TRL2604 Study Notes
TRL2604 Study Notes
TRL2604 Study Notes
Logistics & the Supply Chain SU 1 pg. 2; par. 1.2 & TB Ch. 1 pg.4,7
Supply chain management [SCM] definitions:
"Firms collaborating to leverage strategic positioning & improve operating efficiency" Bowersox, Closs, Copper (2013:4)
"Encompasses planning & management of all activities involved in sourcing & procurement, conversion, all
logistics management activities, coordination & collaboration with channel partners (i.e. suppliers /
intermediaries/third party service providers/customers). Essentially integrates supply & demand
management within & across companies" CSCMP: Council of Supply Chain Management Professionals (2010)
Supply Chain: "Alignment of firms bringing products/services to the market”. Supply chain therefore consists of the
key business processes (from original supplier to end-user) that provide products/services/information which add
value for customers & stakeholders (Stock & Lambert 2001:54).
Supply chain concept envisions new business arrangements offering potential to improve competitiveness & highly
effective business relationships that serve to improve efficiency by eliminating duplicate & non-productive work.
Logistics: Process of planning, implementing & controlling procedures for efficient & effective transportation and
storage of goods (services & related information) from point of origin to point of consumption for the purpose of
conforming to customer requirements. Definition includes in-, outbound, in- & external movements CSCMP (2010).
The work required to move & position inventory throughout a supply chain.
Logistics is the process that creates value by timing and positioning inventory and it is the combination of a firm’s
- order management & information - inventory - transportation
- warehousing - materials handling - packaging
In firm’s SCM, logistics is the work required to move & geographically position inventory throughout supply chain.
Thus logistics is a subset of and occurs within the broader framework of a supply chain.
Integrated Logistics: serves to link & synchronize overall supply chain as continuous process essential for effective
supply chain connectivity. Integrating activities to achieve particular level of customer service at lowest total cost.
Goal: "to support procurement, manufacturing & customer accommodation operational requirements" Bowersox (2013:29)
with two important elements: service & cost.
Renaissance: Because logistics is both old & new, term characterizes the rapid change taking place in best practice.
To gain competitive advantage, customer value needs to be created. Creation of customer value depends largely on
effective logistics/logistical competency - a relative assessment of the capability of a business to provide superior
customer service at the lowest total cost. Effective logistics requires the integration of various basic work and
functional areas, as well as logistical temporal/spatial integration.
When Malfunction (something going wrong) occurs, competency can be measured in terms of recovery time
Logistical Mission SU 1 pg. 6-7; par. 1.5 & TB Ch. 1 pg.30-33
Attributes of basic logistics service describes level of service a firm provides to all established customers. Give
particular attention to the following customer requirements in which logistical service is measured:
Logistical quality: product of careful planning, employee training, operational dedication, comprehensive
measurement & continuous improvement
Main point of total cost concept is that minimisation of costs within each individual business function or logistics
activity can result in a higher total cost (all expenditures necessary to perform logistical req.) than could otherwise
be achieved if functions/activities were integrated. Lowest total cost approach requires integration of various
functions & activities, and certain trade-offs.
Logistics value proposition: matching operating competency & commitment to key customer expectations &
requirements; a unique commitment of a firm to an individual/selected customer groups.
Involve selecting least total cost supply chains - chains mostly comprising different institutions (intermediaries
i.e. wholesalers/retailers/third-party logistics providers). N.B. to use the correct intermediaries.
3) INTERACTIVITY TRADE-OFFS: among various logistics activities constitute contributing factor to the achievement of
lowest total cost. The most obvious trade-offs at this level are the following:
Warehouse cost/transport cost trade-offs Example: SG page 8
Transport (mode) cost/inventory cost trade-offs Example: SG page 9
4) INTRA-ACTIVITY TRADE-OFFS: within particular logistics activity. Following are the most common:
Inventory trade-offs: Advantage of ordering large quantities traded off against costs of carrying stock
Trade-offs regarding transport: cost of owning & operating own fleet vs. freight tariffs charged by
professional carriers.
Network Design SU 2 pg. 13; par. 2.2 & TB Ch. 1 pg. 37-38
Logistics management: concerned with flow of inventory & info.
Inventory flow requires network of facilities which allows:
- Stock to be kept - customer orders to be picked up - and dispatched
Facilities/depots hold stock to match anticipated demand with planned supply, balance flows, enable consolidation
of customer orders.
