Transcript Slide 1
Distribution Management
Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Logistics management
Chapter 5 Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
What is Logistics management?
Has to do with the flow of goods from its origin to where its consumed Definition – That part of the Supply chain process that plans, implements and controls the efficient, effective flow and storage of goods, services and related info from the point of origin to the point of consumption in order the meet customer expectations Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
What is Logistics management?
Supply chain
The physical, financial and information
networks
that involve the movement of materials, funds and related information through the full logistics process, from the acquisition of raw materials to the delivery of finished products to the end-user Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
What is Logistics management?
Physical distribution – Concerned with what happens to outbound goods as they move from the organization to its customers Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Distribution Management Supply Chain = Network/s Logistics = the How it happens Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Objectives of Logistics Decreasing total logistics costs vs. Improving customer service
Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Decreasing total logistics costs
Logistical costs = Information, Transportation, Storage Inventory levels down = Possible stock outs Cheaper forms of Transport = Risk to delivery times and delays.
Cheaper storage = Risk higher for fire, theft, damage..
Number of orders = Costs up or down.
Number of outlets that are services = Costs up or down Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Improving Customer service
Customer service is the single most important reason for the existence of a supply chain and logistics management Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Customer service categories
Order lead time Faster deliveries = increased customer satisfaction and shorter order to cash cycles Dependability Consistency and accuracy shown by supplier.
Reducing variability leads to better planning capabilities More accurate billing leads to higher levels of Customer satisfaction Convenience How favorable the customer experience the delivery service E.g. – Delivery times, payment terms.
Inventory levels and info regarding it.
After sales service e.g.. Warranties, exchanges etc.
Inventory availability Inventory levels Range and selection Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Factors influencing Cust. Service levels
Cust. expectations and reactions to stock outs Trade off between cost and profit What the competitors are doing Current service levels and levels of satisfaction
Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Activities of Logistics
1. Order processing 2. Transportation 3. Inventory management 4. Warehousing 5. Materials handling Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
1. Order processing
From placement of order till the customer receives the product 3 tasks that happen in a logical sequence Order entry – by various means Order handling – Physical goods, finance department Order delivery – Mode of transport depending on service level and product nature Electronic Data interchange – EDI Electronic data exchange of various business forms such as order forms, financial reports, delivery notes.
Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
1. Order processing
Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
2. Transportation - Modes
1.
Rail
– mainly bulky items and large volumes over large distances. Relatively low cost depending on infrastructure
2.
Road
– Short distances and all categories but smaller weight / volumes. Flexible format and the delivery to the doorstep concept is popular.
3.
Air
– Expensive but gives fastest form over distance. Ideal for valuable lightweight small bulk goods and perishable goods
4.
Pipelines
– Effective and efficient after initial startup cost. Draw back is limited goods are suitable.
5.
Water
– Restricted to international trade in SAF. Lower cost bit relatively high risk. Suitable for big bulk goods were lead times are longer Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
2. Transportation - Modes
Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
2. Transportation - Factors
1.
Cost – Total cost of moving products from one location to another. Includes transport, levies, insurance.
2.
Time – Time from when courier is notified to delivery at destination 3.
Accessibility least.
– Number of different location that can be reached by specific mode of Transport. Road is most accessible while pipe is 4.
Capability – Ability to handle different types of goods.
5.
Frequency – How often the mode of transport can be used.
6.
Reliability – Ability to deliver goods safely and on time Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
3. Inventory management
Objective - is to minimize inventory cost 2 major issues – When to order inventory (Re-order point) How much to order (Economic order quantity) Re-order point – Reached when an organization's inventory levels reach a certain minimum level. Important concepts to remember.
Order lead time – time from placing order till receipt of order Usage rate – rate at which inventory is being used / sold during a specific time period.
Safety stock – the amount of stock that is kept to ensure no stock outs.
Re-order point = (Order lead time X Usage rate) + Safety Stock Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
3. Inventory management
Other factors that influence Re-order point Variance in order lead time Fluctuations in customer demand Customer service standard.
Important to remember Order lead time and Usage rate must be in same units (Days, months, years) If products are seasonal ( Summer, winter, Xmas, holidays) then an average can be used if lead times are not accommodative.
Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Re-order point - Exercise
A company needs to determine their Re-order point for a portfolio of products.
Product one – Thermal gloves. Lead time = 3 months. Average usage rate = 10 pairs/week. Safety stock = 20 pairs Product two – Sun hat. Lead time 6 weeks. Last summer usage rate = 50 / day. Safety stock = 100 Determine what the combined Re-order point is?
