t appl that good (ualit products and mar)eting are not needed. *utthe must $e com$ined with effecti%e and efficient logistics sstems for long
run success and financial %ia$ilit.
*ig challenge is to manage whole logistics sstems in such a wa that
order fulfillment meets and perhaps e+ceeds customer e+pectations. At the
same time, the competiti%e mar)et place demands efficienc, controlling
transportation, in%entor and other logistics related cost centers effecti%eness
and efficienc are important in toda&s competiti%e en%ironment, at the same
time $alancing the added customer ser%ice at low cost to $ring down the
total cost of logistics.
erspecti%e on suppl chain management is that it is a networ) of the
logistics sstems and related acti%ities of all the indi%idual companies
organi!ations that are part of a suppl chain. 'he indi%idual logistics sstems
o$%iousl pla a role in the success of the o%erall suppl chain.
'he coordination or integration of logistics sstem in a suppl chain
is a challenge. In order to full appreciate the dnamics of the challenge, it is
necessar to e+amine and dissect an indi%idual logistics sstem.
In $ound part of a manufacturers logistics sstem interfaces with the
out$ound side of its %endors logistics sstem. 'he out$ound portion of the
manufacturer&s logistics sstem interfaces with the in$ound side of itscustomer&s logistic sstem.
'he growing appreciation of the %alue associated with good logistics
and the impro%ed management of logistic sstems ha%e resulted in
significant change and impro%ed efficienc.
8/11/2019 SCM-Notes (Mod 7 & 8)
2/36
Supply Chain Pipeline
A MACRO, MICRO DIMENTION
A Macro erspecti%e
In the econom logistical acti%ities, increase the growth of econom
in terms of gross domestic product #.D./. 0ence, one need to measure
total logistical cost in terms of #D, which is a widel accepted $arometer
or metric used to gauge the rate of growth in the econom.
The ituation o!" lo#itic cot a percenta#e o! GDP $IN%S&
1222 2.23
1224 15.13
1226 15.3
1228 15.93
1225 11.93
1248 1:.3
1245 18.73
Source";o$ert Delane,
8/11/2019 SCM-Notes (Mod 7 & 8)
3/36
1.
8/11/2019 SCM-Notes (Mod 7 & 8)
4/36
Micro perspecti%e of logistics in a firm needs to e+amine the
relationship $etween logistics and other functional areas in a compan
Mar)eting
Manufacturing Operations
"inance and accounting ;ef. logistics interface with other areas/
Logistics interfaces with operations Manufacturing
a. Long s =hort roduction ;uns> Management to weight the
ad%antages and disad%antages. =hort ccle time is preferred $
industries nowadas. Bust in time is the approach towards
in%entor and scheduling. In%entor and scheduling ? trend is
towards CULL& sstem not CU=0&, to $e in response to demand
achie%ing lower in%entor le%els and decrease in logistics costs.
$. =easonal Demand> E.g. snow s)is or snow mo$iles,roduction manager is interested in producing well ahead of
season. Logistics department, in con@unction with production,
must $e prepared to accept seasonal in%entor, which can start to
accumulate three to si+ months $efore sales occur.
c. =uppl side interfaces> since the logistics manger is responsi$le
for the in $ound mo%ement and storage of raw materials that will
feed the production line, logistics and production also interface on
the suppl side. A shortage or stoc) out situation could result in
the shutdown of a production facilit or an increase in productioncost. Optimi!ation of in%entor le%els is nowadas rest with
logistics department.
d. rotecti%e pac)aging> 'he principle purpose of pac)aging is to
protect the product from damage. Another interface of logistics
and operations is pac)aging this is distinct from whate%er %alue
the product pac)age ma ha%e for mar)eting or promotional
reasons.
e. "oreign and third part alternati%es> certain raw materials and
other production inputs are nowadas needs to $e procured from
foreign sources. 0ence man firms toda resort to third partmanufacturer or co pac)ers ? to produce, assem$le. All or some of
firms finished products pre%alent in food industr, where man
firms manufacture onl food items to $e sold under someone
else&s la$el.
