Logistics Exam 1
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1. Global Transportation Options
Global transportation is more complex than domestic transportation. Distances are greater, the number of parties involved is more extensive, and the shipments often require storage and are subject to more handling.Storage ConsiderationsPrivate & Port StorageBonded WarehousesPackaging ConsiderationsExport shipments moving by ocean transportation usually require more stringent packaging than domestic shipments.
Storage Considerations: Ports
- Storage may be necessary while the shipment waits to be loaded on an ocean vessel (Port Storage):
- Transit Sheds: Located next to piers for temporary storage. Port usage fee includes a fixed number of free storage days, then a daily charge.
- In-Transit Storage Area: Allows shipper to perform required operation on the cargo before embarkation (waiting for documents, packing, crating, or labeling)
- .Hold-on-Dock Storage: Free until the vessel’s next departure dating, allowing the shipper to consolidate goods and to save storage costs.
Storage Considerations: Customs
- 3PL EXCEL WAREHOUSES THAT NEEDS CUSTOMS...Storage may be necessary while customs clearance is being arranged for the merchandise.
- Bonded Warehouses: Supervised by U.S. customs and designated by the U.S. secretary of the treasury.Purpose: Storing, repackaging, sorting, or clearing imported merchandise entered for warehousing without paying import duties while the goods are in storage (up to 3 years).Only bonded transportation carriers may move goods into and out of bonded warehouses. If goods are not exported within 3 years, they are considered imports (duties/taxes).
Packaging Considerations: Wood Blocking (Wood Packaging Requirements)
- Wood-blocking is a way to secure cargo in a container by using blocks of wood that are hammered together around the product
- Wood packaging material for international shipments requires an approved stamp known as the "bug stamp" or ISPM-15 mark.ISPM-15 requires wood packaging material (thickness > 6mm) be debarked and heat treated or fumigated with methyl bromide and stamped/branded with the compliance mark. If wood shipping crates are not clearly marked with the ISPM-15 stamp, they can be confiscated and destroyed at the port.
2. Strategic Channel Intermediaries
- Intermediaries play a much larger role in global supply chain operations than in the domestic United States.Intermediaries play a strategic role in helping new and established companies venture into the global arena.
- Foreign Freight Forwarders
- Non-Vessel-Operating Common Carriers
- Export Management Companies
- Export Trading Companies
- Customs House Brokers
Foreign Freight Forwarders
- Key Function: Consolidates smaller shipments into more economical sizes. The larger sizes range from containers to entire ships (they do not touch freight).
- Reserves space with carriers (e.g., motor, ship, plane). Income sources: commissions from the transportation carriers and price difference between shipper charges and lower rate/pound paid.
- Prepares export documents and price quotations by advising on freight costs, port charges, handling fees, insurance costs, and special documentation costs.
- Recommend packing methods to the protect the cargo during transit or can arrange to have the merchandise packed at the port or containerized.
Non-Vessel-Operating Common Carriers (NVOCC)
- Key Function: Disperses the inbound containers that originate at/bound to inland points and finds outbound shipments in the same containers (consolidating them).
- Cargo consolidator who does not own any vessel, but acts as a carrier legally by accepting required responsibilities of a carrier who issues their own bill of lading.
- Contracts with shippers to move cargo, issuing their own door-to-door transport document, despite sub-contracting physical movement to transportation carriers.
- Consolidates many containers for multiple-piggyback-car and/or whole-train movement back to the port for export. Also provides scheduled container services.
Differentiating FFF and NVOCC
- NVOCCs can (often) own and operate the containers they ship; they may also lease (own use or others) containers. Foreign freight forwarders cannot follow the same protocol.
- U.S. requires NVOCC operators to make a public tariff; this takes place when reporting their tariffs to the government branch. This is not requested of foreign freight forwarders.
- Each NVOCC serving foreign commerce of the U.S. must publish a tariff listing: all rates, charges, classifications, rules, and practices.
- Foreign freight forwarding companies may act as either an agent or as a partner for a NVOCC; vice versa is not true. Provides freedom and allows NVOCCs to adjust to tasks.
Export Management Companies (EMC)
- Key Function: Obtain orders for their clients’ products by selecting appropriate markets, distribution channels, and promotional campaigns.
- An EMC is an independent firm that essentially acts as the export sales department for non-competing manufacturers.
- The role of an EMC in foreign markets is similar to a sales representative for a manufacturer in the domestic market.
- An EMC often has a formal agreement with manufacturers (‘principal’) to manage their exports. Sometimes EMCs will represent all of the principal's product line and/or receives exclusive rights to sell in all foreign markets (not always).
Export Trading Companies (ETC)
- Key Function: Locates overseas buyers and handles export arrangements (e.g., documentation, inland and overseas transporting, and foreign gov’t requirements)
- .Export goods and/or services. The ETC may or may not take title to the goods (purchase their client’s goods and then sell them on global markets).
- General Trading Companies are a category of ETCs, engaged in other aspects of global trade (steamship lines, warehouse facilities, banks, insurance, sales force, and communication).
- Office of Export Trading Company Affairs resulted from the Export Trading Company Act of 1982. Encourages SMEs to cooperate with each other by exporting their products jointly.
Differentiating EMCs and ETCs
- The term export management company is frequently interchanged with the term export trading company. The main differences in definition relies on function:
- Export Management Companies (EMC) are generally associated with the marketing side of the business.
- Export Trading Companies (ETC) are generally associated with the logistics activities (moving and storing).
Customs House Brokers
- Oversee the movement of goods through customs and ensures that documentation accompanying a shipment is complete and accurate for entry into the country
- .U.S. brokers are licensed by Department of the Treasury.
