OMGT2085 Introduction to Logistics & SCM

OMGT2085 Introduction to Logistics & SCM

Topic 7Warehousing & Distribution ChannelsVpLyonII_0182 (2008), Available: flickr, http://www.flickr.com/photos/titlap/2779796068/ [accessed 1 October 2012]. Photo by Julien Haler.

Topic AreasRole of Distribution in Supply Chain Management Supply Chain ManagementDistribution Planning & StrategyDistribution Execution Distribution Metrics Distribution Technology Packaging

2Intro to Logistics & Supply Chain Management2Role of warehousing (distribution facilities) Adds value to firms products by creating time utility for raw materials, industrial goods, & finished productsAllows firms to use customer service as a dynamic value-adding competitive tool

Customer service? how can we achieve this? 3Intro to Logistics & Supply Chain ManagementRole of Distribution Operations in Supply Chain Management3Balancing supply and demand. Whether seasonal production must service year-round demand (e.g., corn) or year-round production is needed to meet seasonal demand (e.g., holiday wrapping paper), distribution facilities can stockpile inventory to buffer supply and demand.Protecting against uncertainty. Distribution facilities can hold inventory for protection against forecast errors, supply disruptions, and demand spikes.Allowing quantity purchase discounts. Suppliers often provide incentives to purchase product in larger quantities. Distribution facilities can handle the quantities, reducing the purchase cost per unit.

Role of Distribution Operations in Supply Chain Management4Intro to Logistics & Supply Chain Management

Supporting production requirements. If a manufacturing operation can reduce costs via long production runs or if outputs need to age or ripen (e.g., wine, cheese, fruit), the output can be warehoused prior to distribution.Promoting transportation economies. Fully utilizing container capacity and moving product in larger quantities is less expensive per unit than shipping air and moving small quantities at a time. Distribution facilities can be used to receive and hold the larger deliveries of inventory for future requirementsRole of Distribution Operations in Supply Chain Management5Intro to Logistics & Supply Chain Management

Other valuable roles

Role of Distribution Operations in Supply Chain Management6Intro to Logistics & Supply Chain Management

Functions of a distribution facility: Accumulation The DC serves as a collection point for product coming from multiple origins and provides required transfer, storage, or processing services The accumulation function allows organizations to consolidate orders and shipments for production and fulfillment processes

Role of Distribution Operations in Supply Chain Management

7Intro to Logistics & Supply Chain ManagementConsolidation: collecting smaller shipments to form a larger quantity in order to realize lower transportation rates. (Source: John J. Coyle, Edward J. Bardi and C. John Langley, Management of Business Logistics, 6th ed.(Minneapolis, St. Paul: West Publishing Co., 1996) glossary)) Functions of a distribution facility: Sortation Sortation focuses on assembling like-products together for storage in the distribution facility or for transfer to customersDuring the receiving process, goods are segmented according to their key characteristicsproduct lot number stock-keeping unit (SKU) case pack sizeexpiration date

Role of Distribution Operations in Supply Chain Management8Intro to Logistics & Supply Chain Management

Functions of a distribution facility: Allocation The allocation function focuses on matching available inventory to customer orders for a SKUBreak-bulk capacity promotes product availability for multiple customers and allows them to purchase needed quantities rather than an excess volume that is not desired

Role of Distribution Operations in Supply Chain Management9Intro to Logistics & Supply Chain ManagementBreak-bulk: The separation of a consolidated bulk load into smaller individual shipments for delivery to the ultimate consignee. The freight may be moved intact inside the trailer, or it may be interchanged and rehandled to connecting carriers. (Source: John J. Coyle, Edward J. Bardi and C. John Langley, Management of Business Logistics, 6th ed. (Minneapolis, St. Paul: West Publishing Co., 1996))

Functions of a distribution facility: Assortment Assortment involves the assembly of customer orders for multiple SKUs held in the distribution facilityFacility provides a product mixing capability, allowing customers to quickly order a variety of items from a single location