8/11/2019 SCM-Notes (Mod 7 & 8)
5/36
LOGISTICS INTERFACES (IT) OT)ER AREAS
Ma@or important internal areas
1. Manufacturing
:. Mar)eting
. "inance
Finance
'he impact logistics can ha%e upon return on assets ;OA/
;OA ;e%enue ? E+pense Assets O;
;OA #ross profit Assets
Logistics to impact on ;OA possi$ilit
;eduction in in%entor since in%entor is an asset-reducing in%entor
increases ;OA.
;OA also can also impro%e as long as increase in sales is not offset $
higher cost for customer ser%ice.
"inancial %ia$ilit of a compan is gauged $ its current ;OA or ;OI,
hence logistics gains importance, in terms of - reduced in%entories, -
and reduced customer ser%ices e+penses, - also utili!ation of
warehouses and less in%estment on transportation e(uipment.
'o sum up, logistics interface with other areas, in order impro%e ;OA ;OI
is directl related to the three logistics dri%ers namel.
L* Dri'er Lo#itic related action
1. In%entor> ;educed le%el for effecti%e operations.
:. are 0ouses> 'o optimi!e no. of ware houses, ensure
*etter utili!ation of the same.
. 'ransportation> A ma@or area of e+pense and hence to
;educe in%estment on transport, go more
"or L and 9 L consolidate material
Mo%ement etc.
+uality o! Lo#itic Analyi"
'hough, in earlier accounting sstems, the logistics related e+penses ware
included in the o%er head, the current product profita$ilit and the related
cost accounting sstem %i!. acti%it $ased costing A*
8/11/2019 SCM-Notes (Mod 7 & 8)
6/36
Lo#itic inter!ace ith -ar.etin#
hsical distri$ution and a$ilit to pro%ide the product at the right time in
the right (uantities ma $e the critical element in ma)ing a sale. 'hese
acti%ities are the responsi$ilities of firms logistics sstem. Each principle
area of mar)eting mi+ i!> rice, product, promotion, places, apart from
interface area $etween logistics and mar)eting are rele%ant for discussion.
a* Price" ;ail road transportation econom as a logistics re(uirement
depends on the si!e of the shipments. Larger the si!e, lower the unit rate
charged, since the transportation compan e+periences econom if the
customer sends large shipments. 0ence price is directl related to %olume
hence price schedules are related to %olumes ordered logistics manager to $e
prepared for ad@ustment of in%entor re(uirements to meet pro@ected
demand.
/* Product" for $oth, the current products and new products, logisticssstem to economicall mo%e and store products, depends on ? si!e, shape,
weight, pac)aging etc. and such %ital data are %er rele%ant to logistics point
of %iew to plan for -
8/11/2019 SCM-Notes (Mod 7 & 8)
7/36
Eg. "ood,
rimar logistics acti%ities responsi%e- transportation, warehousing, pac)aging, in%entor management
- material handling ? communication and information
ser%ice logistics acti%ities
- ;esponse time, order completeness, accurac, shipment and
deli%er.
Tranportation> deals with mo%ement of a product into, through and
out of the plant or warehouse, the product is mo%ed $ modes of
transportation ? air, motor'ruc)s/, pipeline, railroad and water
transportation is the most e+pensi%e logistics acti%it, accounting for
853 or more of total logistics costs.
(arehouin# and pac.a#in#> 'he strategic placement of ware
houses, ser%ice centres and plants throughout the suppl chain
includes decisions a$out the num$er and tpe of ware houses, their
location, pac)aging to suit product tpe and customer preferences and
operation etc.
In'entory -ana#e-ent> ;efers to efficient wa of optimi!ing the
stoc) of raw materials, wor) in process and finished goods also
holding $uffer safet stoc)s for supplier lead time, demand
fluctuations. Material )andlin#> is concerned with the efficient and effecti%e
mo%ement of products at different stages of manufacture inside plants
and warehouses includes tpes of containers, tpes of material
handling sstem, and the integration of material handling sstem
within the facilit structure.
Co--unication and In!or-ation> order processing, forecasting, this
acti%it holds the entire integrated logistics sstem together.
- refers to the time a customer must wait $efore the
ser%ice is rendered or product deli%ered.
Order co-pletene> accurac is the managing, scheduling and
staffing of people and e(uipment to meet the pre determined le%el of
customer ser%ice with pre esta$lished cost trade ? offs. =cheduling for
8/11/2019 SCM-Notes (Mod 7 & 8)
8/36
little capacit ma lead to lost sales, scheduling too much ma
enhance customer ser%ice le%els $ut lower profits.
