Marketing bán hàng - Chapter 15: Market logistics & supply chain management

Chapter 15Market Logistics & Supply Chain Management1Learning ObjectivesPrinciples of materials management, logistics and supply chain managementLogistics interface with other functionsInventory management principles and systemsWarehousing management fundamentalsTransportation management practicesHow IT enables the logistics functionUnderstand about the performance measurement of the logistics functionSDM – Ch 152Tata McGraw Hill PublishingMaterials ManagementMaterials forms the largest single cost item in most manufacturing companies – needs to be carefully managedMaterials management function includes planning and control, purchasing and stores and inventory controlMaterials management is the precursor to logistics and supply chain managementLogisticsSDM – Ch 153Tata McGraw Hill PublishingLogistics DefinedLogistics means having the right thing, at the right place, at the right timeThe procurement, maintenance, distribution and replacement of personnel and materials – Webster’s DictionaryThe science of planning, organizing and managing activities that provide goods or services – Logistics World, 1997 SDM – Ch 154Tata McGraw Hill PublishingLogisticsFunctions: planning, procurement, transportation, supply and maintenanceProcesses: requirements determination, acquisition, distribution and conservationBusiness: science of planning, design and support of business operations of procurement, purchasing, inventory, warehousing, distribution, transportation, customer support, financial and human resources SDM – Ch 155Tata McGraw Hill PublishingScope of LogisticsChoice of marketsProcurementPlant location and layoutInventory managementLocation and management of warehousesChoices of carriers, mode of transportPackaging decisionsRelevant to all enterprises: manufacturing, Government, Institutions, service organisationsSDM – Ch 156Tata McGraw Hill PublishingComponents of LOG ManagementNatural Resources(land, facilitiesEquipment)HRFinanceInformationMarketing Orientation(competitive Advantage)Time and Place utilityEfficient moveto customerCustomer serviceDemand forecastingDistributionCommunicationsInventory controlMaterials handlingOrder processingParts and service supportPlants and warehouse selectionProcurementPackagingReturn goods handlingSalvage and scrap disposalTraffic and transportationWarehouse and storageInputOutputLogistics ActivitiesSDM – Ch 157Tata McGraw Hill PublishingLinks and FlowsCustomer’scustomerSupplier’ssupplierSupplierLead FirmCustomerGeneral cash flowInformation flowInformation flowGeneral material flow/ service flowInbound / Upstream logisticsOutbound / Downstream logisticsSource: ICFAISDM – Ch 158Tata McGraw Hill PublishingLogistics and MarketingInterface on:Product design and pricingCustomer service policiesSales forecasts and order processingInventory policies and location of warehousesChannels of distribution and despatch planningTransportation to reach products to customersProduction wants larger production runs to minimise time spent on set up changes on the machines. Marketing wants smaller runs of a variety of products. SDM – Ch 159Tata McGraw Hill PublishingThe Value ChainCompany InfrastructureOrganisation, people, methodsSystems & technologyProcurementInboundlogisticsOperationsOutboundlogisticsMarketing& salesServicePrimary activitiesSUPPPORTmarginmarginSource: Michael PorterSDM – Ch 1510Tata McGraw Hill PublishingLogistics Plan OutlineInternal analysis (current position)OrganisationHuman resourcesTransportationRelations with internal customersQuality of productQuality of ServiceExternal / situation analysisCompetitor logistics performanceTrendsExternal environment / economyPublic, private and contract warehousePublic, private and contract carriageSDM – Ch 1511Tata McGraw Hill PublishingPrinciples of Logistics ExcellenceAlling & TyndallStrategicOperationalLink logistics to corporate strategyOrganise comprehensivelyUse the power of informationEmphasise human resourcesForm strategic alliancesFocus on financial performanceTarget optimum service levelsManage the detailsLeveraging logistics volumesMeasure and react to performanceSDM – Ch 1512Tata McGraw Hill PublishingLogistics Focus AreasCustomer service relatedOperations relatedPackaging Order processingSpare parts and service supportAfter sales Customer service supportDemand forecastingDistribution communicationsReturn goods handling Plant and warehouse site locationProcurement Inventory controlMaterials handlingSalvage and scrap disposalTraffic and transportationWarehousing and storageLogistics may be confined to the company whereas SCM extends beyondSDM – Ch 1513Tata McGraw Hill PublishingSupply Chain ManagementBusiness context:Globalization of the market placeAdvances in technologyIncreasingly demanding, informed customer basePurchase decisions on dimensions of