Facility aspects required to achieve high quality service at lowest total cost:
Type/Nature of facility Size of facility
If cost of lost sales is insignificant, fewer depots would be more optimal. Cost of lost
sales
2) INVENTORY COST:
# of Facilities = Inventory Cost because of safety stock kept to ensure availability tying up more capital.
3) WAREHOUSING COST:
# of Facilities = Warehousing cost because more space bought/rented.
Costs tend to increase at decreasing rate as number of facilities increase especially if rented. Due to discounts
offered when negotiating on space for different areas (public & contract warehouses i.e. not owned by firm)
4) TRANSPORT COST:
facilities = shorter distances = cost but too many warehouses = cost as more deliveries are required
# of Facilities = Initially Transport cost until optimum # is reached then cost.
Due to combination inbound & outbound transport costs and lower tariffs negotiated on truck loads
Minimum Charges: (e.g. delivery cost stays the same irrespective of delivering 100kg or 1kg)
5) OTHER FACTORS
Customers' Purchasing Patterns: regular basis small orders = more facilities closer to market
Competition: if rivals offer rapid delivery, may force firm to match service level by # of facilities
Computers/Technology: improved warehouse layout & design, inventory control, shipping & receiving,
dissemination of info = # of facilities
Interrelationship between other logistical activities & facility size. Main factors Influencing Size:
Customer Needs / service levels: level of service = size = levels of inventory = greater availability
Market Size: large market = storage space required
Product Range: number of different product types = size to maintain minimum stock levels
Large Physical Size of Product
Also fluctuation &
Less sophisticated Handling Systems
unpredictable demand
High Throughput Rate (vol. of products handled during specific period)
Requires More Space
Long Production Lead Time (time taken to manufacture product)
Aisle Requirements
Office/Admin Space Required
Level of Demand: High demand = high turnover of stock = space required
Demand Patterns: space if direct deliveries (bypassing regional warehouse) are possible
Incorrect demand forecast & customer requirements info can seriously affect customer service & logistics costs.
Transportation SU 2 pg. 19; par. 2.4 & TB Ch. 1 pg. 35-36
Operational area that geographically moves & positions inventory
Private Fleet
Contracted (dedicated transporters)
Common Carriage (wide varieties of carriers, as needed, per shipment basis)
•Cost: high variable vs. low fixed as no capital invested in road infrastructure thus
•Fairly easy entry = large market of relatively small enterprises makes transoprt
Road •Readily available & highly competitive = willing to negotiate rates & services
Characteristics •Indispensable, complete service; complementary (convey goods between other
modes)
•No terminals, with door-to-door service = relatively short delivery times
2) RAIL TRANSPORT: New developments in integrated services incl. piggybacking & containerisation
Innovative services incl. unit trains, express trains & specialised equipment to remain competitive
•Speed = short delivery time over long distances (see also disadvantages)
Advantages •Transport urgent / highly perishable products
•Speed maimed by door-to-door delivery time (surface freight handling & movement)
•High Cost = only commodities with high value (weight ratio) can absorb costs i.e.
Disadvantages transport cost constitutes smaller portion of sales price than inventory carrying cost
•Restricted Accessibility (road transport needed to & from terminals)
4) WATER TRANSPORT: RSA no inland waterways only sea transport (international & coastal)
•Cost: High variable vs. low fixed as rew. no capital invested in infrastructure
Water •Majority consignments: Low value, High density that are
Characteristics •Readily handled by mechanical loading equipment
•Transport large quantities over long distances
5) PIPELINES:
Rail-road a.k.a. "trailer on flat car" (TOFC): transporting truck trailers on railroad flat cars over longer
distances than truck would. Cost less than only using road.
Combines convenience & flexibility of road with long-haul economies of rail.
Benefit: door-to-door service over long distance at reasonable cost.
1) FREIGHT FORWARDERS: Usually not carriers themselves but use services provided by professional carriers
Collect small consignments consolidate arrange long-haul transport distribute at destination.
Accepting responsibility for transportation of cargo from receipt to delivery points.
Income = shippers higher tariff for LTL less-than-truck-load minus carriers lower vol. tariff for TL truck-load
Shippers benefit from reduced delivery time for LTL shipments
2) FREIGHT BROKERS: simultaneously act as sales agents for carriers & traffic managers for shipper.
Arrange/book suitable carriers for shipper. Paid commission by carriers.
Market-Related Factors
Rate of Sale & Sales Seasonality Customer Size & Market Share /
Volume •Growing time = rapid & freq. Location Competitive Status
service
•Fast-moving products req. •Large cust., densely •Monopoly = service
frequent deliveries (often •Min time delay between located enable large level
large quantities) pick & process
vehicles & large loads •Competitive Market =
•Failure = lost sales & •Foods/flowers often air
freight = freshness & high •Rural areas = small vol. = service level
goodwill
resale price expensive = alternative
mdes & enterprises
1. Frequent & small reorders = no quantity discount = Procurement & purchase cost
2. Unsatisfied customer demand = cost of lost sales & lost customers
2) CYCLE STOCK: Commonly order more than meet immediate requirements; trade-off large qty. vs. carrying cost =
simple Economic Order Quantity (EOQ) balance order cost vs. holding cost to find optimum lot size "how much"
Reordering
Time
P = SS + DL SS = Safety Stock (units)
D = avg. Daily sales (units)
L = Lead time (days)
Selective Inventory Deployment: SU 3 pg.37; par 3.1.5 & TB Ch. 1 pg. 34-35
Product line profitability essential in developing selective invetory policy (& avoid 80/20 rule or Pareto principle).
Aim to offer high availability & consistent delivery of most profitable products.
