Logistics

Logistics - The process of planning, implementing, and controlling the efficient, cost effective flow and storage of raw materials, in-process inventory, finished goods and related information from point of origin to point of consumption for the purpose of meeting customer requirements. Logistics, in its most basic definition, is the efficient flow and storage of goods from their point of origin to the point of consumption. It is the part of the supply chain process that plans, implements and controls the flow of goods. It can also be seen as the management of inventory, in rest or in motion. The wordlogistics was first used in the military service to describe the process of supplying a war zone with troops, supplies and equipment. The term is now used more commonly in the field of business. Transportation logistics is the most commonly addressed component in supply chain management. How a company transports goods from one location to another can have a strong impact on the businesss overall performance. In many cases, this part of the supply chain is contracted to a third party that specializes in transportation. This helps a business to manage seasonal and market demand changes, minimizing the need to hire and lay off workers based on business cycles. However, transportation is only one piece of logistics. There are five main areas in the supply chain governed by logistics management. They are supply, transportation, warehousing, order fulfillment and customer service. A recent study found that logistics costs account for almost 10% of the gross domestic product. The process itself covers a diverse number of functional areas. Involved in logistics are transportation and traffic, as well as shipping and receiving. It also covers storage and import/export operations. The concept of logistics can be applied to specific areas of business. Acquisition logistics, for example, covers everything involved in acquiring logistics support equipment and personnel for a new weapons system for the military. This includes identifying, designing, defining, developing, producing, delivering and installing the new weapons system. Another area is Integrated Logistics Support (ILS). This is a management function that provides funding, planning and controls to assure that the system meets the expected requirements. ILS is also expected to make sure the price of the goods is reasonable and the product is of the required quality.

Many businesses that deal with supply of goods or services have their own logistics department. For example, a company supplying photocopying paper around the world will have a logistics team. The manager will oversee or delegate to his staff the process from the point of origin. The team will deal with the acquisition of paper from the paper supplier all the way to the customer who requests the paper. The supplier and buyer may be located in different countries. It is the logistics team who must make sure that products can be obtained at a reasonable price. They then have to make sure the product is shipped on time and will arrive when expected. The logistics team also has to deal with importing and exporting contracts, and possibly also with the customs department. The process at times can be a lengthy one, but once in place should run smoothly.

Forecasting
Possibly the most important part of a successful logistical system is forecasting, predicting how many products are sold in a given period of time is crucial to reducing inventory and having enough merchandise to meet customer demand. Forecasting is not easy and even small mistakes can cause disasters, which can mean big losses for companies. Forecasting involves coming up with detailed and reliable models that can statistically predict how much demand there will be for a given product based on past data. Forecasting involves a tremendous amount of ingenuity and mathematical knowledge. It also requires that the person who is responsible for forecasting has a working and effective knowledge of statistics and the marketing strategy of the company. Forecasting is more than a minor aspect to be concerned with when looking at a successful business. Many engineers will dismiss the more business-orientated employees who are in charge of telling the manufacturers how many of each type of merchandise to produce. However, the forecasters have maybe the most important job of all and that is deciding how many products to produce. No matter what anybody says, the most effective way to control inventory (and to maximize profit) is to produce exactly the amount of product that will be purchased by the public. When engineers start dealing with process control, statistical quality control and minimizing machine time they seem to forget that a big part of maximizing the effectiveness of the companies logistical system is predicting correctly how many of their products can be delivered to the marketplace and sold. If a company has a dependable system that allows that it to forecast demand accurately, then this will be a

huge advantage in its goal of producing merchandise quickly and efficiently. A dependable forecast goes beyond simply minimizing inventory; it allows the people who work in the manufacturing plant to optimize equipment usage to produce a specific number of items. If a particular corporation's forecasting is consistently accurate, then the workers in the manufacturing plant will always have the correct amount of labor on hand to produce. Accurate forecasting also allows for optimum usage of machines to produce quality products. Forecasting is an important and often underrated part of the manufacturing process. Even though forecasting is sometimes done by those who are more business oriented rather than engineering oriented the process is still important. Forecasting is ultimately what will minimize inventory and make sure that enough products are produced to satisfy demand and as long as the goal of every company is to make money, forecasting will be critical to success.