quality, price and timeInnovative supply chain:To meet customer driven challengesTo reduce costsImprove service levelsEnhance speed to marketSDM – Ch 1514Tata McGraw Hill PublishingSupply Chain IntegrationOptimising the supply chain requires supplier and customer involvement to integrate processes, policies, systems, database and strategies between diverse trading partnersSDM – Ch 1515Tata McGraw Hill Publishing©IntegratedSupply ChainManagementManufacturing/Re-manufacturing/AssemblyDemand & Lead Time ManagementStorage & TransportationMaterials ManagementInventory Management and control Customer AnalysisPurchasing/Supplier PartneringOrder FulfillmentSupply Chain IntegrationInventory managementSDM – Ch 1516Tata McGraw Hill PublishingWhy Carry Inventory?Support production requirementsSupport operational requirementsMaximize customer service – ensure availability when needed – protect against uncertaintyHedge against marketplace uncertaintyTake advantage of order quantity discountsSDM – Ch 1517Tata McGraw Hill PublishingFunctions of InventoryInventory serves as a buffer between:Supply and demandCustomer demand and finished goodsRequirements for an operation and the output from the previous operationParts and materials to begin an operation and the suppliers of the materials The shock absorber of business !SDM – Ch 1518Tata McGraw Hill PublishingFactors Which Drive InventoryTarget service level parametersLot sizing practicesSafety stock and safety time conventionsVolume discounts and purchase arrangementsSeasonal build up needs SDM – Ch 1519Tata McGraw Hill PublishingCategories of InventoryAnticipation – built in anticipation of future demand – peak season, strike, promotionFluctuation (safety) – to cover random, unpredictable fluctuations in supply and demand and lead time – to prevent disruption in operations, deliveries etc Lot-size – to take advantage of quantity discounts, reduce shipping, set up and clerical costs – also called cycle stockSDM – Ch 1520Tata McGraw Hill PublishingCategories of InventoryTransportation – pipeline or movement inventories – to cover the time needed to move from one point to another – factory to distribution point for exampleHedge – for materials where prices are volatileMaintenance, repair and operating supplies (MRO) – to support M and O – spare parts, lubricants, consumables etcSDM – Ch 1521Tata McGraw Hill PublishingTypes of InventoryObvious.Raw materialsWork-in-processFinished goods – of primary concern to marketingMaintenance, repair and operating (MRO) suppliesIn-transit, pipeline Performance measuresSDM – Ch 1522Tata McGraw Hill PublishingPerformance MeasuresInventory turns = Annual cost of goods sold /average inventory in valueDays of sales = inventory on hand / average daily salesSDM – Ch 1523Tata McGraw Hill PublishingTypes of Inventory SystemsPure Inventory – when and how much to order. RM procurement. Simple manufacturing operationsProduction Inventory – finite production rates. Demand fluctuation. Products compete for manufacturing capacityProduction – distribution Inventory – compete for production capacity. Geographic placement of inventory for best service of demandSDM – Ch 1524Tata McGraw Hill PublishingTypes of ClassificationABC category – most common for allHML - high, medium, low - similarFSND – fast moving, slow moving, non-moving, dead – spare parts / FGSDE – scarce, difficult, easy to obtain – procurement / SparesGOLF – govt, ordinary, local, foreign source – procurement / SparesVED – vital, essential, desirable – spare parts / FGSOS – seasonal, off-seasonal - commoditySDM – Ch 1525Tata McGraw Hill PublishingABC Inventory AnalysisBased on Pareto’s law:A – 20% items worth 80% of valueB – 30% items worth 15% of valueC – about 50% items account for 5% of the usageClassify items based on the above criteriaApply degree of control in proportion to the importance of the group SDM – Ch 1526Tata McGraw Hill PublishingInventory Related CostsUnit costs – basic value of the item carriedOrdering costs – generating and sending a material release, transport, any other acquisition costsCarrying costs – capital, storage, obsolescenceStock-out costsQuality costs – non-conforming goodsOther costs – duties, tooling, exchange rate differences etcSDM – Ch 1527Tata McGraw Hill PublishingApproaches for Controlling InventoryContinuous review:Safety stocks and forecasting methodsExcess and obsolete inventoryPart simplification and re-designOn-site supplier managed inventoryUse of supply chain inventory management systems, Materials Requirement Planning, Distribution Requirement Planning etcAutomated inventory tracking systemsSupplier – buyer cycle-time reduction Warehouse managementSDM – Ch 1528Tata McGraw Hill PublishingStores Management Objectives Providing efficient service to usersReduce cost of carrying goodsProviding correct, updated stock figuresControlling inventoryPreventing