Business Logistics

1
Business Logistics

• Chapter 3
• The Inbound Logistics System
• Adam Conrad

2
Learning Objectives

• Understand the role and nature of inbound
  logistics in a supply chain context
• Explain the different types of inbound systems in
  a supply chain
• Discuss the major materials management activities
• Understand the procurement process

3
Learning Objectives (cont.)

• Identify the four steps necessary for procurement
• Explain the criteria for evaluating vendors
• Understand the major inventory techniques
  associated with materials management

4
Logistics Profile

• Robbins Company
• Parts too big and costly to ship by air
• Ocean transport too unreliable
• Impact of missed deliveries
• Trans-Atlantic shipping runs like clockwork
• Systems in place when not (Fax/EDI)
• Despite transportation improvements Customs
  remains difficult

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Inbound vs. Outbound

• Inbound
• Materials management
• Procurement
• Outbound
• Customer service
• Channels of distribution
• Focus on MM, Inventory management and Procurement

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Inbound Logistics along the Supply Chain

• Mining Firm extractive, most concerned about
  outbound
• Steel Firm inbound items stored outside in
  piles, finished steel requires more sophisticated
  handling
• Container firm cans of different sizes, also
  part of supply chain for auto making etc

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Inbound Logistics along the Supply Chain (cont.)

• Food Firm stores cans as brights adding
  labels later
• Retail Store- labels added per orders
• Return todays economy recycles
• Complexity Boeing vs. US Steel inbound vs.
  outbound

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Materials Management

• Integration
• Information needs to flow both directions for
  effective coordination
• Definition
• the planning and control of the flow of
  materials that are a part of the inbound
  logistics system

9
Procurement

• Importance
• Links members in the supply chain and assures the
  quality of the suppliers
• Definition
• act of buying goods and services for a firm or
  the process of it
• Activities are interfirm (org boundaries) and
  intrafirm (functional boundaries)

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Procurement - Activities

• Identify or reevaluate needs
• Specifications from external customers
• Define and evaluate user requirements
• Measurable criteria
• Decide whether to make or buy
• Identify the type of purchase
• Straight rebuy
• Modified Rebuy
• New buy

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Procurement - Activities

• Conduct a market analysis
• Oligopoly/ monopoly markets etc.
• Identify all possible suppliers
• Simple as the yellow pages for small companies
• Prescreen all possible sources
• Demands vs. desires of users
• Evaluate the remaining supplier base
• Choose a supplier
• Mechanics of the relationship (Ts and Cs)

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Procurement - Activities

• Receive delivery of the product or service
• Make a postpurchase performance evaluation
• control activity
• Measure supplier performance against user
  requirements

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Managing the Procurement Process

• Determine the type of purchase
• Determine the necessary levels of investment
• Time and information of the firm
• Perform the procurement process
• Evaluate the effectiveness of the procurement
  process
• Control step to determine
• User needs met
• Was the investment necessary

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Vendors

• Vendor Partners
• Competitive advantage of the company
• Customer satisfaction
• Reduced total number of suppliers
• TQM and JIT systems

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Vendor Selection Criteria

• Quality
• Life of product, ease of repairs
• Reliability
• Delivery and performance history and performance
  life of the product
• Capability
• Production facilities, capacity and technical
  capability, management, organizational
  capabilities and operating controls
• Financial
• Must be stable or it affects supply chain

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Vendor Selection Criteria

• Desirable Qualities
• Image or impression
• Training aids
• Vendor Location
• Fill rush orders, delivery dates
• Factor Importance
• Depends on the material being purchased

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Procurement Price

• Sources of Price
• Commodity Markets
• Grain, oil, sugar and raw materials
• Price List
• Publishes, may offer volume breaks
• Price negotiations
• RFP/RFQ
• Negotiations
• When other methods dont apply or fail

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Hierarchy of Costs

• Traditional basic input costs
• Primary price (bid, quoted, negotiated)
• Direct transaction costs
• Detecting inventory need, requisitioning,
  preparing and transmitting order documents,
  receiving information - EDI
• Supply relational costs
• Travel, training, links between purchasing and
  traffic, engineering, research, product
  development

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Hierarchy of Costs

• Landed costs
• Actual transportation costs
• Sales/F.O.B terms
• Four different inbound options
• Supplier selected for hire or private carrier
• Buyer selected for hire or private carrier
• Who owns it and when/claims and damage
• Quality costs/factors
• Conformance of goods to desired spec.
• Cost of conformance, nonconformance, appraisal
  and ultimate use costs