Transportation
Transportation is the movement of materials and products. Logistics involves the movement and transport of materials and products, as well as their storage and packaging. Definition of Transportation Transportation involves the movement of goods and raw materials. This includes shipment of raw materials to the manufacturer and movement of finished product to the customer. Transportation also includes the movement of parts to assembly areas as they are assembled. Definition of Logistics Logistics includes the management of freight, warehousing of materials and productions and inventory management. Logistics also includes the packaging of products for storage and shipment. Logistics involve both internal and external distribution networks. How to Minimize Transportation Costs The easiest way to minimize transportation costs is to eliminate unnecessary transportation. You can do this by finding closer suppliers. You can redue transportation costs by consolidating shipments, buying partially assembled products from vendors and reducing the number of trips needed to ship in raw materials. Have work stations within the factory close to each other minimize material transportation, which is a non-value

added labor cost. Consolidating transportation service providers increases the volume each transportation firm provides and can allow for a negotiated volume discount. How to Minimize Logistical Costs Logistical costs are directly reduced by Just in Time, or JIT, manufacturing. Use material resource planning or MRP systems to time orders so that a minimum of stock is on hand. Order parts in packaging that can be directly sent and stocked in the warehouse. This eliminates the wasteful process of receiving, unpacking and then labeling product for the company's own inventory management system. Work with suppliers to have bar code labels or RFID chips that are cross-compatible, allowing the entire supply chain to use the same part numbers and equipment to track and manage inventory. How to Mitigate Transportation and Logistical Risk Consolidating shipments increases the risk of a lost shipment bringing a JIT assembly line to a stand still. A surprise shortage will shut down production. This means that JIT requires a secure supply chain. The orders must be able to be delivered quickly and rapidly, with a minimum risk of delays. This is the reason many JIT suppliers build factories or distribution centers close to their major suppliers. If the supplier is close by, a shutdown of air traffic or a massive traffic jam across town will not prevent parts from being walked over. Suppliers that are not located close by must have multiple backup routes for their product. If the overnight delivery truck is unable to depart on time, they must have a mitigation plan in place, such as reserve vehicles of their own or shipping companies on retainer that can send out another vehicle and team to unload the down vehicle, reload to the new vehicle, and then deliver the parts and material. Transport or transportation is the movement of people and goods from one location to another Modes of transport air, rail, road, water, electronic pipeline and cable. The field can be divided into three parts: infrastructure: roads, railways,airways, ports vehicles : automobiles, trains, buses, aircraft, ships operations: deal with the way the vehicles are operated, and the procedures set for this Transport plays an important part in economic growth and globalization It is heavily subsidized by governments. But most types cause air pollution and use large amounts of land

purpose including financing, legalities and policies

Good planning of transport is essential to make traffic flow, and restrain urban sprawl. Need for transportation in logistics? Transportation system is the most important economic activity among the components of business 2/3rd of the enterprises logistics cost are spent on transportation. Transport makes goods and products movable and provides timely and regional efficacy thus logistics system.

influencing the production and sale. Types Of Transportation Roadways Road transport or road transportation Vehicles: Bikes, Cars, Trucks..etc The nature of road transportation of goods depends, apart from the degree of development of the local is transporton roads of passengers or goods.

infrastructure, on the distance the goods are transported by road, the weight and volume of the individual shipment and the type of goods transported.