Is the Safety stock adequate?
Is it correct to combine the Re-order points?
Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Re-order point - Exercise
Thermal gloves 3 months = 12 weeks lead time 10 pairs / week Safety Stock = 20 pairs Sun Hats 6 weeks lead time 50 per day = 250 / week Safety stock = 100 ROP = (OL X UR)+SS ROP = (12X10)+20 ROP = 140 ROP = (6 X 250)+100 ROP = 1600 •Combined ROP = 1740 •SS Gloves is to low •SS Hats is to low •In this case due to seasonal differences ROP shouldn’t be combined.
Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
3. Inventory management
Economic ordering quantity –Sum of inventory carrying cost and the ordering processing cost is at a minimum Inventory carrying cost Order processing cost Pg 188 Inventory carrying cost – Costs associated with carrying inventory such as Warehousing, Financing, Interest, and insurance Order processing cost – the total cost related to placing an order with a supplier Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
3. Inventory management
“Just in time” – Right product arrives, in the right quantities just when they are required Philosophy that eliminates waste in the manufacturing process A system that produces the required item at the time and in the quantities needed.
Inventory control philosophy whose goal it is to maintain just enough material in just the right place at just the right time to make just the right amount of product.
A Program that seeks to eliminate non value adding activities from any operation The basis of JIT is the relationship between supplier and customer.
Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
JIT vs.. Traditional approach
JIT Conventional
Ideal Inventory level is one unit Faster production than necessary is a waste Trade offs is bad. All they do is replace problems Safety stock is seen as waste More is better Faster production is better Scheduling and queuing is essential production processes.
Inventory provides safety Inventory smoothes production Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
3. Inventory management
Important aspects for a successful JIT system Close relations between supplier and customer Attention given to quality Adequate storage facilities Adequate transport systems Suppliers must be reliable Short order lead times Order quantities are reduced Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
3. Inventory management
ABC Inventory analysis – inventory analysis to rank importance Based on Pareto principle.
All organizations have 3 stock movement levels A – 5% of items and 70% of sales B – 10% of items and 20% of sales C – 65% of items and 10% of sales Remaining 20% of items has no sales Management focus on cat A Higher levels of Safety Stock in Cat A Cat A may be stocked in regional warehouse and Cat C only produced on demand Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
4. Warehousing
Why do we have Warehouses?
Impossible for manufacturers to produce goods exactly when required Bulk production is more economical but bulk needs to be stored Functions of Warehouses Receiving goods – Inventory is money and receiving of goods needs to be seen as a financial activity Sorting goods – To ensure appropriate inventory control goods need to be allocated in predetermined positions Storage of goods Filling of orders – Warehouses are responsible for the making up of order parcels Dispatching orders – Sending out of Orders to customers Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
4. Warehousing
Warehousing decisions How many are needed?
What types of Warehouses?
Location of Warehouses Types of Warehouses Private Warehouses Long Term commitment Special handling or unique products Need for high level of control Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
4. Warehousing
Types of Warehouses - Cont..
Public Warehouses – Appropriate for companies that: Seasonal products Low volume storage needs Developing new markets Additional storage space Inventory in many locations Distribution centers When the focus or needs are more on the movement of goods than on the storage of inventory Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Warehousing
Trends
New Technology to ensure speed and accuracy Less inventory is kept due to cost of inventory Quality of goods is critical due to lower inventory levels Service is key aspect Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
5. Materials handling
Transfer of goods into, around and out of an organization to a transport agency.
Objectives Lowest cost Maximum Capacity utilization Minimum handling of goods Safety of employees Provision of quality service Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Logistics
Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Logistics
Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Logistics
Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Logistics
Hugo van Zyl 083-629 2069 [email protected]
Marketing 2B Distribution Management
Activities of Logistics Order Processing
Tasks
•Order Entry •Order Handling •Order Delivery
Info systems
•EDI Transportation
Modes
•Rail •Road •Air •Pipeline •Water •Intermodal •
Selection
•Cost •Time •Access •Capability •Frequency •Reliability Hugo van Zyl 083-629 2069 [email protected]
Inventory Management
Objectives
•Re-order point •EOQ •JIT •ABC analysis Marketing 2B Distribution Management Warehousing
Functions
•Receiving •Sorting •Storage •Filling order •Dispatching
Decisions
•How many •Types •Location Materials handling
Objectives
•Lowest cost •Max Capacity use •Min Handling cost •Safety •Quality service
Equipment