Ship-ent Deli'ery> choosing the distri$ution channels to deli%er the
product ser%ices to the customer.
'hese ser%ice response logistics acti%ities must operate together to meet thecustomer ser%ice re(uirements. If the do not operate as a sstem, the do to
ield the full $enefits. Also, ser%ice response logistics must coordinate with
the rest of logistics. Almost all products ha%e ser%ices attached to them.
Glo/al Inte#rated Lo#itic Acti'itie
1. 'ransportation
:. arehousing
. ac)aging
9. In%entor Management
8. Material 0andling6. Information sstems
7. ;esponse time 'hese re(uire special attention
4. Order completeness and Accurac from the glo$al logistics manager
2. =hipment condition and deli%er
Role o! Lo#itic in upply chain -ana#e-ent
;ole of logistics are co%ered in the following acti%ities.
- 'raffic and transportation ? material handling
- arehousing and storage ? in%entor control- Industrial pac)aging ? order fulfillment
- Demand forecasting ? plant and warehousing site location
- roduction planning ? return goods handling
- urchasing ? parts and ser%ice handling
- a %er important part of the logistics sstem. A
ma@or focus in logistics ? the phsical mo%ement flow of goods the
networ) that mo%es the product. Fetwor) is composed transportation
agencies that pro%ide the ser%ice for the mode or modes oftransportation used in mo%ing the raw material and finished goods or
for de%eloping pri%ate transportation as an alternati%e.
Stora#e> it as a trade ? off relationship with transportation in%ol%es
in%entor management and warehousing. Eg> A firm with slow means
of transport ma ha%e higher in%entor le%els and more space for
8/11/2019 SCM-Notes (Mod 7 & 8)
9/36
warehousing. 'he can o%ercome these $ using faster transport.
arious options on ? in%entor le%els, location, si!e and num$er of
warehouses is essential to optimi!e the o%erall logistics sstem.
Pac.a#in#> Industrial/ tpe of transportation selected affects the
pac)aging re(uirements for $oth finished goods and in$oundmaterials. ;ail or water transportation usuall re(uires additional
effort in pac)aging. Air transportation ma re(uire economical
pac)ing. Eg> clothing is fre(uentl shipped on hangars
Material handlin#> is important t efficient warehouse operation in a
tpical manufacturing organi!ation. Logistics managers are concerned
with - Mo%ement of goods into warehouse.
- lacement of goods in a warehouse.
- Mo%ement of goods from storage to order pic)ing are and
- 'o doc) areas for transportation out of warehouse.
Materials handling mechanical e(uipment are ? usuall for shortdistance mo%ement ? such e(uipments are> con%eers, for)lift truc)s, o%er
head crane and containers. In production, managers use pallets and
containers. It is desira$le to ma)e those compati$le with material handling
e(uipment. Also it is $etter to deplo same tpe of for)lift truc)s in the
plants and in the warehouses.
Order Ful!ill-ent> Is acti%ities in%ol%ed in completing customer
orders. Logistics loo)s at phsical distri$ution factor is the time
elapsing from customer placing an order to fill those goods are
actuall deli%ered in a satisfactor condition i.e. the lead time. 'his is(uite important to the logistics function. 'o plan for economical
transportation and processing the orders $ speed communication.
Forecatin#> In%entor of raw materials, parts is an essential acti%it
especiall in companies practicing @ust- in-time or materials
re(uirement planning M;/ to control in%entor forecasting $
mar)eting reflect sales of product onl not in%entor.
Production plannin#> "or effecti%e in%entor control and to decide
on indicating product deli%eries $ased on current in%entor close
coordination of logistics and < is re(uired as an integratedapproach in large corporations.
Purchain#> logistics ? transportation costs directl related to the
geographic location of raw materials and parts purchased for an
organi!ation production needs. Aim is economical mo%ement during
75s G 45s certain companies added purchasing to logistics.
8/11/2019 SCM-Notes (Mod 7 & 8)
10/36
8/11/2019 SCM-Notes (Mod 7 & 8)
11/36
Order ccle das/hrsminutes
=horter the ccle, less in%entor is re(uired. Order ccle is the time it ta)es
for a customer to recei%e an order once decided to place orders. 'he ccleincludes order transmittal time, order preparation time and transportation
time.