Advantages Disadvantages It can come to any point connected to the road Due to the low volume of goods transported network. Only mode of transport capable of offering door to door service. Speed. Medium cost. with each trip, it is more polluting than any other mode of transport. Traffic on roads and highways is increasingly congested

Railways Rail transport is the means of conveyance of passengers and goods by way of wheeled vehicles In contrast to road transport, where vehicles merely run on a prepared surface, rail vehicles are also Vehicles: Electric Train, Steam Trainetc running on rail tracks. directionally guided by the tracks they run on. Advantages Disadvantage Facilitates long distance travel and transport A large investment of capital

A quick and more regular form of transport Cheaper rate Safest form of transport. Large Carrying Capacity

Inflexibility Cannot provide door to door service Unsuitable and uneconomical for short distances and small traffic of goods Involves much time and labour in booking and taking delivery of goods

Seaways Ship transport is watercraft carrying people (passengers) or goods (cargo). Sea transport has been the largest carrier of freight throughout recorded history Although the importance of sea travel for passengers has decreased due to aviation, it is effective for short trips and pleasure cruises Ship transport can be over any distance by boat, ship, sailboat or barge, over oceans and lakes, through canals or along rivers Advantages Disadvantages Low cost. Slow Capable of transporting large volumes of Difficult to monitor exact location of goods in merchandise. Ideal for transporting heavy and bulky goods transit Customs and Excise restrictions Requires inland transportation for door-to-door delivery Airways Air transportation plays an integral role in our way of life. Air transportation also represents the fastest way to ship most types of cargo over long distances. Passengers and cargo can be transported by air either over regularly scheduled routes or on "charters," which are routes specifically designed for a group of travelers or a particular cargo. Advantages High Speed, Quick Service Less Infrastructure Investment No Physical Barrier It avoids delay in obtaining clearance Disadvantages Risky Very Costly Small Carrying Capacity Unreliable It requires huge investment for construction and maintenance

Pipelines Pipeline transport is the transportation of goods through a pipe Most commonly, liquid and gases are sent, but tubes that transport solid capsules using compressed air are also used. The most valuable are those transporting fuels: oil (oleo duct), natural gas (gas grid) and biofuels. Disadvantages High capital and operating cost. Fear of corrosion, contamination Blockages, if occurred is difficult to remove Low availability of small volumes of transported cargo Limited type of cargo ( oil, gas ..etc)

Advantages Unobtrusive More secure Continuous Flow Lower Cost Environment Friendly Digital

Data transmission, digital transmission or digital communications is the physical transfer of data (a Examples of such channels are copper wires, optical fibres, wireless communication channels, and The data is represented as an electro-magnetic signal, such as an electrical voltage, radio wave, Data transmitted may be digital messages ( keyboard), analog ( phones, video) etc Disadvantages Unsafe, Fear of theft Errors in sending. Limited transfer of material.

digital bit stream) over a point-to-point or point-to-multipoint communication channel. storage media. microwave or infra-red signal. Advantages Fast Low Cost Data can be sent to many at one time.

Cables Cable transport refers to the broad class of transport modes that rely on vehicles pulled by cables, The use of pulleys and balancing of loads going up and down are sometimes elements of cable transport. Common modes include: Aerial tramway, Cable car, cable ferry chairlift, elevator rather than having an internal power source

Advantages: Used for steep gradient, Low cost of transport Quick

Disadvantages: short routes large use of electricity Unsafe High set up cost

Industrial transport Transport used by industrial enterprises to move objects worked on and products in the production area. Industrial transport is both an integral part of the production process and an important link in the general The annual volume of cargo carried by industrial rail and motor vehicle transport is about 1.5 times Industrial transport is divided into internal and external transport depending on the area in which the Example : Coal Industry Internal : underground or surface transport External : mainline transport

transportation system. greater than the volume of freight hauled by general rail and motor vehicle transport. conveyance occurs and its relationship to the production process.

Warehousing A warehouse is a location with adequate facilities where volume shipment are received from a production centre, broken down, reassembled into combinations representing a particular order or orders, and shipped to the customers location or locations. The concept of distribution warehouse or a distribution centre is vastly different from the earlier concept of a godown for storage. The godown is merely a dumping place. Godowns are maintained merely for storage of surplus goods. The earlier concept, which led to the establishment of warehouses, was based on the need for ensuring a continuous, uninterrupted supply of goods in the market area for the following: 1. Ensuring protection against delays and uncertainties in transportation arising from a variety of factors. 2. Eliminating lack of sophistication in production control and consequent uncertainties in the availability of product at the desired time and place.