Avoid high service performance on less profitable items purchased by non-core customers.
Inventory Strategies (to achieve desired core customer service goal with minimum inventory/cost commiment):
Stock sufficient product range/assortment to assist in consolidated shipments
Larger shipment = the effective transportation rate per unit shipped (trade-off transport vs. holding cost)
Rapid delivery to meet customer inventory requirements = competitive edge ( safety stock & out of stock)
Consistent & reliable deliveries to customers
Corret positioning of invetory in warehouse
Apply selective deployment to gain customer advantage / neutralize competitor
Warehousing, Materials Handling & Packaging SU 3 pg. 38-41; par. 3.1 & TB Ch. 1 pg. 36-37
Part of other logistic areas (i.e. order processing, inventory & transportation) = effective & efficient product flow
•unload •Transfer to
3 incoming: receiving •check
MOVE- Handling Receiving •manual,
Internal area Shipping •loading
MENT Handling
Activities: •equip. •Selection: •dispatch
•or auto. group order
E.g. bottles into six-pack1 packed into case of 242 ultimately palletised3 tranship number of palletised packs4
1. Based on consumer behaviour / consumption patterns
2. Based on conveniently manageable number of bottles for typical demand level
3. Based on often standardised view – realistic weight:volume ratios for manoeuvring in warehouse
4. Based on available vehicle type, legislation on size & load weight, despatch & delivery facilities
Container: form of bulk unit load with standard sizes = fit to form modular loads & safe stacking. Advantages:
Reduce pilferage & damage, thus insurance costs
Simpler documentation
Savings on transport costs
Better utilisation of space
Easier handling
1. Frequent & small reorders = no quantity discount = Procurement & purchase cost
2. Unsatisfied customer demand = cost of lost sales & lost customers
2) CYCLE STOCK: Commonly order more than meet immediate requirements; trade-off large qty. vs. carrying cost =
simple Economic Order Quantity (EOQ) balance order cost vs. holding cost to find optimum lot size "how much"
Reordering
Time
P = SS + DL SS = Safety Stock (units)
D = avg. Daily sales (units)
L = Lead time (days)
Selective Inventory Deployment: SU 3 pg.37; par 3.1.5 & TB Ch. 1 pg. 34-35
Product line profitability essential in developing selective invetory policy (& avoid 80/20 rule or Pareto principle).
Aim to offer high availability & consistent delivery of most profitable products.
Avoid high service performance on less profitable items purchased by non-core customers.
Inventory Strategies (to achieve desired core customer service goal with minimum inventory/cost commiment):
Stock sufficient product range/assortment to assist in consolidated shipments
Larger shipment = the effective transportation rate per unit shipped (trade-off transport vs. holding cost)
Rapid delivery to meet customer inventory requirements = competitive edge ( safety stock & out of stock)
Consistent & reliable deliveries to customers
Corret positioning of invetory in warehouse
Apply selective deployment to gain customer advantage / neutralize competitor
Warehousing, Materials Handling & Packaging SU 3 pg. 38-41; par. 3.1 & TB Ch. 1 pg. 36-37
Part of other logistic areas (i.e. order processing, inventory & transportation) = effective & efficient product flow
•unload •Transfer to
3 incoming: receiving •check
MOVE- Handling Receiving •manual,
Internal area Shipping •loading
MENT Handling
Activities: •equip. •Selection: •dispatch
•or auto. group order
E.g. bottles into six-pack1 packed into case of 242 ultimately palletised3 tranship number of palletised packs4
1. Based on consumer behaviour / consumption patterns
2. Based on conveniently manageable number of bottles for typical demand level
3. Based on often standardised view – realistic weight:volume ratios for manoeuvring in warehouse
4. Based on available vehicle type, legislation on size & load weight, despatch & delivery facilities
Container: form of bulk unit load with standard sizes = fit to form modular loads & safe stacking. Advantages:
Reduce pilferage & damage, thus insurance costs
Simpler documentation
Savings on transport costs
Better utilisation of space
Easier handling
Integrated Logistics SU 4 pg. 45-48; par. 4.1 & TB Ch. 2 pg. 38-40
"Serves to link & synchronise overall supply chain [SC] as continuous process - essential for effective SC connectivity"
Coordinate overall, value-added inventory movement. Strategic management of total movement & storage.
Logistics Activities features in all three overlapping internal operations of Logistics Components.
Logistics excellence requires coordination between internal & external components of supply chain.
Necessary to coordinate inventory (raw, semi & final) at various levels of supply chain & info flow between.
Info in logistics planning & coordination: integrates specific company activities to facilitate overall performance.
Provides info concerning planned activities, operational requirements & day-to-day logistic work
Operational info: provide detailed data required for integrated performance of CRM, manufacturing & procurement
Operational Objectives SU 4 pg. 48-49; par. 4.2 & TB Ch. 1, 2, 12 pg. 5-6, 40-42 , 288-291
Key to achieving: Coordinate CRM, manufacturing & procurement by managing inventory & info flow
Focusses on both logistics cost & service quality. Six objectives determine logistical performance:
3. Inventory leveraging: stockpiling (for max manufacturing economy of scale) & forwards commitment create
benefits but achieved at a cost.
