Measuring Logistics’ Performance

June 20, 2014

Logistics Lead Time (LLT)… is the delay (aka latency) between the initiation of an order and the completion of its fulfillment.

Procurement

Holding mandatory inventory mandatory to start production (e.g., raw materials, parts, components, recipe ingredients)

Production

Includes specifications, conception, design, transformation, manufacture, assembly, and quality management.

Distribution

Includes planning, allocation, assignment, and tracking of shipment and delivery resources.

Example: Production of Blouses

Logistics department has to procure the following for the production line:• Fabrics, which will be cut out in the first

production line

• Yarn, which will be sewed together with the cut-out fabrics

• Buttons, which will be sewed on the blouses.

Procurement Logistics

Example Contd – Determine Economic Order Quantity (EOQ)

(Carrying) Costs of- Transport - Storage- Cost of tied

capital

Total Costs

Purchasing Price

Costs

Quantity

Economic Order Quantity

Example (Contd…): Optimal Order Quantity for the Fabrics

Parameters Part Order (In Rs.’0000s) Total Order (In Rs.’0000s)

Purchase Price 2.50 2.40

Transport Costs 0.25 0.20

Storage Costs 0.10 0.25

Cost Of Tied Capital 0.05 0.15

Handling Costs 0.02 0.02

Total Costs 2.92 3.02

Example (Contd…): Detailed Procurement Plan

Material Feb Mar Apr May June Total

Fabric A 100 100 100 100 100 500 bales

Fabric B 50 50 50 50 0 200 Bales

Yarn 1 1,000 1,000 1,000 1,000 1,000 5,000 reels

Yarn 2 800 800 800 800 800 4,000 reels

Button Z 6000 6,000 6,000 6,000 6,000 30,000 pieces

Button X 5000 5,000 5,000 5,000 5,000 20,000 pieces

Example (Contd…): Lead Time Calculation

Factors to be confirmed• Whether material will be available

immediately or if a delivery time is involved• The transportation period• Time required for customs clearance (if any) or

any other clearances

Example (Contd…): Lead Time Calculation Contd…

Factors Confirmed• Delivery time after receipt of order = 10 days• Transportation by trucks including delivery time to

warehouse = 21 days• Transportation by airfreight including delivery time

to warehouse = 3 days• Customs and/or other clearances = 3 days• Acceptance and inspection of goods at our

warehouse = 2 days

Example (Contd…): Lead Time Calculation Contd…

Determine Order Point: The quantity (of inputs) on-hand that will (theoretically) cover your average usage over the supplier’s lead time. It is to leave you with your “safety stock” inventory on-hand when replenishment arrives. Also, known as ‘Order Point Inventory System’

For e.g. We use 10 pieces per week and we need 3 weeks to replenish stock, we would order when the on-hand inventory reaches 30 pieces. If 10 pieces per week is a comfortable safety stock (given, firm capacity, demand/market factors, etc.), then our order time will be 10 pieces (our safety stock) + 30 pieces(replenished stock). The in-house inventory control systems would automatically trigger a replenishment signal when on-hand inventory hits a level of 40 or less. (Reference: KANBAN)

Lead Time Calculation Contd…Order Point(Blouses Example)Maximum Stock: 1,000 PiecesOrder Point Stock: 600 PiecesMinimum Stock: 300 PiecesOrder Quantity: 700 Pieces = ConsumptionStock Quantity After Acceptance Of Goods: 1,000 Pieces = Maximum Stock

Inventory Level over Time

Order Quantity

Maximum Stock

Order Point Stock

Minimum Stock

Stock movement

Order Point

Example (Contd…): Lead Time Calculation Contd…

Make Order Placement: The order schedule is provided to the supplier, the producer can plan production and ensure immediate delivery

Depending on time availability, supplies’ delivery can be scheduled by truck and/or airfreight

Lead Time Calculation Contd…Order Placement

Order Point Plan With Quantities And The Need Date

Fabric A01. Feb 01. Mar 01. Apr 01. May 01. Jun

Inventory 0 1,000 1,000 1,000 1,000

Demand 1,000 1,000 1,000 1,000 1,000

Emergency Stock 1,000 1,000 1,000 1,000 0

Order Quantity 2,000 1,000 1,000 1,000 0

Purchasing Lead Time - Vessel 36 Days 36 Days 36 Days 36 Days 36 Days

Latest Order Point (Vessel) 23. Feb. 26. March 25. April 26. May 25. June

Purchase. Lead Time - Airfreight

18 Days 18 Days 18 Days 18 Days 18 Days

Latest Order Point (Airfreight) 13. March 12. April 13. May 12. June 13. July

Example (Contd…): Lead Time Calculation Contd…

Transport and Acceptance Goods: Arrange for transport from supplier to warehouse, followed by:• Counting the material• Checking quality• Accepting goods and signing delivery note• Registering incoming goods in the inventory

records

Quiz

• Main task of procurement logistics?– Price and market analyses– Flow of materials and information