3. Providing for adjustment between the time of production and the time of use because production and use can be seldom synchronized. From the foregoing, it is obvious that earlier a warehouse was considered a necessary evil which was to be toletated, but which did little to provide a differential advantage. The modern distribution centre or distribution warehouse is a pivot in the physicaldistribution system. According to this system, movement is the primary objective of a warehouse. As per this new concept, a warehouse is a location where inputs (incoming factory shipment) are converted into outputs (outward shipments representing orders of customers).this conversion takes place without consuming too much time. The goods may be received over a period of time from different places, combined or broken down into each individual customers orders, and dispatched to the next point in the distribution channel without their coming to rest within the confines of the distribution centre. Because of the usual and often inevitable lack of coordination between inbound and outbound goods, storage facilities of a temporary nature must be provided for in the scheme.

Characteristics of warehouse activity The warehouse activity work is non-value adding work. It is pointed out for better profits the stores should not exist. Also the material movement should be reduced to zero. These are non-value adding activities. This is because value is what the customer is prepared to pay for. A customer is willing to pay for is the physical conversion/ processing of material into product. The configuration of the product forms only one element of what a customer is willing to pay for. Also customer needs other points such as following. The product should be available, At a required location At required time Warehouse provides these values. These are apart from value added due to conversion. For that reason management must pay the maximum attention to the stocking and handling related activities. TYPES OF WAREHOUSES Bonded Warehouses Private and public warehouses can be bonded under the customs and excise act and municipal corporation regulations, facilitating deferred payment of customs, excise or octroi duty. The

warehouseman releases only those goods on which the duty is paid on production of roof of such payment and release order issued by the appropriate authority. Field Warehouse Field warehouses are those which are managed by a public warehousing agency in the premises of a factory or company which needs the facility for borrowing from a bank against the certification of goods in storage or in process by an independent professional warehouseman. Cold Storages: Cold storage facilities are provided for perishables against payment of a storage charge for the space utilized by different parties. In a cold storage, it is essential that the temperature is regulated and temperature variation is controlled to the degree particularly for certain sensitive items. Agricultural Warehouses: These warehouses are meant storing agricultural produce grown in a certain area and are located in assembling or regulated markets. These warehouses receive agricultural commodities either directly from the farmers or through their commodities agents, or from wholesalers. Distribution Warehouses: These warehouses are located close to the manufacturing concerns or consuming areas. Their location depends on the nature of the product, the time taken for transit, operating coast and the need to make the product available in the market in obedience to the demand for it. Buffer Storage Warehouses: These warehouses are built at strategic locations with adequate transport and communication facilities. They store food grains or fertilizers, etc. Export and Import Warehousing: These warehouses are located near the ports from where international trade is undertaken. They provide transit storage facilities for goods awaiting onward movement. Facilities for break-bulk, packaging, inspection, marketing, etc., are available at these warehouses.

DRP
The need for more detailed distribution planning led to the emergence of distribution requirements planning (DRP) during the 1970s. DRP is a widely used and potentially powerful technique for helping outbound logistics systems manage and minimize inbound inventories. This concept extended the time-phase order point found in material requirements planning (MRP) logic to the management of channel inventory. By the 1980s DRP had become a standard approach for planning and controlling distribution logistics activities and had evolved into distribution resource planning. The concept now embraces all business functions in the supply channel, not just inventory and logistics, and is termed DRP II. DRP is usually used with an MRP system, although most DRP models are more comprehensive than standalone MRP models and can schedule transportation. The underlying rationale for DRP is to more accurately fore-cast demand and then use that information to develop delivery schedules. This way, distribution firms can minimize inbound inventory by using MRP in conjunction with other schedules. One of the key elements of DRP is the DRP table, which includes the following elements:

Forecast demand for each stock-keeping unit (SKU) Current inventory level of the SKU Target safety stock Recommended replenishment quantity Replenishment lead time