Best cost/benefit balance of such leveraging & risk associated with potential inventory obsolescence.
4. Infocratic structure: info flows along long-standing functional organization lines of command & control
(traditional functional information flows act as invisible force)
Enterprise Resource Planning (ERP) has therefore have great management appeal
Ware-
Supplier Plant Customer
(Node)
Link (Node) Link house Link (Node)
(Node)
Committed inventory assets: stocked and flows through nodes necessitating handling / in-transit- / storage:
- Base stock: held at node = ± ½ of avg. shipment size received
- safety stock: protect against demand / operational lead time variance
Series of performance cycles = supply chain = basis for achieving integration. Contribute to minimising total cost.
Primary unit for logistical synchronisation within (CRM, manufacturing, procurement) & between firms (external/SC).
Input = demand (e.g. order with specific req. for product / material)
High-volume supply chain = complex & wider variety of performance cycles vs. chain with -volume throughputs
Depending on operational mission control can be single (manufacture) or multiple firms (procurement & CRM).
National / Multinational scope: numerous individual performance cycles linking participating firms' operations.
No matter the number, cycles must be individually designed & operationally managed
Procurement
Activities maintaining materials, parts, goods flow into manufacturing & distribution facility
Limited scope of activities
Larger shipments, require more time & longer than CRM cycles
Maintaining raw materials inventory less expensive & sensitive than finished goods
Firm's suppliers less than customers = more direct
Manufacturing Production
Managing Operational Uncertainty SU 5 pg. 54-55; par. 5.3 & TB Ch. 2 pg. 50-51
Operational Consistency: conforming to expected/standard order cycle time = effective & efficient logistics ops.
When operations are consistent then attempt to reduce performance cycle duration.
Performance cycles, operating conditions & quality of logistical operations all introduce operational variance Fig2.8 TB
Order Order
Order Processing Order Selection Customer Delivery
Transmission Transportation
• Regardless of •Time & variance •Speed & delays •Time function of: •Depending on:
tech., variance function of: related to: •Distance, •authorized
will occur due to: •workload, degree •capacity, shipment size, receiving times,
•daily changes of automation & materials transport type & delivery
•Electronic credit approval handling operating appointments,
transfer (EDI) / policies sophistication, HR conditions workforce
internet availability availability,
communications •If stock-out, time traffic, unloading
= highly reliable. spent includes: / equipment
•Telephone / •manufacturing requirements
routine mail = scheduling &
more erratic. inventory
purchase
Product Inventory
Info &
Packag- Order
ing Proces-
sing
Ware- Network
housing Design
Price Transpor-
tation
Customer-Focused Marketing SU 6 pg. 58; par. 6.2 & TB Ch. 3 pg. 54-59
Identifying the Customer: SU 6 pg.58-59; par 6.2.1 & TB Ch. 3 pg. 54-55
Perspective Customer Type
End user of 1. Consumer: Individual/household 2. Organizational:
product/service that purchase products/service to Purchases by company/institution to
Total Supply
2 types: satisfy personal needs allow end user to perform task/job in
Chain
[ProductConsumer] organization
[ProductCustomerend user]
Supply Chain All firms in supply chain focus on meeting needs & requirements of end users (both consumers &
Management organizational end users)
Specific firm Intermediate Organisations between firm & end (tend to resell to consumers)
within SC Customers user
Logistics Customer = any delivery location e.g. person, organisation or point (facility) within firm
Logistics & the Marketing Concept: SU 6 pg.58; par 6.2.2 & TB Ch. 3 pg. 55-56
Marketing Concept: identify specific customer needs & focus activities on satisfying these needs.
Builds on four fundamental ideas:
1. Customer needs & requirements more N.B than products/services
Develop combination of products/service to meet requirements in-depth study of customers
Transactional vs. Relationship Marketing: SU 6 pg.59; par 6.2.3 & TB Ch. 3 pg. 56-57
Relationship •develop & retain long-term preference & loyalty with SC participants
Marketing •gain larger share of purchases from current customers than attracting new
Supply Chain Service Outputs: SU 6 pg.60; par 6.2.4 & TB Ch. 3 pg. 57-59
Specialisation in production of specific goods/services requires mechanism for exchange.
To do so efficiently & effectively, firms must overcome Discrepancy in:
3. Quantity & assortment: firms specialize in producing large quantities of limited variety items; customers
want small quantities of numerous items.
Bucklin's 4 generic service outputs to overcome discrepancies & satisfy customer req.:
3. Waiting/delivery time = amount of time customer waits between ordering & receiving products
waiting time = level of SC service;
waiting time = customer inconvenience but = SC costs = prices to customers
4. Product variety & assortment: different SC offer differing levels of variety & assortment on brand/size etc.
Customer service programs: identify & prioritize activities required to meet customer's logistical requirements &
best competitors. Identify clear standards of performance & related measurements.