- Operate under power of attorney from the shipper to pay all import duties due on the shipment.
- The importer is ultimately liable for any unpaid duties.
- Brokers maintain the latest import regulations and of the specific requirements of individual products.
1. Third-Party Logistics (3PL)
- In 2008, legislation passed declaring the legal definition of a 3PL is, “A person who solely receives, holds, or otherwise transports a consumer product in the ordinary course of business but does not take title to the product.”
- Third-Party Logistics
- Terms, Advantages, Disadvantages
- Major 3PL Types (Logistics Services)
- Customers of 3PLs (Profile) and 4PLs
Third-Party Logistics (3PL) Terms
- Depending on the firm and its positioning within the industry, the terms contract logistics and outsourcing are sometimes used in place of third-party logistics.
- While some industry executives take care to distinguish among terms such as these, each of these terms refers broadly to using external suppliers of logistics services.
- Essentially, a 3PL firm is defined as an external supplier that performs or manages the performance of all or part of a company’s logistics functions.
- 3pl does not take title of the product
help acheive individual firm and s.c. objectives in DAY TO DAY
"parallel or cocoperating"= 2 or more independent logistics provider firms based on trust. transportation 3pl with warehouse 3pl to make same customer happy
Advantages of 3PLs
- stores that pop up liek halloween stores. i.e testing out a market.
- -3pl is a short contract
ADVANTAGES OF 3PL
- Buyer can concentrate on its core business processes.
- Flexibility – seasonality, geography, test new markets.
- Gain management expertise and dedicated resources.
- Cost reduction (total logistics costs and activity costs).
DisAdvantages of 3PLs
- Loss of internal control (i.e., visibility)
- Lack of acceptance - managers and labor.
- Possible increase in costs (i.e., cost creep).
- Service-level commitments not realized.
- Time/effort spent on logistics not reduced.
- Inability to develop trusting relationships.
- Lack of ongoing improvements in offerings.
- Lack of consultative/knowledge-based skills.
Types of 3PL Providers
- While 3PLs often promote themselves as providers of a range of logistics services, it is useful to categorize them in one of several ways (e.g., non/asset; non/leveraged).
- The five most common categorizations include:
- Transportation Based
- Warehouse/Distribution Based
- Forwarder Based
- Financial Based
- Information Based
disadvantages of 3pl
- costs can be advantaeg or disadvantage
- -cost creep
- -the 3pl does nto always telll u the bad temperatures of food
- these firms are leveraged in that they utilize the assets of other companies and some inon integrated where emphasis is on utilizing the transportation based assets of the parent org.
- hub and spoke
- -1 truck does many different products
- The 3PL serves as the organization’s private fleet and devotes a management team, drivers, and equipment to the relationship (e.g., dedicated contract carriage).
- Provide a wide array of transportation services - extend beyond the typical transportation activities to provide a more comprehensive set of logistics offerings.
- -TL carriers provide direct service from the origin point to the delivery point, without stopping at freight handling terminals.
- -LTL carriers use a hub-and-spoke network of terminals to sort and consolidate shipments moving to a particular area.
- -3pls now try to do more than just specifics
- -some warehouses dedicated just to one customer or public storages
- Contract warehousing is a customized version of public warehousing in which an external company provides a combination of distribution services (originally in-house).
- These 3PLs dedicate space, labor, and equipment to a client’s specific product needs with the goal of providing integrated, accurate distribution services.
- The facilities can meet handling requirements for specialized products (e.g., pharmaceuticals; electronics) and customized contract facilities leads to strong relationships (partnerships).
- they dont physically touch the material
- -can have seprate contracts with forward based and warehouse based
- -non-asset owners
- Freight Forwarder: A company that provides logistics services as an intermediary between the shipper and the carrier, typically on international shipments.
- Freight forwarders provide the ability to respond quickly and efficiently to changing customer/consumer demands and international shipping (import/export) requirements.
- Foreign freight forwarders, like their domestic counterparts, consolidate small shipments into more economical sizes.
- Freight payment and auditing; cost accounting and control; logistics management tools for monitoring, book-keeping, tracking, tracing, and managing inventory, and consulting.
- Cass Information Systems (Example): Expertise to process complex payables, which are characterized by invoices with:
- High Complexity: Due to transaction volume, complex rate structures and/or specialized fees/services
- High Errors Tendency: Large-dollar errors and repetitive, small-dollar mistakes that if not corrected, drive up costs substantially.
- High Content Value: When raw data assets are effectively converted to business intelligence.
- Growth and development of Internet-based, B2B markets for logistics services has been significant in recent years.
- Represent alternative sources for organizations that are in need of purchasing logistics services (newest type of 3PL).
- Example: FreightQuote.com “provides instant freight rates and superb freight shipping services driven by technology.”
- Largest online freight shipping provider – customers compare instant freight rates from carriers and book shipments online.
- -to get bids on contracts
Profile of Logistics Outsourced Activities
- A strategic issue is how customers feel 3PLs should position themselves in terms of depth and breadth of service offerings (i.e., prefer single-source solution):
- Significant Agreement: “Third-party suppliers should offer a broad, comprehensive set of service offerings.
- ”Lead Logistics Partner (LLP): A company that organizes other 3PL partners for outsourcing logistics functions. A LLP serves as client's primary SCM provider, defining processes and managing the provision and integration of logistics services through its own organization and those of its subcontractors.