The concept of DRP very closely mimics the logic of MRP. As with MRP, gross requirements consist of actual customer orders, forecasted demand, or some combination of both; scheduled receipts are the goods the distributor expects to receive from orders that already have been released, while goods that already are received and entered into inventory constitute the on-hand inventory balance. Subtracting scheduled receipts and on-hand inventory from gross requirements yields net requirements. Based upon the distributor's lot-sizing policy and receiving behavior, planned order receipts are generated. Firms may order only what they need for the next planning period or for a designated time period. Known as economic order quantity (EOQ), this involves a lot size based on a costing model. Alternatively, firms may be limited to multiples of a lot size simply because the supplying firm packages or palletizes their goods in standard quantities. Also, some distributors may require

some time interval between the arrival of goods on their docks and the entry of the goods into the inventory system. For example, a firm may have a staging area where goods remain for an average time period while awaiting quality or quantity verification. Hence, planned order receipt may be during the planning period when the goods are needed, or they may need to be received earlier depending on time requirements. Order release is then determined by offsetting the planned order receipt by the supplier's lead time. Figure 1 is a representation of a DRP calculation (ignoring possible safety stock requirements). Distribution involves a number of activities centered around a physical flow of goods and information. At one time the term distribution applied only to the outbound side of supply chain management, but it now includes both inbound and outbound.: Management of the inbound flow involves these Management of the outbound flow involves these elements Material planning and control

elements: Order processing

Purchasing Receiving Physical management of materials via warehousing and storage

Warehousing and storage Finished goods management Material handling and packaging Shipping Transportation

Materials handling

Following are the separate elements contained within the three critical functions of distribution:

Selling and promoting, Buying and building product assortments (deal with few suppliers providing a

wide assortment of products) Bulk breaking,Value-added processing(sorting, labeling, blending, kitting, packaging, and light final assembly), Transportation.Warehousing, Marketing information.

Inventory control
Inventory control is the delicate balance of the costs versus profits associated with having stock on hand. Inventory control means keeping the overall costs associated with having inventory as low as possible without creating problems. This is also sometimes called stock control. It is an important part of any business that must have a stock of products or items on hand. Correctly managing inventory control is a delicate balance at all times between having too much and too little in order to maximize profits. The costs associated with holding stock, running out of stock, and placing orders must all be looked at and compared in order to find the right formula for a particular business. It is impossible to have an unlimited supply on hand, for a number of different reasons. Many businesses simply dont have enough money to keep excessively large inventories. There are costs associated with purchasing the items as well as storing them, and having too many products leads to further losses when they dont move off of the shelves. At the same time, there are issues with inventory control when there isnt enough stock on hand. One common problem is running out of inventory, which is caused by trying to reduce inventory costs too much. This is something that no business wants to have happen, but it happens to virtually all of them at some point. Even the largest stores run out of certain products from time to time when they sell or use more than they expected. This can cause financial losses when inventory is not available for customers to purchase. Part of inventory control is trying to minimize shortages so these are rare occurrences. Most businesses expect they will have shortages on occasion and they have calculated that the small loss is worth the money saved by not having an overstock. Another important element of inventory control is called reorder point. Businesses need to think ahead and calculate the best time for reordering products. Doing so too soon may cause financial difficulties or running out of space. On the other hand, waiting to long to reorder will result in a shortage and running out of inventory before the next shipment arrives. When figuring out a reorder point, its necessary to calculate how long it will take the shipment to arrive and the amount of demand for a particular item. The overhead costs, fees, and shipping expenses of ordering large versus small quantities should also be looked at. Inventory control is an ongoing process that is rarely, if ever, executed perfectly. Experience, expertise, and practice help people to make the best decisions regarding stock, but there are always unknown circumstances

and variables. Stores can make good estimates about how many of a specific product they will sell, but they get things wrong from time to time. This is unavoidable. Inventory control can break a business if it is executed poorly, because either expenses will be too high or customers will get tired of dealing with shortages and find another place to spend their money.