Role of Distribution Operations in Supply Chain Management10Intro to Logistics & Supply Chain Management

Product Mixing: Products arriving from different suppliers are mixed into the precise combination for the relevant customer and continuously provided for the product mixture shipments requiring these. Source: http://www.expat-group.com/engineering/warehousing-functions.asp

Develop distribution strategies that are tailored to the products being handled, customer requirements, and available internal expertise and resources aiming to achieve lowest total cost

11Intro to Logistics & Supply Chain ManagementDistribution Planning & Strategy1112Intro to Logistics & Supply Chain ManagementDistribution Planning & StrategyCapability Requirements: Product Characteristics must drive the design of the distribution process such as product value, durability, temperature sensitivity, obsolescence, volume, and other factors

1213Intro to Logistics & Supply Chain ManagementDistribution Planning & StrategyCapability Requirements: Product FlowDirect shipping (manufacturer to retailer or retailer to consumer)Avoids distribution facilitiesAims to reduce inventory in the systemReduces overall warehousing costOften compresses order cycle timeWorks well for customer when orders are made for truckload quantitiesWorks well when the product is a perishable or innovative goodIndirect shipping (use of distribution facilities) Includes traditional warehouses, distribution centers, and cross-docking facilitiesReduces overall transportation costHolds goods in anticipation of ordersProvide a buffer of safety stockWorks better for customer when orders are made for small quantities Product mixing is available to give customers a variety of items to buy

Must analyze the inventory, transportation, and service tradeoffs before choosing1314Intro to Logistics & Supply Chain ManagementDistribution Planning & StrategyNetwork Design Issues: Inventory Positioningwhere inventory should be located, i.e. Single location versus multiple-facing locationsFactorCentralizedDecentralizedSubstitutabilityLowHighProduct ValueHighLowPurchase SizeLargeSmallSpecial WarehousingYesNoProduct LineDiverseLimitedCustomer ServiceLowHighFactors to Consider1415Intro to Logistics & Supply Chain ManagementDistribution Planning & StrategyNetwork Design Issues: Number of facilities & location of facilities

Tradeoffs15Network Design Issues: Number of facilities & location of facilities Facility location strategies: Market-positioned strategyWarehouses close to customers to maximize distribution svcs & improve transp. economies of scaleProduct positioned strategyClose to supply source for firm to collect goods & consolidateIntermediately positioned strategymidway between supply source & customers when distribution requirements are high & product comes from various locations

Intro to Logistics & Supply Chain Management16Distribution Planning & StrategySource: Wisner et al., 2012

Distribution Planning & StrategyNetwork Design Issues: Facility Ownership Public versus Contract versus Private

Intro to Logistics & Supply Chain Management171718Intro to Logistics & Supply Chain ManagementDistribution Planning & StrategyNetwork Design Issues: Facility Ownership (owning versus renting) Public warehousing costs are mostly all variablePrivate warehousing costs have higher fixed cost private warehousing requires a high and constant throughput volume to justify the capital investment

1819Intro to Logistics & Supply Chain ManagementDistribution Planning & StrategyNetwork Design Issues: Facility Ownership Rationale for Public WarehousingLimited capital investmentFlexibility

Public warehousing regulation:LiabilityReceipts

Public warehousing rates based upon:ValueFragilityPotential damage to other goodsVolume & regularityWeight densityServices required

19Network Design Issues: Facility Ownership Contract Warehousing (3rd-Party Warehousing)Customized version of Public WarehousingAdvantages:

Intro to Logistics & Supply Chain Management20Distribution Planning & StrategyCompensation for seasonality in productsIncreased geographical coverageAbility to test new marketsManagerial expertise and dedicated resourcesLess strain on the balance sheetPossible reduction of transportation costsSpecialized contracted services, such as labeling, packaging, light assembly, quality assurance, fulfillment facility,

Facility Considerations: Facility LayoutIntro to Logistics & Supply Chain Management21Distribution Planning & Strategy

Facility Considerations: Product SlottingProper placement of the product in the facility by popularity of item by unit size of itemby cube (variation of unit size)

Intro to Logistics & Supply Chain Management22Distribution Planning & StrategyProduct slotting: the intelligent location of product in a warehouse or distribution center for the purpose of optimizing material handling efficiency. Sometimes called inventory slotting, or profiling, it identifies the most efficient placement for each itemIn a distribution center or warehouse.