Fourth-Party Logistics (4PL) Provider
- a firm that assembles and manages the resources capabilities, and tech of its organization with those of complementary service providors to deliver a comprehensive supply chain solution
- -4pl leverages the capabiltiies of 3pl and suppliers of technology based services that a centralized point of contract
- -an interagrator for client needs and resources avaiable thru 3pl
Fourth-Party Logistics (4PL) Provider
- Differs from 3PLs in 4 Major Ways1.A 4PL is often a separate entity that is established as a joint venture or long-term contract between a primary client and one or more partners.
- 2.A 4PL acts as a single interface between the client and multiple logistics service providers (i.e., 3PLs).
- 3.All aspects (ideally) of the client’s supply chain are managed by the 4PL firm.
- 4.It is possible for a major 3PL provider to form a 4PL firm with its existing structure.
2. Logistics Relationships
- Organizations have been dedicating much attention toward working more closely with their supply chain partners, including customers, suppliers, and 3PLs.
- Types of RelationshipsVertical and Horizontal Relationships
- Intensity of Involvement Arm’s Length g Collaborative g Strategic
- Types of CollaborationVertical, Horizontal, and Full Collaboration
Types of SC Relationships
- There are two general types of logistics relationships.
- -vertical and horizantal
Refers to traditional linkages between organizations that make up the supply chain such as retailers, distributors, manufacturers, and raw parts/materials suppliers.
Includes business agreements between firms that have “parallel” or cooperating positions in the logistics process (e.g., service agreement between two or more 3PLs).
Intensity of Involvement
- shouldnt have same types of relationships from every alliance
- - the benfits of sharing info is not worth it
Intensity of Involvement
The range of relationship types extends from that of a vendor (arm length) to that of a strategic alliance
Vendor (Arm Length):
Represented simply by a seller or provider of a product or service, such as there is little or no integration or collaboration with the buyer or purchaser
Business relationship in which two or more independent organizations cooperate and willingly modify their business objectives and practices to help achieve long-term goals and objectives
- -DRIVERS= comppelling reasons to partner
- -FACILITATORS= supportive corporate enviornment factors that enhance partnership growth
- Regardless of form, relationships differ in several ways:Duration
- Performance Analysis
- Benefits and Burdens
Supply Chain Collaboration
- Collaboration refers to a business practice that encourages individual organizations to share information and resources for the benefit of all. It is a business practice that requires:
- Parties involved to dramatically share information.
- Benefits gained by parties to exceed individual benefits.
- All parties to modify their business practices.
- All parties to conduct business in a new/different way.
- All parties provide a mechanism/process for collaboration.
- process model forming logistic relationships invovle 6 steps always ask if the 3pl will be needed
- -core competency= expertise, strategic fit, ability to invest, succesful relationships. must have rIGHT DRIVERS AND FACILITATORS.
Supply chain collaboration
- does nto come naturally
- - chose arms lenght collaboration when no drivers or facilitators present.
- -chose structural/formal relationships when relationships share both common drivers and facilitators
supply chain collaboration
- vertical: Refers to collaboration typically among buyers and sellers in the supply chain.
- horizantal: Refers to a relationship that is buyer to buyer and/or seller to seller, and in some cases even between competitors.
- Full colaboration: Refers to the dynamic combination of both vertical ______ and horizantal ________ collaboration. Often, it is here where dramatic efficiency gains occur.
three types of collaboration
- FULL COLLABORATION= helps find and eliminate total hidden costs in the 80s with different suppliers.
- - true collaboration and willingness to share information
- -7 laws for collaborative logistics
1. Dimensions of SC Performance
Prior to discussing specifics on logistics and supply chain performance classification methods and tools, two important questions need to be answered:
- What is the difference between a measure, a metric, and an index?
- What are the 10 characteristics of a good measure and metric?
Logistics & SC Performance Terms
- measure ______: Easily defined with no calculations and with simple dimensions.Examples: units of inventory and backorders_________________________________.
- metric______: Needs definition, involves calculation or a combination of measurements, and often a ratio.Examples: _____________inventory turns and sales per SKU____________________.
- INDEX______: Combines two or more SC performance metrics into a single value.Example: Logistics performance index___.
Measure/Metric Characteristic (1): Is it Quantitative?
- While not all metrics are quantitative, this is often a requirement when measuring outputs of processes or functions (Qualitative Versus Quantitative).
- Qualitative performance metrics are best suited for measuring perceptions or for assigning products or people to categories (e.g., excellent, good, poor).
- Qualitative metrics are backed up with quantitative data. For example, a transportation carrier is rated “excellent” if it has one late delivery for 100 attempts.
Measure/Metric Characteristic (2): Easy to Understand?
- -does every1 know what it is agreeably?. ex. where is the departure of a plane?
- Individuals will understand a measure/metric if they are involved in its definition and calculation (what it is measuring and how it is derived).
- Example: One of the most commonly used logistics metrics is on-time delivery. This is also one of the most commonly misunderstood logistics metrics.
- Disagreements can occur between shippers and their customers or between marketing and transportation if the parties have different interpretations of the metric.
Measure/Metric Characteristic (3): Encourages Appropriate Behavior?
- A basic principle of management is that metrics will drive behavior (productive versus “game playing”).
- For example, if a warehouse manager is measured by cubic space utilization, he/she will try to keep the warehouse filled.
- This could result in lowering inventory turns, increasing inventory costs, and causing obsolescence.
Measure/Metric Characteristic (4): Is it Visible?
-can you get your hands on the data?
- Metrics should be readily available to those who use them. A distinction can be made between two types of metrics with regards to availability (see and use):
- REACTIVE METRIC_____________: Some organizations state that metrics are available in the system for employees to see and use. This means that they must attempt to find them.