Logistical organization
What is Logistical Organization Giving orderly structure to logistical functions What was the structure of logistics in the decade of 1950? Decade of 1950: Disintegrated or dispersed logistical functions were attached to various management functions like finance, manufacturing and marketing. Logistical Organization Stage I Late 1950s or early 1960s saw a grouping of logistical activities Heads of materials management and physical distribution management were created But these heads remained under the control of traditional management functions of manufacturing and marketing respectively Logistical Organization Stage II Late 1960s or early 1970s saw emergence of physical distribution management As an independent function internally integrating all outbound logistical functions. Materials remained attached to manufacturing Logistical Organization Stage III Decade of 1980 saw emergence of a new organization Organized activities of inbound and outbound logistics were brought under one control New organization of logistical activities as logistical operations, logistical support and logistical planning Upward positioning of logistical chief Broadened responsibility to include more functions

Larger interaction with other functions Focus shifting from activity to broader economic and technological issues Scientific approach to logistics

Logistical Organization Stage IV Flatter or horizontal organization Less instructions and self direction by objectives Concept of self directed work teams Organization tends to be a matrix organization

Logistical Organization Stage V An electronically connected virtual organization Importance of effective organization Integrates logistical functions - primary to meet the challenges of competitive business Yields better financial results Facilitates employee empowerment to meet customer expectation Facilitates Team Based Work Systems Provides transparency to facilitate rapid respons

Logistics Measurement
1) Most firms do not comprehensively measure logistics performance, (2) Even the best performing firms fail to realize their productivity and service potential available from logistics performance measurement, and (3)Logistics competency will increasingly be viewed as acompetitive differentiator and a key strategic resource for the firm.

There are three major reasons why firms measure their logistics performance. They are to (1) reduce their operating costs, (2) drive their revenue growth, and (3) enhance their shareholder value. Measuring operating costs helps to identify whether and where to make operational changes to control expenses and to discover areas for improved asset management. To attract and retain valuable customers, the price/value of products offered can be enhanced through cost reductions and service improvements in logistics activities. The returns on stockholder investments and the market value of the firm are impacted by the performance of firm logistics. These seem to be obvious reasons why companies should want to be competent in performance measurement. The 3PL value proposition Third party logistics providers enable firms to achieve reduced operating costs and increased revenues in new and existing markets. 3Pls provide firms an opportunity to enhance their market value by reducing ownership of assets, which translates to a higher return on remaining assets and greater return on stockholder investment. 3PLs also bring to the relationship their specialized expertise in managing logistics with contemporary technology and systems. The COOs decision to outsource company logistics operations to the 3PL is often justified solely on the favorable difference between the more efficient 3PLs price for the services and the firms higher costs of existing operations. The chief marketing officer views the enhanced services and distribution reach of 3PLs in existing and new markets as translating into increased sales and better long-term relationships with customers. CFOs are delighted to see assets property, plant, equipment, and even inventory disappear from the firms balance sheet, freeing up cash for more productive uses, instantaneously and permanently improving the companys returns on assets. CIOs are often very pleased to have access to the 3PLs systems and technology resources, avoiding the cost and trauma of upgrading their own. Reliance on the 3PL alliance frees up company employees to focus on their core competencies, doing more of what they are good at and less of what can be done better by the 3PL. Chief logistics officers begin to realize that ownership of resources is not necessary to achieve control over the results.

Conclusions In todays competitive market place what distinguishes winners from losers is the ability to differentiate themselves through their service and product offerings. For many firms, the service differentiation is accomplished by how well the logistics process is managed. To achieve excellence in logistics, successful firms ensure that the key logistics processes are aligned with the firms business strategy and measured against predetermined performance objectives. Additionally, the top firms are jointly defining the specifics of each measure with their trading partners (customers / suppliers / 3PLs) to create a common understating of expectations. While some firms are developing their measurement capability internally, a number are turning to 3PLs to support their needs. As focused service providers, 3PLs are ideally positioned to bring the systems, process design, and managerial expertise to aid in establishing and implementing a comprehensive logistics measurement effort. The 3PL is also often in the position to act as a catalyst for meaningful dialogue between trading partners to establish a level of service performance that truly adds value. Regardless of the approach a firm takes in establishing logistics measurements, the real value comes when the information is actedupon to align the effectiveness and efficiency of the logistics process performance to a level that is valued by customers

Logistics Costing
The logistics industry is a dynamic and very fluid market where prices can change every week. Pricing in logistics is a combination of understanding the traditions of the routing used, the research put into the negotiations, and the timing of the negotiations. In order to obtain the best logistics costs, take into account the good faith of a long term agreement, the scale of your operations and move, and the priority of the move (transit time versus price). 1. Determine what you need to ship and determine the mode you'll use. For example, if you need to ship information/files/instructions, then use email. If shipping documents, utilize mail or courier service. If you're shipping perishable or time sensitive goods in bulk, consider using air freight. If you're handling large amounts of durable goods, consider using containerized shipping.

