Transcript No Slide Title

Syllabus
• Class 1: Jan 7 – Chapters 1 & 2, Supply Chain
Security
• Class 2: Jan 14 – Chapter 3 & 4
• Class 3: Jan 21 – Chapters 5 & 6
• Class 4: Jan 28 – review and mid term
• Class 5: Feb 4 – Chapters 7 & 8
• Class 6: Feb 11 - Chapters 9, 10, 12
• Class 7: Feb 18 – No Class
• Class 8: Feb 25 – Chapter 13, Chapter 15 and
Reverse Logistics
• Class 9: Mar 4 - Course Critique, Review, Final
Exam
CHAPTER 7
Managing Materials Flow
Materials Management Activities
• Anticipating materials requirements
• Sourcing and obtaining materials
• Introducing materials into the
organization
• Monitoring the status of materials as a
current asset
Objectives of Integrated Materials
Management
•
•
•
•
•
Low costs
High level of service
Quality assurance
Low level of tied-up capital
Support of other functions
Differences Between Inbound and
Outbound Transportation
• Market demand that generates the need for
outbound movement is more uncertain and
fluctuating
• Inbound transportation tends to involve bulk
raw materials, supplies, or parts
• Firms exercise less control over inbound
transportation due to total delivered pricing
programs
Types of Forecasts
• Demand forecast
• Supply forecast
• Price forecast
• Long-term
• Midrange
• Short-term
Forecasting Supply
Chain Requirements
I hope you'll keep in mind that economic
forecasting is far from a perfect science. If recent
history's any guide, the experts have some
explaining to do about what they told us had to
happen but never did.
Ronald Reagan, 1984
What’s Forecasted in the
Supply Chain?
•Demand, sales or requirements
•Purchase prices
•Replenishment and delivery
times
Some Forecasting Method Choices
•Historical projection
Moving average
Exponential smoothing
•Causal or associative
Regression analysis
•Qualitative
Surveys
Expert systems or rule-based
•Collaborative
Typical Time Series Patterns:
Random
250
Sales
200
150
Actual sales
Average sales
100
50
0
0
5
10
15
Time
20
25
Example 3-Month Moving Average Forecasting
Month, i
.
.
.
20
21
22
23
24
25
26
CR (2004) Prentice Hall, Inc.
Demand for
month, i
.
.
.
120
130
110
140
110
130
?
Total demand
during past 3
months
.
.
.
.
360/3
380/3
360/3
380/3
3-month
moving
average
.
.
.
.
120
126.67
120
126.67
n
where
w
i =1
i
=1
If weights (w ) are exponential in form, then
MA = aAt + a (1 - a )1 At -1
+ a (1 - a ) 2 At - 2 + a (1 - a ) 3 At -3
+ ... + a (1 - a ) n At -n
which reduces to the basic, level only,
exponential smoothing formula
MA = Ft +1 = aAt + (1 - a )Ft
where
a = smoothing constant usually 0.01 to 0.30
Ft +1 = forecast for next period
At = actual demand in current period
Ft = forecast in current period
Weighted Moving Average
MA = w 1A1 + w 2 A2 + ... + w n An
Actions When Forecasting is
Not Appropriate
 Seek information directly from customers
Collaborate with other channel members
 Apply forecasting methods with caution (may work
where forecast accuracy is not critical)
 Delay supply response until demand
becomes clear
 Shift demand to other periods for better
supply response
 Develop quick response and flexible supply
systems
CR (2004) Prentice Hall, Inc.