Source: http://www.ceilogistics.com/Solutions/product-slotting.htm

Facility Considerations: Product SlottingAdvantages improve labor productivityreduce order-picking labor requirements by locating product in the optimal pick sequencereduce replenishment labor requirements by matching product unit loads with the appropriate size storage slotreduce response time and improve flow by balancing workload between operatorsincrease picking accuracy by separating similar products to avoid proximity picking errors

Intro to Logistics & Supply Chain Management23Distribution Planning & Strategy

Facility Considerations: Product SlottingAdvantages reduce product damage by organizing heavier product first in the pick path, ahead of crushable productincrease palletizing productivity by arranging product by case height, allowing the building of tighter pallets for better trailer utilizationdefer capital expansion by maintaining the optimum warehouse layout and cube utilization, reducing the need for building expansionincrease store-level productivity by organizing product in family groups eliminating or reducing sorting of product for restocking at the store levelIntro to Logistics & Supply Chain Management24Distribution Planning & Strategy

Product handling Intro to Logistics & Supply Chain Management25Distribution Execution

Support functionsInventory controlSafety, maintenance, and sanitationSecurityPerformance analysisInformation technologyDistribution Execution

Intro to Logistics & Supply Chain Management2626Order picking Intro to Logistics & Supply Chain Management27

Distribution ExecutionIncreasing effective capacityUtilizing warehouses cubic capacity

Source: The Management of Business Logistics A Supply Chain Perspective, 7eCubic capacity: ratio of the storage space (where materials are stored on the floor), divided by the total cubicvolume of the portion of the building occupied by the storage.

Source: http://72.14.235.132/search?q=cache:tIQzSvHCgPcJ:www.warehousecoach.com/images/21.doc+%22cubic+capacity%22+warehouse&cd=3&hl=en&ct=clnk&gl=vn

Intro to Logistics & Supply Chain Management28Distribution Execution28Distribution MetricsCustomer Facing Measures

\Order accuracy and order completeness Customers want to receive the exact products and quantities ordered, not substitute items, incorrectly shipped items, or wrong quantitiesTimeliness is a critical component of customer service Perfect order index (POI)To be considered a perfect order, the right items must be:delivered to the right placeat the right time in defect-free condition with the correct documentation, pricing, and invoicing

Intro to Logistics & Supply Chain Management2929Distribution MetricsInternal MeasuresDistribution cost efficiency Aggregate cost efficiency Asset utilizationResource productivityResource efficiency

Intro to Logistics & Supply Chain Management3030Distribution Metrics

Intro to Logistics & Supply Chain Management3131Distribution TechnologyWarehouse Management Systems (WMS)

Source: The Management of Business Logistics A Supply Chain Perspective, 7eIntro to Logistics & Supply Chain Management3232Distribution TechnologyWarehouse Management Systemssoftware control system that improves product movement and storage operationshelps achieve high level of control, inventory accuracy, and productivity through direct picking, direct replenishment, and direct put-away

value-added capabilitiesgenerate performance reportssupport paperless processesenable integration of materials handling equipmentpicking systemssorting systemsleverage wireless communicationlabor managementtask interleavingsystems integrationactivity-based costing/billingmulti-function distribution

Intro to Logistics & Supply Chain Management3333What did you learn in this topic? Summarize.

Challenge Questions for Topic 7: (1) (2)

34Intro to Logistics & Supply Chain ManagementSummary34