Focus on operational aspects of logistics provide 7 customer "rights": right amount of right product at right time
at right place in right condition at right price with right information.
2) OPERATIONAL PERFORMANCE: time required to deliver a customer's order. Measured in terms of:
• Speed: elapsed time from placing order to delivery & being ready for customer use.
Time for total performance cycle completion depends on logistical system design & operations strategy
Speed (in just-in-time & quick-response strategies) = customer inventory requirements
Trade-off Speed = total cost: customer to determine by perceived benefits
• Consistency: number of times actual cycles meet the time planned for completion/cust. specification
N.B to logistical managers as directly impacts customer's ability to plan & perform own activities
degree of variability/on-time directly translates into required safety stock
• Malfunction Recovery: anticipate service breakdowns, having contingency plans in place to accomplish
recovery & measure compliance.
3) SERVICE RELIABILITY: involves combined attributes of logistics & concerns firm's ability to perform all order-
related activities & capability to accurately inform customer regarding logistical operations & status.
e.g. damage-free shipments, error-free invoices, correct locations, exact order amount shipped, etc.
Advance notification to customers of problems.
The Perfect Order (Zero Defect): SU 6 pg.61; par 6.3.2 & TB Ch. 3 pg. 62-64
= logistics quality = everything is done right the first time = high customer service level
Expensive commitment = offer to customers willing to respond to exceptional performance by purchasing loyalty
Zero defect = low tolerance for error
Delivered complete, on time, right location, perfect condition, accurate documents
Total order cycle executed with zero defects
Perfect executed support activities & operations performance
strategic competitive advantage: offer to selected customers by way of gaining & maintain preferred supplier status
Also six-sigma performance (extension of Total Quality Management)
Basic Service = treating all customers equally at specified level to build & maintain overall loyalty. Based on:
- Competitor / industry-acceptable practice
- Derived from firm's overall marketing strategy
Near zero defects: utilize combination of customer alliances, IT, postponement strategies, inventory stocking,
premium transportation & selectivity programs to match logistical resources to core customer requirements
Customer Satisfaction SU 6 pg. 61-63; par. 6.4 & TB Ch. 3 pg. 64-70
Perfect orders = execution of individual transactions & deliveries (transactional marketing)
Customer satisfaction = broader concept; other aspects of overall supplier-customer relationship (e.g. enquiry delays
Beyond operational performance finer points of personal & interpersonal relationships (e.g. friendly, respectful)
To meet / exceed customers' expectations
TQM + dynamics of competition continuous improvement = continued of customers' expectation
• Communication: keeping customer proactively informed. E.g. advance notice to customer if shortage of raw
material is expected - helps customer explore alternative, but also builds stronger partnership.
• Credibility: expectation that suppliers' communication will be believable & honest; completeness of info.
• Security: riskiness (e.g. change of plans) in doing business & confidentiality of business dealings.
• Competency: judged in every interaction; Individual failure may affect perception of supplier as a whole.
E.g. truck drivers' measured making delivery, customer service personnel when making phone calls, etc.
• “Knowing the customer:” expectation that supplier will understand customer’s unique requirements & be
willing to adapt to these needs.
Factors that influence customers' expectations:
Gaps in Satisfaction & Quality Model Figure 3.1 TB pg. 67 firms must overcome to develop customer satisfaction:
•= diff. in what firm is capable of doing & capabilities cust. are told about
gap 4: Communication • by making realistic promises to customers & keeping to them
• Executives' fundamental yet understandable mistake in interpretation of satisfaction ≠ happiness Fig. 3.2
Customer expectations ≠ needs or requirements
• Satisfied customers ≠ loyal customers (even satisfied, may choose to do business with competitor)
• Firms forget satisfaction lies in expectations & perceptions of individual customers (neglect uniqueness)
Customer Sacrifice: satisfaction exists when they get what they expect, customers frequently settle for performance
lower than what they really want/need.
Customer Success SU 6 pg. 63-64; par. 6.5 & TB Ch. 3 pg. 70-72 [I only used SG]
Helping customers to be successful by meeting their real requirements thereby suppliers' own success.
Value-added services: unique/tailored specific activities firms undertake jointly to improve efficiency & effectiveness
Customer specific; cannot be generalised. customers' chances of success
Potential gain on competitive advantage
Creation
Market Access
Cost
Effectiveness
Market
Market
Total Distribution Cost [TDC]: incurred more costs through provision of availability than just transport & warehouse
e.g. service level affect inventory amt.; distribution (incl. handling/packaging/admin) affect order processing costs;
TC FC CC IC HC PC MC
Material Packa- Manage
TDC Transport Facility Comms Inventory
Handling ging ment
Cost Cost Costs Cost
Cost Cost Cost
1) Cost of Back-Order: extra costs of processing & expediting order which cannot be met from current stock
2) Cost of Lost Sale: Customer makes particular purchase elsewhere. Measured by profits lost. = opportunity costs /
cost of forgone sales
3) Cost of Lost Customer: Customer permanently seeks alternative supply source
Optimum Level of Service (L) reached long before max realisable service level Fig. 7.2
Trade-off when considering total logistics costs = opportunity costs of lost sales vs.
cost of offering service.