2. Plan for your projected needs for at least one year. Logistics providers base rates and rate agreements on either an immediate shipment basis (within 30 days), or based on a one-year agreement. If there is a large volume of shipments, it's possible to prepare a bid that could warrant special terms and conditions. 3. Solicit quotes from any vendor which can accommodate shipments. For small shipments less than a container, contact freight consolidators/brokers. These entities are also known as NVOCC (Non-Vessel Operating Common Carriers). For full container loads, also contact carriers/VOCC. There is no issue in the industry for requesting rates from every vendor available. 4. Analyze quotes and read the terms/conditions of the quotes. Check the validity of the quote (Is it for a particular sailing, a month, a year?) and what surcharges it's subject to. Check if there are any value-added services available such as extended demurrage (time at the pier/airport), detention (time to keep the container), credit terms or volume incentive discount. Also ask if rates are subject to general rate increases, new surcharges, war risk or terminal handling charges. 5. Compare and counter offer the rate levels you were provided. NVOCC may offer lower rates than those offered by VOCC. Within reason, negotiate for rates slightly lower than the lowest submitted bid. On a periodic basis (every week for airfreight, up to bi-monthly for seas shipments), solicit for quotes again. 6. Confirm that rates are filed in either a contract or in a governing tariff and regularly check the terms of the filing. In markets where rates can constantly shift (Europe-Asia Trade for example), press for sales representatives to honor the rates quoted for at least 30 days.

Supply Chain Management

available when needed). As a solution for successful supply chain management, sophisticated software systems with Web interfaces are competing with Web-based application service providers (ASP) who promise to provide part or all of the SCM service for companies who rent their service. Supply chain management flows can be divided into three main flows:

The product flow The information flow The finances flow

The product flow includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs. The information flow involves transmitting orders and updating the status of delivery. The financial flow consists of credit terms, payment schedules, and consignment and title ownership arrangements. There are two main types of SCM software: planning applications and execution applications. Planning applications use advanced algorithms to determine the best way to fill an order. Execution applications track the physical status of goods, the management of materials, and financial information involving all parties. Some SCM applications are based on open data models that support the sharing of data both inside and outside the enterprise (this is called the extended enterprise, and includes key suppliers, manufacturers, and end customers of a specific company). This shared data may reside in diverse database systems, or data warehouses, at several different sites and companies. By sharing this data "upstream" (with a company's suppliers) and "downstream" (with a company's clients), SCM applications have the potential to improve the time-to-market of products, reduce costs, and allow all parties in the supply chain to better manage current resources and plan for future needs. Increasing numbers of companies are turning to Web sites and Web-based applications as part of the SCM solution. A number of major Web sites offer e-procurement marketplaces where manufacturers can trade and even make auction bids with suppliers. Companies use forecast-distribution models in order to have the appropriate inventory, or safety stock, necessary to meet fluctuations in customer demand. Forecast-distribution helps companies maintain more

efficient, and therefore more effective, supply chain management. Under this model, participants in the lowerend of the supply chain, rather than those near the end-customer, increase their orders frequently when there is a rise in demand. Conversely, when there is a decrease in demand, they decrease or stop their orders to prevent excessive inventory. This greater variation in demand that can be seen in the supply chain as one moves away from the end customer is known as thewhiplash or bullwhip effect. A possible solution to this effect is Kanban, a demand-driven supply chain. The participants in the supply chain would react to actual customer orders, not forecasts of them. Problems chain. associated with supply chain management are handled within supply chain event

management (SCEM), which is the process of planning for and preventing factors that might affect the supply