=u$stituta$ilit> the more su$stituta$le a product, higher the re(uired
customer ser%ice ? can spend more on in%entor or more on
transportation.
In%entor effect>
"low
'< 'otal costIF In%entor cost
8/11/2019 SCM-Notes (Mod 7 & 8)
12/36
- "irms are generall willing to increase in%entor costs onl
until total costs start going up i.e. Marginal cost of carring
added in%entor.
'ransportation effect>
"low
A similar relationship e+ists with transportation.
'rade off ? increased transportation cost
Against ? decreased lost sales costs.
0igher transportation ma also $e as a result of shipping more fre(uentl in
smaller (uantities. At higher rates to impro%e customer ser%ice.
=trateg>- firms go up to the point where the marginal sa%ings in lost sales
costs e(ual to marginal sa%ings in lost sales costs e(ual to marginal
increment associated with increased transportation cost.
- "irms do spend more for in%entor and transportation
simultaneousl to reduce the cost of lost sales.
- Impro%ed transportation will result in lower in%entor cost $
means of smaller carring and faster transit times.
'here are other product related factors affecting cost and importance of
logistics.
i!> ;upee %alue, densit, suscepti$ilit to damage, and need for special
handling costs.
;upee %alue> tpicall affects> warehousing costs, in%entor costs,transportation cost, pac)aging cost and material handling costs.
8/11/2019 SCM-Notes (Mod 7 & 8)
13/36
"low
IF In%entor cost ? including storage
'; 'ransport cost
# ac)aging costs0 are housing
As rupee %alue increases cost of each indicated area also rises. 'he lope and
cost functions %ar from product to product.
Impact on rates transportation costJ high %alue products are charged higher
rates. =ince firms can afford and will cost more to transport companies to re-
im$rues in the e%ent of damage to goods.
Impact on ware housing
roportionall warehousing and in%entor cost go up as rupee %alue of
product increase leads to ? higher o$solescence and depreciation cost.
- also storing high %alue goods re(uire special arrangements with
sophistication results in increased warehousing cost with more
;s %alue.
Impact on pac)aging
Use of protecti%e pac)aging increases pac)aging costs against damage or
loss increase of higher %alue.
ac)aging impact on material handling
Material handling e(uipment used to meet the needs of higher %alue
products is %er often sophisticated. "irms willing to use more capital
intense and e+pensi%e e(uipment to speed higher %alue goods through thewarehouse and to minimi!e chance to damage.
Densit> weight space ratio
Densit affects transportation costs. E.g. house hold furniture low densit.
As we go from low densit to high densit transportation costs tend to fall
since for gi%en space more material can $e stuffed and more efficient use of
ware housing space.
8/11/2019 SCM-Notes (Mod 7 & 8)
14/36
=uscepti$ilit to damage
#reater the ris) of damage, the higher, the transportation and ware housing
costs.E.g. #lass items
=pecial handling re(uirements
=ome sophisticated products re(uire speciall si!ed transportation units.
E.g. refrigeration, heating or stepping in transit
=pecial handling re(uirements generall results in higher pac)aging
transportation and warehousing costs.
INTEGRATED LOGISTICS MANAGEMENT
During 1245s integrated logistics management concept $egan. 'o $e used in
a growing num$er of organi!ation. Logistics, in its simplest form, added
in$ound logistics to the out $ound logistics of phsical distri$ution. #lo$al
8/11/2019 SCM-Notes (Mod 7 & 8)
15/36
transportation presents some special challenges for production scheduling.
0ence it is apparent that coordination with out$ound logistics sstem is
critical for success.
