Overview of Supply Chain Essay

L. Supply Chain Supply chain is the efficient movement of materials and products from the point of material sourcing to the delivery of goods to the ultimate user or consumer. A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves. Within each organization, such as manufacturer, the supply chain includes all functions involved in receiving and filling a customer request.

These functions include, but are not limited to, new product development, marketing, operations, distribution, finance and customer service. A typical supply chain may involve a variety of stages. These supply chain stages include: * Customers * Retailers * Wholesalers/Distributors * Manufacturers * Component/Raw Material Suppliers II. Logistics and Logistic Operations Logistics is the planning, execution, and control of the movement / placement of goods and / or people, and the related supporting activities, all within a system designed to achieve specific objectives.

Logistics Operations refers to the management of the physical network of product ND materials movement, its storage, and information systems. It covers the areas of inbound and outbound movement of finished goods and materials, co-packing operations, warehousing, and transportation and delivery. A. Warehousing This provides storage facilities for finished goods and materials ensuring balanced flow of goods and materials needed to keep the business running. Items are stored until these are needed or can be disposed of.

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The warehousing function includes receiving of items, storage, picking, issuance and disposition. The objective of the warehouse manager is to minimize cost of operations while providing high customer revive level. Material preservation and security are also major concerns of the warehouse manager. The responsibility also includes decisions on warehouse location, warehouse design and all aspects of warehouse operations. B Storage and Handling This involves the planning of the storage space or warehouse.

This includes lay- outing and use of the appropriate storage system such as racks, shelves, bins or the like. The efficiency of warehouse operations will highly depend on a layout that considers traffic, working areas of inward goods processing and outward movement of products and materials. In conjunction with warehouse layout and storage systems, materials handling equipment provides meaner to move materials, more common of which are forklift, cranes, pallet trucks, conveyors, tractors and lorry equipment. C.

Inventory Management Inventory Management in logistics operations refer to the physical aspects of stock control. This includes the management of product receipts, storage and issuance of materials, the manner in which the movement of stocks are documented and recorded. This also relates to the accountability of the warehouse personnel in the proper safekeeping of items stored in the warehouse. Performance measurement would normally be measured in terms of inventory accuracy: actual stocks available against the recorded quantity in the stock cards. D.

Transportation and Delivery This involves the choice of vehicle and other modes of transport. The choice of transportation considers factors such as type of operations, type of load, distances to be traveled, physical features, weight and other legal considerations. In the Philippines, truck selection is significantly affected by regulations on the truck ban. Ill. Objectives of Logistics Operations The objectives of logistics operations include the following: . Move the products and materials at the lowest possible cost and make them available where and when it is needed. . Efficiently and effectively manage the pipeline stocks to achieve inventory optimization. 3. Improve productivity measures both in storage and in product movement. 4. Eliminate inefficiencies in the pipeline. IV. Key Components of Logistics Cost The key components of logistics cost are as follows: 1. Warehousing cost to include structure, labor and other administrative cost. 2. Transportation cost (freight by land, sea or air, and insurance) 3. Inventory losses and damages V. Major Costs of the Supply Chain Cost components of the supply chain include the following: a.

Material cost including inbound transport. This includes all costs related to the purchase of materials and the cost of transportation to bring the materials to the factory. B. C. Conversion including wastage will cover the cost of converting raw and packaging materials to finished goods. The cost will include all material wastage such as scrap, line rejections, spoilage and the like. D. Inventories (carrying cost) refers to the cost of carrying stocks to include finance cost, storage cost, overhead, insurance and obsolescence. Distribution cost (warehouse and transportation) is the cost related to bringing the goods to the consumers through the distribution channels. It includes all cost of transfer from warehouse to warehouse and the cost of transport to deliver to the customer. F. Duties for imported materials/products covers payment of duties to the government based on the Tariff code which defines the duty being levied based on the commodity classification. G. Write-off and damages refers to cost of obsolescence, damages due to storage and handling. H.

Management, IT, Administrative, and other costs related to all administrative expenses, cost of supervision, computer systems, and all other overhead expenses related to the supply chain. VI. Physical Aspect of Distribution A. Warehouse A warehouse is a place of storage or any space or area that is used to keep materials, goods, products and other items for a period of time until it is finally withdrawn for use or to serve customer orders. The warehouse serves to protect the materials or products being stored and thus, considers required storage conditions, safety and security, proper handling as well as control of stocks.

