Transportation Logistics for Purchasing Supply Managers

1. Transportation& Logisticsfor Purchasing& Supply Managers Bill Christensen, Ph.D.

2. Packaging

3. Review Packaging Has dual purpose Advertising and marketing Attracts and communicates Protection during transportation & storage Protects and facilitates efficient handling Generally, packaging should fulfill its purposes at the lowest possible cost Can also positively impact warehouse efficiency and effectiveness

4. Marketing Function of Packaging Shape, color and texture promotes product The image of a product is transmitted via packaging The is often the final chance to influence the customer before they actually use the product Product information is also provided as part of packaging Ranges from communicating a feeling to detailed instructions

5. Logistics Function of Packaging Protect, organize and identify product Since packaging itself has direct costs as well as indirect costs (takes up space & adds weight), must balance costs with effectiveness Since packaging is normally discarded, there is also an environmental aspect that must be considered (e.g., McDonalds)

6. 6 Logistics Functions of Packaging Containment (hold it all together) Protection (from damage, loss, environ.) Apportionment (from big to bite-sized) Unitization � bundling for further protection and reduced handling Convenience � allowing efficient use (e.g., dispenser packaging) Communication � e.g., UPC, brand, image, warnings, instructions

7. Attributes of Good Packaging Light weight (saves in transport costs) Low cube (saves space and cost) Better protection (less damage) Better design (product differentiation and improved customer satisfaction / value) Environmentally sound � saves disposal costs and improves company image Returnable containers, when appropriate, provide cost savings and environmental benefits

8. Packaging & Total Logistics Costs Different functions of packaging may become more or less important depending on particular situation For example, what might be most important for a computer maker? How might packaging vary depending on dominant form of transportation? Carriers often have (free) resources to assist in improving packaging

9. Warehousing & Storage

10. Review Warehousing and storage Allows items to be produced and held for later consumption, thus providing time and place utility Also includes warehouse layout, design, automation, management, and outsourcing Typically a cost minimization exercise for a necessary evil

11. Warehouse Monogatari Where do you put things in your refrigerator? Why?

12. Warehousing Activities Movement Receive, transfer, pick, (cross-dock), ship Storage Temporary (quick turnaround) or longer (buffer or safety stock) Information transfer Accurate and timely info on inventories and throughput adds value and reduces costs

13. Warehouse vs. DC Warehouses receive, store, pick & ship DC�s typically receive & ship (cross-docking) Warehouses collect data in batches (i.e., period summaries) DC�s collect and share data in real-time Warehouses often focus on minimizing operating costs DC�s focus on maximizing customer value

14. Uses of Warehousing Manufacturing Support Product mixing � specialized production facilities feed common WH where mixed orders can be assembled Consolidation � multiple orders are combined to achieve efficiency Breakbulk � large (TL) inbound shipments are split into smaller (LTL) outbound Postponement reduces inventory (SKU�s)

15. Uses of Warehousing Warehousing & Transportation Warehouses provide opportunities for transportation efficiencies in both inbound supply and outbound product shipment These efficiencies are typically achieved by achieving an optimal balance in � Combining small shipments into TL/CL shipments Breaking down large shipments into LTL/LCL shipments

16. Uses of Warehousing Warehousing & Production Production costs (in isolation) are typically minimized thru large production runs But this increases inventory and related costs Small production runs minimize inventory and related costs But logistics costs (frequent small shipments) are increased Inventory storage helps achieve a balance for lowest total cost Variability of supply also makes inventory necessary

17. Uses of Warehousing Warehousing & Customer Service Having product in proximity to customers may be necessary in meeting customer service standards at a reasonable cost

18. Types of Warehousing Direct delivery � field warehouses may be eliminated by using a model of direct delivery to customer Cross-docking � items never really enter into storage Traditional warehousing � there are a number of options available once a firm decides to use a warehouse Private and Public Warehouses

19. Public Warehouses General Merchandise Warehouse Refrigerated Warehouse Bonded Warehouse Under the custody of the U.S. Treasury Used to postpone payment of duties & taxes Household Goods Warehouse Special Commodity Warehouse (ag stuff) Bulk Storage Warehouse

20. Improvement Opportunities Eliminate redundant / excessive handling Maximize utilization of space and cube Reduce downtime from poorly maintained or obsolete equipment Increase speed / skill of loading & unloading operations Improve accuracy and timeliness of information

21. Warehousing & Total Logistics Costs Trends Reduce warehousing (and associated costs) Reduce inventory levels (and associated costs) Balance these reductions and maintain / improve customer service by improved transportation services (with associated increase in transportation costs)