Inte#rated lo#itic -ana#e-ent
"ragmentation E%ol%ing integration 'otal integration
1265s 1245s :555
Demand forecasting
urchasing
;e(uirements planning
roduction planning
Manufacturing industr
arehousing
Materials handling
Industrial pac)aging"inished goods in%entor
Distri$ution planning
Order processing
'ransportation
8/11/2019 SCM-Notes (Mod 7 & 8)
16/36
'erminologK
E+tension of the logistics concept logicall is the suppl chain management
also )nown as ? demand chain management
- demand flow management
- %alue chain management
- %alue networ)s
- snchroni!ation management
Logistics ? suppl chain, demand chain, %alue networ), %alue chain
Syte- approach
Logistics sstem analsis re(uires different %iews or perspecti%e of logical
acti%ities. 'he $est perspecti%e to ta)e depends on the tpe of analsis that is
needed. 'here are four approaches for anal!ing logistics sstems>
1. Material management s phsical distri$ution
:. flow and simple out$ound flow. E.g.> *oeing ? on
completion Aircraft/
=impl deli%ered to customer ? no warehousing, no special transport
pac)ing etc. in$ound side re(uires detailed scheduling, coordination and
planning to get the parts in time. aring lead times post comple+ logistics
challenge. E.g.> Auto industr 1:,555 to 1,555parts car.
8/11/2019 SCM-Notes (Mod 7 & 8)
17/36
c. 0ea% out$ound> tpe industr ? E.g.> chemical compan ? Dow.
In$ound ? crude oil, salt water, other raw materials from limited
sources low %olume. Out$ound side ? wide %ariet of industrial and
consumer products ? needs storage, pac)aging and transportation to
the final customer. 0ence MM G D is more comple+.
d. ;e%erse sstems> on the out$ound side ? in some companies. E.g.>
dura$le products> ma return for trade-in, for repairs, sal%age and
disposal computers, tel. e(uipments, cop machines etc. also re%erse
logistics re(uirement to dispose of pac)ing materials enroute
re(uirement where e+penditure is incurred ? on used products.
2* Cot centre> Acti%ities in logistics are i!> 'ransportation,
warehousing, in%entor materials handling and industrial pac)ing ? trade
off $etween these acti%ities could result in lower o%erall cost and or
$etter ser%ice. 'rade-offs> logistics into %arious cost centres or acti%it
centres for logistics sstem analsis reducing total logistics cost andimpro%ing ser%ice will occup $ trading off one acti%it center against
another. E.g.> shifting from rail to motor caries ma result in faster and
more relia$le ser%ice. Lower in%entor costs which offset higher motor
carrier rate. Another wa increasing ware houses, there $ increasing
ware housing and in%entor cost $ut possi$l reducing the cost of
transportation and lost sales total costs enough to lower.
Analsis of total logistics cost with a change to a higher cost mode
Mode of transport
8/11/2019 SCM-Notes (Mod 7 & 8)
18/36
One node sstem ma use simple lin) is suppliers to a com$ined plant
arehouse and then to customers in a relati%el small mar)et area.
Other case> Large multiple product firms with multiple plant and
warehouse location logistics $eing a comple+ networ)s in%ol%ing or
9 different nodes and pri%ate transportation.
=stem Impro%ement ? where $asic elements form A con%enient
$asis for see)ing possi$le sstem impro%ement.
8/11/2019 SCM-Notes (Mod 7 & 8)
19/36
A simple logistics channel
8/11/2019 SCM-Notes (Mod 7 & 8)
20/36
small shipment transportation, conflict o%er mode choices, etc. contri$ute to
inefficienc in the channel apart from communications pro$lems. 'o o%er
come these pro$lems, the strategies adopted $ different firms are> - ertical
integration in order to control products o%er se%eral stages in the logistics
channel. ? =ome strong companies dominate channel to achie%e efficienc.
A Logistics de%elopment ta)en place along
with sstem analsis and sstem concept.
Syte- concept> is a set of interacting elements, %aria$les, parts, or o$@ects
that are functionall related to one another and that form a coherent group.
Eg> Engine design> the o%er all performance of engine as a sstem is more
important that the efficienc of indi%idual parts.
Cot perpecti'e> 'ransportation decision has to $e coordinated with related
areas such as in%entor, warehousing, pac)aging to optimi!e o%erall sstem,
not @ust transportation. 'he logic is we do not focus on indi%idual
optimi!ation/ %aria$les $ut now the interact as a whole. 'he o$@ecti%e is to
operate the whole sstem effecti%el, not @ust the indi%idual parts.
Le%el of optimi!ation functional relationship/
- Le%els of optimalit e+ists in the firm
- A firm should not optimi!e transportation at the cost of other
related logistics areas i!> ware housing, pac)aging.