B. Objectives of Warehousing a. Plan for adequate space based on the short and long term requirements of the organization. Space studies are conducted to ensure that current needs to fill 4. Service. This is provided by the warehouse by storing products that are n a certain future time. It is kept on storage in anticipation for future needs. D. Types of Warehouse 1 . Private Warehouse 2. Public Warehouse 3. Automated Warehouse 4. Climate-controlled Warehouse 5. Distribution Centers E. Storage Systems 1 . Memory System 2. Fixed Location System 3.

Random Location System 4. Zoning System 5. Combination System F. Materials Handling Involves any movement of materials, vertically and horizontally, and diagonally, both manual and mechanically, in batches or one piece at a time G. Warehouse Management System (WHAMS) – aim to control the movement and storage of materials within a warehouse & process the associated transactions, including shipping, receiving, put away & picking. – use Auto ID Data Capture technology (ex barded scanner, RIFF, etc) to efficiently monitor the flow of products.

This will be transmitted to a database or generate reports Objective: to provide an application to automatically receive inventory, process orders ND handle returns. Primary Purpose: To control the movement and storage of materials within a warehouse. H. Material Preservation and Security Objectives: 1. To determine the conditions of materials/products in storage enabling segregation of unserviceable from serviceable materials [products and proper disposition. 2. To assure serviceability of supplies in storage to meet supply/demand at a minimum cost. To maintain complete and accurate knowledge to the condition status to materials in storage. 4. To permit adjustments in storage inspection and quality control effort to provide rater efficiency and economy through analysis of data concerning variation in deterioration rates 6. To achieve longer shelf life and reduce quality control costs through analysis of information regarding the stability and reliability of materials and feedback of data for improvements of specifications Effective Program of Material Preservation 1. Inspection 2. Examination and Testing 3. Application of preservation treatment or process 4.

Reporting and Recording of quality data 5. Action Planning Warehouse Security – Warehouse Theft: a) mass theft: break in or hi-Jacking b) pilferage Prevented thru: a) developing physical barrier b) deterrents such as security camera, lighting, alarm etc I. Warehouse Processes 1. Receiving 2. Inspection 3. Put away 4. Storage 5. Order Picking 6. Sorting and Accumulation 7. Packing and Shipping DESIGN OPTIONS FOR A DISTRIBUTION NETWORK Manufacturer storage with direct shipping – Product is shipped directly from the manufacturer to the end customer, bypassing the retailer (who takes the order and initiates the delivery request).

This option is also referred to as drop shipping, with product delivered directly from the manufacturer to the customer. It is best suited for a large variety of low-demand, high-value items for which customers are willing to wait tort delivery and accept several partial shipments Nutcracker storage wit direct shipping and in-transit merge -Unlike pure drop-shipping, under which each product in the order is sent directly from its manufacturer to the end customer, in- transit merge combines pieces of the order coming from different locations so that the customer gets a single delivery.

For e. G. , when a customer orders a PC from Dell along with a Sony monitor, the package carrier picks up the PC from the Dell factory ND the monitor from the Sony factory; it then merges the two together at a hub before making a single delivery to the customer. It is best suited for low-to medium demand, high value items the retailer is sourcing from a limited number of manufacturers.

Distributor Storage with Carrier Delivery – Under this option, inventory is not held by manufacturers at the factories but is held by distributors/ retailers in intermediate warehouses, and package carriers are used to transport products from the intermediate location to the final customer. It is well suited for medium-to-fast moving items. It also makes sense when customers want delivery faster than is offered by manufacturer storage but do not need it immediately.

Distributor Storage with Last-Mile Delivery- Last-mile delivery refers to the distributor/retailer delivering the product to the customer’s home instead of using a package carrier. In areas with high labor costs, it is very hard to Justify distributor storage with last mile delivery on the basis of efficiency or improved margin. It can only be Justified if there is a large enough customer segment willing to pay for this convenience. An effort should be made to couple last-mile delivery with an existing striation network to exploit economies of scale and improve utilization.