Collaborative Forecasting
• Demand is lumpy or highly uncertain
• Involves multiple participants each with a
unique perspective—“two heads are better
than one”
• Goal is to reduce forecast error
• The forecasting process is inherently
unstable
Collaborative Forecasting:
Key Steps
• Establish a process champion
• Identify the needed Information and collection processes
• Establish methods for processing information from multiple sources
and the weights assigned to multiple forecasts
• Create methods for translating forecast into form needed by each
party
• Establish process for revising and updating forecast in real time
• Create methods for appraising the forecast
• Show that the benefits of collaborative forecasting are obvious and
real
Managing Highly
Uncertain Demand
Delay forecasting as long as possible
Prioritize supply by product’s degree of uncertainty
(supply to the more certain products first)
Apply the principle of postponement to the most
uncertain products (delay committing to a final product
form until an order is received)
Create flexible supply to changing demand (alter
capacity and output rates through subcontracting,
computer technology, multi-purpose processes, etc.)
Be able to respond quickly to uncertain demand levels
Total Quality Management (TQM)
the application of quantitative and
human resources to improve the material
services supplied to an organization, all
the processes within the organization, and
the degree to which the needs of customers
are met - now and in the future.
Administration and
Control of Materials Flow
• Kanban/Just-in-time
» Kanban (Toyota Production System)
» JIT
• MRP
» Materials requirements planning (MRP I)
» Manufacturing resource planning (MRP II)
• DRP
» Distribution requirements planning (DRP I)
» Distribution resource planning (DRP II)
Benefits Resulting from Implementing
Just-in-Time
• Improved inventory
turns.
• Improved customer
service.
• Decreased warehouse
space.
• Improved response time.
• Reduced logistics costs.
• Reduced transportation
costs.
• Improved quality of
vendor products.
• Reduced number of
vendors.
• Reduced number of
transportation carriers.
Elements of an MRP I System
Inventory
transactions
Inventory status
file (finished items,
work in progress,
planned orders)
Customers’
orders
Forecasts
Master production
schedule (which
products to produce, in
what quantity, and when)
Engineering
changes
Bill-of-materials file
(product structure
and routing)
MRP I
system
Planned schedules
and various
other reports
Source: MCB University Press Ltd., Amrik Sohal, and Keith Howard, "Trends in Materials Management,"
International Journal of Physical Distribution and Materials Management 17, no. 5 (1987), p.11.
MRP Scheduling
Example
The master schedule for a particular part over the next 8
weeks shows requirements of:
1
2
3
4
5
6
7
8
150 500 350 300 1000 800 700 500
The average lead-time to receive these parts from a
vendor is 2 weeks. A previous order for 800 units has
been placed with the vendor and will arrive by week 2.
An inventory of 200 units is currently on hand.
Lot-for-lot scheduling
Purchase orders are matched on a one-for-one basis
with requirements.
CR (2004) Prentice Hall, Inc.
MRP Example (Cont’d)
Lot-for-lot scheduling (Cont’d)
Week
Requirements
1
2
3
150
500
350
Scheduled
receipts
Quantity
on hand 200
Purchase
releases
CR (2004) Prentice Hall, Inc.
800
50
350
0
4
5
6
7
8
300 1000
800
700 500
300 1000
800
700 500
0
300 1000 800
0
0
700
500
0
0
10-11
MRP Example (Cont’d)
Order minimums
Suppose the vendor has an order minimum of 500 units.
Week
Requirements
1
150 500
Scheduled
receipts
Quantity
on hand 200
Purchase
releases
CR (2004) Prentice Hall, Inc.
2
3
350
800
50
4
5
6
7
8
300 1000 800
700 500
300
800
800
700 500
350
0
200
0
0
500
800
800
700
500
Order min. qty.
0
0
10-13
Vendor Managed Inventory
•The supplier usually owns the inventory at the
customer’s location
•The supplier manages the inventory by any means
appropriate and plans shipment sizes and delivery
frequency
•The buyer provides point of sale information to the
supplier
•The buyer pays for the merchandise at the time of sale
•The buyer dictates the level of stock availability
required
Elements of an MRP II System
Order
(production plan)
Order
(production plan)
Inventory
records
Materials
requirements
planning
(MRP)
Capacity
requirements
planning
(CRP)
No
Realistic
?