- PROACTIVE METRIC_____________: Leading firms push metrics to their owners so they can react immediately. Employees may act upon more quickly due to little/no effort to see them.
Measure/Metric Characteristic (5): Defined and Mutually Understood?
- The measure has been defined by and/or agreed to by all key process participants (internal & external).
- Successful measure/metrics are developed by inter-departmental teams that are comprised of individuals representing functional areas that will be impacted.
- Where appropriate, customers and suppliers should participate in the measure/metric designing process. Customers are directly impacted by the measures/metrics and suppliers are involved in their execution.
Measure/Metric Characteristic (6): Encompass Inputs and Outputs?
- Process metrics, such as on-time delivery, need to incorporate causes and effects into their calculation as well as their evaluation.
- For example, a decreasing on-time delivery rate might be caused by late pick-ups, shipments not being ready on time, or by production shutdowns.
- Accordingly, as this example illustrates, the outputs must be somehow related to the inputs.
Measure/Metric Characteristic (7): Measure What is Important?
- Firms will often measure those activities/processes for which large amounts of data are available (huge volumes of transactional data are generated daily).
- Just because data are available to calculate a metric doesn’t mean the metric is important. In some cases, data are hard to generate for important metrics.
- It is important to decide what is important and then gather the data rather than identifying what data are available and then generate the metrics.
Measure/Metric Characteristic (8): Is it Multidimensional?
- single metric
- -Although a single metric will not be multidimensional, a firm’s metric program will be - few key strategic metrics.
- -The metrics (KPIs) represent utilization, productivity, and performance in a balanced approach.
- -Asset & Equipment Utilization: Provide an objective indication that assets and equipment are effectively used (capacity or idle).
- -Labor & Resource Productivity: Ensure personnel and facilities are performing at acceptable levels (units processed/labor hour).
- -Resource Efficiency (Performance): Evaluates personnel ability to accomplish key tasks and the overall efficiency of operations.
Measure/Metric Characteristic (9): Cost-Benefit Analysis?
- In many cases, much time and effort are devoted to collecting data to generate a specific metric, while the resulting actions from the metric are minimal.
- Some firms find this to be the case when they first develop a metric (i.e., learning curve takes time).
- The longer a firm has a metric in place, the more likely there will be economies of effort.
Measure/Metric Characteristic (10): Does it Facilitate Trust?
- If the measure/metric does not facilitate trust among the departments or supply chain members, then complying with the previously described characteristics makes little to no difference for the effectiveness of the metric.
- The measure/metric program should establish procedures for mitigating conflicts that will inevitably arise.
Evaluating Logistics & SC Metrics
- -instead of taking them off the ist, cimpanies add them to the list.
- Evaluation is critical to a sound program. Logistics and SC metrics need to change over time; not only the performance standards, but also the metrics.
- Successful logistics and SC performance measurements rely on appropriate metrics that capture entire processes.
- Logistics and SC metrics must also be reviewed to assure relevancy and they continue to focus on what is important.
- A sound, comprehensive set of logistics and SC metrics is critical for an organization to manage its business and SC.
2. Performance Categories
- Successful logistics performance measurement relies on appropriate metrics that capture the entire process.
- Key Performance Indicators (KPIs)Scorecard: Performance measurement tool used to capture a summary of KPIs. Scorecards have color-coded indicators to flag when a company is not meeting its metric targets.
Process Measure CategoriesThe three major process categories that provide a useful way for examining logistics activities performance include, time, quality, and cost.
Key Performance Indicators (KPIs)
- A measure/metric that is of strategic importance to a department or company. Properly chosen KPIs offer several benefits, including (transportation example):
- -a signal of what they are providing
- -a signal of what they should be performing
- Objective measures of hired or private fleet performance that are significant to the success of the organization.
- Utilized to evaluate current performance versus historical results, internal goals, and carrier commitments.
- Often applied to benchmark against those that have been achieved by competitors, and world-class organizations.
External and Internal KPIs
- Externally and internally focused KPIs are needed to evaluate the success and the impact of operations.
- External Performance: The objective is to meet customer expectations (i.e., customer-facing KPIs).
- Internal Performance: Companies must balance customer expectations with the cost of operations.
- EXTERNAL“Orders delivered complete” because they measure the experience of the customer. - what kind of service am i providing?
- INTERNAL“Orders shipped complete” because they focus on the shipping firm’s performance.
- -are my products leaving complete?
Figure 5.4 Process Measure Categories
time, quality, cost, other/supporting
Performance Categories: Time
- Time is a major logistics performance indicator; common metrics capture two elements (order cycle time example):
- -Elapsed Time
- -Distribution: It is important to monitor the required process time, from initial receipt until release to the transportation provider.
- -Transportation: On-time delivery is ratio of shipments delivered per contract specifications to the total shipments delivered (95%).
- -Reliability/VariabilityOrder cycle time of 10 days (+/- 4 days) or 10 days (+/- 2 days). Both cycle times have the same absolute length but have much different variability. Which is more important for a JIT strategy?
Performance Categories: Quality
- A number of the dimensions in the quality category are important to logistics and supply chain management.
- -Service Quality: Doing things right the first time according to customer-defined requirements and expectations. “Seven Rs” identify the focus/scope of transportation service quality KPIs.
- -Perfect Order FulfillmentoOn-time deliveryoComplete orderoAccurate product selection oDamage-freeoAccurate invoice
Performance Categories: Cost
- Cost is a measure for efficiency (ability “to accomplish something with the least waste of time and effort...”).