- Also logistics $eing one of the sstems and hence it should $e
optimi!ed at the cost of another areas e+pense.
;aw
Materials=uppl
=ources
;awMaterials
=uppl
=ources
;aw
Materials
=uppl=ources
Mfg.lant
Mfg.
lant
are0ouse
are
0ouse
are
0ouse
8/11/2019 SCM-Notes (Mod 7 & 8)
21/36
lanning, e+ecution, research and intelligence,
;eports and outputs.
ro%ide the logistics manager with timel and accurate information
for the $asic management functions> lanning, Implementation and control
Logistics information sstems>
endors
8/11/2019 SCM-Notes (Mod 7 & 8)
22/36
'he functional scope of suppl chain> lanning and e+ecution.
=cope> In addition to identifing e+ample technologies that characteri!e each
of the elements of the logistics information sstem, this figure suggests thedecision scope and li)el time hori!ons rele%ant.
Operational
lanningdeci
-sion
scope
'actical
lanning
=trategic
lanning
Minutes 0ours wee)s (uarters ears
=econds das months
'IME 0O;IPOF
Module 3
DEMAND MANAGEMENT AND C%STOMER SER1ICE
Logistics
management
functions.lanning
Implementation.
8/11/2019 SCM-Notes (Mod 7 & 8)
23/36
Out $ound to customer logistics sstems.
Demand management. 'raditional forecasting
which precede and facilitate %alue-adding acti%ities i!> manufacturing,assem$l etc. others include are materials management and phsical suppl
and generall co%ered under procurement and suppl management.
Out$ound to customer logistics sstem> Emphasis on attri$utes such asJ
product a%aila$ilitJ o%erall responsi%enessJ post sale customer support
'o assure customers an accepta$le le%el of ser%ice and following assuring
efficient and effecti%e flow of materials to successful companies, these das
gi%e emphasis for $oth in$ound and out$ound logistics.
Out$ound logistics ? need is customer insight>
E.g.
8/11/2019 SCM-Notes (Mod 7 & 8)
24/36
#athering and anal!ing )nowledge a$out customers, their pro$lems
and their unmet needs.
Identifing partners to perform the functions needed in demand chain.
Mo%ing the functions that need to $e done to the channel mem$ers
that can perform them most effecti%el and efficientl. =haring with other suppl chain mem$er&s )nowledge a$out
consumers and customers, a%aila$le technolog and logistics
challenges and opportunities.
De%eloping products and ser%ices that sol%e customer&s pro$lems.
De%eloping and e+ecuting the $est logistics, transportation, and
distri$ution methods to deli%er products and ser%ices to consumers in
the desired format.
"irms while wor)ing on impro%ed demand management face pro$lems li)e -
I. Lac) of coordination $etween departments ? little response.II. Less attention on colla$orati%e effort and the strategic and operational
plans that needed to $e de%eloped from the fore casts.
III. Demand information used for tactical and operational purposes than
for Cstrategic purposes.used for short term $enefits instead of long
term/
;e(uired>
Demand Information should $e used to create collecti%e and
realistic scenarios of the future.
Emphasis on understanding li)el demand scenarios and
mapping their relationships to product suppl alternati%es.
'o Achie%e ? $etter match demand as it occurs with appropriate
a%aila$ilit of needed product in the mar)et place.
'o lin) demand management information to corporate strateg.
'o use demand data strategicall
i. 'o enhance a compan&s growth ? portfolio.
ii. ositioning and in%estment strategies.
'o help companies, to guide strategic resources in a num$er of
important was.
'he e+ample shows how suppl ? demand misalignment management
impact o%erall suppl chain effecti%eness>
8/11/2019 SCM-Notes (Mod 7 & 8)
25/36
E.g. . AccentureJ =tanford uni%ersit G north western uni%ersit
1. 'rue end customer demand.
:. roduction not a$le to meet initial demand ? result shortages
.
8/11/2019 SCM-Notes (Mod 7 & 8)
26/36
:. Anal!e to predict changes in product pricing
structure G mar)et economics $ased.
. *uilding staffing models for merged compan
using demand data.
ortfolio =trateg 9. Manage maturit of products in current portfolioto optimall time o%erlapping life ccles.
8. create new product de%elopment production plans
$ased on life ccle.