Manufacturer or Distributor Storage with Customer Pickup – Inventory is stored at the manufacturer or distributor warehouse but customers place their orders online or on the phone and then travel to designated pickup points to collect their merchandise. Orders are shipped from the storage site to the pickup points as needed. Such a network is likely to be most effective if existing locations such as coffee shops, convenience stores, or grocery stores are used as pickup sites, because this type of network improves the economies from existing infrastructure.

Retailer storage with Customer Pickup – Inventory is stored locally at retail stores. Customers walk into the retail store or place an order online or by phone and pick it up at the retail store. It is best suited for fast-moving items or items for which customer’s value rapid response. TRANSPORTATION PERFORMANCE MEASURE Delivery performance has four elements. A) Supplier on-time and in full delivery b) Manufacturing schedule attainment c) Warehouse on-time and in full shipment d) Transportation provider on-time delivery The working definitions of the above elements are as follows: 1 .

Supplier on-time and in full delivery: It is the ratio of the number of purchase orders fulfilled by supplier(s) on-time (with flawless match of quality, quantity and price as quoted in purchase order and invoice) to the total number of purchase orders placed per period. Supplier on-time and in full delivery = No. Of purchase orders fulfilled on time and full Total no. Of purchase orders placed per period 2. Manufacturing Schedule attainment: It is the fraction of manufacturing schedules attained as per production plan on-time and in full per period.

Maturating Schedule attainment = No. to met. Schedules attained on time and in full _ Total no. Of manufacturing schedules placed per period 3. Warehouse on- time and in full shipment: It is the ratio of number of consignments dispatched to ware house (8-2-8) or directly to the customer (B-2-C) as per customer commit date to the total number of customer orders per period. Warehouse on-time and in full shipment = No. Of customer orders delivered on time and in full Total no. F customer orders placed per period 4. Transportation provider on time delivery: It is the ratio of number of times transportation provider (PL) placed trucks on-time to the total umber of times transportation facility is requested per period. It can be observed that the four elements discussed above assume a value between O and 1 . Now let us declare these variables as follows: Transportation provider on time delivery = No. Of times trucks placed on time Total no. F times facility requested per period Let As – Fraction of on-time and in full delivery of raw materials by supplier(s) per period; Pm – Fraction of manufacturing schedules attained as per production plans per period; PAW’ – Fraction of on-time and in full shipment of goods to warehouse(s) / erectly to customer(s) per period and Pet- Fraction of on-time placement of trucks and delivery of goods by transportation provider(s)per period. The overall delivery performance may be taken as the product of the above four factors treating each of them as probability of success in a sequence of stages.

Delivery performance: PDP ? INTERNATIONAL TRADE * Is the exchange of goods and services between countries. * This type of trade gives rise to a world economy, in which prices, or supply and demand, affect and are affected by global events. * The value of a country total exports minus the value of TTS total imports. * It is used to calculate a country aggregate expenditures or GAP, in an open economy. * Is exchange of capital goods and services across international borders or territories. * It refers to exports of goods and services by a firm to a foreign-based buyer (importer). It represents a significant share of gross domestic product (GAP). Major trade Barriers: * Physical Barriers: removal of customs control single administrative documents. * Technical Barriers: free flow of goods, services between member state * Fiscal Barriers: introduction of single currency e. G. Euro Relevance to Logistics: 1 . Goods and services can now be bought anywhere 2. Customs barriers have been virtually eliminated 3. Documentation is simple and standardized 4. Transport operating permits restrictions have been removed standards are acceptable to all member states 6.

Free movement of capital Financial Consideration: 5. Testing 1. Open account 2. Draft (telegraphic transfer; DIP; D/A) 3. Letter of credit 4. Cash in advance * TAXES AND DUTIES * TRANSPORT COST * ASSOCIATED TRANSPORT CHARGES * Port fees, fuel charges, etc. * OTHER CHARGES ROLE OF GLOBAL LOGISTICS 1. Globalization helped in doing business beyond the national boundaries. . The world has become a global village in a real sense. 3. Internet has made easier to do business across the globe. 4. Cargo movements needs to be done physically.