damage to or obsolescence of materialsAchieve all of the above with good housekeeping SDM – Ch 1529Tata McGraw Hill PublishingFunctionsWarehousesMaterial handlingStorage functionCustomer serviceInformation transferTemporary Permanent Receive goodsIdentify goodsSort goodsDespatch to storageHold inventoryRecall, select goodsMarshal the shipmentDespatch the shipmentPrepare records andadvicesSDM – Ch 1530Tata McGraw Hill PublishingPurpose of WarehousingTo provide desired level of customer service at the lowest possible total costIt is that part of the firm’s logistics system that stores products (RM, Packing Materials, WIP, FG) at and between point of origin and point of consumption and provides info to management on the status, condition and disposition of items being storedDistribution warehousing relates mainly to FG SDM – Ch 1531Tata McGraw Hill PublishingReasons for WarehousingService relatedCost relatedMaintain source of supplySupport customer service policiesMeet changing market conditionsOvercome time and space differentialsSupport JIT programs of suppliers and customersProvide customers with the right mix of products at all timesTemporary storage of materials to be disposed or re-cycledAchieve production economiesAchieve transportation economiesTake advantage of Quantity Purchase discounts and forward buysLeast Logistics cost for a desired level of customer serviceSDM – Ch 1532Tata McGraw Hill PublishingWarehouses Support manufacturing Mix products from multiple facilities for shipment to a single customerBreak-bulkAggregate Used more as a ‘flow-thru’ point than as a ‘hoarding’ point SDM – Ch 1533Tata McGraw Hill PublishingDistribution WarehousingThe objective is to set up a network of warehouses closest to the customer locations to service markets better and minimise costCould be C&FA s, depots or distribution centersMacro location strategies:Market positionedProduction positionedIntermediately positionedSDM – Ch 1534Tata McGraw Hill PublishingDistribution Center Warehouse designed to speed the flow of goods and avoid unnecessary costsSpeeds bulk-breaking to avoid inventory carrying costsHelps to centralise control and co-ordination of logistics activitiesProducts can also be cross-docked (one vehicle to another) Market positioned..SDM – Ch 1535Tata McGraw Hill PublishingMarket PositionedWarehouses located nearest to the final customerFactors influencing are:Order cycle timeTransportation costsSensitivity of the productOrder sizeLevels of customer service offeredProduction positioned.SDM – Ch 1536Tata McGraw Hill PublishingProduction PositionedWarehouses located close to the production facilities or supply sourcesNot the same level of customer service as the earlier oneServe as points of aggregation / collection for products made in a number of plantsFactors influencing are:Perishability of raw materialsNumber of products in the product mixAssortments ordered by customersTransport consolidation rates ex; FTL In betweenSDM – Ch 1537Tata McGraw Hill PublishingIntermediate PositionedMid point locations between the final customer and the producerHigh customer service levels possible even if products made in number of unitsOther macro approaches look at cost minimisation or cost and demand elements to maximise profitability Transportation management.SDM – Ch 1538Tata McGraw Hill PublishingTransportation Very important in the Logistics function:Movement across space or distance adds value to productsTransportation provides time and place utilityRole of transportation includes:Provides opportunity for growth under competitive conditionsDeeper penetration into marketsWider distribution means greater demandCan influence product prices favourablyPrinciples.SDM – Ch 1539Tata McGraw Hill PublishingTransportation PrinciplesContinuous flowOptimise unit of cargo - stackabilityMaximum vehicle unit – capacity utilizationAdaptation of vehicle unit to volume and nature of trafficStandardisationCompatibility of unit load equipmentMinimum of dead weight to total weightMaximum utilization of capital, equipment and personnelProcess.SDM – Ch 1540Tata McGraw Hill PublishingThe Selection CriteriaEnvironmental analysis: shipper, carrier, government regulations, public influenceDeciding objectivesSelecting modeSelect transport type within the modeDefine functions of transportEvaluation and control – customer perception / satisfaction, best practice benchmarkingSDM – Ch 1541Tata McGraw Hill PublishingCost FactorsCan be product related or market related.Product related: density, stowability, ease or difficulty of handling and liabilityMarket related: competition, location of markets, Government regulations, traffic in and out of the market, seasonality of movements and impact on customer serviceFive prominent modes:Road, rail, air, water and pipeline. Sixth one is use of RopewaysSDM – Ch 1542Tata McGraw Hill PublishingCustomer