Measuring Logistics’ Performance

1. Measuring Logistics’ Performance June 20, 2014

2. Logistics Lead Time (LLT) … is the delay (aka latency) between the initiation of an order and the completion of its fulfillment.  Procurement Production Distribution • Holding mandatory inventory mandatory to start production (e.g., raw materials, parts, components, recipe ingredients) • Includes specifications, conception, design, transformation, manufacture, assembly, and quality management. • Includes planning, allocation, assignment, and tracking of shipment and delivery resources.

3. 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.

4. Procurement Logistics

5. Example Contd – Determine Economic Order Quantity (EOQ) Costs Total Costs • (Carrying) Costs of • Transport • Storage • Cost of tied capital Purchasing Price Economic Order Quantity Quantity

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

7. Example (Contd…): Detailed Procurement Plan

8. 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

9. 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 = 3days • Customs and/or other clearances = 3 days • Acceptance and inspection of goods at our warehouse = 2 days

10. 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)

11. Lead Time Calculation Contd…Order Point Order Quantity (Blouses Example) Maximum Stock: 1,000 Pieces Order Point Stock: 600 Pieces Minimum Stock: 300 Pieces Order Quantity: 700 Pieces = Consumption Stock Quantity After Acceptance Of Goods: 1,000 Pieces = Maximum Stock Maximum Stock Stock movement Order Point Stock Order Point Minimum Stock Inventory Level over Time

12. 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

13. Lead Time Calculation Contd…Order Placement

14. 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

15. 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

16. Production Logistics

17. Example (Contd…): Production Schedule Black blouses and White Blouses to be produced in a period of 5 months

18. 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

19. Example (Contd…): Inventory Management Plan • 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)

20. 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

21. 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

22. Distribution Logistics

23. 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 stockand 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

24. 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 A-Parts C-Parts B-Parts Packing and Dispatching Zone To minimize picking time the warehouse is also sub-divided into different picking zones using the method of batch picking. What is batch picking?

25. Transport Management Wholesale Warehouse Distribution Warehouse Production Warehouse Own Truck Third-Party carrier Air freight or Ship Own Truck Retailer Exports

26. 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

27. 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

28. Disposal Logistics

29. 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.

30. Waste Containers Distribution Warehouse Production Warehouse Shipping Plastic film Recycling Cardboard Recycling Remaining Rubbish

31. Reusable Cycle Weaving mill Empty reel/coil Full reel/coil Textile Plant

32. 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

33. Quiz • Main task of disposal logistics? • Waste and environment management • Delivery of goods to the customer • Disposal Management • Reduces costs • Increases costs

34. Logistics Functions • Information Management • Inventory Control • Transportation • Warehousing • Network Design

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