22. Warehouse Layout & Design Good layout Increases throughput Reduces costs Improves customer service Improves working conditions Objectives of layout & design Space utilization Minimize handling

23. Warehouse Layout & Design Randomized storage Computer assigns storage location that is most convenient Dedicated storage Items are stored in fixed permanent location

24. Parts & Service Support

25. Review Parts & Service Support May include spare parts, service support, and responding to customer questions and complaints This is another key customer interface which affects customer satisfaction Balance between costs of support and opportunity costs of lost customers & sales

26. Parts Parts support is typically a business within a business Logistics and transportation issues for products also apply to parts Can create an advantage by collecting information and coordinating with product logistics

27. Service Support Customer expectations regarding after-sale support continue to increase How much does poor customer service cost? Bottom line � more than you think! Lost sales over time News of poor service spreads like fire Competitors benefit Compare this to the cost to keep a customer (i.e., prevention and fixing) and its no wonder that the best companies seem to do just about anything to improve customer service

28. Site Selection

29. Review Site Selection Logistics considerations should be considered whenever selecting a business location. These include: Location of customers & suppliers Available transportation services & costs Communications & transportation infrastructures Labor costs and availability Government incentives & support Requires a total cost approach since all costs are rarely minimized for any single location

30. Location Strategies Revenue-based strategy (services) Maximize revenue by locating close to customers (e.g., restaurants, banks, etc.) Cost-based strategy (production) Minimize total costs by locating where total production and logistics costs are minimized Intermediate strategy (mixed product / service) Locate warehouses close to customers and production facilities where costs are minimized

31. Location Strategies Greenhut theory for site selection may be most appropriate Best location or combination of locations maximizes customer value and profits Tools & Methods Center of gravity CSF Analysis (Critical Success Factors) Correlation and Regression Analysis

32. Site Selection Monogatari How might someone go about deciding where to buy or rent a home?

33. Return Goods&Reverse Logistics

34. Review Return Goods Involves flow of products being returned by customers, for whatever reasons Logistics costs for return goods is up to 9X higher than outbound* Seek balance between service costs and opportunity costs

35. Review Reverse Logistics Involves the removal and disposal of waste materials from production or distribution In future, may include the processing of voluntary or mandated end-of-life product returns Often untapped benefit � the customer value if properly executed and communicated (i.e., environmentally friendly image)

36. Returns Effectively managing returns and the information that can be garnered from them provides an opportunity for competitive advantage This is another service commonly being offered by 3PL�s and small package companies

37. Materials Disposal Increasing importance due to Increasing public awareness Increasing government regulations Opportunity provided for differentiation and public image Cost / revenue opportunity Purchasing, business, and negotiation skills have often not been applied to this area Tracking waste also highlights opportunities to reduce it

38. Reverse Logistics Includes the following efforts Reducing raw material use Reducing energy use Recycling Within operations May include finished product returns and recycling Reusable & environmentally friendly packaging Responsible disposal

39. Global Logistics

40. Customer Service & Inventories Different markets often require different customer service strategies Less developed logistics infrastructures will require greater inventories to meet customer service standards Familiarization with local norms and competitors is vital Longer pipelines and additional points in the distribution channel also combine to create greater inventories

41. Packaging Intermodal transportation puts severe demand on packaging to avoid damage Trucks jiggle Planes drop Trains haves EXTREME jarring Ships sway Many countries require local language info on packaging

42. Integrating International Logistics Which logistics element requires emphasis can change from market to market This begs issue of centralization vs. decentralization of global logistics Best firms seem to find optimal balance Control of standardized logistics requirements is centralized Control of unique local needs is decentralized

43. Import / Export Logistics Export Distributors Located in buyers market Buys and imports on own account Arranges all transportation and entry Has sales responsibility

44. Import / Export Logistics Customshouse Broker Completes documentation required for importation Expedites customs clearance process International Freight Forwarder Arranges transportation Provides full-service logistics Incorporates work of customs broker Many are also NVOCC�s

45. Import / Export Logistics Trading Companies Like Export Distributor for coop of sellers Sometimes includes banks and carriers Can usually offer full-service sales, technical, and logistics support

46. International Logistics Documents Air waybill Ocean Bill of Lading (OBL) Letter of Credit Certificate of Origin Commercial Invoice Proforma Invoice Export License � issued by US DOC Only required for certain products

47. FTZ�s (Free Trade Zones) Secure areas designated by government Can store and/or process items without paying import duties Allows postponement of duties for imported items Allows re-export without ever importing Allows transformation (may reduce tariff)

48. The End