• To calculate EOQ, we consider?– Purchasing price and handling (carrying) costs– Only purchasing price of goods

Production Logistics

Example (Contd…): Production Schedule

Parameters Black Blouse White Blouse

Demand 60 Blouses per day 40 blouses per day

Cutting Resource 100 Blouses per day 100 Blouses per day

Sewing Resource 200 Blouses per day 200 Blouses per day

Fabric Cutting 12 blouses per bale 20 Blouses per bale

Yarn 1.2 blouses per reel 1 blouse per reel

Button 5 buttons per blouse 5 buttons per blouse

Black blouses and White Blouses to be produced in a period of 5 months

Example (Contd…): Production Management Plan

• Start with cutting fabrics– Move 5 Bales of fabric A and 2 bales of Fabric B to the cutting line– Transport cuttings to the sewing line along with yarn and buttons

• One day later, sewing line will begin sewing blouses– Sewing line will sew fabric with yarn and buttons– Sewn blouses will be transported into packing zone and packed

into shipping boxes– The finished and packed blouses will be stored in finished-goods

warehouse• Both production lines (cutting and sewing) will produce 60

black and 40 white blouses per day

Example (Contd…): Inventory Management PlanDate 01. March 02. March 03. March

Fabric A 200 bales 195 190Fabric B 160 bales 158 156Yarn 1 1,500 reels 1,500 1,450Yarn 2 1,200 reels 1,200 1,160

Button Z 9,000 pieces 9,000 8,700Button X 6,000 pieces 6,000 5,800

Cuttings black 0 60 60Cuttings white 0 40 40Blouses black 0 0 60Blouses white 0 0 40

• Stock movement must be fixed in the inventory records• End of day or shift, stock movements will be recorded in inventory card of each

article (raw material, semi-finished and finished goods)

Safety Stock of Finished Goods

• A buffer or safety stock is held to balance fluctuations:– Scrap– Quality problems– Production problems– Higher demand

• Stock falls below safety stock then work needs to be expedited to maintain a stock of finished goods in the right amount to meet the requirements of the distribution market

Quiz

• Main task of production logistics?– Materials manipulation, quality control and

maintenance– Material planning, in-house transport and packaging

• To reduce the stock of finished goods– Define for each product a safety stock and a maximum

stock– Produce the whole demand of each article at one time

Distribution Logistics

Inventory and Warehouse Management• The company works with a central warehouse and not regional

warehouses.– Advantages: Minimize stock and capital lock up; No transport between regional

warehouses to balance stock and thus has only one (set) of safety stock held– Disadvantages: Longer route of transport

• The finished goods are classified into A-parts (high-runner), B-parts (medium-runner) and C-parts 9low runner) [Reference: ABC analysis]. Each type also has safety stock

Type Weeks Demand Per Week Safety Stock

A-parts 1 2,000 2,000

B-parts 3 500 1,500

C-parts 5 10 50

Order Picking…defined as the activity by which a small number of goods are extracted from a warehousing system, to satisfy a number of independent customer orders.

Start of Picking

Packing and Dispatching Zone

A-Parts

B-Parts

C-Parts

To minimize picking time the warehouse is also sub-divided into different picking zones using the method of batch picking. What is batch picking?

Transport Management

Production Warehouse

Distribution Warehouse

Retailer

Wholesale Warehouse

Exports

Own Truck

Third-Party carrier

Own

Truc

k Air freight or Ship

Order Processing

• Identify means of communication – Telephone, written or data exchange

• Order Lead Time – Delivery time from ordering upto delivery

• Damages, claims and returns - Permission to return goods

Quiz

• Main task of distribution logistics?– Order processing, warehousing and transport– Pricing, promotion and marketing

• True or false? Will have same safety stock of each article in our warehouse– No, we define each article a different safety stock

(A-part, B-part, etc)– Yes. Every article is important

Disposal Logistics

Type of Wastes

• Packing material like plastic film and cardboard,

• Empty yarn reels and fabric coils,

• Scrap from fabric cutting,

• Lubricating oil,

• Broken machinery parts.

Waste Containers

Production Warehouse

Distribution Warehouse

Shipping

Plastic film Recycling

Cardboard Recycling

Remaining Rubbish

Reusable Cycle

Weaving mill

Full reel/coilEmpty reel/coil

Textile Plant

Waste Disposal

• Sorting of wastes • Distinguishing as harmless and hazardous

waste• Harmless waste disposed at waste disposal

site• Hazardous waste should be disposed off as per

mandatory laws

Quiz

• Main task of disposal logistics?– Waste and environment management– Delivery of goods to the customer

• Disposal Management– Reduces costs– Increases costs

Logistics Functions

• Information Management• Inventory Control• Transportation• Warehousing• Network Design

sources

• http://www.logisticsquarterly.com/issues/13-3/article2.html