Yes
Execute
capacity plans
Execute
material plans
Source:Karl A. Hatt, ‘What’s the Big Deal about MRP II?” Winning Manufacturing 5, no. 2 (1994), p. 2.
Elements of a DRP II System
Customers
Distribution
center
Distribution
center
Distribution
center
Distribution
center
Regional
warehouse
Distribution
resource
planning
Distribution
center
Distribution
center
Regional
warehouse
Plant
warehouse
Source: “How DRP Helps Warehouses Smooth Distribution,” Mondern Materials Handling 39, no. 6 (April 9, 1984), p. 53.
Modern Materials Handling, copyright 1984 by Cahners Publishing Company, Division of Reed Holdings.
Elements of a DRP II System
(cont.)
Plant
warehouse
Material
requirements
planning
Final assembly
(manufacturing)
Subassembly B
Subassembly A
Part A
Part C
Part C
Subassembly C
Part D
Part E
Part B
Raw materials
Source: “How DRP Helps Warehouses Smooth Distribution,” Mondern Materials Handling 39, no. 6 (April 9, 1984), p. 53.
Modern Materials Handling, copyright 1984 by Cahners Publishing Company, Division of Reed Holdings.
CHAPTER 8
Transportation
Factors Influencing
Transportation Costs
• Product-related
factors
– density
– stowability
– ease or difficulty of
handling
– liability
• Market-related factors
– Degree of competition
– Location of markets
– Government regulation
– Balance or imbalance
of freight traffic
– Seasonality
– Domestic versus
international movement
Transportation Impacts on
Customer Service
•
•
•
•
•
Dependability
coverage
flexibility
loss and damage - FEDEX
Time Definite Delivery
Terms of Sale and Corresponding
Buyer and Seller Responsibilities
1.Terms of Sale FOB Shipping Point, FREIGHT COLLECT
Title passes to buyer
Freight charges paid
by buyer
Buyer pays freight charges.
Title passes to buyer
Buyer bears freight charges.
Buyer owns goods in transit.
Buyer files claims (if any).
Seller
3.Terms of Sale FOB Shipping Point, FREIGHT PREPAID
AND CHARGED BACK
Buyer
Seller
Buyer
Seller pays freight charges.
Buyer bears freight charges.
Buyer owns goods in transit.
Buyer files claims (if any).
Freight charges paid by seller, then collected
from buyer by adding amount to invoice.
2.Terms of Sale FOB Shipping Point, FREIGHT ALLOWED
Title passes to buyer
Freight charges paid
by seller
Seller pays freight charges.
Seller bears freight charges.
Buyer owns goods in transit.
Buyer files claims (if any).
Seller
Buyer
Source: Harold Fearon, Donald Dobler, and Ken Killen, The Purchasing Handbook, National
Association of Purchasing Management, 1993, McGraw-Hill.
Terms of Sale and Corresponding
Buyer and Seller Responsibilities (cont.)
4.Terms of Sale FOB Destination, FREIGHT COLLECT
Title passes to buyer
Buyer pays freight charges.
6.Terms of Sale FOB Destination, FREIGHT COLLECT AND
ALLOWED
Title passes to buyer
Buyer bears freight charges.
Seller
Buyer
Seller owns goods in transit.
Seller
Buyer
Buyer pays freight charges.
Seller bears freight charges.
Seller owns goods in transit.
Seller files claims (if any).
Seller files claims (if any).
Freight charges paid by buyer, then charged to
seller by deducting amount from invoice.
Freight charges paid by buyer
5.Terms of Sale FOB Destination, FREIGHT PREPAID
Freight charges paid by seller
Title passes to buyer
Seller pays freight charges.
Seller bears freight charges.
Seller owns goods in transit.
Seller files claims (if any).
Seller
Buyer
Source: Harold Fearon, Donald Dobler, and Ken Killen, The Purchasing Handbook, National
Association of Purchasing Management, 1993, McGraw-Hill.