Logistical approach = find cost/benefit balance that satisfies stated objectives instead of devising optimal policies:
1) Cost minimisation: set specific customer service objectives then ask "how to achieve at minimum cost?"
Where market situation = highly competitive customer service or alternative approach
Strategies on how much to spend on customer service, should be integrated in total context of the business.
Above trade-offs mostly apply when deciding on level of basic service. Differs to zero defect & value-added
Method acknowledges need to provide most profitable customers with service levels that encourage repeat business
Requires knowledge of customer base & their behaviour.
Profitability of less profitable customers by cost of servicing them. E.g. time limit on when to place orders =
consolidating orders for shipment to specific geographic area = Profitability & benefits customer ( variability).
Customer profitability analysis helps organisation evaluate impact of its prices/terms of trade offered to various
individuals/customer groups on their relative profitability to supplier.
Develops a basis for taking decisions on prices & services levels/ mix of service offered to each customer / group.
Principles underlying CAP concept:
Cost elements have both fixed & variable components. See figure 7.3: CAP Model Study guide page 75
Profit per transaction influenced by discounts, returned goods & other revenue factors which produce gross margin.
Customer profitability analysis requires cost accounting that attributes all costs forward to revenue source
Components of a CAP analysis are basically gross & net sales revenue for each customer/group & contribution by
individual customer/group at two levels, net sales revenue less total manufacturing costs of goods sold, and the
above contribution level less costs of servicing the customer group.
Attribution of the costs should be based on classification of typically physically identifiable activities:
• Storage = distribution activity. Charge basis could be warehouse space in square/cubic metres based on
customer/group sales throughput & stockholding needs.
• Promotion: charge basis could be on sales “potential” or each customer/group being serviced.
CAP enables measurement of financial performance & therefore acted upon at the source in a way which traditional
accounting & information systems fail to do.
Actions which lead to improvement in performance, but may only be indicated by a CAP analysis:
Despite both conceptual and practical difficulties, companies which attempt to understand and introduce the
mechanisms of CAP are likely to be amply rewarded at the “bottom line”, even with only limited application of the
principles.
Emphasis on integration of distribution & manufacturing's inventory planning = right supplies available when needed
Dependent & Independent Demand SU 8 pg. 79; par. 8.2 & TB Ch. 7 pg. 154
Independent demand: item's demand is not related to/dependent on the demand for any other item.
Cannot be calculated - Estimate by means of forecast. E.g. Finished/final goods / maintenance spares.
Dependent demand: items with demand related to other items. E.g. raw/packaging material, subassemblies
No forecast – Calculated based on demand for final product.
(in)dependent demand ensuring supplies are available when needed not allocated after becoming available
Sub-assembly
MRP
(Dependent Demand
on DRP/final good) Various Parts
•Extends MRPI to include all resources & activities involved in planning & control of
MRPII production operations
•E.g. production planning, resource req. planning, master production scheduling, MRP, shop
Materials Resource
Planning floor control, purchasing
- Analysing actual customer demand for SKUs by service location (demand per geographic region)
- Aggregated, time-phased requirement schedule at echelon (depot, warehouse, factory) are
- Communicated back to production via MPS
Final products' independent demand – forecasting techniques (historical sales & statistical/known factors)
Variability of independent demand – determines safety stock levels for each SKU
Lead time – period between placing & receiving order determines reorder point
Order quantity – EOQ depends on volume discounts, inventory carrying cost & ordering costs
Determined safety stock levels of all SKUs
Supply Chain Competitiveness SU 9 pg. 91; par. 9.2 & TB Ch. 14 pg. 351-352
SC Relationship & participants' core competencies = superior service & lowest total cost = competitiveness
Supply chain implies a multi-enterprise coordinated effort focused on SC efficiency & competitiveness.
Two believes facilitate drive for efficiency & competitiveness:
- Cooperative behaviour = risk & efficiency. Requires sharing all strategic info
Collaborative info essential to positioning & coordinating firms to jointly do right things faster & efficiently
- Eliminate waste & duplicate effort; inventory investment & risk (driven by economic & service necessities)
Supply Chain Management: encompasses the planning & management of all activities i.e.:
sourcing; procurement; conversion; logistics management.
Coordination & collaboration between partners (suppliers; intermediaries; 3rd parties; customers)
Integrates supply & demand managements within & across companies
Brings products & services to the market.
Risk, Power & Leadership SU 9 pg. 91; par. 9.3 & TB Ch. 14 pg. 355-356
Acknowledged/Perceived mutual dependency is driving force behind firm's:
- Collaborative relationships
- willingness to enter channel arrangements
- negotiate transfer of certain functions / functional integration
- share key strategic info
- participate in joint operational planning
Relationship between risk, power & leadership determines nature of channel arrangement.