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Hierarchy of Costs

• Operations/Logistics costs
• Receiving and make ready costs unpacking,
  inspecting , counting, sorting, grading, and
  moving to the use point
• Lot size costs
• Production costs similar goods with dissimilar
  impact on production lines
• Logistics costs

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Other MM Activities

• Warehousing
• Facilities required
• Raw materials vs. Finished product
• Production Planning and Control
• Coordinating product supply with product demand
• Forecast customer demand
• Provide from inventory or producing the product

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Other MM Activities

• Traffic
• Managing inbound transportation of materials
• Vendor Control analyze periodically
• Modal Choice
• Rush Shipments less on inbound
• Receiving
• Inspection Notify AP, Purchasing and Users
• Damage Claims Notes on Bill of Lading Guilty

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Other MM Activities

• Quality Control
• Quality Standards Meet the purchase agreement
• Quality Implications Affects finished product
• Sample vs. 100
• Salvage and Scrap Disposal
• Value of Scrap
• Excess and obsolete materials
• Solid market exists for salvage
• Disposal
• Legal and regulatory requirements for safe
  disposal of hazardous materials

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Inventory

• Holding inventory significant costs
• Companies can reduce cost of business and improve
  ROI/ROA by decreasing inventory levels
• MM/Inbound logistics plays a major role in
  driving inventory levels
• Uncoordinated inventory approach loss for
  company and customers

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Just-in-Time

• Available when a firm needs them
• short consistent lead times
• Kanban
• Signboard indicates replenishment quantities and
  times it must take place
• JIT Operations
• Production cards (kan cards) establish the amount
  to be produced
• Requisition cards (ban cards) authorize the
  withdrawal of materials from feeding or supply
  operation
• Andon (light system), yellow (little), red (big)
  prob.

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Just-in-Time

• Fundamental Concepts
• Zero inventory
• Short lead times
• Small, frequent replenishment quantities
• High quality, zero defects
• Similarity to two-bin system
• Or reorder point system
• One bin to fill demand for a part and when empty
  the second bin supplies the part
• Reducing lead times
• Forklift example of 1 month for Toyota vs. 6-9
  months for American manufacturers

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JIT vs. Traditional Approaches

• Reduce Inventories
• Does the supplier carry more?
• Shorter Production Runs
• Setup issues
• Minimize Waiting lines
• When and where firms need them
• Short, consistent lead times
• Proximity
• Quality
• Win-Win relationships

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JIT Summary

• Demand responsive, resembles EOQ and Fixed order
  Quantity approaches
• Difference is reliance on improved responsiveness
  and flexibility
• Relies heavily on accuracy of forecasting,
  communication, IS, and transportation

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MRP

• Materials Requirements Planning Joseph Orlicky
• Supplying materials and component parts whose
  demand depends upon the demand for a specific end
  product
• Logically related procedures, decision rules and
  records designed to translate a master production
  schedule in to time-phased net inventory
  requirements, and the planned coverage of such
  requirements for each component item needed to
  implement this schedule

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MRP

• Goals
• Ensure availability of materials, components and
  products for planned production and for customer
  delivery
• Maintain the lowest possible inventory level
• Plan manufacturing activities, deliver schedules,
  and purchasing activities
• Exploding
• Determine how much customers desire and when they
  need it timing and need for components based
  upon the scheduled end product need

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MRP

• Master Production Schedule
• MPS detailed schedule of SKUs and when they
  must be produced
• Bill of materials file
• Recipe and when they must be available BMF shows
  interrelationship of components and subunits
• Inventory status file
• Also does safety stock and lead times

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MRP

• MRP program
• Calculates gross requirements and takes into
  account inventory and places orders
• Outputs and reports
• Quantities and time of order
• Need to expedite or reschedule order dates
• Canceled need for product
• MRP system status

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MRP Summary

• Responsiveness
• Quickly react to changing demand for finished
  products
• Strengths
• Safety stock levels, minimize or eliminate
  inventories
• Identify process problems and potential supply
  chain disruptions and take corrective actions
• Coordinate materials ordering across points in a
  firms logistics system
• Most suitable for batch/intermittent
  production/assembly

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MRP Summary

• Limitations
• Computer intensive and making changes is
  sometimes difficult while in operation
• Ordering and transportation costs could increase
  as smaller amounts arrive more frequently
• Not as sensitive to short-term fluctuations in
  demand as order point approaches
• Complex and dont work as intended

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Advanced Approaches

• MRPII Manufacturing Resource Planning
• Integrates financial planning and
  operations/logistics what if
• Distribution Resource Planning (DRP)
• MRP for marketplace
• Customer demand drives time-phased plan for
  distributing product from plants and warehouses
  to customers