Using available meaner of transport. 5. Speed ; efficiency in the movement of goods is focused more. 6. Physical movement of cargo, intermediaries, freight forwarders, custom house is indefensible. 7. Domain knowledge, connectivity, documentation are three crucial areas. 8. Global operations of business increases the complexity of logistics. 9. Effects on the cost of moving the goods ; servicing customers. 10. Decrease in the control over movement of goods is basically a challenge in global logistical operations. 2. Manufacturer Storage with Direct Shipping In this option, product is shipped directly from the manufacturer to the end customer, bypassing the retailer (who takes the order and initiates the delivery request). This option is also referred to as drop shipping. All inventories are stored at the manufacturer. Information flows from the customer, via the retailer, to the manufacturer, while product is shipped directly from the manufacturer to customers as shown in Figure 4. 4. In some instances like Dell, the manufacturer sells directly to the customer.

Online retailers such as bags and Nordstrom. Com use drop shipping to deliver goods to the end consumer. bags does not hold any inventory of bags and has them drop shipped directly from the manufacturer to the customer. Nordstrom carries some products in inventory while using the drop-ship model for slow moving footwear. W. W. Grainier also uses drop shipping to deliver slow moving items that are not carried in inventory. The biggest advantage of drop shipping is the ability to centralize inventories at the manufacturer.

A manufacturer can aggregate demand and provide a high level of product availability with lower levels of inventory than individual retailers. The benefits from centralization are highest for high value, low volume items with unpredictable demand. The decision of Nordstrom to drop-ship low volume shoes satisfies these criteria. Similarly, bags sold by bags tend to have high value and low relatively volume per SKU. The inventory benefits of aggregation are small for items with predictable demand and low value [1]. Thus, drop shipping would not offer a significant inventory advantage to an online grocer selling a staple tem like detergent.

Drop shipping also offers the manufacturer the opportunity to further lower inventories by postponing customization until after the customer order has been placed. Build-to-order companies such as Dell hold inventories as common components and postpone product customization, thus lowering the level of inventories carried. Transportation costs are high with drop shipping because the average outbound distance to the end consumer is large and package carriers must be used to ship the product. Package carriers have high shipping costs per unit compared to truckload(TTL) or less-than-truckload (LAT) carriers.

With drop shipping, a customer order with items from several manufacturers will involve multiple shipments to the customer. This loss in aggregation in outbound transportation further increases cost. Supply chains save on the fixed cost of storage facilities when using drop shipping because all inventories are centralized at the manufacturer. There can be some savings of handling costs as well because the transfer from manufacturer to retailer no longer occurs. Handling costs can be significantly reduced if the manufacturer has the capability to ship orders directly from the production line.

A good information infrastructure is needed so that the retailer can provide product availability information to the customer even though the inventory is located at the manufacturer. The customer should also have visibility into order processing at the manufacturer even though the order is placed with the retailer. Drop shipping will generally require significant investment in the information infrastructure. The information infrastructure requirement is somewhat simpler for direct sellers like Dell because two stages (retailer and manufacturer) do not need to be integrated.

Response times tend to be large when drop shipping is used because the order has to be transmitted from the retailer to the manufacturer and shipping distances are on average longer from the manufacturer’s centralized site. bags, for example, states that order processing may take from 1-5 days and ground transportation after that may take from 3-11 business days. This implies that customer response time at bags is 4-16 days using ground transportation and drop shipping. Another issue is that the response time need not be identical for every manufacturer that is part of a customer order.

Given an order containing products from several sources, the customer will receive multiple partial shipments over time making receiving more complicated for the customer. Manufacturer storage with drop shipping allows a high level of product variety to be made available to the customer. W. W. Grainier is able to offer hundreds of thousands of slow moving items from thousands of manufacturers using drop shipping. This would be impossible if each product had to be stored by Grainier. Drop shipping provides a good customer experience in the form of delivery to the customer location.

The experience, however, suffers when a single order containing products from several manufacturers is delivered in partial shipments. Order visibility is very important in the context of manufacturer storage because two stages in the supply chain are involved in every customer order. Order tracking, however, becomes harder to implement in a situation of drop shipping because it requires complete integration of information systems at both the retailer as well as the manufacturer. For direct sellers such as Dell, order visibility is simpler to provide.

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