Business Logistics

1. Business Logistics Chapter 3 The Inbound Logistics System Adam Conrad

2. Learning Objectives • Understand the role and nature of inbound logistics in a supply chain context • Explain the different types of inbound systems in a supply chain • Discuss the major materials management activities • Understand the procurement process

3. Learning Objectives (cont.) • Identify the four steps necessary for procurement • Explain the criteria for evaluating vendors • Understand the major inventory techniques associated with materials management

4. Logistics Profile • Robbins Company • Parts too big and costly to ship by air • Ocean transport too unreliable • Impact of missed deliveries • Trans-Atlantic shipping runs like clockwork • Systems in place when not (Fax/EDI) • Despite transportation improvements – Customs remains difficult

5. Inbound vs. Outbound • Inbound • Materials management • Procurement • Outbound • Customer service • Channels of distribution • Focus on MM, Inventory management and Procurement

6. Inbound Logistics along the Supply Chain • Mining Firm – extractive, most concerned about outbound • Steel Firm – inbound items stored outside in piles, finished steel requires more sophisticated handling • Container firm – cans of different sizes, also part of supply chain for auto making etc

7. Inbound Logistics along the Supply Chain (cont.) • Food Firm – stores cans as ‘brights’ adding labels later • Retail Store- labels added per orders • Return – today’s economy recycles • Complexity – Boeing vs. US Steel inbound vs. outbound

8. Materials Management • Integration • Information needs to flow both directions for effective coordination • Definition • “the planning and control of the flow of materials that are a part of the inbound logistics system”

9. Procurement • Importance • Links members in the supply chain and assures the quality of the suppliers • Definition • “act of buying goods and services for a firm or the process of it” • Activities are interfirm (org boundaries) and intrafirm (functional boundaries)

10. Procurement - Activities • Identify or reevaluate needs • Specifications from external customers • Define and evaluate user requirements • Measurable criteria • Decide whether to make or buy • Identify the type of purchase • Straight rebuy • Modified Rebuy • New buy

11. Procurement - Activities • Conduct a market analysis • Oligopoly/ monopoly markets etc. • Identify all possible suppliers • Simple as the yellow pages for small companies • Prescreen all possible sources • Demands vs. desires of users • Evaluate the remaining supplier base • Choose a supplier • Mechanics of the relationship (T’s and C’s)

12. Procurement - Activities • Receive delivery of the product or service • Make a postpurchase performance evaluation • “control” activity • Measure supplier performance against user requirements

13. Managing the Procurement Process • Determine the type of purchase • Determine the necessary levels of investment • Time and information of the firm • Perform the procurement process • Evaluate the effectiveness of the procurement process • Control step to determine: • User needs met • Was the investment necessary

14. Vendors • Vendor Partners • Competitive advantage of the company • Customer satisfaction • Reduced total number of suppliers • TQM and JIT systems

15. Vendor Selection Criteria • Quality • Life of product, ease of repairs • Reliability • Delivery and performance history and performance life of the product • Capability • Production facilities, capacity and technical capability, management, organizational capabilities and operating controls • Financial • Must be stable or it affects supply chain

16. Vendor Selection Criteria • Desirable Qualities • Image or impression • Training aids • Vendor Location • Fill rush orders, delivery dates • Factor Importance • Depends on the material being purchased

17. Procurement Price • Sources of Price • Commodity Markets • Grain, oil, sugar and raw materials • Price List • Publishes, may offer volume breaks • Price negotiations • RFP/RFQ • Negotiations • When other methods don’t apply or fail

18. Hierarchy of Costs • Traditional basic input costs • Primary price (bid, quoted, negotiated) • Direct transaction costs • Detecting inventory need, requisitioning, preparing and transmitting order documents, receiving information - EDI • Supply relational costs • Travel, training, links between purchasing and traffic, engineering, research, product development

19. Hierarchy of Costs • Landed costs • Actual transportation costs • Sales/F.O.B terms • Four different inbound options: • Supplier selected for hire or private carrier • Buyer selected for hire or private carrier • Who owns it and when/claims and damage • Quality costs/factors • Conformance of goods to desired spec. • Cost of conformance, nonconformance, appraisal and ultimate use costs