- -Aggregate Efficiency: Focus on the total spending versus the goal or budget (applicable for both distribution and transportation activities).
- -Item-Level KPIs: Focus on costs as per unit of measure (distribution is pallet, case, order) and (transportation is pound, case, selling unit).
- -Total Delivered Cost is Multidimensional
- Cost of Goods
- Inventory Carrying Costs
- Import/Export Costs
- Warehousing Costs
3. Cash-To-Cash (C2C)
- -TIME BETWEEN YOU PA OUR SUPPLIER VS YOUR CUSTOMER PAYS YOU. HOW LONG IS YOUR CAPITAL TIED UP IN INVENOTRY.
- -Cash-to-Cash (cash conversion cycle) is “the length of time a company’s cash is tied up in working capital before that money is finally returned when customers pay for the products sold or services rendered.”
- -Cash-to-Cash is a unique financial performance metric that indicates how well an entity is managing its capital.
- -Accounting: Cash-to-Cash offers a measure of liquidity (how quickly can the company convert assets to cash).
- -Supply Chain: Cash-to-Cash is first true metric that bridges across three firms in the supply chain.
- -WE WANT NUMBER OF DAYS, NOT DAYS
- -1-In the simplest terms, cash-to-cash is defined as the time between when you pay your suppliers and when your customers pay you (final number interpretation).
- -Mathematically, subtract days of payables from days of inventory and then add days of receivables. The final calculated number is in units of days (interpret).
days of invenotry +
inventory x 365 / (COGS)
- MINUS DAYS OF PAYABLES
A/P X 365 /( COGS)
+ DAYS OF RECEIVBABLES
A/R X 365 / (sales)
1. Role of Information and Requirements
A wide variety of information is needed for a supply chain to perform as anticipated. Information must effectively flow within an organization, between the supply chain participants, and applicable institutions.
Role of Information
- It has been said that information is the lifeline of business, driving effective decisions and actions.
- Information provides supply chain managers with insight and visibility into supply chain activities that take place at distant locations.
- Visibility of demand, inventory stock levels, customer orders, delivery status, and production schedules allow supply chain managers to make effective situational assessments and develop the appropriate responses.
- Seven Rs: Getting the right information to the right partners, in the right quantity, in the right format, at the right place, at the right time, and at the right cost.To ensure that valuable, actionable knowledge readily flows across the supply chain, information must be:
- 1 more....
Information Requirements: Accessible
- -having info ready to grab when it does become needable
- -Information must be available to those supply chain members that have a legitimate need for it (firms or managers), regardless of their location or employer.
- Difficult because SC data are often dispersed across multiple locations on different information systems that are owned by a number of external organizations.
- Technical issues must be addressed and trust built between the organizations sharing information.
Information Requirements: Relevant
- Supply chain managers need pertinent information to make decisions. They must know what information is needed and be able to quickly acquire only that which is applicable to their current situation.
- -Goal: Avoid being overwhelmed by extraneous data that are not valuable to the decision-makers and essentially waste their time.
Information Requirements: Accurate
- The information must be correct and depict reality; otherwise, it will be impossible to make appropriate decisions (inaccurate data lead to many problems).
- Example: Major retailers rely upon their checkout clerks to accurately scan each item sold because these scans drive the replenishment system.
- If a clerk scans a bottle of soda four times when four flavors were actually purchased, the inventory will be inaccurate and the wrong product will be replenished.
Information Requirements: Timely
- -timely is a trade off of accuracy
- -Information must be up to date and shared within a reasonable time frame – Supply chain managers need the knowledge embedded in real-time data.
- Importantly, accuracy and timeliness are at odds with one another. For example, conditions may change over time.
Information Requirements: Transferable
- This characteristic of information has two meanings:
- Ability to transfer supply chain data from one format to another to make it understandable and useful.
- Transfer data quickly from one location to another in order to facilitate accessibility and timeliness.
- Information must reside in electronic formats that can be readily transmitted and converted via supply chain IT (paper-based cannot support these requirements).
number 1 barrier?
People b/c u have to learn somethign new again .
2. IT Challenges and Solutions
- IT holds great promise for enhancing SC performance and organizational competitiveness; yet, implementing new technology/software does not guarantee success.
- -IT cannot compel ill-conceived SCs to be productive, make adversarial firms collaborate, or make use of poor data.
- CSC study identifies major barriers and challenges that must be addressed to make SC technology work as intended.
IT Challenges: People
- According to the CSC study, people are the major barrier to the effective use of IT, in which 50% cite “lack of understanding” as the primary issue.
- Business Executives: Expectations of IT capabilities are too high (i.e., purchase based on hype/promised benefits without real knowledge on business impact).
- IT Executives: Fail to fully understand the business processes for which technology is being purchased (i.e., poor technology selection and implementation).
IT Challenges: SC Processes
- -becasue they dont chanege their whole processes
- -Often, companies do not change their SC processes concurrently with adopting new technology tools.
- -Firms automate existing/outdated activities instead of improving processes or streamline the SC network to take full advantage of the technology’s capabilities.
- -While incremental productivity improvements are often made, failing to address process issues and root-cause problems will limit technology impact and reduce ROI.
IT Challenges: Software Solutions
- Two central issues are responsible for dysfunctional IT systems that do not seamlessly share information or foster demand-responsive capabilities:
- -Software solutions are inadequate for managing SC processes across multiple companies (not a SC tool).
- -Supply chain IT implemented in a piecemeal fashion; thus, leading to a “patchwork quilt.”