1. RISK
Participating firms must:
- acknowledge responsibility for performing specific roles
- believe they will be better off in long run as a result of collaboration
- be positioned to specialize in operational area/function based on unique core competency
Disproportionate risk / deep dependency structures relationship & determines collaboration management
General rule: firm bearing most risk assumes active/leadership role & responsibility for facilitating SC cooperation
2. POWER
SC Participant with relative power = prerogative/obligation to spearhead collaboration - Typically also have risk
Manufacturers
- Have range of alternatives for distribution due to Internet-based & traditional retailer formats blurring
channel arrangements
- Substitute to full reliance on traditional brand power Reengineered operations = dominant supplier for
selected consumer/categories
- Category dominance = value to prospective supply chain partners
o Dominant category position = superior brands at competitive prices
o = Key operational capabilities = firm's attractiveness as SC participant
3. LEADERSHIP
Other arrangements:
- If SC participants acknowledge mutual dependency & respect = clear presence of leadership to enterprise.
- Some situations, leadership gravitates to the firm that initiates relationship
When leaders exercise power in the form of rewards & expertise = relationship commitment in SC vs.
coercive practise = partners committed to relationship = more likely to seek alternative arrangements
Supply Chain Relationships SU 9 pg. 92-93; par. 9.4 & TB Ch. 14 pg. 352-354
Effective SC require certain relationships & arrangements between participating firms.
Framework & classification of five basic forms of collaboration of interorganizational SC relationships: Fig. 14.5 TB p. 352
dominant firm =
time dimension focus shifts from long-term
leader = command joint policies
negotiate terms buying / selling voluntary
& control integrate
& specifications material to integre resources
ltd sharing of ops operations
also 'Adversarial' performing = efficiency &
& strategic info continuous
Failure = specific service / cust. impact
limited joint essentially one
sanctions / process extensive joint
planning entity
termination planning
continuous
Further Contracting / Outsourcing characteristics:
1. Reliability-based trust: perception that partner is willing & capable to perform as promised.
If perceived as incapable of delivering promise = unreliable = unworthy of trust.
Needed for collaborative SC but not sufficient
2. Character-based trust: perceive as interested in each other's welfare & not act inconsiderately.
Belief of protecting other's interest/acting fairly. Based in firm's culture, leadership & philosophy.
Importance
Ties in with major strategic objectives. Partners have long-term goals in which relationship plays a key role.
Interdependence
Partners need each other. Complementary assets & skills. Independently goals are unattainable.
Investments
Demonstrate respective stakes in relationship (e.g. equity swaps, cross-ownership, mutual board service).
Devoting financial & other resources = Tangible signs of long-term commitment.
Information
Communication is reasonably open. Info sharing required to make the relationship work,
(e.g. objectives & goals, technical data, knowledge of conflicts, trouble spots, changing situations).
Integration
Linkages & shared ways of operating to work smoothly. Build connections between many employees &
organisational levels. Partners become both teachers and learners.
Institutionalisation
Relationship is given formal status, with clear responsibilities & decision processes.
Integrity
Behave honourable = justify & enhance mutual trust. Not abuse collected info / undermine each other.
Supply Chain Integrative Framework SU 9 pg. 93-95; par. 9.5 & TB Ch. 14 pg. 3576-359
Defines the nature of collaboration required in alliances & enterprise extension.
Facilitates operations in SC by integrating basic logistics work, functions/departments, capabilities & competencies.
Capability: knowledge & achievement level essential to developing integrated performance (why rather than how).
Links SC & combines to form universal competencies
Competency: result of blending several logistical capabilities into logistically harmonious & manageable actions that
achieve & maintain supply chain collaboration.
High levels of competency & their supporting capability = customer loyalty = competitive advantage
Lack of coordination & integration between SC & participants = waste, delays, redundancy & inefficiency.
1. OPERATIONAL CONTEXT
Operations involve processes that facilitate order fulfilment & replenishment across SC
Leading performance require customer-focus, interorganizational coordination, functional& process performance
Customer integration: competency that builds intimacy & lasting competitive advantage
Strong commitment to supportive capabilities of segmentation, relevancy, responsiveness, flexibility = SC integration
Internal integration: focuses on joint activities & process within firm that coordinate functions related to
procurement, manufacturing, CRM
Supporting capabilities = cross-functional unification, standardization, simplification, compliance, structural
adaptation.
Supplier integration: capabilities that create operational linkages with material- & service-providing SC partners
E.g. strategic alignment, operational fusion, financial linkage, supplier management
2. PLANNING & CONTROL CONTEXT
Involves joining technology across SC to monitor, control & facilitate overall SC performance.
Technology & Planning integration: design, application & coordination of information to enhance purchasing,
manufacturing, customer order fulfilment & resource planning.
Capabilities: database access for info sharing; transaction systems to initiate & process replenishment / customer
orders; internal communication, connectivity & collaboration.
Management integration: ability to monitor & benchmark functional & process performance (in- & externally).
