ISQA 510 Logistics Lecture 1

1. ISQA 510 Logistics Lecture 1

2. Agenda • Opening ground-rules and expectations • Asian Culture & SCM • - Sourcing, Risk, Ernst & Kim; & Monczka / Trent • - Logistics Defined • Logistics as a strategy • Logistics as a system • Logistics Metrics • Modes and types of carriers • Genchev CLSC: Why and what are the barriers? • 3PL providers • 3M Healthcare / Team Breakouts • Port of GZ tour

3. Asian Culture & SCM • Logistics is infrastructure dependant • Inventory is both evolutionary and culturally dependant • Payment terms • Quality • Maturity • Quality is VERY cultural • Collectivist Kaizen • Continuous improvement • NPI • Collectivist & power distance

4. International Sourcing & Risk Management • What might cause disruption in supply? • Risk Mitigation plans to address • Cost Vs Risk consideration

5. What could happen? • Labor disputes – carriers, mfg., etc. • Terrorist event • Infectious disease - SAR’s, Bird Flu, etc. • Military conflict – Iraqi, Korea, etc. • Natural Disasters – Tsunami, earthquake, fire, etc. • Limitations of resources – Rolling blackouts in China • Corruption and Political unrest • Poor performance – unqualified…

6. Some ideas to offset the risk… • Multiple Sources in Multiple Geo’s • Alternate or substitute strategies • Inventory strategy • Hubs • Safety Stock • On site consignment/VMI (Vendor Managed Inventory) • Strong qualification process or evaluation • Verify capabilities directly or via customer referrals • Ask for certifications, audit results, endorsements, etc.

7. Cost Vs Risk.. • Global Source Vs Local Source • Transportation cost • Storage cost • Potential recovery cost • Agility of supply line • Loss, etc… • Should consider risk from source to proximity of assembly • Understand the flow of the materials in the supply chain • Manufacturing location through finished good distribution • Value add should increase as you get closer to the end customer (Postponement) • Ensure you understand ALL of the costs and understand the Risk • What happens if the lines go down? Cost per minute? Loss of revenue or sales?

8. Understanding integrated global sourcing (Trent & Monczka) • Questions: • 1) What is the difference in your and the authors minds regarding international purchasing and global sourcing? • 2) Do you agree with the levels of domestic basic sourcing to global? How does a strategy achieve this? Why are orgs moving to this level of dedication? • 3) Describe two of the critical success factors of global sourcing and describe why these are the most critical?

9. Current and expected Sourcing Levels as a %

10. Virtually through ‘linkages’ • The concept of global production network (GPN) Source: Ernst & Kim, 2001

11. Global Production Networks (Ernst & Kim) • Questions: • What are the largest hurdles the “Flagship” and the “network must overcome to streamlining the GPN? • What are the characteristics of the GPN, examples of MNCs that fit this profile? • How does knowledge transfer play a part and how might it affect the transfer or outsourcing of a factory?

12. Logistics defined • “That which plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and information between the point of origin and the points of consumption.” • Quote from: Council of Supply Chain Management Professionals

13. Logistics as a strategy • In this course, “logistics” will concentrate on carrier selection, ports, and free trade zones. • Reminder about CASH- Logistics can be a profit center for outbound materials or a loss on reverse logistics or continuity of supply / inventory.

14. Logistics as a strategy - Data • Council of Supply Chain Management Professionals (CSCMP) Data 2010 • 2009 logistics costs as % of GDP 7.7%, down from 9.3% in 2008 • Inventory carrying costs fell 4.6% • Transportation costs were down 20.2% • These due to interest rate declines and recession • What has changed in 2011? Oil prices!

15. Logistics Strategies Include…. • Uninterrupted Supply of Inbound Material • Supplier Selection • Forecasting of Supply • Information Sharing • Inbound Transportation • Facility Numbers and Locations & Channels • Local Warehouses • Distribution Centers • Inventory Quantities and Locations • Timely Distribution of Necessary Materials • Forecasting of Demand • Outbound Transportation

16. Key Logistics System Features • Cycle Time / Lead Time • Consistency of Cycles • Order Accuracy • Consolidation • Problem Notification/Resolution • Customer Satisfaction/Feedback • Flexibility / Responsiveness • Cost

17. Logistics Measurements • Total Costs: Inventory, warehousing, buffer stock, broker fees, insurance, customs, etc. • Speed: metric is time when shipment released at supplier to receipt by buyer • Reliability or fill rate: On-Time-Delivery • Capability: ability to move specific materials • Accessibility: Carrier capable to door-to-door service

18. Transportation Modes • Motor: Highly flexible, limited to domestic service • Rail: Low cost, limited to long lead-times & less flexible • Air: Quick, very high cost • Water: Good for bulk, seasonal and slow