6. *alance com$ination of demand of new products.
7. Ensure di%ersification of product portfolio through
demand forecasts.
ositioning =trateg
*ased on Demand/
4. Manage product sales through each channel $ased
on demand and product economics.
2.Manage positioning of finished goods at
appropriate distri$ution centres, to reduce wor)ingcapital
15. Define capa$ilit to suppl for each channel.
In%estment =trateg 11. Manage capital in%estments&, mar)eting
e+penditures, research and de%elopment $egets,
$ased on demand forecasts of potential products and
maturit of current products.
1:. Determine whether to add manufacturing
facilities.
TRADITIONAL FORECASTING
A ma@or component of demand management is Cforecasting& the amount of
product that will $e purchased $ consumers or end users. Most important
forecast is that of primar demand, as it occurs in the mar)et place.
'he figure $elow outlines one firm&s approach to sales forecasting and
its integration with production scheduling acti%ities.
8/11/2019 SCM-Notes (Mod 7 & 8)
27/36
Integration of sales forecasting and production.
=tep I> De%elop 1: month forecast $ month/ $ appling traditionaldemand forecasting approaches, to a ears histor file of data on factors
such as demand, price, seasonalit, a%aila$ilit, deals and promotions.
=tep II> *rand and product mangers re%iew this forecast and recommend
changes result in agreed upon statement of gross mar)et re(uirements for the
succeeding 1 ? ears period.
=tep III> De%eloping aggregate production schedules for the ne+t 1: month
period and allocating specific production re(uirements to %arious
manufacturing facilities.
"inal =tep> Logistics function commonl assumes responsi$ilities forscheduling production on a short ? term $asis, in order to coordinate demand
for finished product with the timing and a%aila$ilit of needed production
inputs.
0istor file
ears ? demand,
price, seasonalit,
deals,
promotions.
"orecasting
model mo%ing
a%erage, $o+ ?
Ben)ins,regression
analsis
1: months
forecast *
month/
*rand and
product managers
re%iew and
recommend
changes.
;e%ised
forecast
#ross mar)et
re(uirements 1 to
ear periods/
Aggregate
production
schedules
1: months/
Allocation of
aggregate
re(uirements to
plants.
=hort term
production
scheduling
8/11/2019 SCM-Notes (Mod 7 & 8)
28/36
Purpoe o! !orecatin#"
Long term "orecasts> Most important for operational logistics process
pro@ect demand, month ahead and forecast on shorter time inter%al.
"orecasts needed in units, $ actual items to $e shipped, and for finite
period of time.
'he strategic use of demand data can help to impro%e the o%erall
profita$ilit and mar)et positioning of the compan.
Also help to anal!e product portfolio and its new productde%elopment strategies.
COLLA4ORATI1E PLANNING, FORECASTING AND
REPLENIS)MENT$CPFRP&
Integration of suppl chain acti%ities resulted in efficienc and effecti%eness
increase. =ome of the initiati%es $ name are>
Q; Quic) ;esponse
EDI Electronic Data Interchange, short ccle manufacturing
MI endor managed in%entor
effort started
with Call Mart& with its supplier, warner ?Lam$ert. 'he product CListrine&
$rand used to $e Cout of stoc)& fre(uentl. 'wo companies colla$orate to
increase their forecasting a$ilities, so as to ha%e @ust the right amount of
in%entor, where G when it was needed.
'o $e more effecti%e- internet was used to facilitate colla$oration
8/11/2019 SCM-Notes (Mod 7 & 8)
29/36
- MA;' G IM*E;L
8/11/2019 SCM-Notes (Mod 7 & 8)
30/36
8/11/2019 SCM-Notes (Mod 7 & 8)
31/36
ii/ 'o ensure ? Fo wrong shipment correct order filling
is essential a to $e ensured.
. EDI IF'E;FE'
8/11/2019 SCM-Notes (Mod 7 & 8)
32/36
information
iii/ communication
to respond in timel and accurate
manner to customer&s re(uests for
information
accurac, and
message detail
of response.
Distri$ution sstem
malfunction
Efficienc of procedures and time
re(uired to reco%er from distri$utionsstem malfunction i.e errors in
$illing, shopping, damage, claims./
;esponse and
reco%er timere(uirements.
ost sale product
support.