IT Challenges: Poor Planning/Preparation
- Some firms fail to create a change management plan with a staged, logical approach to adopting new technologies. This can cause supply chain disruptions and problems.
- Other firms do not prepare employees for new technology. This leads to suboptimal use of technology as employees do not understand the full array of software capabilities.
- Some organizations do not dedicate adequate capital for technology installation and implementation. Investments in implementation is equally important as the technology.
Solutions to These IT Challenges
- Ten Golden Rules for Success (Fevilla and Fearne):
- 1.Secure the commitment of senior management.
- 2.Remember that it is not just an information technology project.
- 3.Align the project with business goals.
- 4.Understand the software capabilities.
- 5.Select partners carefully.
- 6.Follow a proven implementation methodology.
- 7.Take a step-by-step approach for incremental value gains.
- 8.Be prepared to change business processes.
- 9.Keep end users informed and involved.
- 10.Measure success with key performance indicators (KPIs).
3. SCM Software Categories
- SC software tools aim to harness the computational power and communication abilities of technology so to plan, execute, control, and report on SC activities.
- Four main categories will be discussed and examples will be given based on Transportation Management Systems.
- Event Management
- Business Intelligence
SCM Software: Planning
- This category encompasses a comprehensive set of software tools designed to help managers gain more accurate, detailed insight into issues that affect their development and planning of supply chain activities.
- -Tools address a range of longer-term planning horizons (weeks, months, years) and shorter-term planning (daily).
- -Tools are employed across supply chain processes and logistics activities (transportation management systems).
Planning Software: Transportation Management Systems (TMS)
- Planning capabilities of TMS assist transportation buyers and managers with pre-shipment decisions. Two critical TMS planning applications include:
- =Routing & Scheduling: Uses mathematical methods and optimization routines to evaluate possible combinations in which routes could run and chooses the most economical.
- =Load Planning: Builds a database of package dimensions, loading instructions (i.e., top load, upright), and equipment capability – within seconds optimizes container utilization.
SCM Software: Execution
- This category of software tools carry out tasks from the time an order is placed until it is fulfilled (order-driven category of software focuses on operations).
- This category does not rely on a single software program -consists of a group of tightly integrated tools that link with SC partners’ systems to share relevant data and visibility.
- Execution tools have traditionally focused on firm’s internal logistics activities, but as attention shifts to integrated SC, the category is encompassing a broader array of functions.
Execution Software: Transportation Management Systems (TMS)
- TMS execution tools help transportation managers streamline their shipment activities. Two of the key execution tools include the following:
- =Load Tendering:(contract that is not legally bidning) Rather than subjectively assigning loads, a TMS database verifies which carriers are eligible to move the freight and then tenders the load to the best carrier.
- =Appointment Scheduling: (contract with set ups) TMS tools provide the real-time visibility necessary to make appointment scheduling easier and more accurate (i.e., automate the scheduling function).
SCM Software: Event Management
- Collect real-time data from multiple sources across the SC and convert them into information that gives managers insight into how their SC is performing.
- -Systems monitor the SC for events that are out of tolerance, (e.g., breakdown of a truck delivering a valuable order) and notifies a decision maker when an exception occurs.
- More organizations are turning toward these solutions so to help them detect, evaluate, and resolve issues before they snowball into major problems.
Event Management: Transportation Management Systems (TMS)
- The primary goal of this TMS tool is to provide timely information regarding potential delivery expectations so that corrective actions can be taken.
- =Status Tracking: The in-transit progress of shipments can be monitored using TMS tools in conjunction with satellite capabilities and other visibility tools.
- Shipment status information, especially notifications regarding problems and shipments at risk of late delivery, can be shared with SC stakeholders (e.g., food safety - temperature control).
SCM Software: Business Intelligence
- Build on traditional reports and outputs that provided historical data on functional performance for internal planning, operations, and control (graphical display).
- -Newer capabilities are more dynamic, frequently delivering data from transactional systems across the SC to a type of data warehouse - data are analyzed and sent to employees.
- =Performance graphics are linked to the data warehouse; thus, it is possible to manipulate them, review the effect of different variables on results, and test alternative scenarios.
Business Intelligence: Transportation Management Systems (TMS)
- TMS analytical tools help companies assemble and make sense of the vast array of transportation data that are generated by freight movement, including:
- Performance Reporting & Scorecarding: Automates the collection of data, measurement of KPIs, and dissemination of periodic reports – capable of generating custom reports.
- Freight Bill Auditing: Automates the manual transportation carrier invoice process via reconciling invoices to contracts; thus, avoiding under-/over-charging for freight services.
4. Supply Chain Technology
- Technology innovation has facilitated the evolution of SCM. Ultimately, these innovative technologies enable fast execution of supply chain strategies.
- -Automatic Identification (Auto-ID) refer to technology that helps machines identify objects, including:
- Barcodes (Linear and 2D symbologies)
- Radio-Frequency Identification (RFID)
- A barcode is a series of parallel black and white bars, both of varying widths, whose sequence represents letters or numbers. Systems are simple and accurate.
- -This sequence is a code that scanners can translate into important information such as a shipment’s origin, product type, place of manufacture, and the product’s price.
- Barcoding improves data collection speed and accuracy, reduces receiving operation time and data collection labor, and helps to integrate data collection with other areas.
- RFID tags consist of silicon chips and an antenna that can transmit data to a wireless receiver; thus, RFID tags do not require line-of-sight for reading.
- -Unique product ID data, in terms of a universal electronic product code (EPC), identifies the manufacturer, product category, and individual item, and is stored on 96-bit tags.