Service FactorsConsistency, dependabilityTransit timeCoverage – door-to-door for exampleFlexibility in handling a range of productsLoss and damage performanceAdditional services provided Reverse logisticsSDM – Ch 1543Tata McGraw Hill PublishingReverse LogisticsMovement of goods from the market or customer back to the companyThe need:Increased awareness of the environmentStringent legislation For some it is part of the businessProfitability of dealing with scrap, surplusSurplus, obsolescence can result due to:Over optimistic sales forecasts, change in product specs, errors in estimating material usage, losses in processing or overbuying based on incentivesComparison of modesSDM – Ch 1544Tata McGraw Hill PublishingAdvantages of RailEconomy – more so for goods over long distancesEfficiency of energy Reliability – not affected by weather conditionsSDM – Ch 1545Tata McGraw Hill PublishingDisadvantages Uneconomical for small shipments and short distancesNot suitable for remote stations Costly terminal handling facilitiesInflexible time schedules Road transport..SDM – Ch 1546Tata McGraw Hill PublishingRoad Freight AdvantagesThrough movement – direct from consignor to consignee, no transshipmentFlexibility – routes and loading routines can be easily altered, operate day and nightLess capital costs – for own fleet + immunity from industrial actionFast turn-around – if articulated units like tractors and trailers are usedMinimum delaysSDM – Ch 1547Tata McGraw Hill PublishingDisadvantages Susceptibility to weather and road conditions – in spite of the best protectionUnsuitability for heavy loads – rail transport more economical for bulk loadsUnsuitability for long distances – again the rail telescopic rates are more favourable Air transport.SDM – Ch 1548Tata McGraw Hill PublishingAir Transport AdvantagesFaster modeReduction in cost particularly inventoryBroad service rangeIncreasing capabilitiesDisadvantages:High costWeather affects flight conditionsLimitations on heavy consignmentsWater transportSDM – Ch 1549Tata McGraw Hill PublishingWater TransportAdvantages: Mass movement of bulkLowest freight cost Preferred for long haul of low value commoditiesDisadvantages:Not for quick transitSuitable for certain types on commodities onlyPipeline.SDM – Ch 1550Tata McGraw Hill PublishingPipeline MovementAdvantages:Reliable, continuous, all weather transportLow energy consumption – hence low costLow maintenance and operating costsUnderground, no space problemCan traverse difficult terrainMinimal transit lossesOperation round the clock, safeEconomies of scale – double the throughput for only 30% additional costDisadvantage is in the investment cost Ropeways.SDM – Ch 1551Tata McGraw Hill PublishingRopewaysAdvantages:In hilly or inaccessible areasLong and circuitous routes with streams / deep valleysFor commodities capable of movement in ropeway bucketsShort haulages of less than 50 kmsAreas where other carriers are uneconomicalDisadvantages:Heavy investmentsLimitations on size and quantity of haul How to decide on the right carrier?SDM – Ch 1552Tata McGraw Hill PublishingCarrier SelectionTraffic RelatedShipper relatedService relatedLength of haulConsignment weightDimensionsValueUrgencyRegularity of shipmentFragilityToxicityPerishabilityType of packingSpecial handling requiredSize of firmInvestment prioritiesMarketing strategyNetwork of production and distribution Availability of rail sidingsStockholding policyManagement structureSystem of carrier evaluationSpeed (transit time)ReliabilityCost Customer relationshipGeographical coverageAccessibilityAvailability of special vehicles / equipmentMonitoring of goodsUnitisation Ancillary services – bulk breaking, storageSDM – Ch 1553Tata McGraw Hill PublishingChart of Relative MeritsParameterWeightage Rail Road Air Water PipelineRope waySpeed30568433Versatility10685632Reliability20685574Availability 10785632Continuity of service10675583Distribution cost20456678Total score105.46.75.15.15.14.0Overall ranking10214556SDM – Ch 1554Tata McGraw Hill PublishingKey LearningsSupport to customer service has evolved from materials management to logistics and to supply chain managementProduction and marketing are the two internal customers of LogisticsLogistics also has a direct impact on the financials of a companyThree important functions of logistics are inventory management, warehousing and transportationSDM – Ch 1555Tata McGraw Hill PublishingKey LearningsInventory directly supports customer service but also adds to the cost and has to be managed carefullyWarehousing provides the place utility and works as a balance between production and meeting customer needsTransportation supports the place and time utility and uses different modes to reach the products to the consumerModern day supply chains integrate the operations of a firm, its suppliers and customersSDM – Ch 1556Tata McGraw Hill Publishing