Five Basic Transportation Modes
•
•
•
•
•
Motor
Rail
Air
Water
Pipeline
Comparison of US Domestic
Transportation Modes
Motor
Rail
Air
Water
Pipeline
Economic
Characteristics
Cost
Moderate
Low
High
Low
Low
Market
coverage
Point-topoint
Terminal-toterminal
Terminal-toterminal
Terminal-toterminal
Terminalto-terminal
Number of
competitors
Many
Moderate
Moderate
Few
Few
Predominant
traffic
All types
Low-moderate
value,
moderatehigh- density
High value,
low
moderate
density
Low value,
high density
Low value,
high density
Average length
of haul
Short to long Medium to
long
Medium to
long
Medium to
long
Medium to
long
Equipment
capacity (tons)
10-25
5-125
1,000-60,000 30,0002,500,000
50-12,000
Comparison of US Domestic
Transportation Modes (cont.)
Service
Characteristics
Motor
Rail
Air
Water
Pipeline
Moderate
High
Slow
Moderate
Fast
Moderate
Slow
Low
Slow
Low
Consistency
(delivery time
variability)
High
Moderate
High
Lowmoderate
High
Loss and damage
Low
Moderatehigh
Low
Lowmoderate
Low
Flexibility
(adjustment to
shipper’s needs)
High
Moderate
Low
Low
Speed
Availability
Lowmoderate
Rail in South Africa
•
•
•
•
Excess capacity
Good rail network
Lousy service reputation
Companies are considering buying own
systems
Nonoperating Third Parties
•
•
•
•
Freight forwarders
Shippers’ associations or cooperatives
Transportation brokers
Intermodal marketing companies or
shippers’ agents
• Third-party logistics service providers
Major U.S. Agencies Regulating
Transportation
•
•
•
•
Surface Transportation Board
Department of Transportation
Federal Maritime Commission
Federal Energy Regulatory Commission
The Domestic Transportation
System
• Transportation is the movement of goods
and people between two points
–
–
–
–
–
Nodes
Links
Air, water, motor carriage, rail, pipeline
Intermodal transportation
Routing guides
Switching Milk
Cans from a
Farmer’s Buggy
to a Truck on a
Rural Road in
North Carolina,
1929
Early form of intermodal transport and cross docking
The Domestic Transportation
System
• Supply chain success requires transportation
– Transportation costs are affected by node
location
– Inventory requirements are influenced by mode
– Packaging requirements are dictated by mode
– Materials handling equipment and design of the
docks are dictated by mode
– Maximum consolidation of loads achieved with
order-management technology reduces costs
– Customer service goals influence carrier choice
Product vs. Pricing
• Ease/difficulty of load
• equipment availability
• capacity of equipment
• Inefficiencies drive up
prices
• zones
• unexpected costs increase in cost of
diesel
Target Markets
• Cost of reaching market
• network on other end
• Shipping to Hawaii - Matson (small
monopoly)
• $6/gal for milk in Hawaii
• Facility location based on trans network Reno/Ontario/Atlanta/Memphis
Product related factors
•
•
•
•
•
Density of product stowability
special handling equipment
special shipping containers
hazmat - liability
Common/contract/exempt vs.