Efficienc in pro%iding product
support after deli%er, including
technical information, spare parts
e(uipment modification as
appropriate
;esponse time
and (ualit of
response.
erformance measures of customer ser%ice
Orders recei%ed on time
Orders recei%ed complete
Orders recei%ed damage free
Orders filled accuratel
Orders $illed accuratel
Deli%er time windows
o 283 orders deli%ered on time.
o 23 orders filled completel.
o 273 orders
8/11/2019 SCM-Notes (Mod 7 & 8)
33/36
E6PE6TED COST OF STOC7O%TS
A principle $enefit of in%entor a%aila$ilit and hence, of customer ser%ice
is to reduce incidents of stoc) outs. Once, cost of stoc) out is calculated, it is
eas to arri%e of e+pected stoc) out costsN. e can anal!e alternati%e
customer ser%ice le%els directl $ comparing e+pected cost of stoc) outs
with the re%enue enhancing $enefits of customer ser%ice.
E!!ect i! toc. out"
A stoc) out occurs when desired (uantities of finished goods are not
a%aila$le when and where a customer needs them. In that situation, one of
these e%ents ma occur,
1/ since, customer goes for alternate source, where su$stitute
product is a%aila$le. In such case stoc) out has caused a lost sale. =eller lose
is the loss of profit on the item that was una%aila$le when the customer
wanted it, seller can determine direct loss $ calculating profit on one item
and multipling it $ the num$er the customer ordered. E.g. "or ;s 1555
worth item, if ;s. 155 is profit, then for the customer re(uirement of 155
units, the loss is, 155 155 ;s. 15,555 this lost profit, has to $e compared
with %arious com$inations of carring e+cess in%entor.
9/ Lost customer> cost H i.e. when customer permanentl switches o%er to
another supplier. A supplier who loses a customer loses a future stream of
income. Estimating the customer loss that stoc) outs can cause is difficult.
Deter-inin# e8pected cot o! toc. out"
=tep I> for a product worth ;s.:55> information a%aila$le> $ac) order, lost
sale/
=tep II>
8/11/2019 SCM-Notes (Mod 7 & 8)
34/36
753 of all stoc) outs results in lost sale of an itemJ and $ac) order re(uires
;s.6 as special handling cost.
:53 result as in a lost sale for the item and e(uals to ;s. :5 in lost profit
margin.
153 result in lost customer.
O%erall Impact
753 of ;s. 6- ;s 9.:5
:53 of ;s. :5- ;s 9.55
153 of ;s.:55- ;s :5.55
;s :4.:5
i.e. ;s :4.:5 is the a%erage amount a firm can sa%e $ a%erting stoc) out to
carr additional in%entor as long as that carring cost is less than ;s.:4.:5
or wor)out :5; more logistics options.
C)ANNELS OF DISTRI4%TION"Distri$ution channel decisions are critical to o%erall success of an
organi!ationJ it is a priorit area for corporate managers. In the logistics
area, understanding and appreciating the area of channels is a prere(uisite to
effecti%e strateg formulation, operations and control.
Logistics channel refers to the means $ which products flow phsicall
from where the are a%aila$le to where the are needed.
Mar)eting channel refers to the means $ which necessar transactional
elements are managed. E.g. customer order, $illings, two channels are
illustrated $elow>
8/11/2019 SCM-Notes (Mod 7 & 8)
35/36
Logistics and Mar)eting
Logistical channel Mar)eting channel
*asic functions of logistics channel mem$ers are>
=orting out
Accumulating
Allotting
Assorting
;etail store
E ? rocurement
Fational accountsales
holesaler distri$utor
;etail customer
'ransportation
'ransportation
'ransportation
8/11/2019 SCM-Notes (Mod 7 & 8)
36/36
Fote > Each indi%idual channels represents a uni(ue path from geocer
manufacturer to consumer, and a set of effecti%e logistics strategies must $e
de%eloped for each channel.
channel o! ditri/ution !or !ood product -anu!acturin# indutry
O%er a period, there had $een growth and importance of channel of
distri$ution
1225&s logistics related strategies were de%eloped in response to
consumers.
Anticipate retail demand and eliminate storage.
Distri$utors and third part logistics are )e mem$ers of =
Recommended