- -It is simultaneously hailed as a great SCIS tool and panned as an overpriced feature that does little more than what is accomplished by a much cheaper barcode (lies between).
1. Transportation Modes and their Domestic & Global Carrier Options
The primary modes of transportation are truck, rail, air, water, and pipeline. Intermodal transportation combines the use of two or more of these modes to move freight.
Carrier Options: Motor
- Private Fleets: The freight is owned by the organization that is operating the trucks (e.g., Pepsi and Cola-Cola).
- (3pl)For-Hire Fleets: Organizations that move freight for other organizations, in which there is three types:
TL (truckload): Handle single large shipments/ trailer that exceed 15k lbs. or use the full cubic capacity.
LTL (less than truck load): Move a number of shipments ranging from 150 pounds and up to 15k lbs.
Small Package: Handle shipments up to 150 lbs. and move multiple shipments on a single van/truck.
Motor Carriers: Industry
- Most widely used mode of transportation (domestic).
- The trucking industry is highly competitive and made up of approximately 502,000 private, for-hire, and other U.S. interstate motor carriers (stats as of December, 2010).
- Economic structure contributes to the number of carriers:
- No significant cost economies of scale that make it impossible for small carriers to compete.
- Most expenses are the result of moving freight; thus, trucking is a high-variable, low-fixed-cost business.
Carrier Options: Railroads
- Line-haul Freight Carriers: Provide service between major markets and customers within those markets.
- Move freight in container, carload, and unit train quantities.
- Short-line Carriers: Provide local and regional links between individual customers and national rail network.Serve smaller markets and handle local delivery service.
- Organized into loads and transported in three ways:
- Manifest Trains: Contain a mixture of equipment/freight for multiple customers. Travel through multiple rail yards where cars are added/removed (requires classification).
- Unit Trains: Move entire blocks of cars that carry a single commodity from an origin to a destination; thus, one type of railcar is used (priority schedules and no classification).
- Intermodal Trains: Move products from a high-volume origin (e.g., port) to major markets where containers are offloaded and given to a motor carrier for final delivery.
- Although there are 556 railroads in the U.S., the industry is dominated by few, very large firms. This mode’s economic structure accounts for the limited number of rail carriers.
- Class I Carrier: Greater than or equal to $50m.
- Class II Carrier: Between $10m and $50m.
- Class III Carrier: Less than $10m.
- Railroads fall under a group of business undertakings labeled “natural monopolies” and require large investments in terminals, equipment, and trackage.
Carrier Options: Air
- COMBINATION=Move passengers as well as freight, often on the same trip.
- -As demand grows, some of the larger international air carriers have been dedicating equipment specifically to cargo.
- -air cargo carriers.=Focus on movement of letters and envelops, packages, and freight.
- -Some carriers provide scheduled daily, while others provide on-demand service for customers who need immediate, direct transportation or the full capacity of the aircraft.
Air Carriers: Industry
Historically viewed as an expensive, emergency mode.The 2009 Federal Aviation Administration activity report identified 88 air cargo carriers, 22 are considered major carriers (e.g., FedEx, UPS, Delta, and United).International air freight movement is handled by a wider range of companies, with FedEx, UPS, Korean Air Lines, Cathay Pacific, and Lufthansa as the leaders. Cost structure consists of high variable costs in proportion to fixed (similar to motor) and air carriers do not invest heavily in facility infrastructure/byways (similar to motor and water).
Transportation Mode: Water
- Strengths: High Capacity; Low Cost; International Capabilities
- Limitations: Slow; Accessibility
- Primary Role: Move large domestic shipments via inland waterways. Move large shipments of international freight via oceans.
- Primary Product Characteristics (Examples): Low Value; Raw Materials; Bulk Commodities; Containerized Finished Goods (Farm Products; Clothing; Electronics)
Carrier Options: Water
- Private Carriers: Part of a firm’s own supply chain.
- Liner Carrier: Offers scheduled service on regular routes. Offers a variety of ships, fixed route, and standard service.
- Charter Carrier: (like a taxi) Hired on a contractual basis. Not a fixed route (customer-specified route and more tailored service).
- Voyage Charter: Contracts covering one voyage (carrier agrees to carry cargo from an origin to a destination).
- Time Charter: Allow the use of a ship for an agreed-upon time period (carrier supplies crew and has no expenses).
- Bareboat/Demise Charter: Transfers control of the vessel to the charterer, who is responsible for all costs and crew.
Water Carriers: Industry
- In the U.S., 81% of water transportation spending is related to global freight movement with the other 19% split between coastal, inland and Great Lakes traffic.
- Leading ocean carriers (TEU’s in 2012) are APM-Maersk (2.62 million), Mediterranean Shg Co (2.19 million), and CMA CGM group (1.35 million). Next 27 had < 1m TEUs.
- -No right-of-way investments (nature). Port authorities offer un/loading services, storage, and freight transfer facilities (water carrier pays user fees for port services).
- -Require significant capital investments, but cost is spread over large volumes of freight transported during a lengthy lifespan of vessels (variable costs depend on carrier type).
Transportation Mode: Pipeline
- Strengths: In-Transit Storage; Efficiency; Low Cost. protect products from contamination and provide warehousing function.
- Limitations: Slow; Limited Network
- Primary Role: Move large volumes of domestic freight long distances.
- Primary Product Characteristics (Examples): Low Value; Liquid or Gas Commodities; Not Time Sensitive (Crude Oil; Petroleum; Gasoline; Natural Gas).
Carrier Options: Pipelines
- The network of oil and natural gas pipelines that serve the U.S. is not owned by a single entity.