private
• All shippers
• any shipper
• contract - limited
number under specific
contract
• Private fleet
• Move only company’s
products
• lease or own
Small-Volume Shippers
• Parcels are packages weighing up to 150
pounds
• Parcel carriers are firms that specialize in
small packages (≤ 150 pounds)
– UPS
– FedEx
• Other carriers include
– USPS
– Passenger carriers—air and bus
LTL Shippers
• Less-than-truckload (LTL)
– 150 to 10,000 pounds
– Too big to be handled manually, too small to fill
a truck
– LTL trucks carry shipments from many shippers
– Most large firms are LTL carriers
• Yellow Freight
• Roadway Express
• ABF Freight System
LTL Shippers
• Less-than-truckload (LTL) (continued)
– Process
•
•
•
•
•
Local pick-up
Origin terminal used to load aboard line haul
Line haul to terminal near destination
Destination local delivery on smaller trucks
Consignee receives
LTL Shippers
• Air Cargo
–
–
–
–
Can be given directly to airline
Can be given to freight forwarder
Most carried on passenger airlines
Types of products
• High in value
• Perishable
• Require urgent delivery
– Shipped in air containers made to fit fuselage
LTL Shippers
• Freight forwarders
– buy space at TL (truckload) rate and sell at
somewhat less than LTL rate
– pick-up and deliver; motor carriers or railroads
do line-haul
– function as transportation departments of small
firms
– may specialize in specific cargoes
LTL Shippers
• Air forwarders
–
–
–
–
Consolidate shipments
Tender to airlines in containers ready for loading
Forwarders provide retailing function
Airline provides wholesaling function
• Shipper’s cooperatives
– Similar to air and freight forwarders but are notfor-profit organizations
– Membership (shippers) receive any monies earned
in excess of costs
LTL Shippers
• 3PLs
– May have equipment—trucks, trailers, terminals
– May deal in information only
– May operate Internet-based auctions
• Brokers
– A facilitator who brings together a buyer and seller
– May consolidate LTL shipments and then give to
truckers, forwarders, or shippers’ associations
Truckload and Carload Shippers
• Shipments of 20,000 to 30,000 pounds
• Fill one truck
• Cost less per pound than LTL shipments
– The shipper loads and consignee unloads the
trailer
– Load goes from shipper to consignee without
passing through a terminal
– Paperwork, billing, and control costs are the
same
Truckload and Carload Shippers
• Rate per haul may be negotiable
• Largest TL companies
– Schneider National Van Carriers
– J.B. Hunt Transport
• Many firms are smaller, without national
presence
• Smaller firms may be owner-operators
Truckload and Carload Shippers
• Private transportation is when the shipper
provides and operates its own equipment
• Dedicated equipment is carrier owned but
assigned to serve specific customers for
indefinite periods
• Shippers and consignees using railroad
service need sidings on their property
Large Bulk Shippers
• Bulk cargo
– Travels in loose rather than in packaged form
– Handled by pumps, scoops, conveyor belts, or
the force of gravity
– Has various handling characteristics
– Moves by
•
•
•
•
Truckload
Railroad
Water carrier
Pipeline
Large Bulk Shippers
• Bulk cargo (continued)
– Dry Bulk-Handling Systems
• Coal car unloading facility
• Grain elevator
– Vehicle and Vessel Equipment Choice
Comparison of Modes
• Costs per ton-mile
• Speed
• On-time delivery
Transportation Regulation and
Deregulation
• Exceptions to economic deregulation
–
–
–
–
–
–
Rail service to captive shippers
Household goods movers
Many petroleum pipelines
Many natural gas pipelines
Some inland waterway traffic
Some water transport between mainland U.S.
and Hawaii, Puerto Rico, and Alaska
Transportation Rates
• Rate structure deals with three factors
– Relationships between different products
– Relationships between shipments of different
weights
– Relationships between different distances
• Three factors are defined numerically and
then tied to a rate of cents per
hundredweight (cwt)
Transportation Rates
• To find LTL rates usually need:
–
–
–
–
–
Origin and destination zip codes
Weight of shipment
Classification of shipment
Supplemental services needed
Discount awarded to shipper by carrier
• Rates may be on carrier web sites
Which Mode?
• Motor - 75% of tonnage - average move =
400 miles
• Use motor for moves > 400 < 1000
• > 1000 air and smaller package - air
• > 500 and large - rail
• average rail move = 850 miles
Importance of Modes
By Products Hauled
 Air--very high-valued, time sensitive products
 Truck--moderately high-valued, time sensitive
products. Many finished and semifinished goods
 Rail--low-valued products including many raw
materials
 Water--very low-valued products moved domestically,
high-valued if moved internationally
 Pipe--generally limited to petroleum products and
natural gas
CR (2004) Prentice Hall, Inc.