19. Logistics terms • FOB Destination: supplier owns until buyer takes ownership (owns freight cost & liability) • FOB Origin: Supplier relinquishes ownership at shipment (UCC 2-401) • CIF Incoterms (International commercial terms): Cost ,insurance, & Freight in one shipping price; supplier can arrange, (easy to hide costs) • FOB Incoterms: transfer of title negotiated • Rotterdam rules: Liability can now be negotiated

20. Types of carriers • Common: Serves general public • Contract: Serves a buyer under negotiated terms • Private: owns own equipment, limited to capacity available • Exempt: free of regulation, limited to specific freight

21. Top Ten International Logistics Companies • UPS: 1.8M customers & 6M destinations / day; USA: 89% revenue • FedEX: USA: 76% revenue, air ops 83% • DHL: 49% EU revenue • AP Moeller: shipping mainly, 250 vessels • Nippon Express: 93% from Japan • Ryder: USA: 82% of revenue, leading 3PL • TNT Post: EU 85% of revenue • Expeditors: customs services & distribution • Panalpina: world’s largest “footprint” shipping group; 52% revenue from EU & Africa • Excel: Primarily UK

22. Third party Service providers • 3PL – outsource logistics, from inventory warehousing to inbound / outbound freight. • Good solution for smaller businesses • UPS supply chain and FedEX participate • Very important if packaging or postponement is part of your sourcing strategy, especially globally in an MNC.

23. 3PL services • Custom brokers • Freight brokerage • Warehouse / distribution center • Delivery • Packaging • SCM planning

24. 3PL advantages / disadvantages • Advantages • Econ of scale • Release capital • Allows core competency focus • VMI • Spares • postponement • Disadvantages • Relinquish control • Loss of integration • Service / flexibility • Information flow to customers • Direct shipment limits

25. Services Provided By 3PL’s

26. Genchev Article – Reverse Logistics • In your mind does reverse logistics matter as a coursing strategy? Why? • How does this play into a closed loop quality system? • How would inventory management be affected? • How would you disposition the product in your company & is this a consideration for start-up organizations?

27. CLSC – Reverse Flow is critical

28. Three examples: Walk the talk

29. 3M – What do we know? • Heathcare in Canada is rising ~10% annually • Government is targeting new logistics methods, dealing direct, and reducing disti • 3M Canada has over 10K SKUs • Sales to hospitals are $46.8 annually, 90% thru VARS (value added resellers) to 350 hospitals • VARS – AP/AR, warehousing, inventory • VARS had IT / EDI integrated with 3M • Uses 3PL for balance

30. 3M - Questions • What value do VARs provide in healthcare supply chains? How much money can be saved by adopting a direct business model? How would the translate internationally? • Does it make sense for 3M to eliminate VARs and increase its logistics organization? • Why are hospitals pressuring 3M to adopt a direct business model? • What are the long term trends in healthcare and how will VARs be affected? • Should 3M hire a 3PL to handle distribution? • How does 3M’s distribution network help position the company against the competition?

31. What should 3M do? • Currently has $4.5M in inventory • If direct, inventory rises $800K • Storage goes up $14K • Picking costs increase $720K • Transport increases $850K • Service / Order Admin increases $450K • Total - $1.6-$2.0M • Less than 10% sales, more in the 3.5% • But….

32. What should 3M do? • Start-up costs? – IT, return of inventory? • CRM? Order admin services, expediting, etc… • Relationships with VARS – Market issues? • Core competence? – become a logistics provider? • How about reducing the cost, reducign the number of VARS, or 3PL?

33. Manfield Helpful hints:7 Deadly Sins of Performance Measurements • Vanity – cognitive dissonance (IBM PC) • Provincialism – only measure within an org group • Narcissism – measure from your point of view, not the customer • Laziness – We know best • Pettiness – only a small component of what matters • Inanity – Measure what you want to change • Frivolity – Not taking metrics seriously • - What about cognitive dissonance?

34. Scott’s case : Helpful hints • Variables: • Ramp • Inventory • SKU proliferation • Closing time of Temecula • Seasonality • Made in USA • China market

35. Port of Guangzhou-On of the top 10 ports in the world, started inthe 3rd century AD.- Handled 11 million containers 2008- 18% growth ‘07 to ’08, but declined34% in January of ‘09 due to recession- In China Ports of Shanghai, Hong Kong, Shenzhen, and Qingdao are all in the top 10. Hong Kong only reported 1% growth in 2008. - Guangzhou Free Trade Zone: - founded in 1992. - located in the east of Huangpu District near to Guangzhou Economic and Technological Development Zone. - major industries encouraged in the zone include international trade, logistics, processing industry and computer software.