- A large, growing group of pipeline systems are operated/ owned by companies who are only pipeline operators and who are not involved in other aspects of the oil industry.
- There are also those companies, like a power or chemical plants, which may operate a small pipeline system to bring fuel to plants or move feedstock from one plant to another.
- Natural gas pipelines range from large, regional companies to small, municipal gas systems and everything in between.
Pipelines: Oil Systems (Equipment)
- Gathering Lines: Small pipelines (2–8 inches). Used together and move oil from both onshore and offshore oil wells to truck lines.
- Trunk Lines: Medium pipelines (8–24 inches). Used for bringing crude oil from the oil trunk lines in the US (i.e., Trans-Alaska Pipeline System).
- Refined Product Pipelines: Size varies (8–12; up to 42 inches). Carries petroleum products from refineries to large fuel terminals with storage tanks.
- Pipeline costs are largely fixed (expensive right-of-way). Low variable costs since little labor and fuel are required to operate the stations (pump=liquid; compressor=gas).
- -There are 339 operators of hazardous liquid pipelines that primarily carry crude oil and petroleum products.
- There are approximately 95,000 miles of refined products pipelines nationwide (e.g., gasoline, jet and diesel fuel).
- -There are 967 organizations involved in the transmission of natural gas and 1,285 involved in the final distribution.
- There are approximately 305,000 miles of natural gas pipelines (more than 210 systems in lower 48 states).
Table 10.3 Comparison of Modal Capabilities
- Refers to using two or more different transportation modes in the origin-to-destination movement of the freight. The three primary benefits include:
- Greater accessibility is created via linking the individual transportation modes.
- Overall cost efficiency can be achieved without sacrificing service quality or accessibility.
- Intermodal transportation facilitates global trade.
Intermodal Transportation: Freight Services
- Intermodal transportation freight services can be viewed in terms of product-handling characteristics.
- (CONTAINERIZED FREIGHTS):Loaded into or onto storage equipment (container or pallet) at the origin and delivered to the destination in or on that same equipment with no additional handling.
- -(TRANSLOAD FREIGHT):Involves goods that are handled and transferred between transportation equipment multiple times.
Standardized reusable steel box used for safe, efficient, and secure storage and movement of materials and products in a global containerized intermodal freight transport system.
Maritime (Land) Bridge
- -WHEN ITS ON TRANSPORTATION, YOU incurr HIGHER INVENTORY COSTS
- .Various maritime bridge concepts involve railroads both for transcontinental shipments and to/from inland ports.
- A land bridge substitutes land transportation for part of a container’s ocean voyage, taking several days off the transit time and saving in-transit inventory costs.
2. Transportation Execution
- Before the freight (product) begins to flow, other important issues must be addressed, including:
- -International Commercial Terms (Incoterms)
- Free on Board (FOB)
- Free Alongside Ship (FAS)
- -Freight Documentation
- Bill of LadingFreight Bill
- Freight Claims Form
Incoterms (Terms of Sale)
- A set of rules that define responsibilities of sellers and buyers for the delivery of goods under sales contracts for domestic and international trade.
- Free on Board (FOB) Origin
- Free on Board (FOB) Destination
- Waterway: Free on Board (FOB); Free Alongside Ship (FAS)
- Intermodal: Free Carrier (FCA)
Domestic: Free on Board
- Determines title (ownership), control over mode and carrier selection, and other key responsibilities.
- FOB Origin: Title (ownership) changes at origin – shipping point or the seller’s DC loading dock. The buyer generally pays the transportation carrier.
- FOB Destination: Title (ownership) changes at destination – typically at the buyer’s unloading dock. Seller generally pays the transportation carrier.
International Waterway: FOB
- Free on Board (FOB): In practice, should be used when the seller has direct access to the vessel for loading (e.g., bulk cargos or non-containerized goods).
- Seller delivers goods, cleared for export, and loaded on board a vessel at the named port. Once the goods have been loaded on board, risk transfers to the buyer, who bears all costs thereafter.
International Waterway: FAS
- Free Alongside Ship (FAS): In practice, should be used when the seller has direct access to the vessel for loading (e.g., bulk cargos or non-containerized goods)
- .Seller delivers goods, cleared for export, alongside the vessel at a named port, at which point risk transfers to the buyer. Buyer is responsible for loading the goods and all of the costs thereafter.
International Intermodal: FCA
- Free Carrier (FCA): The rule of choice for containerized goods where the buyer arranges main carriage – flexible rule that can be used for any or multiple transport modes.
- In all cases, the seller is responsible for export clearance; the buyer assumes all risks and costs after the goods have been delivered at the named place (named place = seller’s location).
- Shipments are accompanied by related documents that spell out the details of the shipment – what it is, where it is going, who owns it, and more.
- The type and variety of documents required depend on origin/destination points, freight characteristics, mode(s) used, and carrier handling the freight. Most common:
- -Bill of Lading
- -Freight Bill
- -Freight Claims Form
Freight Documentation: Bill of Lading
- Most Important Transport Document
- Provides all information the carrier needs for the move.
- Stipulates the transportation contract terms (i.e., liability).
- Acts as receipt for goods the shipper tenders to the carrier.
- In some cases, specifies the certificate of title to the goods.
Freight Documentation: Freight Bill
Carrier’s invoice for the fees the carrier charges to move a specific shipment. The freight bill lists the shipment, origin and destination, consignee, items, total weight, and total charges.
Freight Documentation: Freight Claims Form
Document that the transportation buyer files with the carrier to recoup monetary losses resulting from the carrier’s failure to properly protect the freight. Claims often supported by photos.
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