Importance of Modes (Cont’d)
By Volume Moved
Transportation
mode
Railroads
Trucks
Inland waterways
Oil pipelines
Air
Total
CR (2004) Prentice Hall, Inc.
Percent
of total
volume
36.5%
24.9
16.3
22.0
0.3
100.0
Performance Overview
 Air generally fast over long distances and a fair
degree of relative variability
 Water is very slow and moderately reliable
 Pipe is very slow but reliable
 Truck is moderately fast and reliable
 Rail is slower and less reliable than truck
Relative Costs of Performance
Mode
Rail
Truck
Water
Pipeline
Air
CR (2004) Prentice Hall, Inc.
Price,
¢/ton-mile
2.28
26.19
0.74
1.46
61.20
Mode/Service Selection
 The problem
- Define the available choices
- Balance performance effects on inventory against
the cost of transport
 Methods for selection
- Indirectly through network configuration
- Directly through channel simulation
- Directly through a spreadsheet approach as follows:
Cost types
Transportation
In-transit inventory
Source inventory
Destination inventory
CR (2004) Prentice Hall, Inc.
Alternatives
Air Truck Rail
Rail
•
•
•
•
•
•
•
•
1-UP; 2-BNSF; 3-Canadian National; 4-CSX
175K miles of rail
lacks versatility and flexibility
Oct 04- UP had 140 loads waiting for power
Average times for rail up over past 3 months
Equipment shortages
BNSF – record profits last 2 years
BNSF - all switching and routing from World
Wide Operations Center (WWOC) in Fort
Worth
NUMBER OF
WAREHOUSES
IN THE
NETWORK
AVERAGE
LEAD TIME
TO
CUSTOMERS
(DAYS)
One
2.28
Bloomington, IN
Two
1.48
Ashland, KY
Palmdale, CA
Three
1.29
Allentown, PA
Palmdale, CA
McKenzie, TN
Lancaster, PA
Palmdale, CA
Chicago, IL
Four
1.20
Summit, NJ
Palmdale, CA
Chicago, IL
Dallas, TX
Macon, GA
Summit, NJ
Pasadena, CA
Chicago, IL
Dallas, TX
Macon, GA
Tacoma, WA
Summit, NJ
Pasadena, CA
Chicago, IL
Dallas, TX
Gainesville, GA
Tacoma, WA
Summit, NJ
Pasadena, CA
Chicago, IL
Dallas, TX
Gainesville, GA
Tacoma, WA
Lakeland, FL
Denver, CO
Summit, NJ
Alhambra, CA
Chicago, IL
Dallas, TX
Gainesville, GA
Tacoma, WA
Lakeland, FL
Denver, CO
Oakland, CA
Summit, NJ
Alhambra, CA
Chicago, IL
Dallas, TX
Gainesville, GA
Tacoma, WA
Lakeland, FL
Denver, CO
Oakland, CA
BEST WAREHOUSE LOCATIONS
Meridian, MS
Five
Six
Seven
1.13
1.08
1.07
Lakeland, FL
Eight
Nine
Ten
1.05
1.04
1.04
Mansfield, OH
©2008 Chicago Consulting - Supply Chain Consultants
Distribution Centers and
Transportation
• Trade off between inventory and
transportation costs
• Closer to customers allows company to
claim “Green” friendly
Transportation Stuff
• Rail volume up 1.9% in January – 1.556 million
car loads
• Intermodal traffic = 1.068 million
containers/trailers
• Fuel Surcharges unpredictable – one company
covered 96% of fuel costs with surcharges last
year
• Hotel rooms in Vegas added an energy surcharge 5
years ago and still add to room charges
Chapters 7 and 8
•
•
•
•
•
•
•
•
Modes of Transportation
Mode Selection
MRP
DRP
Inbound vs. Outbound
Forecasting
Just in Time
LTL vs TL
Next Week
• Chapter 9, 10 and 12