Capabilities: functional assess. &activity-based methodologies, comprehensive metrics& financial impact assessment
3. BEHAVIOURAL CONTEXT
• Access to advanced tech. not yet available from current locations due
Advance Technology to historical investment
• Obtain access to specialized expertise or language skills
Reduce Firm's Global Tax • Local/regional tax benefits related to property, inventory or income
Liability • Localized production or other value-added services = in VAT
Reduce Market Access • Source from location involving less transportation uncertainty
Uncertainty • Source from location involving fewer security constraints
Global Supply Chain Integration SU 10 pg. 97-98; par. 10.3 & TB Ch. 11 pg. 271-276
Domestic Logistics: movement & storage activities to support SC integration in relatively stable & consistent environ.
Global Logistics: must support operations in variety of diff. national, political & economic settings. Deals with
uncertainty associated with geography, distance, demand, diversity & documentation of international commerce.
Increased cost & complexity that stems from:
- Uncertainty: greater distances, longer lead-times & decreased market knowledge.
- Variability: unique customer & documentation requirements & shifting political environments.
- Control: use of international service firms & potential government intervention.
- Visibility: longer transit & holding times with less ability to track & determine exact shipment locations
1) No international strategy
• Operations in multiple countries, but main country = one in which corporate headquarters is located.
• Organisations normally have separate, semi- autonomous supply chains in each global district.
• International operations to assist domestic operations, mainly for sourcing raw materials & goods for resale.
• Logistics and supply chain operations within each district are self-regulating.
• Advantage: organisation can concentrate on local markets while reducing overall coordination requests.
• Disadvantages: non-responsive to globally based customers & challenging to develop economies of scale.
3) Global strategy
4) Transnational strategy
• Organisations maintain regional operations around the globe and use a headquarters structure that
increases the efficiency of organisational operations and performance.
• There are still mostly regional operations, but no single headquarters region.
• Several activities may be situated in separate regions to guarantee global perspectives.
• Goal is to administer activities in the region that can best manage those activities.
• Look for limited consolidated customer centres, production control facilities & purchasing centres.
• Advantages: enables a global focus of solution development & delivery, important economies of scales.
• Disadvantages: demands coordination & information integration; minimises firm’s ability to respond to
individual market distinctiveness.
Global Operations Extend & Practices to a broad range of lacations & operating environments
Domestic Logistics Systems
•Substantial complexity & exception processes
•Local managers must accommodate exceptions while remaining wihin coporate policy & procefural guidelines
Managing the Global Supply Chain SU 10 pg. 99-100; par. 10.4 & TB Ch. 11 pg. 276-280
Table 10.1: Major Differences between Domestic & Global Supply Chains: See below table for more detail taken from TB
1. Elements making global performance cycles longer & less consistent/flexible = distances; more intermediaries;
freight scheduling; slow ocean transit; customs clearance; security issues; restricted availability of containers;
- communication delays: due to time zone & language differences;
- financing delays: caused by requirements for credit & currency translations;
- special packaging: to protect products from in-transit damage (high humidity, temps, weather conditions)
Global logistics operation more complex because: more documentation, number of SKUs & inventory stocking
locations & less developed service providers, unbalanced trade.
Makes planning & coordination more difficult; determining shipment status & arrival times; asset commitment
2. Removal of multimodal ownership restrictions: historically limited carriers to operating a single transport mode.
Privatization: Carriers previously government-owned/subsidized = pricing & service.
Cabotage: laws required passengers/goods moving between domestic ports to utilize only domestic carriers.
3. Unique National Accommodation albeit not substantial may significantly increase required SKUs & inventory
- performance feature differences e.g. specific product functionality / process constraints;
- technical characteristics e.g. power supplies, documentation, metrics;
- environmental considerations e.g. chemicals, types & amount of waste generated;
- safety requirements e.g. automatic shutoffs, specialized documentation
Countertrade = seller agrees to products as payment / purchase products from buyer as part of sales agreement
Duty Drawback: duty paid to import goods into foreign country can be drawn back/returned if item is exported.
4. Improved info systems necessary for: extended communication, alternative languages & process flexibility.
Global transaction/ERP system: common & consistent data on global customers/suppliers/inventory/orders etc.
Global planning system: maximize overall manufacturing & delivery asset utilization while meeting service req.
5. Manufacturing, logistics, marketing alliances essential in global markets to contact with multiple service
providers; risk
Self-Evaluation Questions SU 10 pg. 100; par 10.6 - References
Unit 11 – International Trade Terms
Author's Note: After working through a couple of the previous exams, it appears that the multiple choice questions [MCQs] are
taken exactly, word-for-word from this section. As such this amounts more to copy & paste than a summary!
Clear from contract that parties want Incoterms 2010 rules to apply
E.g. citing specific rule & location with explicit reference to Incoterms 2010.
Prevent misunderstandings = Clarify intended effect of any variants. “Incoterms 2010” vs. “Incoterms”
Incoterm rules are not law & do not make a comprehensive contract of sale
Incoterms do not provide for the price or method of payment, do not consider issues of ownership and,
importantly, do not deal with breaches of contract.