20. Hierarchy of Costs • Operations/Logistics costs • Receiving and make ready costs: unpacking, inspecting , counting, sorting, grading, and moving to the use point • Lot size costs • Production costs – similar goods with dissimilar impact on production lines • Logistics costs

21. Other MM Activities • Warehousing • Facilities required • Raw materials vs. Finished product • Production Planning and Control • Coordinating product supply with product demand • Forecast customer demand • Provide from inventory or producing the product

22. Other MM Activities • Traffic • Managing inbound transportation of materials • Vendor Control – analyze periodically • Modal Choice • Rush Shipments – less on inbound • Receiving • Inspection – Notify AP, Purchasing and Users • Damage Claims –Notes on Bill of Lading ‘Guilty’

23. Other MM Activities • Quality Control • Quality Standards – Meet the purchase agreement • Quality Implications – Affects finished product • Sample – vs. 100% • Salvage and Scrap Disposal • Value of Scrap • Excess and obsolete materials • Solid market exists for salvage • Disposal • Legal and regulatory requirements for safe disposal of hazardous materials

24. Inventory • Holding inventory = significant costs • Companies can reduce cost of business and improve ROI/ROA by decreasing inventory levels • MM/Inbound logistics plays a major role in driving inventory levels • Uncoordinated inventory approach = loss for company and customers

25. Just-in-Time • Available when a firm needs them • short consistent lead times • Kanban • Signboard indicates replenishment quantities and times it must take place • JIT Operations • Production cards (kan cards) establish the amount to be produced • Requisition cards (ban cards) authorize the withdrawal of materials from feeding or supply operation • Andon (light system), yellow (little), red (big) prob.

26. Just-in-Time • Fundamental Concepts • Zero inventory • Short lead times • Small, frequent replenishment quantities • High quality, zero defects • Similarity to two-bin system • Or ‘reorder’ point system • One bin to fill demand for a part and when empty the second bin supplies the part • Reducing lead times • Forklift example of 1 month for Toyota vs. 6-9 months for American manufacturers

27. JIT vs. Traditional Approaches • Reduce Inventories • Does the supplier carry more? • Shorter Production Runs • Setup issues • Minimize Waiting lines • When and where firms need them • Short, consistent lead times • Proximity • Quality • Win-Win relationships

28. JIT Summary • Demand responsive, resembles EOQ and Fixed order Quantity approaches • Difference is reliance on improved responsiveness and flexibility • Relies heavily on accuracy of forecasting, communication, IS, and transportation

29. MRP • Materials Requirements Planning – Joseph Orlicky • Supplying materials and component parts whose demand depends upon the demand for a specific end product • Logically related procedures, decision rules and records designed to translate a master production schedule in to time-phased net inventory requirements, and the planned coverage of such requirements for each component item needed to implement this schedule

30. MRP • Goals • Ensure availability of materials, components and products for planned production and for customer delivery • Maintain the lowest possible inventory level • Plan manufacturing activities, deliver schedules, and purchasing activities • Exploding • Determine how much customers desire and when they need it – timing and need for components based upon the scheduled end product need

31. MRP • Master Production Schedule • MPS – detailed schedule of SKU’s and when they must be produced • Bill of materials file • Recipe and when they must be available BMF shows interrelationship of components and subunits • Inventory status file • Also does safety stock and lead times

32. MRP • MRP program • Calculates gross requirements and takes into account inventory and places orders • Outputs and reports • Quantities and time of order • Need to expedite or reschedule order dates • Canceled need for product • MRP system status

33. MRP Summary • Responsiveness • Quickly react to changing demand for finished products • Strengths • Safety stock levels, minimize or eliminate inventories • Identify process problems and potential supply chain disruptions and take corrective actions • Coordinate materials ordering across points in a firm’s logistics system • Most suitable for batch/intermittent production/assembly

34. MRP Summary • Limitations • Computer intensive and making changes is sometimes difficult while in operation • Ordering and transportation costs could increase as smaller amounts arrive more frequently • Not as sensitive to short-term fluctuations in demand as order point approaches • Complex and don’t work as intended

35. Advanced Approaches • MRPII – Manufacturing Resource Planning • Integrates financial planning and operations/logistics – ‘what if’ • Distribution Resource Planning (DRP) • MRP for marketplace • Customer demand drives time-phased plan for distributing product from plants and warehouses to customers